<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 5, 1998.
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
ARIS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WASHINGTON 7379 91-1497147
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
2229 112TH AVENUE NE CT CORPORATION SYSTEMS
BELLEVUE, WASHINGTON 520 PIKE STREET
98004 (425) 372-2747 SEATTLE, WASHINGTON 98101
(ADDRESS AND (206) 622-4511
TELEPHONE NUMBER OF (NAME, ADDRESS AND TELEPHONE
REGISTRANT'S NUMBER OF AGENT FOR SERVICE)
PRINCIPAL EXECUTIVE
OFFICES) ---------------
COPIES TO:
<TABLE>
<S> <C> <C> <C>
BRADLEY B. FURBER, ESQ. NORBERT W. SUGAYAN, JR., ESQ. MICHAEL D. HARRIS, ESQ. NINA S. GORDON, P.A.
JEFFREY M. HEUTMAKER, GENERAL COUNSEL BETH J. HARRIS, ESQ. DALE S. BERGMAN, P.A.
ESQ. ARIS CORPORATION MICHAEL HARRIS, P.A. BROAD AND CASSEL
VAN VALKENBERG FURBER LAW 2229 112TH AVENUE NE SUITE 400 201 SOUTH BISCAYNE BLVD.
GROUP P.L.L.C. BELLEVUE, WASHINGTON 98004 712 U.S. HIGHWAY ONE SUITE 3000
1325 FOURTH AVENUE, SUITE TELEPHONE: (425) 372-2747 NORTH PALM BEACH, FL 33408 MIAMI, FL 33131
1200 FACSIMILE: (425) 372-2799 TELEPHONE: (561) 844-3600 TELEPHONE: (305) 373-9400
SEATTLE, WASHINGTON FACSIMILE: (561) 845-0108 FACSIMILE: (305) 373-9493
98101-2509
TELEPHONE: (206) 464-0460
FACSIMILE: (206) 464-2857
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement which
relates to the merger (the "Merger") of InTime Systems International, Inc.
("InTime") with and into ARIS Corporation ("ARIS") pursuant to the Merger
Agreement described herein.
---------------
If any of these securities being registered in this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act, check the following box. [X]
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER SHARE PRICE FEE(1)
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<S> <C> <C> <C> <C>
Common Stock, without par
value.................... 699,310 $31.469(2) $22,006,586 $ 6,491
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Warrants.................. 665,549 -- (3) -- --
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Common Stock issuable upon
exercise of Warrants..... 665,549 $31.469(2) $20,944,161 $ 6,179
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Total Registration Fee.... -- -- $42,950,747 $12,670
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
required by Section 6(b) of the Securities Act of 1933, as amended (the
"Securities Act"), and computed pursuant to Rule 457(f) and (g) under the
Securities Act by multiplying the average of the high and low prices of
shares of Common Stock, without par value, of ARIS Corporation (the "ARIS
Common Stock") on April 30, 1998, as reported on the Nasdaq Stock Market.
(2) Based on the maximum number of shares of ARIS Common Stock to be delivered
pursuant to Section 2 of the Merger Agreement (as defined herein), and the
assumption of all outstanding warrants (the "InTime Warrants") to purchase
shares of InTime Class A common stock, $.01 par value per share (the
"InTime Common Stock") by ARIS, the issuance of replacement warrants (the
"ARIS Warrants") to purchase shares of ARIS Common Stock and the exercise
of all such ARIS Warrants.
(3) Computed pursuant to Rule 457(g).
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECAME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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<PAGE>
PRELIMINARY PROXY MATERIALS FOR THE INFORMATION OF THE
SECURITIES AND EXCHANGE COMMISSION
INTIME SYSTEMS INTERNATIONAL, INC.
1601 FORUM PLACE, FIFTH FLOOR
WEST PALM BEACH, FLORIDA 33401
, 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
InTime Systems International, Inc. ("InTime"), to be held at the , ,
, Florida, on , , 1998, at a.m., local time. At this meeting, you
will be asked to consider a proposal to approve the Agreement and Plan of
Merger dated April 26, 1998 (the "Merger Agreement") between InTime and ARIS
Corporation ("ARIS"), by which InTime will be merged with and into ARIS (the
"Merger"). The attached Proxy Statement/Prospectus describes the proposed
Merger and the Merger Agreement in detail and provides additional pertinent
information about InTime and ARIS. YOU ARE URGED TO READ CAREFULLY THE FULL
TEXT OF THE PROXY STATEMENT/PROSPECTUS AND ITS APPENDICES.
If the Merger Agreement is approved by the stockholders of InTime, (i)
InTime will merge with and into ARIS, and ARIS will be the surviving
corporation; (ii) each outstanding share of InTime Class A Common Stock (the
"InTime Common Stock") will be converted into the right to receive shares of
ARIS Common Stock, without par value (the "ARIS Common Stock") based on a
ratio (the "Exchange Ratio") currently equal to 0.266 shares of ARIS Common
Stock for each share of InTime Common Stock; (iii) each outstanding InTime
Class A Warrant to purchase one share of InTime Common Stock will be converted
into one warrant to purchase shares of ARIS Common Stock (an "ARIS Warrant")
based on the Exchange Ratio; and (iv) each outstanding InTime option to
purchase one share of InTime Common Stock will be converted into one option to
purchase shares of ARIS Common Stock (an "ARIS Option") based on the Exchange
Ratio. Pursuant to the Merger Agreement, the Exchange Ratio is subject to
adjustment in the event that the average closing price for one share of ARIS
Common Stock (as reported by the Nasdaq National Market) for the 10 trading
days immediately preceding the Closing Date has dropped below $31.50, in which
case the Exchange Ratio shall be adjusted to reflect the lower average closing
price. If such an adjustment in the Exchange Ratio occurs, (1) each share of
InTime Common Stock shall be converted into the right to receive a greater
amount of ARIS Common Stock; (2) each outstanding InTime Class A Warrant shall
be converted into the right to receive a greater amount of ARIS Warrants at a
lesser exercise price; and (3) each outstanding InTime option shall be
converted into the right to receive a greater amount of ARIS Options at a
lesser exercise price. The actual Exchange Ratio will not be determined until
immediately prior to the Effective Time.
InTime has retained the investment banking firm of Raymond James &
Associates, Inc. ("Raymond James") as its financial advisor in connection with
the Merger. Raymond James has rendered its opinion, a copy of which is
attached as Appendix C to the Proxy Statement/Prospectus, that as of the date
of its opinion and based upon the matters described therein, the consideration
to be given to the InTime stockholders pursuant to the Merger Agreement is
fair, from a financial point of view, to the stockholders of InTime. THE BOARD
OF DIRECTORS OF INTIME HAS DETERMINED THAT THE TERMS OF THE MERGER AGREEMENT
AND THE PROPOSED MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, INTIME AND
ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
APPROVAL OF THE MERGER AGREEMENT.
It is important that you vote your shares by completing, dating and
returning the accompanying proxy card, whether or not you plan to attend the
Special Meeting. Please sign, date and return the accompanying proxy card in
the enclosed postage-paid envelope.
Sincerely,
William E. Berry
Chairman of the Board,
Chief Executive Officer and
President
<PAGE>
INTIME SYSTEMS INTERNATIONAL, INC.
1601 FORUM PLACE, FIFTH FLOOR
WEST PALM BEACH, FLORIDA 33401
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
ON , , 1998
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of InTime Systems International, Inc. ("InTime") will be held at the
, , , Florida, on , , 1998, at a.m., local time, for
the following purposes:
(1) To consider and vote upon approval of the Agreement and Plan of
Merger dated April 26, 1998 (the "Merger Agreement") between InTime and
ARIS Corporation ("ARIS"), pursuant to which InTime will be acquired by
ARIS. Pursuant to the Merger Agreement, (i) InTime will merge with and into
ARIS (the "Merger"), and ARIS will be the surviving corporation; (ii) each
outstanding share of InTime Class A Common Stock (the "InTime Common
Stock") will be converted into the right to receive shares of ARIS common
stock, without par value (the "ARIS Common Stock") based on a ratio (the
"Exchange Ratio") currently equal to 0.266 shares of ARIS Common Stock for
each share of InTime Common Stock; (iii) each outstanding InTime Class A
Warrant to purchase one share of InTime Common Stock will be converted into
one warrant (an "ARIS Warrant") to purchase shares of ARIS Common Stock
based on the Exchange Ratio; and (iv) each outstanding InTime option to
purchase one share of InTime Common Stock will be converted into one option
(an "ARIS Option") to purchase shares of ARIS Common Stock based on the
Exchange Ratio. Pursuant to the Merger Agreement, the Exchange Ratio is
subject to adjustment in the event that the average closing price for one
share of ARIS Common Stock (as reported by the Nasdaq National Market) for
the 10 trading days immediately preceding the Closing Date has dropped
below $31.50, in which case the Exchange Ratio shall be adjusted to reflect
the lower average closing price. If such an adjustment in the Exchange
Ratio occurs, (1) each share of InTime Common Stock shall be converted into
the right to receive a greater amount of ARIS Common Stock; (2) each
outstanding InTime Class A Warrant shall be converted into the right to
receive a greater amount of ARIS Warrants at a lesser exercise price; and
(3) each outstanding InTime option shall be converted into the right to
receive a greater amount of ARIS Options at a lesser exercise price. The
actual Exchange Ratio will not be determined until immediately prior to the
Effective Time. The complete text of the Merger Agreement is attached as
Appendix A to the accompanying Proxy Statement/Prospectus.
(2) To transact such other business as may properly come before the
Special Meeting and any adjournment or postponement thereof.
Pursuant to the Bylaws of InTime, the Board of Directors has fixed the close
of business on , 1998 as the record date for the determination of the
stockholders entitled to notice of and to vote at the Special Meeting or any
adjournment thereof.
Under Section 262 of the Delaware General Corporation Law, the stockholders
of InTime will have appraisal rights in connection with the Merger. A copy of
that section is attached as Appendix D to the accompanying Proxy
Statement/Prospectus.
By Order of the Board of Directors,
Secretary
West Palm Beach, Florida
, 1998
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES THAT YOU OWN. EACH
STOCKHOLDER, WHETHER OR NOT HE OR SHE PLANS TO ATTEND THE SPECIAL MEETING, IS
REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE. ANY PROXY GIVEN BY A STOCKHOLDER
MAY BE REVOKED AT ANY TIME BEFORE IT IS EXERCISED. ANY STOCKHOLDER PRESENT AT
THE SPECIAL MEETING MAY REVOKE HIS OR HER PROXY AND VOTE PERSONALLY ON EACH
MATTER BROUGHT BEFORE THE SPECIAL MEETING. IF YOU ARE A STOCKHOLDER WHOSE
SHARES ARE NOT REGISTERED IN YOUR OWN NAME, HOWEVER, YOU WILL NEED ADDITIONAL
DOCUMENTATION FROM YOUR RECORD HOLDER TO VOTE PERSONALLY AT THE SPECIAL
MEETING. PLEASE DO NOT SEND ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME.
<PAGE>
INTIME SYSTEMS INTERNATIONAL, INC.
PRELIMINARY PROXY STATEMENT
----------------
ARIS CORPORATION
PRELIMINARY PROSPECTUS
This preliminary proxy statement/prospectus (the "Proxy
Statement/Prospectus") is being furnished to stockholders of InTime Systems
International, Inc., a Delaware corporation ("InTime"), in connection with the
solicitation of proxies by the Board of Directors of InTime for use at the
Special Meeting of Stockholders of InTime to be held at the , ,
, Florida, on , , 1998, at a.m., local time, and at any
adjournments or postponements thereof, for the purposes set forth herein and
in the accompanying Notice of Special Meeting of Stockholders of InTime.
This Proxy Statement/Prospectus also constitutes a prospectus of ARIS
Corporation, a Washington corporation ("ARIS") with respect to shares of ARIS
common stock, without par value (the "ARIS Common Stock") and warrants to
purchase ARIS Common Stock to be issued in connection with the merger (the
"Merger") of InTime with and into ARIS pursuant to the Agreement and Plan of
Merger dated April 26, 1998 (the "Merger Agreement") between InTime and ARIS.
At the effective time of the Merger (the "Effective Time") (i) InTime will
merge with and into ARIS, and ARIS will be the surviving corporation; (ii)
each outstanding share of InTime Class A Common Stock (the "InTime Common
Stock") will be converted into the right to receive shares of ARIS Common
Stock, based on a ratio (the "Exchange Ratio") currently equal to 0.266 shares
of ARIS Common Stock for each share of InTime Common Stock; (iii) each
outstanding InTime Class A Warrant to purchase one share of InTime Common
Stock will be converted into one warrant to purchase shares of ARIS Common
Stock (an "ARIS Warrant") based on the Exchange Ratio; and (iv) each
outstanding InTime option to purchase one share of InTime Common Stock will be
converted into one ARIS option to purchase shares of ARIS Common Stock (an
"ARIS Option") based on the Exchange Ratio. Pursuant to the Merger Agreement,
the Exchange Ratio is subject to adjustment in the event that the average
closing price for one share of ARIS Common Stock (as reported by the Nasdaq
National Market) for the 10 trading days immediately preceding the Closing
Date has dropped below $31.50, in which case the Exchange Ratio shall be
adjusted to reflect the lower average closing price. If such an adjustment in
the Exchange Ratio occurs, (1) each share of InTime Common Stock shall be
converted into the right to receive a greater amount of ARIS Common Stock; (2)
each outstanding InTime Class A Warrant shall be converted into the right to
receive a greater amount of ARIS Warrants at a lesser exercise price; and (3)
each outstanding InTime option shall be converted into the right to receive a
greater amount of ARIS Options at a lesser exercise price. The actual Exchange
Ratio will not be determined until immediately prior to the Effective Time.
The proposed Merger is contingent upon, among other things, approval by the
stockholders of InTime. The proposed Merger will be consummated as soon as
practicable after such approval is obtained and the other conditions to the
Merger are satisfied or waived. ARIS and InTime anticipate that the Merger
will become effective on , 1998.
On April 24, 1998, the last trading day preceding the public announcement of
the proposed Merger, the last reported sale price on the Nasdaq National
Market of ARIS Common Stock was $33.00. On , 1998, the latest practicable
trading day prior to the printing of this Proxy Statement/Prospectus, the last
reported sale price on the Nasdaq National Market of ARIS Common Stock was
$ .
All information contained in this Proxy Statement/Prospectus relating to
InTime has been supplied by InTime, and all information contained herein
relating to ARIS has been supplied by ARIS.
This Proxy Statement/Prospectus and the accompanying forms of proxy are
first being mailed to stockholders of InTime on or about , 1998.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY THE INTIME STOCKHOLDERS IN EVALUATING THE
PROPOSAL RELATED TO THE MERGER TO BE VOTED UPON AT THE SPECIAL MEETING OF
STOCKHOLDERS OF INTIME AND THE ACQUISITION OF THE SECURITIES OFFERED HEREBY.
----------------
NEITHER THIS TRANSACTION NOR THE SECURITIES OF ARIS OFFERED HEREBY HAVE BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS , 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
AVAILABLE INFORMATION......................................................
SUMMARY.................................................................... 1
The Companies............................................................ 1
ARIS Corporation....................................................... 1
InTime Systems International, Inc. .................................... 1
The Merger............................................................... 2
General................................................................ 2
Effective Time of the Merger........................................... 2
Merger Consideration................................................... 2
Exchange of InTime Shares, Warrants and Options........................ 3
Representations and Warranties......................................... 3
Covenants.............................................................. 3
Conditions to the Merger; Termination.................................. 4
Expenses and Termination Fee........................................... 4
Accounting Treatment................................................... 4
ARIS' Reasons for the Merger........................................... 4
Approval by the ARIS Board............................................. 4
InTime's Reasons for the Merger........................................ 4
Recommendation of the InTime Board..................................... 4
Opinion of Financial Advisor to InTime................................. 5
Forfeiture and Cancellation of Escrow Shares........................... 5
Interests of Certain Persons in the Merger............................. 5
Comparison of Stockholder Rights....................................... 5
Risk Factors............................................................. 5
MARKETS AND MARKET PRICES.................................................. 6
SELECTED HISTORICAL FINANCIAL INFORMATION.................................. 7
COMPARATIVE PER SHARE DATA................................................. 10
RISK FACTORS............................................................... 11
Risks Related to the Merger.............................................. 11
Certain Conflicts of Interest.......................................... 11
Risks Related to ARIS' Business.......................................... 11
Ability to Manage Growth and Integrate Acquisitions.................... 11
Growth Through Acquisitions............................................ 11
Recruitment and Retention of Information Technology Professionals...... 12
Reliance on Key Personnel.............................................. 12
International Operations............................................... 12
Competition............................................................ 12
Customer Concentration................................................. 13
Dependence on Key Vendors of Software Technology....................... 13
Variability of Quarterly Operating Results............................. 13
Project Risks.......................................................... 13
Rapid Technological Change............................................. 14
Intellectual Property Rights........................................... 14
Control by Principal Shareholders...................................... 15
Potential Liability to Clients......................................... 15
Potential Volatility of Stock Price.................................... 15
Anti-Takeover Provisions............................................... 15
THE SPECIAL MEETING........................................................ 17
Use of Proxies at the Special Meeting.................................... 17
</TABLE>
i
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Revocation of Proxies.................................................... 17
Record Date; Stockholders Entitled to Vote at the Special Meeting........ 17
Quorum; Vote Required for Approval....................................... 17
Appraisal Rights......................................................... 18
Solicitation of Proxies.................................................. 18
Recommendation of the InTime Board of Directors.......................... 18
ARIS Stock Price and Dividend Information................................ 18
BACKGROUND OF THE MERGER................................................... 19
ARIS' Reasons for the Merger............................................. 20
ARIS Board Approval...................................................... 21
InTime's Reasons for the Merger.......................................... 21
InTime Board Approval.................................................... 21
Opinion of Financial Advisor to InTime................................... 21
INTERESTS OF CERTAIN PERSONS IN THE MERGER................................. 24
General.................................................................. 24
Interests as Holders of InTime Common Stock and InTime Options........... 24
Insurance and Indemnification............................................ 24
Registration Rights...................................................... 24
Severance Payments....................................................... 24
ARIS Employment Agreement................................................ 25
FEDERAL INCOME TAX CONSEQUENCES............................................ 26
ANTICIPATED ACCOUNTING TREATMENT........................................... 28
RESALE OF ARIS COMMON STOCK................................................ 28
RIGHTS OF DISSENTING STOCKHOLDERS.......................................... 28
THE MERGER AGREEMENT....................................................... 30
General.................................................................. 30
Merger Consideration..................................................... 30
Conversion of InTime Common Stock...................................... 30
Conversion of InTime Warrants.......................................... 31
Conversion of InTime Options........................................... 31
Corporate Matters........................................................ 31
Conditions to the Merger................................................. 31
Representations and Warranties........................................... 32
Covenants................................................................ 32
Non-Solicitation......................................................... 32
Termination.............................................................. 33
Expenses and Termination Fees............................................ 33
Federal Income Tax Consequences.......................................... 33
Accounting Treatment..................................................... 34
Appraisal Rights......................................................... 34
Stock Ownership Following Merger......................................... 35
Conversion of Shares; Procedures for Exchange of Certificates............ 35
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION......................... 36
Notes to Unaudited Pro Forma Combined Financial Statements............... 41
ARIS BUSINESS.............................................................. 42
Overview................................................................. 42
Industry Background...................................................... 42
The ARIS Solution........................................................ 42
Strategy................................................................. 43
ARIS Consulting and Software Products.................................... 44
</TABLE>
ii
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ARIS Training........................................................... 45
Relationships with Key Vendors.......................................... 45
Sales and Marketing..................................................... 46
Competition............................................................. 46
Intellectual Property................................................... 46
Personnel and Human Resources........................................... 47
Effects of Year 2000 Issue.............................................. 47
Facilities.............................................................. 48
Legal Proceedings....................................................... 48
ARIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.................................................... 49
Overview................................................................ 49
Recent Acquisitions..................................................... 49
1997 Compared to 1996................................................... 50
1996 Compared to 1995................................................... 51
Liquidity and Capital Resources......................................... 52
New Accounting Pronouncements........................................... 53
ARIS MANAGEMENT AND EXECUTIVE COMPENSATION................................ 54
Directors and Executive Officers........................................ 54
Change in Control Arrangements.......................................... 56
Compensation Summary.................................................... 57
Summary Compensation Table.............................................. 57
Option Grants in Last Fiscal Year....................................... 58
Option Grants in Last Fiscal Year Individual Grants..................... 58
Option Exercises and Year-End Values.................................... 58
Aggregated Option Exercises During 1997 and Option Values at December
31, 1997............................................................... 58
Executive Profit Bonus Plan............................................. 58
Description of ARIS' 1997 Stock Option Plan............................. 59
Description of 1998 Employee Stock Purchase Plan........................ 60
ARIS Principal Stockholders............................................. 60
INTIME BUSINESS........................................................... 63
Product and Service Description......................................... 63
Consulting Services................................................... 63
Consulting Staff...................................................... 63
Marketing Consulting Services......................................... 63
Competition........................................................... 64
Consulting Agreements................................................. 64
Major Customers....................................................... 64
Software Products..................................................... 65
Marketing and Sales Strategy............................................ 65
TAMS/O.................................................................. 65
License, Maintenance, and Service Agreement............................. 66
Competition and TAMS/O.................................................. 66
Development............................................................. 66
Employees............................................................... 66
Seasonality............................................................. 67
Year 2000 Issues........................................................ 67
Properties.............................................................. 67
Legal Proceedings....................................................... 68
Market Prices of InTime Securities...................................... 68
</TABLE>
iii
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<TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................... 69
General................................................................. 69
Selected Financial Data................................................. 69
Results of Operations................................................... 69
STATEMENT OF INCOME DATA.................................................. 69
Revenues................................................................ 70
Consulting Service Costs................................................ 70
Software Service Costs.................................................. 70
Sales and Marketing Expenses............................................ 71
Software Development Expenses........................................... 71
General and Administrative Expenses..................................... 71
Results of Operations................................................... 71
Liquidity and Capital Resources......................................... 72
Forward-Looking Statements.............................................. 72
Directors and Executive Officers........................................ 73
Executive Compensation.................................................. 74
Employment and Consulting Agreements.................................... 76
Directors' Compensation................................................. 77
Security Ownership of Certain Beneficial Owners and Management.......... 77
Certain Relationships and Related Transactions.......................... 78
DESCRIPTION OF ARIS CAPITAL STOCK......................................... 79
Common Stock............................................................ 79
Preferred Stock......................................................... 79
Warrant................................................................. 79
Registration Rights..................................................... 79
SHAREHOLDER MATTERS....................................................... 80
Washington Anti-Takeover Statute........................................ 80
Certain Provisions in ARIS Articles and ARIS Bylaws..................... 80
Director and Officer Indemnification and Liability...................... 80
Transfer Agent and Registrar............................................ 80
COMPARISON OF STOCKHOLDERS' RIGHTS........................................ 81
General................................................................. 81
Indemnification of Directors and Officers............................... 81
Business Combination Statute............................................ 81
Merger, Sale of Assets.................................................. 82
Special Meetings of Shareholders........................................ 82
Dissenters' Rights...................................................... 82
Liability of Directors.................................................. 82
Amendment of Articles/Certificate of Incorporation...................... 83
Action Without a Meeting................................................ 83
Transactions with Officers or Directors................................. 83
EXPERTS................................................................... 84
LEGAL MATTERS............................................................. 84
Appendix A--Agreement and Plan of Merger.................................. A-1
Appendix B--Raymond James Fairness Opinion................................ B-1
Appendix C--Section 262 of the Delaware General Corporation Law........... C-1
</TABLE>
iv
<PAGE>
AVAILABLE INFORMATION
ARIS and InTime are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by ARIS and InTime with the Commission
may be inspected and copied at the public reference facilities maintained by
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
as well as at the Commission's regional offices at CitiCorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material may also
be obtained from the Commission at prescribed rates by writing to the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission maintains a World Wide Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The address of the site is
http://www.sec.gov. ARIS Common Stock is listed and traded on the Nasdaq
National Market, and such reports, proxy statements and other information
concerning ARIS are available for inspection and copying at the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
Under the rules and regulations of the Commission, the vote on the approval
of the Merger Agreement by holders of InTime Common Stock constitutes an
offering of the ARIS Securities to be issued in connection with the Merger.
Accordingly, ARIS has filed with the Commission a Registration Statement on
Form S-4 (herein, together with all amendments and exhibits thereto, referred
to as the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to such securities. This Proxy
Statement/Prospectus does not contain all of the information set forth in the
Registration Statement, certain portions of which have been omitted pursuant
to the rules and regulations of the Commission and to which portions reference
is hereby made. Statements contained in this Proxy Statement/Prospectus as to
the contents of any contract or other document are not necessarily complete,
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. For further
information with respect to ARIS, InTime, the Merger, the securities offered
hereby and related matters, reference is made to the Registration Statement.
The Registration Statement and the exhibits thereto may be inspected, without
charge, at the offices of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies may be obtained from the Commission at
prescribed rates.
----------------
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS ARE AVAILABLE
UPON REQUEST FROM NORBERT W. SUGAYAN, JR., ARIS CORPORATION, 2229 112TH AVENUE
NE, BELLEVUE, WASHINGTON 98004, TELEPHONE (425) 372-2747. IN ORDER TO ENSURE
TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY A DATE FIVE
BUSINESS DAYS PRIOR TO THE DATE ON WHICH THE FINAL INVESTMENT DECISION MUST BE
MADE.
----------------
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE OFFERING AND THE SOLICITATION MADE
HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY ARIS OR INTIME. THIS PROXY
STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION
OF AN OFFER TO PURCHASE, ANY SECURITIES, OR THE SOLICITATION OF A PROXY, IN
ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE
SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS
<PAGE>
NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY INFERENCE THAT THERE HAS NOT BEEN ANY CHANGE IN THE
INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF EITHER ARIS OR INTIME SINCE
THE DATE HEREOF.
----------------
TRADEMARKS
This Proxy Statement/Prospectus contains trademarks of ARIS and InTime as
well as trademarks of other companies.
FORWARD-LOOKING STATEMENTS
Other than statements of historical fact, statements made in this Proxy
Statement/Prospectus, including statements as to the benefits expected to
result from the Merger and as to future operating results and financial
performance are forward-looking statements within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act. Actual results
could differ materially from those anticipated in such forward-looking
statements as a result of certain factors, including those set forth in "Risk
Factors" below, which InTime stockholders should carefully review.
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in this
Proxy Statement/Prospectus. This summary is not, and is not intended to be,
complete by itself. This Proxy Statement/Prospectus contains forward-looking
statements that involve risks and uncertainties. ARIS', InTime's and the
combined company's actual results may differ materially from those anticipated
in these forward-looking statements as a result of certain factors, including
those set forth under "Risk Factors" and elsewhere in this Proxy
Statement/Prospectus. This summary is qualified in its entirety by reference to
the more detailed information contained elsewhere in this Proxy
Statement/Prospectus, the appendices attached hereto and the documents referred
to herein. Stockholders of InTime are urged to review carefully all of the
information contained in this Proxy Statement/Prospectus, the Merger Agreement
attached hereto as Appendix A and the other appendices attached hereto.
The following discussion includes the retroactive restatement of the ARIS
financial statements and operating data to reflect the merger of Barefoot
Computer Training Limited with and into ARIS as presented in the supplementary
consolidated financial statements of ARIS which are included elsewhere in this
Proxy Statement/Prospectus.
THE COMPANIES
ARIS Corporation
ARIS Corporation ("ARIS") provides an integrated information technology
("IT") solution consisting of consulting and training services and proprietary
software products. ARIS' core consulting competencies include packaged
application implementation, custom application development and systems
architecture planning and deployment. ARIS' education division offers
instructor-led course titles for IT professionals conducted at ARIS' training
centers and at client facilities. ARIS' wholly-owned subsidiary, ARIS Software,
Inc. ("ASI") develops, markets and supports proprietary software products sold
by Oracle Corporation ("Oracle") that enhance ORACLE database management and
ORACLE packaged applications. ARIS believes that its ability to provide clients
with an integrated IT solution, coupled with its focus on leading-edge
technologies, provide it with a unique competitive advantage. ARIS' strategy is
to become a leading provider of integrated IT solutions by: (i) leveraging
synergies between consulting and training; (ii) focusing on leading-edge
technologies; (iii) attracting and retaining highly skilled employees; (iv)
maintaining high levels of client satisfaction; (v) expanding its geographic
presence; and (vi) pursuing strategic acquisitions.
ARIS has experienced significant growth since 1994, with revenue and
operating income increasing from $7.1 million and $1.3 million, respectively,
in 1994 to $62.6 million and $8.3 million, respectively, in 1997. From January
1, 1994 to April 30, 1998, ARIS acquired one software company, seven training
companies, and one company engaged in both consulting and training.
ARIS currently operates 12 training centers and/or consulting offices in the
United States and five training centers and/or consulting offices in the United
Kingdom and intends to pursue opportunities to expand its business in the
United States and internationally. ARIS' clients include Fortune 1000 companies
and governmental entities, such as The Boeing Company, Microsoft Corporation,
Hewlett Packard Company, Lockheed Martin Corporation, Starbucks Coffee Company,
TIG Holdings, Inc., Quebecor, Inc., British Telecom, the British Broadcasting
Company, National Westminster Group, Tektronix Inc., Nike Inc., Weyerhaeuser
Company, and the U.S. Internal Revenue Service.
ARIS was incorporated in Washington in October 1990. ARIS' headquarters is
located at 2229 112th Avenue NE, Bellevue, Washington 98004 and its telephone
number at that address is (425) 372-2747.
InTime Systems International, Inc.
InTime Systems International, Inc. ("InTime") and its wholly owned
subsidiary, The Consulting TEAM, Inc. ("TEAM"), are primarily engaged in
providing systems integration services relating to the selection,
implementation and use of human resources, payroll and selected software
systems. InTime was incorporated in
1
<PAGE>
Delaware in January 1994 and acquired all of the common stock of both TEAM, a
Florida corporation organized in 1985, and InTime Systems, Inc., a Delaware
corporation organized in 1993. InTime's headquarters are located at 1601 Forum
Place, Fifth Floor, West Palm Beach, Florida 33401 and its telephone number at
that address is (561) 478-0022.
THE MERGER
General
The following is a summary of the material provisions of the Merger
Agreement, a copy of which is attached as Appendix A to this Proxy
Statement/Prospectus and is incorporated herein by reference. The following is
not a complete statement of all provisions of the Merger Agreement and related
agreements. Statements made in this Proxy Statement/Prospectus with respect to
the terms of the Merger Agreement and such related agreements are qualified in
their respective entireties by reference to the more detailed information set
forth in the Merger Agreement and such related agreements.
Effective Time of the Merger
At the Effective Time (as defined below), InTime will merge with and into
ARIS and the separate existence of InTime will cease. Following the Merger, the
combined company's business, operations and management will consist of the
business and operations of each of ARIS and InTime as existing prior to the
Merger. The Merger will become effective upon the filing of Articles of Merger
with the Secretary of State of the State of Washington and a Certificate of
Merger with the Secretary of State of the State of Delaware or at such later
time as may be specified in the Articles of Merger or Certificate of Merger
(the "Effective Time"). The filings will be made on or as soon as practicable
after the closing of the Merger (the "Closing Date"), which, assuming that all
of the conditions to the Merger are satisfied or waived, is expected to be in
approximately July 1998.
Merger Consideration
Conversion of InTime Shares. Subject to the provisions contained in the
Merger Agreement relating to the payment of cash in lieu of shares with respect
to which appraisal rights have properly been exercised, each share of InTime
Common Stock outstanding immediately prior to the Effective Time will be
converted into the right to receive that number of shares of ARIS Common Stock
determined pursuant to the "Exchange Ratio." The Exchange Ratio as of the date
of the Merger Agreement was determined by dividing (1) $33,000,000 less the
value of all outstanding InTime Warrants and InTime Options (which equalled
$5,367,375 and $3,462,737, respectively, as of the date of the Merger
Agreement) by (2) $34.56, which was the average closing price for one share of
ARIS Common Stock (as reported by the Nasdaq National Market) for the 10
trading days prior to the date of the Merger Agreement, which quotient was then
divided by the outstanding number of shares of InTime Common Stock. On the date
of the Merger Agreement, the Exchange Ratio was 0.266, meaning each share of
InTime Common Stock would be converted into 0.266 shares of ARIS Common Stock.
The Exchange Ratio is subject to adjustment in the event of any stock split,
stock dividend, reverse stock split, or other change in the number of
outstanding shares of InTime Common Stock. The Exchange Ratio is also subject
to adjustment in the event that the average closing price for one share of ARIS
Common Stock (as reported by the Nasdaq National Market) for the 10 trading
days immediately preceding the Closing Date has dropped below $31.50, in which
case the Exchange Ratio shall be adjusted to reflect the lower average closing
price. If such an adjustment in the Exchange Ratio occurs, (1) each share of
InTime Common Stock shall be converted into the right to receive a greater
amount of ARIS Common Stock; (2) each outstanding InTime Class A Warrant shall
be converted into the right to receive a greater amount of ARIS Warrants at a
lesser exercise price; and (3) each outstanding InTime option shall be
converted into the right to receive a greater amount of ARIS Options at a
lesser exercise price. The actual Exchange Ratio will not be determined until
immediately prior to the Effective Time.
2
<PAGE>
Each outstanding share of InTime Common Stock with respect to which appraisal
rights have properly been exercised will be converted into the right to receive
payment from ARIS, as the surviving company in the Merger, in accordance with
the provisions of the Delaware General Corporation Law.
No fractional shares will be issued by ARIS in connection with the Merger.
See "THE MERGER AGREEMENT--Merger Consideration--Conversion of InTime Common
Stock."
Conversion of InTime Warrants. Subject to the provisions contained in the
Merger Agreement, each warrant (an "InTime Warrant") to purchase a share of
InTime Common Stock outstanding immediately prior to the Effective Time will be
converted into the right to receive a warrant of like tenor and quality to
purchase that number of shares of ARIS Common Stock determined pursuant to the
Exchange Ratio at an exercise price equal to approximately 3.7565 times the
exercise price of the InTime Warrant. If the Exchange Ratio is adjusted, each
InTime Warrant shall be converted into the right to receive a greater amount of
ARIS Warrants at a lesser exercise price.
Conversion of InTime Options. Subject to the provisions contained in the
Merger Agreement, each outstanding option (an "InTime Option") to purchase a
share of InTime Common Stock outstanding immediately prior to the Effective
Time will be converted into the right to receive an option of like tenor and
quality to purchase that number of shares of ARIS Common Stock determined
pursuant to the Exchange Ratio at an exercise price equal to approximately
3.7565 times the exercise price of the InTime Option. If the Exchange Ratio is
adjusted, each InTime Option shall be converted into the right to receive a
greater amount of ARIS Options at a lesser exercise price.
Exchange of InTime Shares, Warrants and Options
As soon as practicable after the Effective Time, ChaseMellon Shareholder
Services (the "Exchange Agent") will mail a letter of transmittal (with
instructions for its use) to each record holder of shares of InTime Common
Stock or InTime Warrants outstanding immediately prior to the Effective Time,
for the holder to use in surrendering the certificates which represented his or
its shares of InTime Common Stock or InTime Warrants in exchange for a
certificate representing the number of shares of ARIS Common Stock or warrants
to purchase shares of ARIS Common Stock (the "ARIS Warrants") to which he or it
is entitled. Immediately after the Effective Time, ARIS will furnish to each
holder of outstanding InTime Options a "Confirmation of Outstanding Options"
(with instructions for its use) for the holder to use in confirming the number
of InTime Options, exercise price and vesting schedule and in surrendering all
written InTime Option agreements, if any, which represented his or her InTime
Options in exchange for a Stock Option Letter Agreement or Agreements
representing options to purchase ARIS Common Stock to which he or she is
entitled. INTIME STOCKHOLDERS, INTIME WARRANT HOLDERS AND INTIME OPTION HOLDERS
SHOULD NOT SURRENDER THEIR INTIME COMMON STOCK OR INTIME WARRANT CERTIFICATES
OR INTIME OPTION AGREEMENTS FOR EXCHANGE UNTIL THEY RECEIVE A LETTER OF
TRANSMITTAL FROM THE EXCHANGE AGENT OR A CONFIRMATION OF OUTSTANDING OPTIONS
FROM ARIS, AS APPROPRIATE. See "The Merger Agreement--Procedure for Exchange of
InTime Shares, Warrants and Options."
Representations and Warranties
The Merger Agreement contains various, customary, representations and
warranties of InTime and ARIS, relating to, among other things: (a) due
organization, existence and standing; (b) capitalization; (c) power and
authority to execute and deliver the Merger Agreement and to perform its
respective obligations thereunder; (d) compliance with applicable agreements
and laws; (e) compliance with all filing requirements under the Securities Act
and the Exchange Act, and the accuracy of the information contained therein;
and (f) absence of certain material adverse changes or events. See "The Merger
Agreement--Representations and Warranties."
3
<PAGE>
Covenants
The Merger Agreement contains various, customary, covenants of InTime and
ARIS, that each party will, among other things, use its reasonable best efforts
to consummate the Merger. In addition, ARIS covenants to use its best efforts
to cause the shares of ARIS Common Stock to be issued in the Merger to be
approved for listing on the Nasdaq National Market, subject to official notice
of issuance, prior to the Effective Time. InTime covenants that it will
continue to operate its business in the ordinary course prior to the Effective
Time. Finally, InTime covenants that, with certain exceptions, it will not
solicit or entertain competing offers to sell its business. See "The Merger
Agreement--Corporate Matters--Covenants--Non-Solicitation."
Conditions to the Merger; Termination
The obligations of ARIS and InTime to consummate the Merger are subject to
the satisfaction, at the Closing, of a number of conditions, including, among
others, (a) the approval of the Merger Agreement and the Merger by the holders
of a majority of the shares of InTime Common Stock present in person or by
proxy at the Special Meeting; (b) forfeiture and cancellation of all of InTime
Common Stock held in escrow (the "Escrow Shares") by certain InTime
stockholders (the "Initial InTime Stockholders") who entered into such an
arrangement as a condition to InTime's initial public offering (the "Escrow
Agreement"); (c) the compliance of the Merger Agreement and the Merger with the
certain accounting pronouncements; (d) the merger of InTime's subsidiaries with
and into InTime; (e) the effectiveness of the Registration Statement under the
Securities Act; (f) the approval for listing of the shares of ARIS Common Stock
that will be issued in the Merger on the Nasdaq National Market, subject to
official notice of issuance; (g) the receipt by each party of various opinions
and other agreements; and (h) the Merger will qualify for pooling of interests
treatment in accordance with generally accepted accounting principles. See "The
Merger Agreement--Conditions to the Merger." The Merger Agreement provides,
generally, that it may be terminated by the mutual agreement of ARIS and
InTime, or, under certain conditions, by notice of either party. See "The
Merger Agreement--Termination."
Expenses and Termination Fee
Each of ARIS and InTime will bear its own costs and expenses (including legal
fees and expenses) incurred in connection with the Merger Agreement and the
Merger. ARIS shall pay all charges and expenses of the Exchange Agent. In
addition, in the event InTime terminates the Merger Agreement pursuant to its
good faith determination that a competing transaction is reasonably capable of
being completed, InTime shall pay to ARIS a termination fee in the amount of
$1,000,000.
Accounting Treatment
It is expected that the Merger will be accounted for as a pooling of
interests for accounting and financial purposes. See "Accounting Treatment."
ARIS' Reasons for the Merger
ARIS' Board of Directors believes that, through the Merger, ARIS will gain
access to more than 60 trained IT consultants, as well as acquire an entree
into the PeopleSoft market not currently served by ARIS and bolster ORACLE
Human Resource Management markets. ARIS' management considers the Merger to be
consistent with ARIS' growth strategy and believes that the Merger will result
in long range benefits to ARIS shareholders. See "The Merger--ARIS' Reasons for
the Merger."
Approval by the ARIS Board
The ARIS Board has unanimously approved the Merger Agreement.
4
<PAGE>
InTime's Reasons for the Merger
The Board of Directors of InTime believes that, through the Merger, InTime
will realize positive benefits, including: greater financial resources to
support the expansion of InTime's operations than would be available to InTime
as an independent company; obtaining access to enterprise-wide solutions for
ORACLE software products; obtaining access to additional training resources for
InTime's employees and its customers, as well as providing InTime with
additional sources of business leads; creating a better career path for
InTime's employees and consultants, thereby improving their development and
retention; and creating immediate additional value and liquidity in the
investment of InTime's stockholders.
Recommendation of the InTime Board
The InTime Board has unanimously approved the Merger Agreement and the Merger
and has unanimously recommended a vote FOR the approval of the Merger Agreement
and the Merger.
Opinion of Financial Advisor to InTime
Raymond James & Associates, Inc. ("Raymond James") delivered its opinion
dated April 26, 1998 (the "Raymond James Opinion") to InTime's Board of
Directors that, as of the date of such opinion and subject to the various
conditions set forth therein, the consideration to be received by the
stockholders of InTime pursuant to the Merger Agreement is fair, from a
financial point of view, to the holders of the InTime Common Stock. The full
text of the Raymond James Opinion, which sets forth, among other things,
assumptions made, matters considered and limitations on the scope of the review
undertaken in connection with the Raymond James Opinion, is attached hereto as
Appendix C and is incorporated herein by reference. Holders of InTime Common
Stock are urged to, and should, read the Raymond James Opinion in its entirety.
See "Approval of the Merger and Related Transactions--Opinion of Financial
Advisor to InTime."
Forfeiture and Cancellation of Escrow Shares
The Escrow Agreement provided for the escrow of the Escrowed Shares owned by
the Initial InTime Stockholders until InTime achieved certain financial
results. If such financial results are not achieved by December 31, 1998, the
Escrowed Shares will be forfeited and cancelled. It is a condition to the
closing of the Merger that all of the Escrow Shares be forfeited and cancelled.
Interests of Certain Persons in the Merger
Certain members of InTime's management may be deemed to have certain
interests in the Merger that are in addition to their interest as stockholders
of InTime generally. These interests arise from, among other things, certain
severance arrangements, employment agreements, and indemnification rights. The
Boards of Directors of both InTime and ARIS were aware of these interests and
considered them, among other matters, in approving the Merger Agreement and the
transactions contemplated thereby. See "Interest of Certain Persons in the
Merger."
Comparison of Stockholder Rights
There are certain significant differences between the corporation laws of
Washington and Delaware which will result in changes in the rights of InTime
stockholders if the Merger is consummated. See "Certain Substantive Differences
in Corporation Laws."
RISK FACTORS
The Merger and an investment in securities of ARIS involve certain risks and
uncertainties, including risks related to the respective businesses of ARIS and
InTime and other risks and uncertainties discussed under, "Risk Factors," and
elsewhere in this Proxy Statement/Prospectus. See "Risk Factors."
5
<PAGE>
MARKETS AND MARKET PRICES
ARIS Common Stock is listed on the Nasdaq National Market under the symbol
"ARSC." On April 24, 1998, the last trading day before the announcement by ARIS
and InTime that they had entered into the Merger Agreement, the closing sale
price of ARIS Common Stock as reported on the Nasdaq National Market was $33.00
per share. On May 4, 1998, the closing sale price of ARIS Common Stock as
reported on the Nasdaq National Market was $32.625 per share. There can be no
assurance as to the actual market price of ARIS Common Stock prior to, at, or
at any time following, the Effective Time.
InTime Common Stock is listed on the Nasdaq Small Cap Market under the symbol
"TAMSA." On April 24, 1998, the last trading day before the announcement by
ARIS and InTime that they had entered into the Merger Agreement, the closing
sale price of InTime Common Stock as reported on the Nasdaq Small Cap Market
was $7.50 per share. On May 4, 1998, the closing sale price of InTime Common
Stock as reported on the Nasdaq Small Cap Market was $7.625 per share.
InTime Warrants are listed on the Nasdaq Small Cap Market under the symbol,
"TAMSW." On April 24, 1998, the last trading day before the announcement by
ARIS and InTime that they had entered into the Merger Agreement, the closing
sale price of InTime Warrants as reported on the Nasdaq Small Cap Market was
$1.75 per InTime Warrant. On May 4, 1998, the closing sale price of InTime
Warrants as reported on the Nasdaq Small Cap Market was $1.625 per InTime
Warrant.
6
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION
The following summary historical financial data of ARIS and InTime as of
December 31, 1997 and 1996 and for the years ended December 31, 1997, 1996 and
1995 have been derived from the historical consolidated financial statements of
ARIS and InTime that have been audited by Price Waterhouse LLP, which are
included elsewhere in this Proxy Statement/Prospectus. The historical balance
sheet and statement of operations data for ARIS at December 31, 1994 and for
the year ended December 31, 1994 and InTime at December 31, 1994 and 1993 and
for the years ended December 31, 1994 and 1993 have been derived from the
historical audited financial statements of ARIS and InTime not included in this
Proxy Statement/Prospectus. The historical balance sheet and statement of
operation data of ARIS as of and for the year ended December 31, 1993 have been
derived from unaudited financial statements of ARIS which, in the opinion of
ARIS management, include all adjustments, consisting only of normal recurring
adjustments that are necessary for a fair presentation of the results of
operations for this period.
The following summary supplementary financial data of ARIS as of December 31,
1997 and 1996 and for the years ended December 31, 1997, 1996 and 1995 have
been derived from the supplementary consolidated financial statements of ARIS
which are included elsewhere in this Proxy Statement/Prospectus. The
supplementary financial statements give retroactive effect to the pooling of
interests of ARIS and Barefoot Computer Training Limited which was consummated
on February 28, 1998. These financial statements have been audited by Price
Waterhouse LLP as they relate to ARIS and by Moores Rowland as they relate to
Barefoot Computer Training Limited. The supplementary balance sheet and
statement of operations data for ARIS at December 31, 1994 and for the year
ended December 31, 1994 have been derived from the supplementary audited
financial statements of ARIS as they relate to ARIS and the unaudited financial
statements as they relate to Barefoot Computer Training Limited not included in
this Proxy Statement/Prospectus. The supplementary balance sheet and statement
of operation data of ARIS as of and for the year ended December 31, 1993 have
been derived from unaudited financial statements which, in the opinion of ARIS
management, include all adjustments, consisting only of normal recurring
adjustments that are necessary for a fair presentation of the results of
operations for this period.
The pro forma consolidated statement of operations data have been derived
from the pro forma financial statements included elsewhere in this Proxy
Statement/Prospectus which gives effect to the Merger by combining the
financial statement data of ARIS and InTime at and for the year ended December
31, 1997 on a pooling of interest basis.
The following selected financial data should be read in conjunction with, and
is qualified in its entirety by, the financial statements, including the notes
thereto, appearing elsewhere in this Proxy Statement/Prospectus. The historical
and supplementary results should not be construed to be indicative of future
results of operations.
7
<PAGE>
<TABLE>
<CAPTION>
ARIS
(IN THOUSANDS EXCEPT PER SHARE DATA)
---------------------------------------------
AT OR FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Historical Statement of
Operations Data:
Revenues.............. $55,131 $26,898 $14,751 $7,052 $3,686
Income from
operations........... 7,754 3,246 2,981 1,291 653
Net income............ 5,345 2,014 2,010 826 448
Basic earnings per
share................ 0.61 0.28 0.30 0.20 0.11
Diluted earnings per
share................ 0.57 0.27 0.29 0.17 0.10
Historical Balance Sheet
Data:
Total assets.......... $51,970 $12,956 $ 6,843 $3,320 $1,607
Stockholders' equity.. 44,918 8,210 4,642 2,113 1,203
Supplementary Statement
of Operations Data:
Revenues.............. $62,550 $32,224 $18,236
Income from
operations........... 8,320 3,478 3,184
Net income............ 5,755 2,166 2,126
Basic earnings per
share................ 0.64 0.29 0.30
Diluted earnings per
share................ 0.59 0.28 0.29
Supplementary Balance
Sheet Data:
Total assets.......... $54,988 $15,596 $ 8,173 $3,792 $1,844
Stockholders' equity.. 45,635 8,506 5,972 2,585 1,119
<CAPTION>
INTIME
(IN THOUSANDS EXCEPT PER SHARE DATA)
---------------------------------------------
AT OR FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------ -----------
<S> <C> <C> <C> <C> <C>
Historical Statement of
Operations Data:
Revenues.............. $13,736 $11,672 $ 7,294 $5,783 $4,118
Income (Loss) from
operations........... 127 (5) (2,467) 218 435
Net income (Loss)..... 564 60 (1,833) (188) 435
Basic earnings (Loss)
per share............ 0.22 0.02 (0.70) (0.16) 0.34
Diluted earnings
(Loss) per share..... 0.21 0.02 (0.70) (0.16) 0.34
Historical Balance Sheet
Data:
Total assets.......... $ 5,592 $ 5,079 $ 4,571 $3,598 $1,221
Stockholders' equity.. 4,847 4,264 4,183 655 1,034
</TABLE>
8
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AT OR FOR THE YEAR
ENDED DECEMBER
31, 1997
------------------
<S> <C>
Revenues................................................ $ 76,286
Income from operations.................................. 8,447
Net income.............................................. 5,899
Basic earnings per share................................ 0.61
Diluted earnings per share.............................. 0.57
Shares used in basic earnings per share calculation..... 9,701,793
Shares used in diluted earnings per share calculation... 10,429,361
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET DATA
Total assets............................................ $ 60,551
Stockholders' equity.................................... 50,482
</TABLE>
9
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of ARIS and
InTime, as well as unaudited pro forma per share data of ARIS and InTime based
upon the historical and supplementary financial statements of ARIS and InTime.
The pro forma data is not necessarily indicative of the actual or future
operating results or financial position that would have occurred or will occur
upon consummation of the Merger. The pro forma presentation is subject to the
assumptions set forth in the notes to the unaudited pro forma consolidated
financial information appearing elsewhere in this Proxy Statement/Prospectus.
The information presented should be read in conjunction with such unaudited pro
forma consolidated financial information and notes thereto, and the historical
financial statements and notes thereto, of ARIS and InTime, respectively,
included elsewhere in this Proxy Statement/Prospectus. No cash dividends have
ever been declared or paid on ARIS Common Stock or InTime Common Stock. See,
"Unaudited Pro Forma Condensed Consolidated Financial Information," "ARIS
Financial Statements," and "InTime Financial Statements."
HISTORICAL--ARIS
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- -----
<S> <C> <C> <C>
Basic earnings per common share................................ 0.61 0.28 0.30
Diluted earnings per common share.............................. 0.57 0.27 0.29
Book value per common share.................................... 4.53 1.09 0.68
SUPPLEMENTARY--ARIS
Basic earnings per common share................................ 0.64 0.29 0.30
Diluted earnings per common share.............................. 0.59 0.28 0.29
Book value per common share.................................... 4.47 1.09 0.84
HISTORICAL--INTIME
Basic earnings per common share................................ 0.22 0.02 (0.70)
Diluted earnings per common share.............................. 0.21 0.02 (0.70)
Book value per common share.................................... 1.88 1.66 1.63
PRO FORMA COMBINED PER ARIS SHARE(1)
Basic earnings per common share................................ 0.61 0.27 0.09
Diluted earnings per common share.............................. 0.57 0.27 0.09
Book value per common share.................................... 4.76 1.55 1.36
PRO FORMA EQUIVALENT PER INTIME SHARE(2)
Basic earnings per common share................................ 0.16 0.07 0.02
Diluted earnings per common share.............................. 0.15 0.07 0.02
Book value per common share.................................... 1.27 0.41 0.36
</TABLE>
- --------
(1) The pro forma combined financial data give effect to the Merger by
combining the financial data of ARIS and InTime at, and for each fiscal
year in the three-year period ended December 31, 1997 on a pooling of
interests basis of accounting.
(2) The pro forma equivalent information for InTime was calculated by
multiplying the combined entity Pro Forma Combined per share amounts by the
Exchange Ratio to each share of InTime Common Stock.
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RISK FACTORS
The following factors should be considered carefully in evaluating the
proposals to be voted upon by the stockholders of InTime and in evaluating an
investment in the ARIS Common Stock offered hereby. For periods following the
Merger, references to the products, businesses, results of operations or
financial condition of ARIS or the combined company should be considered to
refer to ARIS and its subsidiaries, unless the context otherwise requires. All
statements, trend analyses and other information contained in this Proxy
Statement/Prospectus relative to markets for ARIS' services and products and
trends in revenue, gross margin and anticipated expense levels, as well as
other statements including words such as, "seek," "anticipate," "believe,"
"plan," "estimate," "expect," and "intend," and other similar expressions,
constitute forward-looking statements. These forward-looking statements are
subject to business and economic risks, and ARIS' actual results of operations
may differ materially from those contained in the forward-looking statements.
RISKS RELATED TO THE MERGER
Certain Conflicts of Interest.
Certain officers of InTime have interests in the Merger that are in addition
to their interests as stockholders of ARIS and InTime, respectively. These
interests arise from, among other things, certain stock options, severance
arrangements, employment agreements, and indemnification rights.
Notwithstanding these interests, InTime's Board of Directors believes that the
terms of the Merger Agreement are fair to, and consummation of the Merger is
in the best interests of, the InTime stockholders. See, "Approval of the
Merger and Related Transactions--Interests of Certain Persons in the Merger."
RISKS RELATED TO ARIS' BUSINESS
Ability to Manage Growth and Integrate Acquisitions.
ARIS has experienced rapid growth that has placed, and will continue to
place, significant demands on its management and other resources. ARIS expects
to continue to hire additional personnel, open new offices and make
acquisitions. To manage its growth effectively, ARIS must continue to improve
its operational, financial and other management processes and systems, and to
attract, develop, motivate and retain highly skilled IT professionals. In
addition, ARIS' success depends largely on management's ability to maintain
high levels of employee utilization, project and instructional quality and
competitive pricing for its services. Few of ARIS' senior management
previously have managed a business of ARIS' size or have significant prior
experience managing a public company. No assurance can be given that ARIS will
be successful in managing its growth.
Growth Through Acquisitions.
ARIS intends to continue growing through strategic acquisitions of
businesses that ARIS believes will complement its operations. The success of
ARIS' plan to grow through acquisitions depends on, among other things, ARIS'
ability to (i) identify and acquire businesses on terms that management
considers attractive; (ii) integrate acquired businesses into its
organization; and (iii) retain the acquired businesses' key personnel and
principal clients. Any future acquisitions would be accompanied by the risks
commonly encountered in such transactions, including difficulties associated
with assimilating the personnel and operations of the acquired business, ARIS'
inability to achieve expected financial results or strategic goals for the
acquired business, the potential disruption of ARIS' ongoing business, the
diversion of significant management and other resources and the maintenance of
uniform standards, controls, procedures and policies. There can be no
assurance that ARIS will be able to identify future acquisition candidates or
to successfully overcome the risks and challenges encountered in completing
and integrating future acquisitions. ARIS' failure or inability to implement
and manage its acquisition strategy could have a material adverse effect on
ARIS' business, financial condition, and results of operations. In addition,
future acquisitions could require ARIS to issue dilutive equity securities,
incur
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<PAGE>
debt or contingent liabilities, and amortize expenses related to goodwill and
other intangible assets, any of which could have a material adverse effect on
the market for and the price of ARIS' Common Stock.
Since 1995 ARIS has pursued an aggressive growth strategy by acquiring
companies in complementary service, product and geographic markets. There can
be no assurance that ARIS will be able to integrate any acquisition
successfully into its organization. The failure to integrate any of ARIS'
recent or future acquisitions successfully into ARIS or the inability to
achieve anticipated revenue and operating results during the integration
process could have a material adverse effect on ARIS' business, financial
condition and results of operations.
Recruitment and Retention of Information Technology Professionals.
ARIS' future success will depend in large part on its ability to attract,
develop, motivate and retain highly skilled information technology ("IT")
professionals, particularly project managers, consultants and instructors.
Highly skilled IT professionals are in high demand and are likely to remain a
limited resource for the foreseeable future. ARIS competes for consultants and
project managers with other consulting firms, software vendors and consumers
of IT consulting services. ARIS competes for instructors with other training
service providers, software and hardware vendors and the in-house IT training
departments of major corporations. There can be no assurance that ARIS will be
successful in hiring and retaining a sufficient number of IT professionals to
staff its consulting projects and to meet demand for instructor-led classes.
Reliance on Key Personnel.
ARIS' continuing success will depend in large part on the continued services
of a number of key employees including Paul Song, its founder, President,
Chief Executive Officer and Chairman. The loss of the services of Mr. Song,
certain of ARIS' senior management or other key personnel could have a
material adverse effect on ARIS. ARIS has entered into employment agreements
containing non-competition, non-solicitation and non-disclosure clauses with
all of its management, consultants and project managers and instructors,
except Mr. Song. These contracts, however, do not guarantee that these
individuals will continue their employment with ARIS. In addition, there is no
guarantee that the non-competition and non-solicitation provisions of these
agreements would be enforced by a court if ARIS were required to seek to
enforce its rights thereunder. The loss of one or more of ARIS' key employees
to a current or potential competitor could result in the loss of existing or
potential clients to such competitor adversely affecting revenues and
operating income. Effective January 1, 1998, ARIS terminated its "key man"
life insurance policy in the amount of $2.0 million on the life of Mr. Song.
International Operations.
A substantial portion of ARIS' revenue is derived from its international
operations. If ARIS makes other international acquisitions in the future, an
even larger portion of its revenues could be derived from its international
operations. ARIS faces certain risks inherent in conducting business
internationally, such as unexpected changes in regulatory requirements,
difficulties in staffing and managing foreign operations, differing employment
laws and practices in foreign countries, longer payment cycles, seasonal
reductions in business activity during the summer months in Europe and certain
other parts of the world, and potentially adverse tax consequences. Any of
these factors could adversely affect the success of ARIS' international
operations. There can be no assurance that such factors will not have a
material adverse effect on ARIS' international operations and, consequently,
on ARIS' consolidated financial condition and results of operations. ARIS may
also face risks from foreign currency fluctuations. To date ARIS has not
entered into any forward exchange contracts or other hedging activities in
anticipation of foreign currency fluctuations, but it may do so in the future.
Competition.
The IT consulting industry and the IT training industry are generally
regarded as separate industries, each of which is rapidly growing and highly
competitive. Within each industry there are a large number of competitors,
many of whom have significantly greater financial, technical, marketing and
human resources and
12
<PAGE>
greater name recognition than ARIS. ARIS' principal competitors in the
delivery of consulting services are the consulting vendors such as ORACLE, and
numerous international, national and regional IT consulting firms. ARIS faces
competition in the delivery of IT training services from the in-house IT
departments of its prospective clients, companies such as International
Business Machines and Hewlett-Packard, software vendors, other Microsoft
ATECs, and independent international, national and regional training
companies. ARIS' software product, ARIS DFRAG, competes with system management
tools distributed by BMC Software, Platinum Technology and Compuware. Although
ARIS believes few commercially available software products currently compete
directly with ARIS' other software product, NoetixViews, there can be no
assurance that new competitive products will not be developed by ORACLE,
third-party software vendors or by in-house IT departments of ARIS' current or
potential clients. There can be no assurance that any future products will not
achieve greater market acceptance than ARIS' software products. Failure by
ARIS to compete successfully in the consulting or training market would have a
material adverse effect on ARIS' business, financial condition and results of
operations.
Customer Concentration.
ARIS has derived, and believes that it may continue to derive, a significant
portion of its revenue from a limited number of large clients. There can be no
assurance that the volume of work performed for specific clients will be
sustained from year to year, or that a major client in one year will engage
ARIS in a subsequent year. Any significant reduction in the scope of work
performed for ARIS' principal clients or a number of smaller clients, the
failure of anticipated projects for current clients to materialize, or
deferrals, modifications or cancellations of ongoing projects by current
clients could have a material adverse effect on ARIS' business, financial
condition and results of operations.
Dependence on Key Vendors of Software Technology.
ARIS relies on formal and informal relationships with key providers of
software technology, in particular, Microsoft, ORACLE, Lotus and Sun. ARIS
participates in a number of Microsoft, ORACLE, Lotus and Sun programs that
enable ARIS to obtain early information about new software products and
courseware, and to benefit from the increased credibility and enhanced
reputation resulting from vendor accreditation. Any significant changes to the
vendor sponsored programs in which ARIS participates or any deterioration in
the relationship between ARIS and a key vendor could result in the loss of
vendor certifications, a reduction in the number of client referrals or render
actions which might adversely affect ARIS' ability to compete successfully.
Variability of Quarterly Operating Results.
ARIS' operations and related revenue and operating results historically have
varied from quarter to quarter, and ARIS expects these variations to continue.
Factors causing such fluctuations have included and may include: the number,
size and scope of consulting projects; the contractual terms and degree of
completion of such projects; project delays; variations in utilization rates
and average billing rates for consultants and project managers due to
vacations, holidays and the integration of newly hired consultants; the
inability of ARIS to conduct as many four- and five-day courses due to
national holidays and vacation schedules, particularly in the fourth quarter;
frequency of training classes and demand for training following new software
product releases; variations in fill rates in training classes; integration of
acquired entities; and general economic conditions. Because a significant
percentage of ARIS' expenses, particularly personnel costs and rent, are
relatively fixed in advance of any particular quarter, shortfalls in revenue
caused by these and other factors may cause significant variations in
operating results in any particular quarter.
Project Risks.
Most of ARIS' consulting agreements permit the client to terminate an
engagement without cause and without significant penalty upon 14 or fewer
days' notice to ARIS. Clients may from time to time terminate their
13
<PAGE>
agreements with ARIS due to ARIS' failure to meet their expectations or for
other reasons. Additionally, contracts to perform services for the U.S.
government may be subject to renegotiation. The termination or renegotiation
of one or more engagements by ARIS' clients could adversely affect revenue and
operating results, damage ARIS' reputation, and adversely affect its ability
to attract new business.
Additionally, ARIS has undertaken and may in the future undertake fixed
price consulting projects. From time to time ARIS may establish a price or
project schedule before the client's design specifications are completed.
ARIS' failure to accurately estimate the resources required for such projects
or its failure to complete its contractual obligations in a manner consistent
with the project plan upon which the fixed price/fixed schedule contract was
based could have a material adverse effect on the profitability of such
projects.
Rapid Technological Change.
ARIS' success also depends in part on its ability to develop IT solutions
that keep pace with continuing changes in technology, evolving industry
standards and changing client preferences. This may require ARIS to make
substantial expenditures to develop new consulting services, course titles and
courseware, to hire new consultants, project managers and instructors and to
acquire new software and hardware. If ARIS is unable, for financial or other
reasons, to make those expenditures, hire additional qualified personnel, or
make the necessary acquisitions, ARIS' ability to compete effectively may be
materially and adversely affected.
Intellectual Property Rights.
ARIS uses certain proprietary consulting and training methodologies,
courseware, software applications and products, trademarks and service marks
and other proprietary and intellectual property rights. ARIS relies upon a
combination of copyright, trademark and trade secret laws, as well as
nondisclosure and other contractual arrangements, to protect these proprietary
rights. ARIS uses client licensing agreements and employee and third party
nondisclosure and confidentiality agreements to limit access to and
distribution of its proprietary information. There can be no assurance that
the steps taken by ARIS to protect its intellectual property rights will be
adequate to deter misappropriation of such rights or that ARIS will be able to
detect unauthorized uses and take immediate or effective steps to enforce its
rights. If substantial unauthorized uses of ARIS' proprietary rights were to
occur ARIS' could be required to engage in costly and time-consuming
litigation to enforce its rights. In addition, ARIS does business in countries
that do not provide protection or enforcement of intellectual property rights
to the same extent as the United States, and on the Internet, which is not
currently subject to comprehensive regulation.
ARIS develops custom software applications and methodologies, and training
courses and methodologies for third-party software products. The training
courses, methodologies, and courseware are owned by ARIS through agreements
with employees and subcontractors, but ownership of software applications
developed for clients is often assigned to the client, with ARIS retaining
limited use licenses. ARIS also develops software application tools in the
course of its consulting projects. ARIS generally seeks to retain significant
ownership or marketing rights for adaptation and reuse in subsequent projects.
Issues relating to the ownership of and rights to use training courses and
methodologies, courseware, and software applications and other tools can be
complicated and there can be no assurance that disputes will not arise that
affect ARIS' ability to resell or reuse such products and methodologies.
There can be no assurance that ARIS' competitors will not independently
develop products or methodologies functionally similar to ARIS' products and
methodologies, or that third parties will not claim that ARIS' current or
future products, courseware or services infringe their proprietary rights.
Although ARIS believes that its products, courseware and services do not
infringe on any third-party intellectual property rights, there can be no
assurance that such a claim will not be asserted against ARIS in the future or
that, if asserted, any such claim will be defended successfully.
14
<PAGE>
Control by Principal Shareholders.
Paul Song, ARIS' founder, President, Chief Executive Officer and Chairman,
is ARIS' single largest shareholder. Mr. Song's wife, Tina Song, is Vice
President of Administration, directs Human Resources and Information
Technology for ARIS and is ARIS' third largest shareholder. A family limited
partnership controlled by Mr. and Mrs. Song is ARIS' second largest
shareholder. As of December 31, 1997, Mr. and Mrs. Song beneficially own
45.0521% of ARIS' outstanding shares of Common Stock. As a result, Mr. and
Mrs. Song will likely be able to control the affairs and management of ARIS
and the outcome of any matters requiring a shareholder vote (other than those
matters for which a supermajority vote is required under Washington law or
ARIS' Amended and Restated Bylaws), including the election of the members of
the Board of Directors. Such control could delay or prevent a change in
control of ARIS. Other members of Mr. Song's immediate family, including his
brother, John Y. Song, Vice President of North America Education, own an
aggregate of 220,000 shares of the Common Stock and options to purchase an
additional 60,800 shares of Common Stock.
Potential Liability to Clients.
Many of ARIS' engagements involve projects that are critical to the
operations of its clients' businesses and provide benefits that may be
difficult to quantify. Any failure in a client's information system could
result in a claim for substantial damages against ARIS, regardless of ARIS'
responsibility for such failure. Although ARIS generally attempts to limit
contractually its liability for damages arising from negligent acts, errors,
mistakes or omissions in rendering its services, there can be no assurance
that the limitations of liability set forth in its service contracts will be
enforceable or would otherwise protect ARIS from liability for damages. ARIS
maintains general liability insurance coverage up to $6.0 million in the
aggregate and coverage for errors and omissions up to $3.0 million in the
aggregate. There can be no assurance, however, that such coverage will
continue to be available on commercially reasonable terms or will be available
in sufficient amounts to cover one or more large claims, or that ARIS' insurer
will not disclaim coverage as to any future claim. The successful assertion of
one or more large claims against ARIS that exceed available insurance coverage
or changes in ARIS' insurance policies, including premium increases or the
imposition of large deductible or co-insurance requirements, could adversely
affect ARIS' business, financial condition and results of operations.
Potential Volatility of Stock Price.
The market for securities of companies the same size of and in the same
industry as ARIS is volatile, often as a result of factors unrelated to an
issuer's operations. ARIS believes factors such as quarterly variations in
operating results, changes in relationships between ARIS and certain key
vendors of software products, general conditions in the IT industry or the
industries in which ARIS' clients compete and changes in earnings estimates by
securities analysts could contribute to the volatility of the price of the
ARIS Common Stock and cause significant price fluctuations. These factors, as
well as general economic conditions, could adversely affect the market price
of the ARIS Common Stock. Furthermore, securities class action litigation
against issuers is not uncommon, particularly following periods of volatility
in the market price of an issuer's securities. There can be no assurance that
such litigation will not occur in the future with respect to ARIS. Such
litigation could result in substantial costs and a diversion of management's
attention and resources, which could have a material adverse effect on ARIS'
business, financial condition and results of operations. Any adverse
determination in such litigation could subject ARIS to significant
liabilities.
Anti-Takeover Provisions.
ARIS is subject to anti-takeover provisions of Chapter 23B.17 of the WBCA
which prohibits, subject to certain exceptions, a merger, sale of assets or
liquidation of a corporation involving a 20% shareholder unless determined to
be at a fair price or approved by disinterested directors or disinterested
shareholders. In addition, Chapter 23B.19 of the WBCA prohibits a corporation
registered under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), from engaging in certain significant transactions with a 10%
shareholder. Significant transactions include, among others, a merger with or
disposition of assets to the 10% shareholder.
15
<PAGE>
Further, the ARIS Articles provide for a classified Board of Directors with
staggered, three-year terms. Also, the Board has the authority to issue up to
5,000,000 shares of preferred stock in one or more series and to fix the
preferences and other rights thereof without any further vote or action by
ARIS' shareholders. The issuance of preferred stock, together with the effect
of other anti-takeover provisions in the ARIS Articles and under the WBCA, may
have the effect of delaying, deferring or preventing a change in control of
ARIS and could limit the price that certain investors might be willing to pay
in the future for the ARIS Common Stock.
16
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THE SPECIAL MEETING
This Proxy Statement/Prospectus is being furnished to the stockholders of
InTime in connection with the solicitation by InTime's Board of Directors of
proxies for the Special Meeting. The Special Meeting will be held at the ,
, , Florida at a.m. local time on , , 1998, and at any
adjournment or postponement thereof. The approximate date of mailing this
Proxy Statement/Prospectus and the accompanying proxy card to the stockholders
of InTime is , 1998.
USE OF PROXIES AT THE SPECIAL MEETING
Proxies in the accompanying form, if properly executed, received by InTime
prior to the Special Meeting and not revoked prior to the use thereof, will be
voted at the Special Meeting as instructed thereon. Executed proxies with no
instructions indicated thereon will be voted FOR the approval of the Merger
Agreement, as set forth below under "APPROVAL OF THE MERGER." The Board of
Directors knows of no matters that are to be presented for consideration at
the Special Meeting other than those described in this Proxy
Statement/Prospectus, but if other matters are properly presented, it is the
intention of the persons designated as proxies on the enclosed proxy card to
vote as proxies with respect to such matters in accordance with their
judgment.
REVOCATION OF PROXIES
A proxy may be revoked at any time prior to the use of such proxy in voting.
Any stockholder may revoke a proxy delivered pursuant to this solicitation by
delivery of a written notice to the Secretary of InTime, by submission of a
later-dated proxy card, or by voting in person at the Special Meeting.
INTIME STOCKHOLDERS ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE, EVEN IF THEY ARE PLANNING TO ATTEND THE SPECIAL MEETING.
RECORD DATE; STOCKHOLDERS ENTITLED TO VOTE AT THE SPECIAL MEETING
Holders of the InTime Common Stock of record on the books of InTime as of
the close of business on , 1998, the Record Date, will be entitled to
notice of and to vote at the Special Meeting and any adjournment or
postponement thereof. As of the Record Date, there were outstanding shares
of InTime Common Stock.
STOCKHOLDERS SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH THEIR PROXY
CARDS. IF THE MERGER IS CONSUMMATED, STOCK CERTIFICATES SHOULD BE DELIVERED IN
ACCORDANCE WITH INSTRUCTIONS SET FORTH IN A LETTER OF TRANSMITTAL THAT WILL BE
SENT TO STOCKHOLDERS BY THE EXCHANGE AGENT PROMPTLY AFTER THE EFFECTIVE TIME.
QUORUM; VOTE REQUIRED FOR APPROVAL
Pursuant to the Bylaws of InTime, the presence, in person or by proxy, of
shares representing at least a majority of the votes entitled to be cast by
the holders of the InTime Common Stock is necessary to constitute a quorum for
the transaction of business at the Special Meeting. Abstentions and broker
non-votes (shares held by brokers or nominees as to which instructions have
not been received from the beneficial owners or persons entitled to vote and
the brokers or nominees do not have discretionary voting power) are included
in the calculation of the number of votes represented at a meeting for
purposes of determining whether a quorum has been achieved.
The Delaware General Corporation Law ("DGCL") requires that the affirmative
vote of the Merger Agreement be approved by the affirmative vote of a majority
of the shares present in person or by proxy at the Special Meeting.
Abstentions and broker non-votes will not be counted in determining the votes
cast on any matter before the Special Meeting.
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<PAGE>
APPRAISAL RIGHTS
If the Merger Agreement is approved at the Special Meeting, stockholders who
comply with the provisions of Section 262 of the DGCL, a copy of which is
attached as Appendix D to this Proxy Statement/Prospectus, will be entitled to
receive payment for their shares in accordance with such section. It is a
condition precedent to ARIS' obligation to consummate the Merger that the
compliance of the Merger Agreement and the Merger with the 90% test set forth
in Accounting Principles Board Opinion No. 16, Business Combinations, and the
interpretations and pronouncements promulgated thereunder. See "THE MERGER--
CONDITIONS TO THE MERGER AGREEMENT."
SOLICITATION OF PROXIES
InTime will bear the cost of solicitation of proxies for the Special
Meeting. In addition to the use of the U.S. mail, directors, officers and
regular employees of InTime may solicit proxies personally or by telephone,
facsimile or telegram. Such persons will receive no additional compensation.
InTime will reimburse custodians, brokerage houses, nominees and other
fiduciaries for their reasonable expenses in sending the proxy materials to
their principals.
RECOMMENDATION OF THE INTIME BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF INTIME HAS APPROVED THE MERGER AGREEMENT AND
RECOMMENDS THAT THE INTIME STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER AND
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
ARIS STOCK PRICE AND DIVIDEND INFORMATION
Since June 18, 1997, the ARIS Common Stock has been quoted on the Nasdaq
National Market under the symbol "ARSC." The following table sets forth, for
the quarters indicated, the reported high and low closing sales prices of ARIS
Common Stock as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
ARIS COMMON STOCK
-----------------
HIGH LOW
-----------------
<S> <C> <C>
1997
First Quarter.............................................. NA NA
Second Quarter............................................. $ 22.750 $ 19.125
Third Quarter.............................................. $ 31.375 $ 21.000
Fourth Quarter............................................. $ 26.375 $ 19.750
1998
First Quarter.............................................. $ 30.000 $ 21.125
Second Quarter (through May 4, 1998)....................... $ 36.000 $ 29.625
</TABLE>
The last sales price per share of ARIS Common Stock, as reported by the
Nasdaq National Market, was $33.00 on April 24, 1998, the last trading day
preceding the public announcement of the proposed Merger. On May 4, 1998, the
last reported sale price per share of ARIS Common Stock on the Nasdaq National
Market was $32.625.
As of the Record Date, there were approximately record holders of ARIS
Common Stock and approximately record holders of InTime Common Stock.
InTime has never paid cash dividends on its capital stock. Although ARIS has
paid dividends on its capital stock, no such dividends have been paid
recently, and the current policies of ARIS and InTime are to retain earnings
for use in their respective businesses.
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INTIME STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE
ARIS COMMON STOCK.
BACKGROUND OF THE MERGER
The timing, terms and conditions of the Merger Agreement are the result of
arms-length negotiations between representatives of InTime and ARIS. Set forth
below is a summary of the negotiations.
In February 1998, InTime's Board of Directors received a written cash offer
to acquire InTime (excluding its software business). In order to obtain the
necessary information with which to evaluate this offer and to exercise its
fiduciary duties, InTime's Board of Directors over the next few weeks began
the process of selecting and engaging a financial advisor. The Board
interviewed four investment banking firms, and in March 1998 approved the
engagement of Raymond James as InTime's financial advisor in connection with
this and other possible acquisition offers, and in developing other possible
strategies for InTime's future, Raymond James immediately began to identify
and contact other possible acquirors, including ARIS.
On April 9, 1998, Raymond James approached ARIS with information regarding
the potential sale of InTime to ARIS. The discussions held were general in
nature and included only a general business overview of InTime and ARIS.
Specific terms of the potential sale of InTime were not discussed at this
time. Based upon the interest of ARIS, a member of ARIS senior management flew
to West Palm Beach, Florida to meet with InTime management.
On April 10, 1998, a member of ARIS senior management met with InTime senior
management to discuss the cultural synergies of the two companies and the
interest in pursuing a combination of ARIS and InTime. Discussions centered on
the business overview of historical and forecasted financial statements of
each company. This meeting was an informal discussion of the two businesses.
No discussion of specific financial terms of a possible combination were held.
On April 13, 1998, InTime management met with ARIS management in Bellevue,
Washington to continue discussions on the synergies and strategies of the two
companies. Also discussed were the financial history and financial condition
of each company, including a review of financial forecasts, budgets, capital
structures and organizational structures. As a result of the discussions, ARIS
expressed an interest in pursuing an acquisition of InTime whereby ARIS would
issue its common stock in exchange for the outstanding capital stock of InTime
with the aggregate purchase price to be approximately $32 million, provided
that the transaction qualify for a pooling of interests under Generally
Accepted Accounting Principles. InTime management indicated that InTime would
like to move forward with further discussions and begin the due diligence
process.
A telephonic meeting was held on the morning of April 15, 1998, among ARIS,
InTime, Raymond James, the ARIS independent accountants and the legal counsel
for both ARIS and InTime. The parties discussed the coordination of due
diligence and timing of the potential acquisition of InTime by ARIS. During
the meeting, the parties reviewed the terms and structure of the potential
acquisition set forth in a letter from ARIS to InTime management. ARIS and
InTime agreed on the basic structure of the potential acquisition with further
discussion focusing a proposed lower limit on the purchase price. ARIS agreed
to provide Raymond James with the specific purchase price information
including the floor to the purchase price. Based upon this information and
calculations provided by its financial advisors, InTime determined the
allocations among holders of InTime Common Stock, InTime Warrants and InTime
Options.
At a subsequent telephonic meeting on the afternoon of April 15, 1998, ARIS,
InTime, Raymond James, the ARIS independent accountants and the legal
representatives for both ARIS and InTime held further discussions relating to
the timing and the pricing of the potential acquisition of InTime by ARIS. The
parties verbally agreed in concept to the pricing mechanism. ARIS and InTime
held a general discussion on numerous issues, including, certain employment
arrangements, the post-merger management team, due diligence coordination,
acquisition process and timing of the acquisition. A brief discussion was held
relating to the
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<PAGE>
possible ARIS Board of Director representation by a person designated by
InTime. ARIS management agreed to discuss the issue with the ARIS Board of
Directors.
At subsequent meetings between April 15, 1998 and April 23, 1998, ARIS,
InTime, Raymond James, and the accounting and legal representatives for each
respective company held numerous discussions relating to the specific details
of the potential acquisition of InTime by ARIS, including issues concerning
purchase price, conversion ratios, capitalization structures, stock options
and warrants, employment agreements, customer contracts and various other due
diligence related matters. ARIS and InTime also discussed the previous cash
offer by a third party to purchase InTime. InTime's management and its outside
directors conferred regularly during this period.
InTime's Board of Directors met on April 20, 1998 to discuss the status of
its pending offers and the progress of ARIS' due diligence review.
On April 22, 1998, the third party that extended the cash offer increased
its offer (but to an amount that was still below the ARIS offer).
At a meeting of the InTime Board of Directors on April 24, 1998, ARIS
management presented an overview of ARIS, including, among other things, the
description of ARIS operations, its financial condition and the anticipated
synergies that may be realized from a combination with InTime. Raymond James
presented the valuation methodologies used in connection with determining the
conversion ratio of InTime securities into ARIS securities. The InTime Board
of Directors discussed the specific details of the potential acquisition of
InTime by ARIS. The InTime Board of Directors requested that the purchase
price be increased to $33 million. The Board of Directors adjourned the
meeting until ARIS could consider and respond to the request for an increase
in the purchase price. The InTime Board of Directors requested responses to
various other questions related to the acquisition of InTime by ARIS. ARIS
management discussed and agreed to the request by the InTime Board of
Directors for an increase in the purchase price to $33 million. ARIS
management and its legal counsel discussed numerous other issues related to
the specifics of the acquisition, as well as the status of the cash offer,
which remained pending. After further discussions between InTime management
and the third party, the InTime Board of Directors determined that the ARIS
offer was greater in amount and otherwise more favorable to InTime's
stockholders than the cash offer and decided to complete its review of the
Merger Agreement and due diligence and other information provided by Raymond
James.
On April 25, 1998, the ARIS Board of Directors reviewed and approved the
Merger Agreement and the transactions contemplated thereby. ARIS management
continued to hold various meetings and discussions with InTime management and
its financial and legal representatives relating to the purchase price, the
acquisition exchange ratio, employment agreements and numerous other specific
details of the acquisition.
On April 26, 1998, the InTime Board of Directors reconvened its meeting to
discuss the acquisition of InTime by ARIS. Raymond James delivered its
Fairness Opinion to the InTime Board for its review. The InTime Board
considered the acceptance by ARIS of the request to increase the purchase
price to $33 million and discussed the ARIS responses to numerous other issues
related to the specifics of the potential acquisition. The InTime Board of
Directors, after receiving the Raymond James Opinion, unanimously approved the
acquisition of InTime by ARIS, subject to stockholder and regulatory approval.
ARIS' REASONS FOR THE MERGER
In reaching its conclusion to approve the Merger, the Board of Directors of
ARIS considered a number of factors including, among others:
1. The business, financial position, results of operations and prospects
of ARIS and InTime and potential synergies resulting from the combination
of the companies.
2. The ability to add more than 60 trained IT consultants in light of the
intense competition for talented personnel in the IT industry. See, "ARIS
Business--Strategy."
3. The ability of ARIS to capitalize on InTime's presence in the
PeopleSoft and ORACLE Human Resource Management markets. See, "ARIS
Business--Strategy" and "Business of InTime."
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ARIS BOARD APPROVAL
FOR THE REASONS DISCUSSED ABOVE, THE ARIS BOARD HAS DETERMINED THAT THE
TERMS OF THE MERGER AGREEMENT AND THE MERGER ARE IN THE BEST INTERESTS OF ARIS
AND ITS SHAREHOLDERS AND IT HAS THEREFOR APPROVED THE MERGER BY UNANIMOUS
VOTE.
INTIME'S REASONS FOR THE MERGER
The Board of Directors of InTime believes that, through the Merger, InTime
will realize positive benefits, including: greater financial resources to
support the expansion of InTime's operations than would be available to InTime
as an independent company; obtaining access to enterprise-wide solutions for
ORACLE software products; obtaining access to additional training resources
for InTime's employees and its customers, as well as providing InTime with
additional sources of business leads; creating a better career path for
InTime's employees and consultants, thereby improving their development and
retention; and creating immediate additional value and liquidity in the
investment of InTime's stockholders.
Additionally, the Board considered the proposed merger with ARIS to be more
favorable to the InTime stockholders than the cash offer also received, for
various significant reasons. First, the ARIS offer was greater in amount than
was the cash offer. Second, although the price of the ARIS Common Stock is
subject to market risks, the Board believed that there would be potential for
price appreciation that would not be available in a transaction for cash.
Third, the Merger was structured to be a tax-free reorganization so that the
InTime stockholders would not realize a taxable gain upon the receipt of ARIS
Common Stock in exchange for their shares of InTime Common Stock. Finally, the
Board believed that ARIS offered a synergistic opportunity for future growth.
INTIME BOARD APPROVAL
FOR THE REASONS DISCUSSED ABOVE, THE INTIME BOARD HAS APPROVED THE MERGER
AGREEMENT AND THE MERGER AND HAS DETERMINED THAT THE TERMS OF THE MERGER
AGREEMENT AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, INTIME AND
THE INTIME STOCKHOLDERS. ACCORDINGLY, THE INTIME BOARD HAS UNANIMOUSLY
RECOMMENDED THAT THE INTIME STOCKHOLDERS VOTE IN FAVOR OF APPROVAL OF THE
MERGER PROPOSAL.
OPINION OF FINANCIAL ADVISOR TO INTIME
InTime retained Raymond James to serve as its financial advisor in
connection with its exploration of strategic alternatives. At the request of
InTime, Raymond James solicited third party indications of interest in
acquiring all or substantially all of the stock or assets of InTime. As part
of this engagement, Raymond James was asked to render an opinion to the InTime
Board of Directors as to the fairness to InTime, from a financial point of
view, of the terms of the Merger.
On April 26, 1998, Raymond James delivered its opinion to the Board of
Directors of InTime, to the effect that, as of April 26, 1998, the
consideration to be received by the stockholders of InTime pursuant to the
Merger Agreement is fair, from a financial point of view, to the holders of
the InTime Common Stock. THE FULL TEXT OF THE WRITTEN OPINION OF RAYMOND
JAMES, DATED APRIL 26, 1998, IS ATTACHED HERETO AS APPENDIX C AND IS
INCORPORATED HEREIN BY REFERENCE. HOLDERS OF INTIME COMMON STOCK ARE URGED TO
READ THE RAYMOND JAMES OPINION IN ITS ENTIRETY FOR THE ASSUMPTIONS MADE,
PROCEDURES FOLLOWED, OTHER MATTERS CONSIDERED AND LIMITS OF THE REVIEW BY
RAYMOND JAMES. THE SUMMARY OF THE RAYMOND JAMES OPINION SET FORTH HEREIN IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
Raymond James' analyses and opinion were prepared for the InTime Board of
Directors and are directed to the fairness, from a financial point of view, of
the financial terms of the merger. Raymond James also assisted
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the Board in determining the allocation of the Merger consideration among the
InTime Common Stock, InTime Options and InTime Warrants. Raymond James does
not express any opinion as to the underlying business decision to effect the
merger, the structure or tax consequences of the merger agreement or the
availability or advisability of any alternatives to the merger. The Raymond
James Opinion does not imply any conclusion as to the likely trading range for
the ARIS Common Stock following consummation of the Merger. Rather, the
Raymond James Opinion is limited to the fairness, from a financial point of
view, of the terms of the Merger. The Raymond James Opinion does not
constitute a recommendation to any stockholder as to haw to vote on the
proposed merger. The amount of the total Merger consideration was determined
through negotiations between ARIS and InTime.
Raymond James was selected by the Board of Directors of InTime as its
financial advisor, and to render an opinion to the Board, because Raymond
James is a nationally recognized investment banking firm and because certain
principals of Raymond James have substantial experience in the IT industry and
in transactions similar to the Merger, and are familiar with InTime and its
businesses. As part of its investment banking business, Raymond James is
regularly engaged in the valuation of businesses and their securities in
connection with mergers, acquisitions and valuations for corporate and other
purposes. In the ordinary course of its business, Raymond James trades equity
securities of InTime for its account and for the accounts of its customers,
and, accordingly, it may at any time hold a long or short position in such
securities.
In arriving at its opinion, Raymond James, among other things:
1. reviewed the financial terms and conditions as stated in the April 24,
1998 draft of the Merger Agreement;
2. reviewed the audited 10-KSB financial statements of InTime as of and
for the years ended December 31, 1997 and 1996;
3. reviewed the InTime Quarterly Reports filed on Form 10-QSB for the
quarters ended March 31, 1998, September 30, 1997 and June 30, 1997;
4. reviewed the audited 10-K financial statements of ARIS as of and for
the years ended December 31, 1997 and 1996;
5. reviewed the ARIS Quarterly Reports filed on Form 10-Q for the
quarters ended September 30, 1997 and June 30, 1997 and certain publicly
available filings with the Commission and certain other relevant financial
and operating data;
6. reviewed other InTime financial and operating information requested
from and/or provided by InTime;
7. reviewed certain other publicly available information about InTime;
and
8. discussed with members of the senior management of InTime certain
information relating to the aforementioned and any other matters that
Raymond James deemed relevant to its inquiry.
In connection with its opinion, Raymond James assumed and relied upon the
accuracy and completeness of all information supplied or otherwise made
available to it by InTime, ARIS or any other party, without independent
verification. Raymond James neither made nor obtained an independent appraisal
of the assets or liabilities (contingent or otherwise) of InTime or ARIS.
Further, Raymond James assumed that forecasts and other information and data
provided to it by InTime were reasonably prepared in good faith on bases
reflecting the best currently available estimates and judgments of management.
Raymond James assumed that the Merger will be accounted for as a pooling of
interests. Finally, the Raymond James Opinion is based upon market, economic,
financial and other circumstances and conditions existing and disclosed to
Raymond James as of April 26, 1998. Raymond James has advised that any
material change in such circumstances and conditions would require a
reevaluation of the Raymond James Opinion.
Pursuant to the terms of the Raymond James engagement letter, InTime will
pay Raymond James an aggregate fee of $535,000, $25,000 of which has been paid
as a non-refundable retainer, for acting as its financial
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advisor in connection with the Merger, including rendering the Raymond James
Opinion. Raymond James has received no other compensation from InTime during
the past two years for financial advisory or other services. Whether or not
the Merger is consummated, InTime has also agreed to indemnify Raymond James
and each of its directors, officers, agents, employees and controlling persons
(within the meaning of the Securities Act) against certain liabilities,
including, but not limited to, any liability relating to or arising from the
engagement described in the Raymond James engagement letter, except for
liability for losses, claims, damages or expenses that are finally judicially
determined to have arisen primarily from Raymond James' willful misconduct or
gross negligence.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
GENERAL
Certain members of InTime's management may be deemed to have certain
interests in the Merger that are in addition to their interests as
stockholders of InTime generally. The Boards of Directors of InTime and ARIS
were each aware of these interests and considered them, among other matters,
in approving the Merger Agreement and the transactions contemplated thereby.
INTERESTS AS HOLDERS OF INTIME COMMON STOCK AND INTIME OPTIONS
The following table sets forth information, with respect to each director or
executive officer of InTime prior to the consummation of the Merger who will
be entitled to receive a portion of the Merger consideration with respect to
shares of InTime Common Stock and InTime Options. See "Business of InTime--
Security Ownership of Certain Beneficial Owners and Management."
<TABLE>
<CAPTION>
NO. OF SHARES NO. OF SHARES EXERCISE EXERCISE
OF INTIME OF ARIS NO. OF INTIME PRICE NO. OF ARIS PRICE
NAME COMMON STOCK COMMON STOCK OPTIONS(1) PER SHARE OPTIONS PER SHARE
---- ------------- ------------- ------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
William E. Berry (2).... 291,023 77,412 75,000(3) $5.75 19,950 $21.60
Michael D. Matte (3).... 2,000 532 100,000(3) $4.52 26,600 $16.98
25,000 $5.75 6,650 $21.60
John E. Steiner (2)..... 291,023 77,412 75,000(3) $5.75 19,950 $21.60
Paul Piper.............. 500 133 4,000 $7.00 1,064 $26.30
Corine C. Goldkiller.... -- -- 4,643 $1.76 1,235 $ 6.61
25,000 $5.75 6,650 $21.60
7,735 $5.75 2,058 $21.60
</TABLE>
- --------
(1) Includes all InTime Options which will vest as of June 30, 1998 or in
connection with the consummation of the Merger.
(2) Excludes 929,603 Escrowed Shares beneficially owned by each of Messers.
Berry and Steiner, which can be voted at the special meeting. Messers.
Berry and Steiner have agreed to cancel their Escrowed Shares immediately
prior to the Effective Time.
(3) Upon closing of the Merger, the InTime Options held by Messers Berry,
Matte, and Steiner will become fully vested and exercisable.
INSURANCE AND INDEMNIFICATION
Pursuant to the Merger Agreement, ARIS will provide each individual who
served as a director or officer of InTime at any time prior to the Effective
Time with liability insurance for a period of 36 months after the Effective
Time in an amount not less than $5,000,000. In addition, ARIS, as the
surviving company in the Merger, will observe any indemnification provisions
existing as of April 26, 1998 in InTime's certificate of incorporation or
bylaws for the benefit of any individual who served as a director or officer
of InTime prior to the Effective Time.
REGISTRATION RIGHTS
Messrs. William E. Berry and John E. Steiner will be granted registration
rights upon the closing of the Merger. Such registration rights will allow the
persons to whom they are granted the ability to register their shares of ARIS
Common Stock, subject to certain limitations, if ARIS otherwise registers
shares of its ARIS Common Stock in connection with a public offering.
SEVERANCE PAYMENTS
The Merger will result in a change of control of InTime for purposes of, or
will otherwise provide for severance rights under, the employment agreements
entered into between InTime and William E. Berry, InTime's
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President, and InTime and Michael D. Matte, InTime's Chief Financial Officer
(the "Employment Agreements"). As a result, under the Employment Agreements,
such executives will be entitled to receive certain cash payments and vesting
of certain InTime Options. Mr. Berry has elected to waive the cash payment due
to him. See "Business of InTime--Executive Compensation--Employment and
Consulting Agreements."
ARIS EMPLOYMENT AGREEMENT
As a condition to the Merger, ARIS will enter into an employment agreement
with William E. Berry. ARIS has also agreed, following consummation of the
Merger, to the termination of Mr. Matte's InTime Employment Agreement and to
enter into a new employment agreement with him. Both Mr. Berry and Mr. Matte
will receive signing bonuses under their respective employment agreements with
ARIS.
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FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
considerations of the Merger that are generally applicable to holders of
InTime Common Stock. This discussion is based on currently existing provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), existing and
proposed Treasury Regulations thereunder and current administrative rulings
and court decisions, all of which are subject to change. Any such change,
which may or may not be retroactive, could alter the tax consequences to ARIS,
InTime or InTime stockholders as described herein.
InTime stockholders should be aware that this discussion does not deal with
all U.S. federal income tax considerations that may be relevant to particular
InTime stockholders in light of their particular circumstances, such as
stockholders who are dealers in securities, banks, insurance companies or tax-
exempt organizations, who are subject to the alternative minimum tax
provisions of the Code, who are foreign persons, who acquired their shares in
connection with stock option or stock purchase plans or in other compensatory
transactions, or who hold their shares as a hedge or as part of a hedging,
straddle, conversion or other risk reduction transaction. Further, this
discussion does not address the federal income tax treatment with respect to
holders of InTime Warrants. In addition, the following discussion does not
address the tax consequences of the Merger under foreign, state or local tax
laws or the tax consequences of transactions effectuated prior to or after the
Merger (whether or not such transactions are in connection with the Merger).
INTIME STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF THE MERGER IN THEIR PARTICULAR
CIRCUMSTANCES.
Neither ARIS nor InTime has requested a ruling from the Internal Revenue
Service (the "IRS") with regard to any of the U.S. federal income tax
consequences of the Merger. As a condition to the consummation of the Merger,
Price Waterhouse LLP will render an opinion (the "Tax Opinion") that the
Merger will constitute a tax-free reorganization under Section 368 of the Code
(a "Reorganization"). Such opinion is, and will be, based on certain
assumptions as well as representations (discussed below) and is, and will be,
subject to the limitations discussed below. Moreover, such opinion will not be
binding on the IRS nor preclude the IRS from adopting a contrary position.
Subject to the limitations and qualifications referred to herein and in the
Tax Opinion, it is the opinion of Price Waterhouse LLP that as a result of the
Merger's qualifying as a Reorganization, the following U.S. federal income tax
consequences will result:
(i) No gain or loss will be recognized by the holders of InTime Common
Stock upon the receipt of ARIS Common Stock solely in exchange for such
InTime Common Stock in the Merger (except to the extent of cash received in
lieu of fractional shares);
(ii) The aggregate tax basis of the ARIS Common Stock so received by
InTime stockholders in the Merger (including any fractional share of ARIS
Common Stock not actually received) will be the same as the aggregate tax
basis of InTime Common Stock surrendered in exchange therefor;
(iii) The holding period for tax purposes of the ARIS Common Stock so
received by each InTime stockholder in the Merger will include the period
for which the InTime Common Stock surrendered in exchange therefor was
considered to be held, provided that the InTime Common Stock so surrendered
is held as a capital asset at the Effective Time;
(iv) Cash payments received by holders of InTime Common Stock in lieu of
a fractional share will be treated as if such fractional share of ARIS
Common Stock had been issued in the Merger and then redeemed by ARIS. An
InTime stockholder receiving such cash will recognize gain or loss upon
such payment,
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<PAGE>
measured by the difference (if any) between the amount of cash received and
the basis in such fractional share. The gain or loss should be capital gain
or loss provided that such share of InTime Common Stock was held as a
capital asset at the Effective Time and subject to the provision and
limitations of Section 302;
(v) A stockholder of InTime who exercises dissenters' rights under
applicable law with respect to a share of InTime Common Stock and receives
a cash payment for such stock will generally recognize capital gain or loss
(if such stock was held as a capital asset at the Effective Time of the
Merger) measured by the difference between the amount of cash received and
the stockholder's basis in such share, provided such payment is neither
essentially equivalent to a dividend within the meaning of Section 302 of
the Code nor has the effect of a distribution of a dividend within the
meaning of Section 356(a)(2) of the Code (collectively, a "Dividend
Equivalent Transaction"). A sale of InTime shares incident to an exercise
of dissenters' rights will generally not be a Dividend Equivalent
Transaction if, as a result of such exercise, the dissenting stockholder
owns no shares of ARIS Common Stock (either actually or constructively
within the meaning of Section 318 of the Code); and
(vi) Neither ARIS nor InTime will recognize gain solely as a result of
the Merger.
The Tax Opinion will be subject to certain assumptions and qualifications
and will be based on the truth and accuracy of certain representations of
ARIS, InTime and certain stockholders of InTime, including representations in
certain certificates delivered to Price Waterhouse LLP by the respective
managements of ARIS and InTime and certain stockholders of InTime. Of
particular importance are the assumptions and representations relating to the
"continuity of interest" requirement.
To satisfy the "continuity of interest" requirement, InTime stockholders
must, in the aggregate, receive a significant equity interest in ARIS in
exchange for their shares in InTime. InTime stockholders will generally be
regarded as having a "significant equity interest" as long as the ARIS Common
Stock received in the Merger (after taking into account Planned Dispositions,
as defined below), in the aggregate, represents a substantial portion of the
entire consideration received by the InTime stockholders in the Merger. In
order to satisfy the requirement, the InTime stockholders must not, pursuant
to a plan or intent existing at or prior to the Effective Time, dispose of or
transfer so much of either (i) their InTime Common Stock in anticipation of
the Merger or (ii) the ARIS Common Stock to be received in the Merger to ARIS
or to any persons related to ARIS (collectively, "Planned Dispositions"), such
that the InTime stockholders, as a group, would not be considered to have a
received a "significant equity interest" in the InTime business being
conducted by ARIS in exchange for their InTime shares. If the continuity of
interest requirement is not satisfied, the Merger would not be treated as a
Reorganization. The law is unclear as to what constitutes a "significant
equity interest." The IRS ruling guidelines require a minimum of 50%
continuity (although such guidelines do not purport to represent the
applicable substantive law). The Merger Agreement and certificates from the
management of InTime and ARIS regarding continuity of interest contemplate
that the 50% standard will be applied. No assurance can be made that the
"continuity of interest" requirement will be satisfied, and if such
requirement is not satisfied, the Merger would not be treated as a
Reorganization.
A successful IRS challenge to the Reorganization status of the Merger (as a
result of a failure of the "continuity of interest" requirement or otherwise)
could result in significant adverse tax consequences to the InTime
stockholders. An InTime stockholder would recognize gain or loss with respect
to each share of InTime Common Stock surrendered equal to the difference
between the stockholder's basis in such share and the fair market value, as of
the Effective Time, of the ARIS Common Stock received in exchange therefor. In
such event, a stockholder's aggregate basis in the ARIS Common Stock so
received would equal its fair market value, and the stockholder's holding
period for such stock would begin the day after the Closing Date.
Certain noncorporate InTime stockholders may be subject to backup
withholding at a rate of 31% on cash payments received in lieu of a fractional
share interest in ARIS Common Stock. Backup withholding will not apply,
however, to a stockholder who furnishes a correct taxpayer identification
number ("TIN") and certifies that he, she or it is not subject to backup
withholding on the substitute Form W-9 included in the Letter of Transmittal
who provides a certificate of foreign status on Form W-8, or who is otherwise
exempt from backup
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<PAGE>
withholding. A stockholder who fails to provide the correct TIN on Form W-9
may be subject to a $50 penalty imposed by the IRS.
Each InTime stockholder will be required to retain records and file with
such holder's U.S. federal income tax return a statement setting forth certain
facts relating to the Merger.
ANTICIPATED ACCOUNTING TREATMENT
It is expected that the Merger will be accounted for as a pooling of
interests for accounting and financial purposes. See "Accounting Treatment."
RESALE OF ARIS COMMON STOCK
After ARIS files with the Commission its financial results covering at least
30 days of post-merger combined operations of ARIS and InTime, ARIS Common
Stock issued in connection with the Merger will be freely transferable, except
that shares issued to any InTime stockholder that may be an, "affiliate," of
InTime or who becomes an, "affiliate," of ARIS are subject to certain
restrictions on resale. Affiliates generally include, without limitation,
directors, certain executive officers and certain other persons who control a
company. Certain stockholders of InTime who may be deemed to be affiliates
have executed agreements that prohibit the sale, transfer or other disposition
of ARIS Common Stock received by such stockholders in the Merger, except under
certain circumstances, in order to comply with the requirements of certain
federal securities laws. See "The Merger Agreement--Affiliate Certificate."
Certain stockholders of InTime have also delivered to ARIS certificates
certifying that such stockholders have no present intention to dispose of
certain of the shares of ARIS Common Stock to be received by such stockholders
in the Merger in order to comply with the requirements of certain United
States federal tax laws and the accounting rules relating to pooling. See
"Federal Income Tax Consequences."
RIGHTS OF DISSENTING STOCKHOLDERS
Stockholders of InTime may, under certain circumstances and by following the
procedure prescribed by the DGCL, exercise appraisal rights and receive cash
for their shares of InTime Common Stock. The stockholders exercising appraisal
rights under the DGCL must follow the appropriate procedures under the DGCL or
suffer the termination or waiver of such rights.
If a holder of InTime Common Stock exercises appraisal rights in connection
with the Merger under Section 262 of the DGCL ("Section 262"), any shares of
InTime Common Stock in respect of which such rights have been exercised and
perfected will not be converted into ARIS Common Stock but instead will be
converted into the right to receive such consideration as may be determined by
the Delaware Court of Chancery (the "Court") to be due with respect to such
shares pursuant to the laws of the State of Delaware.
The following summary of the provisions of Section 262 is not intended to be
a complete statement of such provisions and is qualified in its entirety by
reference to the full text of Section 262, a copy of which is attached to this
Proxy Statement/Prospectus as Appendix D and incorporated herein by reference.
Holders of shares of InTime Common Stock who object to the Merger and who
follow the procedures in Section 262 will be entitled to have their shares of
InTime Common Stock appraised by the Court and to receive payment of the "fair
value" of such shares as of the Effective Time.
A stockholder of InTime electing to exercise appraisal rights must, prior to
the InTime Special Meeting, perfect his, her or its appraisal rights by
demanding in writing from InTime the appraisal of his, her or its shares of
InTime Common Stock, as provided in Section 262. A holder who elects to
exercise appraisal rights should mail or deliver his, her or its written
demand to InTime at 1601 Forum Place Fifth Floor West Palm Beach, FL 33401,
Attn: Corporate Secretary. The demand should specify the holder's name and
mailing address, the number of shares of InTime Common Stock owned and that
such holder is demanding appraisal of his, her or its shares.
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Only a holder of record of shares of InTime Common Stock (or his, her or its
duly appointed representative) is entitled to assert appraisal rights for the
shares registered in that holder's name.
Within 120 days after the Effective Time, any stockholder who has made a
valid written demand and who has not voted in favor of approval and adoption
of the Merger Agreement and approval of the Merger may (i) file a petition in
the Court demanding a determination of the value of shares of InTime Common
Stock and (ii) upon written request, receive from InTime a statement setting
forth the aggregate number of shares of InTime Common Stock not voted in favor
of approval and adoption of the Merger Agreement and approval of the Merger
and with respect to which demands for appraisal have been received and the
aggregate number of holders of such shares. Such statement must be mailed
within ten days after the written request therefor has been received by
InTime.
If a petition for an appraisal is timely filed, at a hearing on such
petition, the Court is required to determine the holders of InTime Common
Stock entitled to appraisal rights and will determine the "fair value" of such
InTime Common Stock exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, to be paid upon the value of such InTime Common Stock. In
determining the "fair value" of such InTime Common Stock, the Court is
required to take into account all relevant factors, including the market value
of InTime Common Stock and the net asset and earnings value of InTime. In
determining the fair value of interest, the Court may consider all relevant
factors including the rate of interest which InTime would have had to pay to
borrow money during the pendency of the proceedings. Upon application by a
stockholder, the Court may also order that all or a portion of the expenses
incurred by any stockholder in connection with the appraisal proceeding,
including, without limitation, reasonable attorney's fees and the fees and
expenses of experts utilized in the appraisal proceeding, be charged pro rata
against the value of all the shares of InTime Common Stock entitled to
appraisal.
Any holder of InTime Common Stock who has duly demanded an appraisal under
Section 262 will not, after the Effective Time, be entitled to vote the shares
subject to such demand for any purpose or be entitled to the payment of
dividends or other distributions on such InTime Common Stock (except dividends
or other distributions payable to stockholders of record as of a date prior to
the Effective Time).
If any holder of shares of InTime Common Stock who demands appraisal under
Section 262 effectively withdraws or loses his, her or its right to appraisal,
the shares of such holder will be converted into a right to receive that
number of shares of ARIS Common Stock as is determined in accordance with the
Merger Agreement. A holder will effectively lose his right to appraisal if he,
she or it votes in favor of approval and adoption of the Merger Agreement and
approval of the Merger, if no petition for appraisal is filed within 120 days
after the Effective Time or if the holder delivers to InTime a written
withdrawal of such holder's demand for an appraisal and an acceptance of the
Merger, except that any such attempt to withdraw made more than 60 days after
the Effective Time requires the written approval of InTime. A holder of stock
represented by certificates may also lose his, her or its right of appraisal
if he, she or it fails to comply with the Court's direction to submit such
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings.
Holders of ARIS Common Stock are not entitled to appraisal rights under the
DGCL because ARIS is not a constituent corporation to the Merger under the
DGCL.
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THE MERGER AGREEMENT
GENERAL
The following is a summary of the material provisions of the Merger
Agreement, a copy of which is attached as Appendix A to this Proxy
Statement/Prospectus and is incorporated herein by reference. The following is
not a complete statement of all provisions of the Merger Agreement and related
agreements. Statements made in this Proxy Statement/Prospectus with respect to
the terms of the Merger Agreement and such related agreements are qualified in
their respective entireties by reference to the more detailed information set
forth in the Merger Agreement and such related agreements.
MERGER CONSIDERATION
Conversion of InTime Common Stock
Subject to the provisions contained in the Merger Agreement relating to the
payment of cash in lieu of shares with respect to which appraisal rights have
properly been exercised, each share of InTime Common Stock outstanding
immediately prior to the Effective Time will be converted into the right to
receive that number of shares of ARIS Common Stock determined pursuant to the
"Exchange Ratio." The Exchange Ratio as of the date of the Merger Agreement
was determined by dividing (1) $33,000,000 less the value of all outstanding
InTime Warrants and InTime Options (which equalled $5,367,375 and $3,462,737,
respectively, as of the date of the Merger Agreement) by (2) $34.56, which was
the average closing price for one share of ARIS Common Stock (as reported by
the Nasdaq National Market) for the 10 trading days prior to the date of the
Merger Agreement, which quotient was then divided by the outstanding number of
shares of InTime Common Stock. On the date of the Merger Agreement, the
Exchange Ratio was 0.266, meaning each share of InTime Common Stock would be
converted into 0.266 shares of ARIS Common Stock. The Exchange Ratio is
subject to adjustment in the event of any stock split, stock dividend, reverse
stock split, or other change in the number of outstanding shares of InTime
Common Stock. The Exchange Ratio is also subject to adjustment in the event
that the average closing price for one share of ARIS Common Stock (as reported
by the Nasdaq National Market) for the 10 trading days immediately preceding
the Closing Date has dropped below $31.50, in which case the Exchange Ratio
shall be adjusted to reflect the lower average closing price. If such an
adjustment in the Exchange Ratio occurs, (1) each share of InTime Common Stock
shall be converted into the right to receive a greater amount of ARIS Common
Stock; (2) each outstanding InTime Class A Warrant shall be converted into the
right to receive a greater amount of ARIS Warrants at a lesser exercise price;
and (3) each outstanding InTime option shall be converted into the right to
receive a greater amount of ARIS Options at a lesser exercise price. The
actual Exchange Ratio will not be determined until immediately prior to the
Effective Time.
From January 1, 1998 through May 4, 1998, the closing price of ARIS Common
Stock ranged from a low of $21.125 to a high of $36.125 per share. See "ARIS
Stock Price and Dividend Information." ARIS' stock price may be affected by a
number of factors (including announcements by ARIS relating to staffing, the
allocation of resources, pending transactions (such as the Merger),
performance of and investor expectations for InTime, trading activity in ARIS
Common Stock and general economic and market conditions). See "Risk Factors".
No fractional shares of ARIS Common Stock will be issued in connection with
the Merger, and no certificates for any such fractional shares will be issued.
In lieu of such fractional shares, any holder of InTime Common Stock (after
aggregating all fractional shares of ARIS Common Stock issuable to such
holder) will, upon surrender of such holder's stock certificate(s)
representing InTime Common Stock to the Exchange Agent, be paid in cash the
dollar amount (rounded to the nearest whole cent), without interest,
determined by multiplying such fraction by the closing price of a share of
ARIS Common Stock on the Nasdaq National Market on the date the Merger becomes
effective.
Each outstanding share of InTime Common Stock with respect to which
appraisal rights have properly been exercised will be converted into the right
to receive payment from ARIS, as the surviving company in the Merger, in
accordance with the provisions of the DGCL.
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Conversion of InTime Warrants
Subject to the provisions contained in the Merger Agreement, each InTime
Warrant outstanding immediately prior to the Effective Time will be converted
into the right to receive a warrant of like tenor and quality to purchase that
number of shares of ARIS Common Stock determined pursuant to the Exchange
Ratio at an exercise price equal to approximately 3.7565 times the exercise
price of the InTime Warrant. If the Exchange Ratio is adjusted, each InTime
Warrant shall be converted into the right to receive a greater amount of ARIS
Warrants at a lesser exercise price.
Conversion of InTime Options
Subject to the provisions contained in the Merger Agreement, each InTime
Option outstanding immediately prior to the Effective Time will be converted
into the right to receive an option of like tenor and quality to purchase that
number of shares of ARIS Common Stock determined pursuant to the Exchange
Ratio at an exercise price equal to approximately 3.7565 times the exercise
price of the InTime Option. If the Exchange Ratio is adjusted, each InTime
Option shall be converted into the right to receive a greater amount of ARIS
Options at a lesser exercise price.
CORPORATE MATTERS
The Merger Agreement provides that, prior to the Effective Time, neither
InTime, nor its subsidiaries, will engage in any practice, take any action, or
enter into any transaction outside the ordinary course of business consistent
with its past custom and practice, including, among other things: (a)
authorizing or effecting any change in its charter or bylaws; (b) granting any
options, warrants, or other rights to purchase or obtain any of its capital
stock or issue, sell, or otherwise dispose of any of its capital stock (except
upon the conversion or exercise of options, warrants, and other rights
currently outstanding); (c) declaring, setting aside, or paying any dividend
or distribution with respect to its capital stock (whether in cash or in
kind), or redeeming, repurchasing, or otherwise acquiring any of its capital
stock; (d) issuing any note, bond, or other debt security or creating,
incurring, assuming, or guaranteeing any indebtedness for borrowed money or
capitalized lease obligation; (e) making any capital investment in, making any
loan to, or acquiring the securities or assets of any other entity; and (f)
changing the employment terms for any of its directors or executive officers,
or entering into any other arrangement or agreement with directors or
executive officers.
CONDITIONS TO THE MERGER
The obligations of ARIS and InTime to consummate the Merger are subject to
the satisfaction, at the Closing, of a number of conditions, including, among
others, the following: (a) the approval of the Merger Agreement and the Merger
by the holders of a majority of the shares of InTime Common Stock; (b) the
compliance of the Merger Agreement and the Merger with the 90% test set forth
in Accounting Principles Board Opinion No. 16, Business Combinations, and the
interpretations and pronouncements promulgated thereunder which generally
provide that at least 90% of the InTime Common Stock must be exchanged so that
ARIS may account for the Merger as a pooling of interests; (c) all of the
subsidiaries of InTime shall have been merged with and into InTime; (d) the
truth and correctness in all material respects at the Closing of the
representations and warranties of ARIS and InTime; (e) the performance and
compliance in all material respects of the covenants of ARIS and InTime; (f)
the Registration Statement shall have become effective under the Securities
Act; (g) the shares of ARIS Common Stock that will be issued in the Merger
shall have been approved for listing on the Nasdaq National Market, subject to
official notice of issuance; (h) ARIS and InTime shall have received required
opinions from legal counsel and accountants as to the effect of the Merger;
(i) ARIS shall have received the resignations of the directors and the
President of InTime, and entered into an employment agreement with the
President of InTime; (j) the absence of any action, suit, or proceeding
pending or threatened before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree, ruling,
or charge would (i) prevent consummation of the Merger, (ii) cause the Merger
to be rescinded following consummation, (iii) affect adversely the right of
ARIS, as the surviving company in the Merger, to own the former assets, to
operate the former businesses, and
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to control the former subsidiaries of InTime, or (iv) affect adversely the
right of any of the former subsidiaries of InTime to own its assets and to
operate its businesses (and no such injunction, judgment, order, decree,
ruling, or charge shall be in effect); and (k) the Initial InTime stockholders
shall have agreed to forfeit the Escrow Shares.
It is a condition to consummation of the Merger that each person who could
reasonably be determined to be an "affiliate," as such term is defined in Rule
145 promulgated under the Securities Act, of InTime execute a certificate that
generally requires such holder, for the one-year period following consummation
of the Merger, to sell shares to the public only in accordance with the volume
restrictions and manner of sale restrictions of Rule 144 promulgated under the
Securities Act. These restrictions generally require that sales to the public
be made only through unsolicited "brokers' transactions" or in transactions
directly with a "market maker," as such terms are defined in Rule 144.
Additionally, the number of shares to be sold by an affiliate (together with
certain related persons and certain persons acting in concert) within any
three-month period for purposes of Rule 145 may not exceed the greater of 1%
of the outstanding shares of ARIS Common Stock or the average weekly trading
volume of such stock during the four calendar weeks preceding the filing of a
Form 144 with the Commission relating to such sale. One year after the
Effective Time, an affiliate would be able to sell such ARIS Common Stock
without such manner of sale or volume limitations provided that ARIS was
current with its Exchange Act informational filings and such affiliate was not
then an affiliate of ARIS. This requirement will lapse if the Commission
repeals the provisions currently contained in Rule 145(c) in a manner that
would apply to this transaction. Such restriction will also include such
affiliates' agreement that they will not sell any of their shares of ARIS
Common Stock until after ARIS files with the Commission its financial results
covering at least 30 days of post-merger combined operations of ARIS and
InTime.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various, customary, representations and
warranties of InTime and ARIS, relating to, among other things, the following
matters (which representations and warranties are subject, in certain cases,
to specified exceptions): (a) due organization, existence and standing; (b)
capitalization; (c) power and authority to execute and deliver the Merger
Agreement and to perform its respective obligations thereunder; (d) compliance
with applicable agreements, contracts, leases, licenses, instruments, and
laws, regulations, rules, injunctions, judgments, orders, decrees, rulings,
charges, or other restrictions of any government, governmental agency, or
court; (e) the absence of any notice, filing, authorization, consent, or
approval requirements; (f) compliance with all filing requirements under the
Securities Act and the Exchange Act, and the accuracy of the information
contained therein; (f) absence of certain material adverse changes or events;
and (g) absence of litigation.
COVENANTS
The Merger Agreement contains various, customary, covenants of InTime and
ARIS, that each party will, among other things: (a) use its reasonable best
efforts to take all action and to do all things necessary, proper, or
advisable in order to consummate and make effective the Merger; (b) give any
necessary notices to, make any necessary filings with, and use its best
efforts to obtain any necessary authorizations, consents, and approvals of
governments and governmental agencies; and (c) give prompt notice to the other
party of any material adverse development causing a breach of any of its own
representations and warranties in the Merger Agreement. In addition, ARIS
covenanted to use its best efforts to cause the shares of ARIS Common Stock to
be issued in the Merger to be approved for listing on the Nasdaq National
Market, subject to official notice of issuance, prior to the Effective Time.
See, also, "Non-Solicitation."
NON-SOLICITATION
The Merger Agreement provides that, prior to the termination of the Merger
Agreement, InTime shall not initiate, solicit or encourage (including by way
of furnishing nonpublic information or assistance) any inquiries or the making
of any proposal that constitutes, or may reasonably be expected to lead to,
any Competing Transaction (defined below), enter into discussions or negotiate
with any person or entity in furtherance of such
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inquiries or to obtain a Competing Transaction, or agree to or endorse any
Competing Transaction, or authorize any of its respective officers or
directors to take any such action. The Merger Agreement also provides that
InTime shall instruct and use its reasonable best efforts to cause its
directors, officers, agents and representatives not to take any such action.
If InTime receives any offer or proposal, written or otherwise, that
constitutes, or may reasonably be expected to lead to, any Competing
Transaction, InTime must promptly inform ARIS of such offer or proposal and
the material terms thereof.
However, InTime may, subject to authorization by its Board of Directors, (A)
furnish information to, or enter into discussions or negotiations with, any
person or entity that makes a bona fide proposal to enter into a Competing
Transaction, provided the proposal had not been initiated, solicited or
encouraged by InTime, (B) recommend to InTime stockholders or endorse any, or
enter into any definitive agreement with respect to any, such Competing
Transaction, or (C) issue a communication to InTime stockholders of the type
contemplated by Rule 14d-9(e) or 14e-2 under the Exchange Act or otherwise
communicate the Board of Directors' position with respect to such proposal to
enter into a Competing Transaction to InTime stockholders, if, with respect to
(A), (B) or (C) above, (i) the InTime Board of Directors determines in good
faith that such Competing Transaction is reasonably capable of being
completed, taking into account all legal, financial, regulatory and other
aspects of the Competing Transaction, and would, if consummated, be more
favorable to InTime stockholders than the Merger, (ii) the InTime Board of
Directors reasonably believes that the proposal is made in good faith, and
(iii) InTime provides prior notice to ARIS.
"Competing Transaction" means any of the following involving InTime: (A) any
merger, consolidation, share exchange, business combination, recapitalization,
liquidation, dissolution or other similar transaction; (B) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of substantially all
of the assets of InTime and its subsidiaries, taken as a whole, in a single
transaction or series of transactions; (C) any tender offer or exchange offer
for 50% or more of the outstanding shares of capital stock of InTime or the
filing of a registration statement under the Securities Act in connection
therewith; (D) any person having acquired beneficial ownership or the right to
acquire beneficial ownership of, or any "group" (as such term is defined under
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder) having been formed that beneficially owns or has the right to
acquire beneficial ownership of 50% or more of the then-outstanding shares of
capital stock of InTime; or (E) any public announcement of a proposal, plan or
intention to do any of the foregoing on any agreement to engage in any of the
foregoing.
TERMINATION
The Merger Agreement provides, generally, that it may be terminated: (a) by
the mutual agreement of ARIS and InTime at any time prior to the Effective
Time; (b) by ARIS at any time prior to the Effective Time if either InTime
breached, and failed to correct, a material representation, warranty, or
covenant, or if the Effective Time shall not have occurred on or before August
31, 1998; (c) by InTime at any time prior to the Effective Time if either ARIS
breached, and failed to correct, a material representation, warranty, or
covenant, or if the Effective Time shall not have occurred on or before August
31, 1998; (d) by InTime if the Merger Agreement and the Merger fail to receive
the approval of the holders of a majority of the shares of InTime Common Stock
or shall fail to comply with the 90% test set forth in Accounting Principles
Board Opinion No. 16, Business Combinations, and the interpretations and
pronouncements promulgated thereunder; (e) by either ARIS or InTime at any
time prior to the Effective Time in the event the Raymond James Opinion is
withdrawn; (e) by InTime if its Board of Directors determines in good faith
that a Competing Transaction is reasonably capable of being completed, taking
into account all legal, financial, regulatory and other aspects of the
Competing Transaction, and would, if consummated, be more favorable to
InTime's stockholders than the transactions contemplated by the Merger
Agreement; or (f) by either ARIS or InTime if (i) a final nonappealable order
of a federal or state court restraining or prohibiting the consummation of the
Merger exists, or (b) an action has been taken, or a statute, rule, regulation
or order has been enacted, promulgated or issued or deemed applicable to the
Merger by any governmental authority, that would make the consummation of the
Merger illegal.
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EXPENSES AND TERMINATION FEES
Each of ARIS and InTime will bear its own costs and expenses (including
legal fees and expenses) incurred in connection with the Merger Agreement and
the Merger. ARIS shall pay all charges and expenses of the Exchange Agent. In
addition, in the event InTime terminates the Merger Agreement pursuant to its
good faith determination that a Competing Transaction is reasonably capable of
being completed, InTime shall pay to ARIS a termination fee in the amount of
$1,000,000.
FEDERAL INCOME TAX CONSEQUENCES
The Merger is expected to be a tax-free reorganization for federal income
tax purposes, so that no gain or loss will be recognized by the InTime
stockholders on the exchange of InTime Common Stock for ARIS Common Stock,
except to the extent that InTime stockholders receive cash pursuant to the
exercise of appraisal rights or in lieu of fractional shares. The Merger
Agreement does not require the parties to obtain a ruling from the Internal
Revenue Service as to the tax consequences of the Merger. Prior to the
effectiveness of the Proxy Statement/Prospectus, InTime and ARIS will receive
an opinion from Price Waterhouse LLP based on certain assumptions and
certifications, the Merger will be treated as a tax-free reorganization for
federal income tax purposes and that the discussion entitled "Federal Income
Tax Consequences" below, insofar as it relates to statements of law and legal
conclusions, is correct in all material respects. In addition, as a condition
to the closing of the Merger, InTime and ARIS are to receive an opinion from
Price Waterhouse LLP that, based on certain assumptions and certifications,
the Merger will be treated as a tax-free reorganization for federal income tax
purposes. INTIME STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS
TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER. See
"Approval of the Merger and Related Transactions --Federal Income Tax
Consequences."
ACCOUNTING TREATMENT
For financial reporting purposes, it is expected that the Merger will be
accounted for as a pooling of interests for accounting and financial reporting
purposes. See "Approval of the Merger and Related Transactions--Anticipated
Accounting Treatment" and "Unaudited Pro Forma Financial Information."
APPRAISAL RIGHTS
Holders of InTime Common Stock are generally entitled to appraisal rights
with respect to the Merger under the DGCL. If the Merger is approved by a
majority of the shares of the InTime Common Stock present at the Special
Meeting in person or by proxy and is not terminated in accordance with the
Merger Agreement, InTime's stockholders who do not vote for the Merger
proposal and who comply with all applicable provisions of the DGCL will have
the right to exercise appraisal rights and receive the, "fair value," of their
shares of InTime Common Stock in cash. A dissenting stockholder of InTime must
follow the appropriate procedures under the DGCL or suffer the termination or
waiver of such appraisal rights. A stockholder of InTime electing to exercise
appraisal rights must, prior to the InTime Special Meeting, perfect his, her,
or its appraisal rights by demanding in writing from InTime the appraisal of
his, her, or its shares of InTime Common Stock, as provided in Section 262 of
the DGCL. A holder who elects to exercise appraisal rights should mail or
deliver his, her, or its written demand to InTime at 1601 Forum Place, Fifth
Floor, West Palm Beach, FL 33401, Attn: Corporate Secretary. The demand should
specify the holder's name and mailing address, the number of shares of InTime
Common Stock owned and that such holder is demanding appraisal of his, her, or
its shares. Only a holder of record of shares of InTime Common Stock (or his,
her, or its duly appointed representative) is entitled to assert appraisal
rights for the shares registered in that holder's name. For a more detailed
description of the procedures applicable to the exercise of appraisal rights,
see, "Approval of the Merger and Related Transactions--Rights of Dissenting
Stockholders." The full text of Section 262 of the DGCL relating to the proper
exercise of such appraisal rights is attached hereto as Appendix C and should
be read carefully and in its entirety.
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STOCK OWNERSHIP FOLLOWING MERGER
Assuming the full exercise of all ARIS Warrants and all ARIS Options,
approximately 1,556,340 shares of ARIS Common Stock (subject to adjustments in
the Exchange Ratio) will be issued to holders of InTime Common Stock or
reserved for issuance upon exercise of ARIS Options and ARIS Warrants. Based
upon the number of shares of ARIS Common Stock issued and outstanding as of
April 26, 1998, and after giving effect to the additional shares of ARIS
Common Stock proposed to be issued, or reserved for issuance, in the Merger,
the former holders of InTime Common Stock, InTime Options and InTime Warrants
would hold and have voting power with respect to approximately 13.12% of ARIS'
total issued and outstanding shares.
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
As soon as practicable after the Effective Time, ARIS will furnish the
Exchange Agent a list of the names, addresses, certificate numbers,
certificate amounts and certificate dates with respect to the shares of InTime
Common Stock, InTime Warrants, InTime Stockholders, and InTime Warrant
holders. As soon as practicable after the Effective Time the Exchange Agent
will mail a letter of transmittal (with instructions for its use) to each
record holder of shares of InTime Common Stock or InTime Warrants outstanding
immediately prior to the Effective Time, for the holder to use in surrendering
the certificates which represented his or its shares of InTime Common Stock or
InTime Warrants in exchange for a certificate representing the number of
shares of ARIS Common Stock or ARIS Warrants to which he, she or it is
entitled.
If any certificates representing shares of InTime Common Stock or InTime
Warrants has been lost, stolen or destroyed, ARIS may require the owner of
such lost, stolen or destroyed certificate to provide an appropriate affidavit
and to deliver a bond as indemnity against any claim that may be made against
the Exchange Agent, ARIS or InTime with respect to such lost certificate.
Immediately after the Effective Time, ARIS will furnish to each holder of
then outstanding InTime Options a "Confirmation of Outstanding Options" (with
instructions for its use) for the holder to use in confirming the number of
InTime Options, exercise price and vesting schedule and in surrendering all
written InTime Option agreements, if any, which represented his or her InTime
Options in exchange for a Stock Option Letter Agreement or Agreements
representing options to purchase ARIS Common Stock to which he or she is
entitled.
INTIME STOCKHOLDERS, INTIME WARRANT HOLDERS AND INTIME OPTION HOLDERS SHOULD
NOT SURRENDER THEIR INTIME STOCK OR INTIME WARRANT CERTIFICATES OR INTIME
OPTION AGREEMENTS FOR EXCHANGE UNTIL THEY RECEIVE A LETTER OF TRANSMITTAL FROM
THE EXCHANGE AGENT OR A CONFIRMATION OF OUTSTANDING OPTIONS FROM ARIS, AS
APPROPRIATE.
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UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined balance sheet and statements of
operations give effect to the Merger of ARIS Corporation and InTime Systems
International, Inc. on a pooling-of-interests basis of accounting. These
unaudited pro forma combined financial statements have been prepared from the
supplementary consolidated financial statements of ARIS and from the
historical consolidated financial statements of InTime and should be read in
conjunction therewith.
The unaudited pro forma balance sheet presents the combined financial
position of ARIS and InTime as of December 31, 1997, and the unaudited pro
forma combined statements of operations present the results of operations for
the three years ended December 31, 1997. These pro forma financial statements
may not be indicative of the results to be expected in the future and do not
reflect any changes in the operations of either ARIS or InTime which may
result from the combination of their operations or the significant one-time
merger related costs which will be recorded in 1998.
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ARIS CORPORATION
UNAUDITED PRO FORMA
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------
PRO FORMA
ARIS INTIME ADJUSTMENTS COMBINED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents............ $ 9,400,000 $ 1,995,000 $11,395,000
Investments in
marketable securities.. 15,464,000 15,464,000
Accounts receivable..... 12,789,000 2,524,000 15,313,000
Consulting contracts in
progress............... 618,000 618,000
Income tax receivable...
Prepaid expenses and
other assets........... 2,003,000 87,000 2,090,000
Deferred tax asset...... 292,000 $(29,000) 263,000
----------- ----------- -------- -----------
Total current assets.. 40,274,000 4,898,000 (29,000) 45,143,000
----------- ----------- -------- -----------
Property and equipment,
net...................... 6,619,000 537,000 7,156,000
----------- ----------- -------- -----------
Intangibles and other
assets................... 8,095,000 157,000 8,252,000
----------- ----------- -------- -----------
Total assets.......... $54,988,000 $ 5,592,000 $(29,000) $60,551,000
=========== =========== ======== ===========
Current liabilities:
Accounts payable........ $ 2,768,000 $ 493,000 $ 3,261,000
Accrued payroll......... 2,148,000 2,148,000
Other accrued expense... 1,290,000 1,290,000
Notes payable...........
Deferred revenue........ 2,305,000 163,000 2,468,000
Obligations under
capital leases......... 89,000 89,000
Income tax payable...... 228,000 228,000
Deferred income taxes... 29,000 (29,000)
----------- ----------- -------- -----------
Total current
liabilities.......... 8,768,000 745,000 (29,000) 9,484,000
----------- ----------- -------- -----------
Deferred income taxes..... 585,000 585,000
----------- ----------- -------- -----------
Shareholders' equity:
Preferred stock...........
InTime Class A common
stock(1)................. 20,000 (20,000)(1)
InTime Class B common
stock(1)................. 25,000 (25,000)(1)
ARIS Common Stock.........
Additional paid-in-
capital.................. 37,504,000 6,199,000 45,000 43,748,000
Retained earnings......... 8,167,000 (1,397,000) 6,770,000
Net unrealized holding
gain (loss) on
investments.............. (63,000) (63,000)
Cumulative foreign
currency translation
adjustment............... 27,000 27,000
----------- ----------- -------- -----------
Total shareholders'
equity............... 45,635,000 4,847,000 50,482,000
----------- ----------- -------- -----------
$54,988,000 $ 5,592,000 $(29,000) $60,551,000
=========== =========== ======== ===========
</TABLE>
- --------
(1) In January 1998, all of the holders of InTime Class B Common Stock
agreed to convert their shares of Class B Common Stock owned by them
into shares of InTime Class A Common Stock on a one-for-one basis.
See accompanying notes to pro forma combined financial statements
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ARIS CORPORATION
UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------
PRO FORMA
ARIS INTIME ADJUSTMENTS COMBINED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues, net:
Consulting................ $29,999,000 $12,733,000 $42,732,000
Training.................. 28,895,000 28,895,000
Software.................. 3,656,000 1,003,000 4,659,000
----------- ----------- --------- -----------
Total revenues............ 62,550,000 13,736,000 76,286,000
----------- ----------- --------- -----------
Cost of sales:
Consulting and training... 28,923,000 7,713,000 36,636,000
Software.................. 322,000 508,000 830,000
----------- ----------- --------- -----------
Total cost of sales....... 29,245,000 8,221,000 37,466,000
----------- ----------- --------- -----------
Gross profit.............. 33,305,000 5,515,000 38,820,000
Selling, general and admin-
istrative.................. 24,177,000 4,739,000 28,916,000
Amortization of intangible
assets..................... 380,000 380,000
Research and development
expense.................... 649,000 649,000
Acquisition expenses........ 428,000 428,000
----------- ----------- --------- -----------
Income from operations...... 8,320,000 127,000 8,447,000
----------- ----------- --------- -----------
Other income (expense)......
Investment income........... 280,000 280,000
Interest income, net........ 684,000 116,000 800,000
Other income (expense)...... 32,000 29,000 61,000
----------- ----------- --------- -----------
996,000 145,000 1,141,000
----------- ----------- --------- -----------
Income before income taxes.. 9,316,000 272,000 9,588,000
Income tax expense
(benefit).................. 3,561,000 (292,000) 420,000(2) 3,689,000
----------- ----------- --------- -----------
Net income (loss)........... $ 5,755,000 $ 564,000 $(420,000) $ 5,899,000
=========== =========== ========= ===========
Basic earnings per share.... $ 0.64 $ 0.61
=========== ===========
Weighted average number of
common shares outstanding.. 9,005,000 9,701,793
=========== ===========
Diluted earnings per share.. $ 0.59 $ 0.57
=========== ===========
Weighted average number of
common and common
equivalent shares
outstanding................ 9,723,000 10,429,361
=========== ===========
</TABLE>
See accompanying notes to pro forma combined financial statements
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<PAGE>
ARIS CORPORATION
UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------
PRO FORMA
ARIS INTIME ADJUSTMENTS COMBINED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues, net:
Consulting.............. $16,312,000 $11,193,000 $27,505,000
Training................ 14,711,000 14,711,000
Software................ 1,201,000 479,000 1,680,000
----------- ----------- ------- -----------
Total revenues.......... 32,224,000 11,672,000 43,896,000
----------- ----------- ------- -----------
Cost of sales:
Consulting and training. 15,771,000 6,003,000 21,774,000
Software................ 93,000 353,000 446,000
----------- ----------- ------- -----------
Total cost of sales..... 15,864,000 6,356,000 22,220,000
----------- ----------- ------- -----------
Gross profit............ 16,360,000 5,316,000 21,676,000
Selling, general and
administrative........... 12,110,000 4,511,000 16,621,000
Amortization of intangible
assets................... 118,000 118,000
Research and development
expense.................. 307,000 810,000 1,117,000
Acquisition expenses...... 347,000 347,000
----------- ----------- ------- -----------
Income from operations.... 3,478,000 (5,000) 3,473,000
----------- ----------- ------- -----------
Other income (expense)....
Investment income......... 89,000 89,000
Interest income, net...... 51,000 42,000 93,000
Other income (expense).... (9,000) 23,000 14,000
----------- ----------- ------- -----------
131,000 65,000 196,000
----------- ----------- ------- -----------
Income before income
taxes.................... 3,609,000 60,000 3,669,000
Income tax expense........ 1,443,000 (8,000)(2) 1,435,000
----------- ----------- ------- -----------
Net income................ 2,166,000 $ 60,000 $ 8,000 $ 2,234,000
=========== =========== ======= ===========
Basic earnings per share.. $ 0.29 $ 0.27
=========== ===========
Weighted average number of
common shares
outstanding.............. 7,540,000 8,235,643
=========== ===========
Diluted earnings per
share.................... $ 0.28 $ 0.27
=========== ===========
Weighted average number of
common and common
equivalent shares
outstanding.............. 7,682,000 8,393,942
=========== ===========
</TABLE>
See accompanying notes to pro forma combined financial statements.
39
<PAGE>
ARIS CORPORATION
UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
--------------------------------------------------
PRO FORMA
ARIS INTIME ADJUSTMENTS COMBINED
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues, net:
Consulting................ $9,725,000 $ 6,774,000 $16,499,000
Training.................. 8,306,000 8,306,000
Software.................. 205,000 520,000 725,000
---------- ----------- --------- -----------
Total revenues............ 18,236,000 7,294,000 25,530,000
---------- ----------- --------- -----------
Cost of sales:
Consulting and training... 8,645,000 4,485,000 13,130,000
Software.................. 42,000 851,000 893,000
---------- ----------- --------- -----------
Total cost of sales....... 8,687,000 5,336,000 14,023,000
---------- ----------- --------- -----------
Gross profit.............. 9,549,000 1,958,000 11,507,000
Selling, general and
administrative............. 6,361,000 3,286,000 9,647,000
Amortization of intangible
assets..................... 4,000 4,000
Research and development
expense.................... 1,139,000 1,139,000
Acquisition expenses........
---------- ----------- --------- -----------
Income from operations...... 3,184,000 (2,467,000) 717,000
---------- ----------- --------- -----------
Other income (expense)......
Investment income........... 57,000 57,000
Interest income, net........ 24,000 208,000 232,000
Other income (expense)...... 40,000 11,000 51,000
---------- ----------- --------- -----------
121,000 219,000 340,000
---------- ----------- --------- -----------
Income before income taxes.. 3,305,000 (2,248,000) 1,057,000
Income tax expense
(benefit).................. 1,179,000 (415,000) (412,000)(2) 352,000
---------- ----------- --------- -----------
Net income (loss)........... $2,126,000 $(1,833,000) $ 412,000 $ 705,000
========== =========== ========= ===========
Basic earnings per share.... $ 0.30 $ 0.09
========== ===========
Weighted average number of
common shares outstanding.. 7,056,000 7,748,941
========== ===========
Diluted earnings per share.. $ 0.29 $ 0.09
========== ===========
Weighted average number of
common and common
equivalent shares
outstanding................ 7,291,000 7,997,921
========== ===========
</TABLE>
See accompanying notes to pro forma combined financial statements.
40
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE 1: The pro forma balance sheet information reflects the result of
combining the balance sheets for ARIS and InTime as of December 31, 1997.
NOTE 2: The pro forma statements of operations for the years ended December
31, 1997, 1996 and 1995 reflect the results of combining the historical
results of operations of ARIS and Barefoot Computer Training Limited for these
periods.
A pro forma adjustment for the fiscal year ended December 31, 1995 was made
to reflect the existence of deferred tax assets of InTime in the amount of
$412,000, which could be offset with future reversals of deferred tax
liabilities of ARIS. The gross amount of deferred tax assets for InTime at
December 31, 1996 and 1997 was $420,000 and $0, respectively. The 1996 pro
forma adjustment of $8,000 reduced the provision for income taxes on a pro
forma basis as a result of the elimination of the deferred tax asset in 1996.
The 1997 pro forma adjustment of $420,000 was made to adjust InTime's
provision for income taxes for fiscal 1997 to reflect the prior years pro
forma adjustment of the deferred tax asset.
NOTE 3: Per share calculations are determined on the number of common and
common equivalent shares outstanding. The pro forma ARIS Common Stock include
ARIS Common Stock expected to be issued to effect the merger as if they had
been issued at the beginning of the respective periods.
41
<PAGE>
ARIS BUSINESS
OVERVIEW
ARIS provides an integrated information technology ("IT") solution
consisting of consulting and training services and proprietary software
products. ARIS' core consulting competencies include packaged application
implementation, custom application development and systems architecture
planning and deployment. ARIS' education division offers instructor-led course
titles for IT professionals conducted at ARIS' training centers and at client
facilities. ARIS' wholly-owned subsidiary, ARIS Software, Inc. ("ASI")
develops, markets and supports proprietary software products that enhance
ORACLE database management and ORACLE packaged applications. ARIS believes
that its ability to provide clients with an integrated IT solution, coupled
with its focus on leading-edge technologies, provide it with a unique
competitive advantage.
INDUSTRY BACKGROUND
Enterprises face a rapidly changing, highly competitive environment where
access to information through the use of information technology can result in
improvements in products and services, lower costs and increased client
satisfaction. As the pace of technological change accelerates, an enterprise's
ability to evaluate, integrate, deploy and leverage IT systems is becoming a
critical competitive issue. International Data Corporation ("IDC") estimates
that the worldwide market for IT consulting is projected to grow to $45.6
billion by the year 2001.
The complex task of developing and implementing enterprise-wide, mission
critical solutions is a costly and time consuming undertaking. For example,
enterprise resource planning projects, which generally include planning and
integration of manufacturing, distribution and financial systems, require
cooperation and coordination of virtually every department within an
enterprise. Many enterprises do not have adequate personnel with the requisite
technology skills or are reluctant to expand or retool their existing IT
departments for particular implementation projects. Confronted with the
challenge of designing and implementing more complex IT systems to accomplish
their goals, many enterprises are turning to independent IT service providers.
Enterprises must ensure that their IT employees possess the skills to
operate, maintain and maximize performance of increasingly complex information
systems. Each time an enterprise implements a new technology or updates its
existing technology, employee training is required. In many large enterprises,
IT training is virtually continuous. IDC estimates that the worldwide market
for IT education and training is projected to grow to $27.9 billion by 2001.
Due to a shortage of in-house instructors experienced in the latest
technologies and the high cost of developing and maintaining internal training
courses in rapidly evolving technologies, many enterprises are turning to
outside firms to train their IT professionals.
THE ARIS SOLUTION
ARIS provides an integrated IT solution consisting of consulting and
training services and proprietary software products that enables its clients
to quickly leverage new technologies to deliver and improve operational
processes and performance. The ARIS solution includes the following
characteristics:
Complete IT Solution. ARIS offers its clients an integrated IT solution that
addresses the technology requirements and the resource constraints clients
face when adopting a new technology. ARIS believes that its combination of
consulting, training and software products enables its clients to rapidly and
effectively implement technologies that improve business processes and the
information flow within an organization. Because ARIS develops in-depth
knowledge regarding the needs and objectives of its consulting clients, ARIS
believes it is strategically positioned to provide custom training solutions
for these clients.
Consulting Expertise In High-Demand, Leading-Edge Technologies. ARIS
fulfills the mission critical technology needs of its clients by designing and
implementing solutions using leading-edge technologies from vendors such as
ORACLE, Microsoft, Lotus, Sun and others. Expertise in leading-edge
technologies allows
42
<PAGE>
ARIS to enhance project quality, reduce development time and project costs and
effectively develop customized solutions. In addition, ARIS maintains
strategic relationships with certain software vendors, providing ARIS access
to technologies in the early or pre-release cycles of software development.
ARIS consultants and project managers use a proprietary methodology, ARIS
RAPIDMethod, for packaged application implementation and ORACLE's CASE*Method
for custom application development relating to ORACLE technologies.
Quality Course Offerings For High-Demand, Leading-Edge Technologies. ARIS
provides public and private instructor-led training to IT professionals on
leading-edge technologies ARIS uses vendor-supplied and proprietary courseware
and training methodologies. The following chart sets forth the vendor
authorizations that ARIS' various training centers have received:
<TABLE>
<CAPTION>
LOCATION VENDOR AUTHORIZATION/CERTIFICATIONS
-------- -----------------------------------
<S> <C>
Bellevue, WA (two Microsoft ATEC; Authorized Sun Education Center;
locations) Sylvan Prometric Testing Center
Chicago, IL (scheduled to Projected to be: Microsoft ATEC; Sylvan Prometric
open May 15, 1998) Testing Center; Lotus Authorized Education Center
Dallas, TX Microsoft ATEC; Lotus Authorized Education Center
Denver, CO (two
locations) Microsoft ATEC; Sylvan Prometric Testing Center
Bloomington, MN Microsoft ATEC; Lotus Authorized Education Center;
Sylvan Prometric Testing Center; VUR Testing Center;
CAT Testing Center; ProSoft Affiliate
New York, NY Microsoft ATEC; Lotus Authorized Education Center
Portland, OR Microsoft ATEC, Sun Education Center
Washington, DC Microsoft ATEC, Sylvan Prometric Testing Center
Birmingham, UK Microsoft ATEC, Lotus Authorized Education Centre,
WST Approved Provider
London, UK (three Testing Centre, Lotus Authorized Education Centre,
locations) WST Approved Provider, BACT Partner, Microsoft ATEC,
Sylvan Prometric
Oxford, UK Microsoft ATEC, Lotus Authorized Education Centre,
WST Approved Provider, Sylvan Prometric Testing
Centre
</TABLE>
In addition, ARIS has the capacity to provide public and private instructor-
led training to IT professionals on ORACLE technologies at all of its
locations and at client sites using ARIS' proprietary courseware.
STRATEGY
ARIS' objective is to be a leading provider of integrated IT solutions by
pursuing the following strategies:
Leverage Synergies Between Consulting And Training. By offering a
combination of consulting and training services, ARIS is able to: (i)
capitalize on cross-selling opportunities between training and consulting;
(ii) increase client referrals; (iii) enhance its name recognition; and (iv)
provide a complete solution to its clients. ARIS encourages its instructors to
participate in consulting projects, enabling instructors to improve their
technical knowledge with practical software implementation experience. In
addition, ARIS offers ongoing training in the latest technologies to its
consultants and project managers.
Focus On Leading-Edge Technologies. ARIS intends to maintain its alignment
with leading-edge technology vendors such as ORACLE, Microsoft, Lotus and Sun.
By focusing on leading-edge technologies,
43
<PAGE>
ARIS is able to offer specialized and value-added services to its clients.
ARIS may shift or expand its vendor focus over time in order to maintain
alignment with leading-edge, emerging technologies.
Attract And Retain Highly Skilled IT Professionals. ARIS' success depends on
its ability to attract, train, motivate and retain highly skilled IT
professionals. ARIS believes it offers its employees: (i) multiple
professional opportunities and challenges to work in one or more of ARIS'
consulting, training and software divisions; (ii) the ability to work with
leading-edge technologies; (iii) attractive compensation plans that align
employees' interests and goals with those of ARIS; (iv) a stimulating,
flexible, entrepreneurial work environment; and (v) the opportunity to receive
continuous, ongoing technical training. These factors have resulted in a
turnover rate which management believes is below the industry average.
Maintain High Levels Of Client Satisfaction. ARIS believes that satisfying
client expectations is critical to expanding relationships with existing
clients and receiving positive references for future sales. ARIS requests that
its clients complete evaluations of its training classes and consulting
projects and a percentage of total cash compensation for consultants and
project managers and instructors is directly linked to client satisfaction.
Expand Geographic Presence. ARIS intends to expand its operations by opening
or acquiring additional consulting offices and training centers in strategic
geographic locations, including existing markets. ARIS also intends to expand
internationally to better service its multinational clients and to gain access
to new markets. Since the date of ARIS' initial public offering through
December 31, 1997, ARIS has expanded geographically to New York, New York,
Minneapolis, Minnesota and Chicago, Illinois.
Pursue Strategic Acquisitions. In addition to ARIS' geographic expansion,
between January 1, 1997 and March 6, 1998, ARIS also continued to pursue an
aggressive acquisition strategy. During this time-frame, ARIS acquired five
complementary businesses: Oxford Computer Group Limited in Oxford, Birmingham
and London, United Kingdom; Enterprise Computing Inc., d/b/a Buller Owens &
Associates ("Buller Owens") in New York, New York; Agiliti, Inc. in
Bloomington, Minnesota; Absolute!, Inc. in Dallas, Texas; and in February
1998, Barefoot Computer Training Limited in London, England ("Barefoot"). ARIS
plans to continue to pursue additional strategic acquisitions in order to: (i)
acquire expertise in new technologies; (ii) expand its client base; (iii) gain
access to qualified IT professionals; and (iv) enter new geographic markets.
ARIS CONSULTING AND SOFTWARE PRODUCTS
ARIS provides IT consulting services primarily to clients that require
assistance planning, designing, developing, testing and deploying ORACLE,
Microsoft and other technologies. ARIS' vendor specific focus has enabled it
to develop greater depth of expertise and proprietary methodologies. ARIS
currently focuses on three core consulting competencies: packaged application
implementation, custom application development and systems architecture
planning and deployment. ARIS' consulting clients are generally medium to
large businesses and governmental agencies.
Packaged Application Implementation. ARIS consulting focuses on the high
growth packaged enterprise resource planning market, particularly the
implementation of ORACLE database management and ORACLE packaged applications
("ORACLE Applications"). ARIS' consultants and project managers use a
proprietary methodology, ARIS RAPIDMethod, to implement ORACLE Applications
consistently and reliably.
Custom Application Development. ARIS consulting provides custom application
development services, particularly client/server and Internet/intranet
projects involving ORACLE and Microsoft technologies. For database
development, ARIS consultants and project managers use ORACLE's CASE*Method
information engineering methodology, often in conjunction with ORACLE's CASE
tool, Designer/2000. In addition, ARIS has developed a library of proprietary
reusable software that allows its consultants and project managers to
accelerate custom application development.
Systems Architecture Planning And Deployment. ARIS consulting provides
systems architecture planning and deployment for IT architectures including
Microsoft BackOffice, ORACLE databases, UNIX and general
44
<PAGE>
networking architectures. System architecture engagements involve a range of
services including capacity planning, implementation design and planning,
readiness assessment, performance tuning and monitoring, configuration and
installation, infrastructure management, process evaluation and complete
database administration outsourcing.
ARIS assigns consultants to projects based on specific requirements.
Consultant utilization, billing rates and headcount are reviewed regularly by
project managers and regional managers, and are reviewed monthly by senior
management, to ensure maximum efficiency. Project staffing varies depending on
the number of project engagements and the size, duration and location of each
engagement. As projects are completed or as new consultants are hired, there
may be periods when certain consultants and project managers are not assigned
to active client projects. During these periods of non-assignment, consultants
and project managers receive training on new technologies, develop
methodologies and tools and assist in developing ARIS' internal data systems.
ARIS Software, Inc. ("ASI"), ARIS' wholly-owned subsidiary, currently has
two software product suites, ARIS DFRAG and NoetixViews. NoetixViews enables
users of ORACLE Applications to quickly retrieve non- standard business
information from an ORACLE database. By establishing a layer of "meta" data,
NoetixViews serves as a platform on which customers can build their reporting
systems, reducing costly re-design when a new version of an ORACLE Application
program is released. ASI has developed a custom software element for the
ORACLE tools division which provides a tightly integrated solution involving
ORACLE's Discoverer Reporting Tool and ASI's suite of NoetixViews products for
ORACLE Applications.
ARIS DFRAG is a tool used by database administrators to identify and
reorganize "fragmented" data in ORACLE databases, thereby improving
performance. ARIS DFRAG includes a graphical user interface based on Microsoft
Windows which can be used to browse and manage database objects within an
ORACLE database.
Management believes ASI's software products enhance ARIS' consulting
services. Through its consulting and training services, ARIS expects to
continue to identify development opportunities for new ASI software products.
ARIS TRAINING
ARIS is a leading provider of vendor-certified and custom training to IT
professionals including Microsoft BackOffice, ORACLE database and tools, Sun
Solaris and Java, Lotus Notes and Domino, Internet, and networking
technologies. ARIS provides instructor-led training through regularly
scheduled open enrollment classes, private classes (using both standard and
customized content), and on-line training. ARIS also provides other training
related services such as IT skills assessment, curriculum development and
training consulting.
Each of ARIS' instructors has, on average, more than 10 years of
professional IT experience. ARIS seeks to achieve a high fill rate for each of
its public classes without exceeding a maximum class size in order to preserve
a high level of individual student attention. ARIS devotes considerable
resources to maintaining the skills of its instructors who are required to
maintain the certifications necessary to teach new course titles as a part of
ARIS' Microsoft, Sun and Lotus authorized training designations.
ARIS uses both vendor-designed and proprietary courseware and training
methodologies. ARIS continually evaluates market demand for training in its
core technologies and updates current course titles or develops new course
titles to satisfy the changing needs of the market. To ensure that its course
titles and instructors meet the needs of the market and maintain ARIS' quality
standards, each class participant is asked to complete an evaluation of the
course materials and of the instructor at the end of their training. These
evaluations are used by ARIS to modify course offerings and training
techniques in order to improve instructor performance.
RELATIONSHIPS WITH KEY VENDORS
ARIS has developed strategic relationships with key vendors of software,
particularly ORACLE, Microsoft, Sun and Lotus. These strategic relationships
allow ARIS to gain access to beta versions of software and the
45
<PAGE>
software vendors' marketing channels as well as to receive discounts on
software. ARIS regularly participates with Microsoft in the development of
courseware for new products and trains Microsoft's employees and other ATECs
during the early stages of a new product roll out.
Certain of these software vendors also compete with ARIS in providing IT
consulting and training services. Disputes between ARIS and these software
vendors could result in the loss of vendor certifications, a reduction in the
number of client referrals or vendor actions which might adversely affect
ARIS' ability to compete successfully with its competitors.
SALES AND MARKETING
ARIS sells its consulting and training services directly through its
regional sales forces. ASI sells its software products directly through
account executives and internal telemarketing representatives and through
referrals from ARIS' consulting operations. Other important client sources
include industry trade shows and referrals from, and joint marketing events
with, ORACLE, Microsoft and other IT vendors. ARIS' sales personnel are
compensated through a combination of a base salary and commissions.
Commissions are paid when services are performed or products are shipped
rather than when a contract is signed.
The ARIS marketing plan includes direct mail solicitations, advertising in
IT trade journals, trade show participation and seminars. ARIS' course
catalogue and Internet web site are integral parts of its marketing effort.
COMPETITION
The IT consulting industry and the IT training industry are generally
regarded as separate industries, each of which is rapidly growing and highly
competitive. Within each industry there are a large number of competitors,
many of which have significantly greater financial, technical, marketing and
human resources and greater name recognition than ARIS. ARIS believes that its
ability to provide clients with an integrated IT solution, coupled with its
focus on leading-edge technologies, provide it with a unique competitive
advantage. ARIS differentiates itself from its consulting and training
competitors by striving to be first to market with new technologies, by
leveraging the synergies between consulting and training, by delivering
consulting and training in high-demand, leading-edge technologies, by the
breadth and depth of its curriculum, convenience of its course scheduling, its
ability to deliver consulting and training services in numerous geographic
locations, and the quality, skill and reputation of its instructors,
consultants and project managers. Nevertheless, ARIS competes with companies
in both the consulting and training industries.
ARIS' principal competitors in the delivery of consulting services are the
consulting divisions of the large international accounting firms, the
consulting divisions of software vendors such as ORACLE, and numerous
international, national and regional IT consulting firms. ARIS faces
competition in the delivery of IT training services from the in-house IT
departments of its prospective clients, companies such as International
Business Machines and Hewlett-Packard, software vendors such as ORACLE, Sun,
other Microsoft ATECs, and independent international, national and regional
training companies.
ASI focuses its software product development on solving problems that few
other software companies have addressed. ARIS DFRAG competes with the system
management tools distributed by BMC Software, Platinum Technology and
Compuware. Although ARIS believes few commercially available products
currently compete directly with NoetixViews, there can be no assurance that
new competitive products will not be developed by ORACLE, third party software
vendors or by in-house IT departments of ARIS' current or potential clients.
Management believes that its primary competition in software development will
come from custom in-house development.
INTELLECTUAL PROPERTY
ARIS uses certain proprietary consulting and training methodologies,
courseware, software applications and products, trademarks and service marks,
and other proprietary and intellectual property rights. ARIS relies upon
46
<PAGE>
a combination of copyright, trademark and trade secret laws, as well as
nondisclosure and other contractual arrangements, to protect its proprietary
rights. ARIS uses client licensing agreements and employee and third- party
nondisclosure and confidentiality agreements to limit access to and
distribution of its proprietary information.
ARIS develops custom software applications and methodologies, and training
courses and methodologies for third-party software products. The training
courses, methodologies and courseware are owned by ARIS through agreements
with employees and subcontractors, but ownership of software applications
developed for clients is often assigned to the client, with ARIS retaining
limited use licenses. ARIS also develops software application tools in the
course of its consulting projects. ARIS generally seeks to retain significant
ownership or marketing rights for adaptation and reuse in subsequent projects.
PERSONNEL AND HUMAN RESOURCES
As of April 29, 1998, ARIS had 607 full-time employees, 455 of whom were in
the United States and 152 of whom were in the United Kingdom. Of this total,
237 employees were involved in the sale, delivery and support of training
services, 240 employees were involved in the sale, delivery and support of
consulting services, 35 employees were involved in the sale, marketing,
development and support of software products, and 95 were involved in
corporate level management and administration. In addition, ARIS retains the
services of subcontractors for certain consulting projects and to conduct
certain training services.
ARIS places significant emphasis on the recruitment, training and
professional development of its employees, and offers a competitive
compensation package. These factors have resulted in attrition rates which
management believes are below the industry average.
ARIS devotes considerable resources to its recruiting efforts. ARIS
identifies prospective employees through referrals from existing employees and
clients, on-campus recruiting at colleges and universities, and by advertising
at trade shows and over the Internet. ARIS currently has six full-time
recruiters.
ARIS' consultants and project managers benefit from their ability to receive
ongoing training in the latest technological advances and developments at
ARIS' training centers. The ability of ARIS to train its consultants and
project managers internally provides ARIS with a competitive advantage over
its competitors, many of whom must contract with third-party instructors to
keep their IT professionals current in the latest technologies. In addition,
ARIS has a six-to-eight week training program for its newly hired IT
professionals which includes training in the technologies comprising ARIS'
core competencies and training in ARIS' proprietary methodologies.
ARIS' compensation package consists of a combination of salary, stock
options, 401(k) matching, an employee stock purchase plan and other benefits-
related plans. In addition, ARIS awards performance-based bonuses to certain
employees, including nearly all of its consultants, project managers,
instructors, and executive staff managers. ARIS believes that by linking
employee compensation to the success of ARIS, employees are encouraged to
focus on client satisfaction and to seek continuous professional development.
EFFECTS OF YEAR 2000 ISSUE
Although ARIS does not believe the Year 2000 issue will have a significant
impact on ARIS' internal operations or on solutions developed by ARIS for
clients where ARIS has provided an express warranty regarding the Year 2000
issue, there can be no assurance that ARIS will not experience interruptions
of operations because of Year 2000 problems or become involved in disputes
with clients regarding Year 2000 problems involving solutions developed or
implemented by ARIS or the interaction of such solutions with other
applications. Year 2000 problems could require ARIS to incur unanticipated
expenses, and such expenses could have a material adverse effect on ARIS'
business, financial condition and results of operations. Furthermore, the
purchasing patterns of clients or potential clients may be affected by Year
2000 issues as companies expend significant resources to correct their current
systems for Year 2000 compliance. These expenditures may result in reduced
funds available to purchase services offered by ARIS.
47
<PAGE>
FACILITIES
On March 30, 1998, ARIS relocated its corporate headquarters to 2229 112th
Avenue NE, Bellevue, WA 98004. These premises, which ARIS purchased in January
1998, consist of 25,000 square feet of office space and house ARIS' corporate,
administrative, finance and accounting, human resources, sales and marketing,
research and development, legal and IT departments, and also serves as the
headquarters for ASI. ARIS and its subsidiaries also lease facilities in
various locations listed in the table below (as of April 29, 1998):
<TABLE>
<CAPTION>
APPROX. NO. OF
SQUARE CLASSROOMS
LOCATION FOOTAGE /SEATS FUNCTION
- -------- ------- ---------- -------------------------
<S> <C> <C> <C>
Bellevue, WA........................... 23,500 11/152 Training, Consulting
Training, Consulting,
Beaverton, OR.......................... 7,800 4/18 Software
Beaverton, OR.......................... 600 1/12 Training
Bloomington, MN........................ 16,000 9/104 Training
Chicago, IL (opens May 15, 1998)....... 7,400 4/60 Training
Denver, CO............................. 2,000 1/15 Training, Consulting
Denver, CO............................. 7,000 4/42 Training
Dallas, TX............................. 7,000 -- Consulting
Dallas, TX............................. 6,500 6/76 Training
Fairfax, VA............................ 10,500 5/68 Training, Consulting
New York, NY........................... 5,000 5/44 Training
Tampa, FL.............................. 2,000 -- Consulting
Birmingham, UK......................... 2,500 4/32 Training
London, UK............................. 14,400 17/178 Training
London, UK............................. 6,720 9/78 Training
UK Headquarters,
Oxford, UK............................. 5,000 -- Consulting
Oxford, UK............................. 4,000 4/50 Training
</TABLE>
LEGAL PROCEEDINGS
ARIS is from time to time involved in legal proceedings that arise out of
the normal course of business. As of April 29, 1998, ARIS was not involved in
any material legal proceedings.
48
<PAGE>
ARIS MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
ARIS' revenue is derived from its consulting and training services and sales
and maintenance of its software products. Consulting revenue is derived
primarily from professional fees billed to clients. Revenue from contracts
that are billed on a time and materials basis is recognized as services are
performed. Revenue from fixed price contracts is recognized on the percentage
of completion method, based on the ratio of costs incurred to the total
estimated project costs. ARIS bills its clients on a monthly or semi-monthly
basis. Where revenue is recognized before an invoice is sent, the revenue in
excess of billings is recorded as work in progress. Occasionally, ARIS is
requested to provide hardware and software in conjunction with its consulting
projects. In such cases, ARIS recognizes as revenue only the difference
between its cost and the resale price for the software and hardware.
Training revenue is derived primarily from fees charged to corporate clients
for employee training provided at client facilities or at ARIS' training
centers and from fees charged to individual students for open enrollment
classes. In its open enrollment classes, ARIS seeks to fill each available
seat in each scheduled class. ARIS continuously monitors this fill rate and
may cancel or reschedule classes that are underenrolled. Revenue for a
training class is recognized in the month in which the last day of the
training event falls. Since a large number of training events are five-day
classes that end on a Friday, the number of Fridays in a given month impacts
the training revenue for that month.
ASI derives software revenue from the sale of its proprietary software
product suites, ARIS DFRAG and NoetixViews, and from support contracts with
clients who purchase the software products. Revenue is recognized when the
software product has been shipped, collectibility is probable and there are no
significant obligations of ASI remaining to be performed. Software support is
billed at the beginning of the contract period and is recognized ratably
through the term of the contract.
From March 1993 to March 1997, ARIS qualified under the Small Business
Administration's Section 8(a) Program, which sets aside a certain percentage
of government contracts for minority-owned businesses. As an 8(a) Program
participant, ARIS was awarded contracts with U.S. government agencies totaling
7.5% and 11.1% of ARIS' revenue in 1996 and 1995, respectively. In the first
quarter of 1997, ARIS ceased to be eligible to participate in the 8(a)
Program.
RECENT ACQUISITIONS
In addition to its internal growth, ARIS has grown through strategic
acquisitions of complementary businesses. During 1997, ARIS made the following
acquisitions:
OXFORD COMPUTER GROUP LIMITED. In February 1997, ARIS acquired the stock of
Oxford in exchange for 280,000 shares of ARIS Common Stock. Oxford is a
Microsoft ATEC with facilities in Oxford, London and Birmingham, England which
also provides IT consulting and training services primarily on Microsoft
technologies.
BULLER OWENS. In October, 1997 ARIS merged with Buller Owens in exchange for
62,531 shares of ARIS Common Stock, 20,844 stock purchase warrants and
$1,560,000 cash. Buller Owens is a LAEC and Premium Partner for Lotus and a
Microsoft ATEC in New York City.
AGILITI, INC. In November, 1997 ARIS acquired the stock of Agiliti, Inc. in
exchange for 50,941 shares of ARIS Common Stock. Agiliti is a LAEC and Premium
Partner for Lotus and a Microsoft ATEC in Bloomington, Minnesota.
ABSOLUTE!, INC. In November, 1997 ARIS merged with Absolute!, Inc. in
exchange for $100,000 cash and 40,909 shares of ARIS Common Stock. Absolute!
is a Microsoft ATEC in Dallas, Texas.
49
<PAGE>
Each of these transactions was accounted for under the purchase method of
accounting. Goodwill resulting from these acquisitions will be amortized over
fifteen years.
BAREFOOT COMPUTER TRAINING LIMITED. On February 28, 1998, ARIS acquired the
stock of Barefoot in exchange for 278,611 shares of ARIS Common Stock.
Barefoot is a Microsoft ATEC, a Sylvan Prometric Testing Centre, a BACT and a
NAEC. This transaction has been accounted for as a pooling of interest. The
following discussion and analysis is based on the retroactive restatement of
the ARIS financial statements to reflect the merger with Barefoot Computer
Training Limited as presented in the supplementary consolidated financial
statements of ARIS which are included elsewhere in this Proxy
Statement/Prospectus.
1997 COMPARED TO 1996
Revenue in 1997 was $62.6 million, representing a 94% increase over revenue
of $32.2 million in 1996, a result of increased revenue in each of ARIS'
business lines. During 1997, ARIS' single largest client accounted for 5.5% of
revenue, down from 7.5% in 1996. ARIS' five largest clients in 1997 accounted
for 22% of revenue as compared to 29% of revenue in 1996. During 1997, ARIS
acquired or opened new or additional offices in New York City, Bloomington,
Minnesota and Dallas, Texas, as well as London, Birmingham and Oxford,
England. These were added to existing offices in Seattle and Bellevue,
Washington; Beaverton, Oregon; Denver, Colorado; the metropolitan Washington,
D.C. area; St. Petersburg, Florida and Dallas, Texas.
Consulting revenue in 1997 was $30.0 million, representing an 84% increase
over consulting revenue of $16.3 million in 1996. This increase is primarily
attributable to an increase in the number of billable consultants and project
managers from 118 at the end of 1996 to 197 at the end of 1997, an approximate
8% increase in average billing rates, and an increase in the number and size
of consulting projects.
Training revenue in 1997 was $28.9 million, representing a 96% increase over
training revenue of $14.7 million in 1996. This increase in revenues is
attributable to a number of factors. The acquisition of Oxford in March
contributed revenues of $6.7 million; Buller Owens acquired in October
contributed $578,000, Agiliti acquired in November contributed $445,000 and
Absolute! acquired in November contributed $260,000 to 1997 revenues. Training
operations conducted 5,534 classes and 14,279 class days during 1997 compared
to 2,200 classes and 6,811 class days during 1996. ARIS continues to
experience high demand for numerous Microsoft NT, Internet-related and Sun
Microsystems courses. During 1997 ARIS has become an authorized provider of
Lotus Notes and Domino education in New York City and Minneapolis.
Software revenue in 1997 was $3.6 million as compared with software revenue
of $1.2 million in 1996. This increase is principally the result of a very
significant increase in ARIS' sales of the NoetixViews suite of products.
Software revenues have been positively impacted by the expansion of the sales
staff as well as expansion of marketing and sales efforts at trade shows.
Cost of consulting and training was $28.9 million in 1997, representing a
83% increase over cost of consulting and training of $15.8 million in 1996.
This increase is primarily attributable to an increase in the number of
consultants, project managers and instructors from 149 at the end of 1996 to
285 at the end of 1997. Cost of consulting and training as a percentage of
combined consulting and training revenue decreased from 49.1% in 1996 to 50.8%
in 1997. This decrease is primarily attributable to a change in the revenue
mix with an increase in training revenue on a percentage basis which has
slightly higher gross margins.
Cost of software increased to $322,000 in 1997 from $93,000 in 1996. This
increase coincides with a rise in sales of software licenses and is primarily
attributable to the increased costs of packaging and distribution of ARIS
DFRAG and NoetixViews.
Sales, general and administrative ("SG&A") expense was $24.2 million in
1997, representing a 100% increase over SG&A expense of $12.1 million in 1996.
SG&A expense as a percentage of total revenue increased from 37.6% in 1996 to
38.7% in 1997. This increase is due to several factors including ARIS'
acquisition of Oxford Computer Group in the United Kingdom where SG&A expenses
are typically higher than in ARIS'
50
<PAGE>
United States' operations, changes in the revenue mix with a marginal increase
in training and software which have higher SG&A expenses and the impact of
opening offices late in 1996 in Dallas, Texas, St. Petersburg, Florida and
London, England as well as the opening or expansion of offices in Denver,
Colorado and the metropolitan Washington, D.C. area. The number of management,
sales and administrative staff increased from 131 at the end of 1996 to 284 at
the end of 1997.
In 1997, ARIS had amortization of intangible assets of $380,000 related to
acquisitions compared to $118,000 in 1996. In 1996 ARIS also expensed $307,000
of in-process research and development expenses related to the acquisition of
Noetix in October 1996.
In June 1997 ARIS sold 2,300,000 shares of its ARIS Stock in an initial
public offering. Net proceeds to ARIS from the offering were $31.2 million.
ARIS has invested the proceeds realizing dividends and interest amounting to
$684,000 and also realized a gain on sale of investments amounting to $280,000
during 1997. During 1996 ARIS had net interest and investment income of
$140,000.
ARIS' effective income tax rate in 1997 was 38.2% compared with 40.0% in
1996. The tax rate was higher in 1996, primarily as a result of expensing non-
deductible purchased research and development costs for software development
of an acquired business while no such costs were expensed in 1997.
1996 COMPARED TO 1995
Revenue in 1996 was $32.2 million, representing an 77% increase over revenue
of $18.2 million in 1995, a result of increased revenue in each of ARIS'
business lines. During 1996, ARIS' single largest client accounted for 7.5% of
revenue, down from 17.6% in 1995. ARIS' five largest clients in 1996 accounted
for 29% of revenue as compared to 43% of revenue in 1995.
Consulting revenue in 1996 was $16.3 million, representing a 68% increase
over consulting revenue of $9.7 million in 1995. This increase is primarily
attributable to an increase in the number of billable consultants and project
managers from 52 at the end of 1995 to 118 at the end of 1996, an approximate
10% increase in average billing rates and an increase in the number and size
of consulting projects.
Training revenue in 1996 was $14.7 million, representing a 77% increase over
training revenue of $8.3 million in 1995. This increase is attributable to a
number of factors, including the acquisition of SQLSoft in May 1996 and
SofTeach in October 1996. Training operations conducted 2,200 classes and
6,811 class days during 1996 compared to 1,557 classes and 4,333 class days
during 1995.
Software revenue in 1996 was $1.2 million as compared with software revenue
of $205,000 in 1995. This increase is principally the result of an increase in
the sales of ARIS DFRAG and the acquisition of Noetix in October 1996, which
added approximately $474,000 in revenue in the fourth quarter of 1996.
Cost of consulting and training was $15.8 million in 1996, representing an
83.7% increase over cost of consulting and training of $8.6 million in 1995.
This increase is primarily attributable to an increase in the number of
consultants, project managers and instructors from 69 at the end of 1995 to
149 at the end of 1996. Cost of consulting and training as a percentage of
combined consulting and training revenue increased from 50.8% in 1995 to 47.9%
in 1996. This increase is primarily attributable to lower utilization of
consultants in 1996 resulting from a large number of newly hired consultants
that did not begin billing time on client projects immediately upon being
hired. The lower utilization was partially offset by a 10% increase in average
billing rates.
Cost of software increased to $93,000 in 1996 from $42,000 in 1995. This
increase coincides with the rise in sales of software licenses and is
primarily attributable to the costs of packaging and distribution of ARIS
DFRAG and NoetixViews.
SG&A expense was $12.1 million in 1996, representing a 89.1% increase over
SG&A expense of $6.4 million in 1995. SG&A expense as a percentage of total
revenue increased from 37.6% in 1995 to 34.9% in 1996. This increase is due
primarily to the opening of four offices in Dallas, London, St. Petersburg and
the
51
<PAGE>
metropolitan Washington, D.C. area, including expenses related to the hiring
of personnel required to staff these offices and an increase in expenditures
for recruitment and training of IT professionals. The number of management,
sales and administrative staff increased from 71 at the end of 1995 to 131 at
the end of 1996.
In 1996, ARIS had $307,000 of in-process research and development expenses
related to the acquisition of Noetix and amortization of intangible assets of
$118,000 related to acquisitions made by ARIS in 1996.
In 1995 and 1996, ARIS had other income of $121,000 and $131,000
respectively consisting primarily of interest income on cash and cash
equivalents.
ARIS' effective income tax rate in 1996 was 40.0% compared with 35.6% in
1995. The increase in 1996 was primarily attributable to purchased research
and development costs for software development of an acquired business and an
increase in liability for state income tax resulting from the geographic
expansion of ARIS' service offerings.
LIQUIDITY AND CAPITAL RESOURCES
Operating cash flows during fiscal 1997 were favorably impacted by higher
net income as a result of increased operating activities partially offset by
increased working capital requirements, especially the increase in net
receivables amounting to $6.4 million. The increase in receivables is due to
the significant growth of ARIS compared to the prior year, accounts receivable
from the four companies acquired in 1997 (aggregating $2.3 million) as well as
a lengthening of the collection period.
Cash generated from operations combined with the net proceeds to ARIS from
its initial public offering of ARIS Common Stock has resulted in ARIS holding
$24.9 million in cash and investments in marketable debt securities at the end
of fiscal 1997. This compares to $1.6 million at the end of fiscal 1996.
Net cash used in investing activities in 1997, 1996 and 1995 was $18.3
million, $3.8 million and $1.6 million, respectively. Net cash spent for the
acquisition of other businesses was $1.7 million in 1997, $1.4 million in 1996
and $112,000 in 1995. Capital expenditures in fiscal 1997, 1996 and 1995 were
$2.4 million, $2.4 million and $1.2 million respectively. ARIS anticipates
that capital expenditures related to expected expansion will continue in the
coming year and will continue to be financed by operational cash flows
generated within the year as well as utilization of invested funds, if needed.
Net cash provided by financing activities was $24.7 million, $910,000 and
$142,000 in 1997, 1996 and 1995, respectively. In June 1997 ARIS sold
2,300,000 shares of its ARIS Common Stock in an initial public offering. Net
proceeds to ARIS from the offering were $31.2 million. ARIS has invested the
proceeds realizing dividends and interest amounting to $684,000 and also
realized a gain on sale of investments amounting to $280,000 during 1997.
Proceeds amounting to $69,000 for the exercise of options with respect to
46,569 shares of ARIS Common Stock were realized in 1997 compared to $2,000
similarly realized in 1996. Management anticipates that in 1998 cash and
marketable securities will be employed for general corporate purposes
including the opening of new offices, potential acquisitions of companies and
other business opportunities as they may arise.
ARIS has an $8 million line of credit with US Bank, a division of First Bank
Systems. The credit line provides funds for general business purposes as well
as the acquisition of companies and is secured by substantially all of ARIS'
assets. The credit line contains various affirmative and negative covenants
which require, among other things, maintenance of a certain level of working
capital and a certain current ratio. ARIS is in compliance with or has
obtained waivers regarding all requirements of the agreement. During 1997 ARIS
utilized the line of credit to acquire 415,000 shares of its ARIS Stock and
borrowed $4 million on the line of credit. Proceeds from ARIS' initial public
offering were utilized to repay the borrowing in June 1997. At the end of 1997
there were no borrowings against the credit line. The credit line expires on
June 1, 1998. Management anticipates that the credit line will be renewed in
an amount suitable to meet its requirements upon expiration of the existing
agreement.
52
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued SFAS No. 130,
"Reporting Comprehensive Income," in June 1997. This statement establishes new
standards for reporting and displaying comprehensive income in the financial
statements. In addition to net income, comprehensive income includes charges
or credits to equity that are not the result of transactions with
shareholders. This statement is effective for fiscal years beginning after
December 15, 1997. Adoption of this standard will only require additional
financial statement disclosure detailing ARIS' comprehensive income.
In June 1997, FASB also issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes new standards
for reporting information about operating segments in interim and annual
financial statements. This statement is also effective for fiscal years
beginning after December 15, 1997. ARIS is currently evaluating the impact, if
any, this statement will have on disclosures in the consolidated financial
statements.
53
<PAGE>
ARIS MANAGEMENT AND EXECUTIVE COMPENSATION
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of ARIS and their ages as of April 29,
1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Paul Y. Song............ 35 Chairman of the Board, Chief Executive Officer and
President
Kendall W. Kunz......... 34 Senior Vice President of North America and Director
John Y. Song............ 36 Vice President of North America Education
Thomas W. Averill....... 53 Vice President of Finance and Chief Financial
Officer
Jeffrey W. Gilles....... 47 Vice President of Research and Development
John J. Griffin......... 40 Vice President of Sales
Nicholas W. Hulse....... 32 Vice President of Marketing
Steve Brugger........... 43 Vice President of Microsoft Technology
Tina J. Song............ 34 Vice President of Administration
David W. Melin.......... 42 President of ARIS Software, Inc.
Hugh Simpson-Wells...... 41 Managing Director of Oxford Computer Group Limited
Norbert W. Sugayan, Jr.. 37 General Counsel and Secretary
Bruce R. Kennedy(1)(2).. 59 Director
Kenneth A.
Williams(1)(2)......... 43 Director
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee
PAUL Y. SONG, founder of ARIS, has been ARIS' President, Chief Executive
Officer and Chairman since its incorporation in October 1990. Mr. Song also
serves as Chairman for ARIS' subsidiaries, ARIS Software Inc. ("ASI,"), Oxford
Computer Group Limited ("Oxford,") and Barefoot Computer Training Limited
("Barefoot"). From 1988 to 1990, Mr. Song was employed by ORACLE's Consulting
division in a number of capacities. Mr. Song received a B.S. in Electrical
Engineering from General Motors Institute and an M.S. in Computer Science from
the Massachusetts Institute of Technology. Paul Y. Song is the husband of Tina
J. Song and the brother of John Y. Song.
KENDALL W. KUNZ was appointed as ARIS' Senior Vice President of North
America in January 1998, and has been a Director of ARIS since March 1997. Mr.
Kunz is responsible for ARIS' operations throughout North America. Mr. Kunz
served as ARIS' Senior Vice President of Western Operations from March 1997
until December 1997, and as Senior Vice President of Education from October
1996 to March 1997. From August 1995 to October 1996, Mr. Kunz was ARIS' Vice
President of Consulting. From June 1994 to August 1995, Mr. Kunz served as
Vice President of Sales and Marketing. From July 1992 until June 1994, Mr.
Kunz served as ARIS' Director of Sales and Marketing. Between June 1988 and
July 1992, Mr. Kunz was employed by ORACLE in a number of capacities. Mr. Kunz
received a B.S. degree in Management from Purdue University.
JOHN Y. SONG was appointed as ARIS' Vice President of North America
Education in January 1998, and served as Vice President of Eastern Operations
from March 1997 to December 1997. Mr. Song also served as ARIS' Vice President
of Business Development from September 1996 to March 1997. Mr. Song is
responsible for ARIS' training operations throughout North America. From March
1996 to August 1996, Mr. Song was ARIS' Executive Director for the Federal and
Public Sector. From February 1991 to February 1996, Mr. Song was Director of
Business Development of ARIS. Prior to joining ARIS, Mr. Song worked in Hong
Kong for Hill and Knowlton, a public relations firm, and in Seoul, Korea for
Lee and Associates, a management consulting firm. Mr. Song received a B.A. in
Journalism from Western Washington University and an M.B.A. from the Graduate
School of International Studies at Yonsei University (Republic of Korea). John
Y. Song is the brother of Paul Y. Song.
54
<PAGE>
THOMAS W. AVERILL has served as Vice President of Finance and Chief
Financial Officer since joining ARIS in July 1996 and is responsible for ARIS'
financial operations. Mr. Averill also serves as a Director for ARIS'
subsidiaries, ASI, Oxford and Barefoot. From November 1994 to July 1996, Mr.
Averill was self-employed as a private business and finance consultant.
Between November 1992 and November 1995, Mr. Averill also was a Vice President
of Finance and a director of Simon Golub and Sons, Inc., a manufacturer and
international wholesale distributor of personal time pieces and fine jewelry.
Between 1983 and 1985, Mr. Averill was Director of Auditing for Clark Nuber
Inc., a public accounting firm, and between 1974 and 1983, Mr. Averill was an
audit manager with Price Waterhouse, a public accounting firm.
JEFFREY W. GILLES was appointed as Vice President of Research and
Development in January 1998, and served as ARIS' Vice President of Education
Business Development from October 1996 to December 1997. Mr. Gilles is
responsible for new product and technology directions, vendor-specific field
support and relationship management, and the development of new services and
courseware. From January 1995 to October 1996, Mr. Gilles was Vice President
of Education of ARIS, responsible for the operations of ARIS' Education
Division. From June 1992 to December 1994, Mr. Gilles was founder and
President of Clarity, Inc., which was acquired by ARIS in January 1995. From
July 1988 to June 1992, Mr. Gilles was Regional Education Manager for ORACLE.
Mr. Gilles received a B.A. in Broadcasting and Film, a B.S. in Computer
Science and an M.S. in Computer Science from the University of Iowa.
JOHN J. GRIFFIN has served as ARIS' Vice President of Sales since July 1996.
From 1988 to 1996, Mr. Griffin held various sales and account management
positions at ORACLE and immediately prior to joining ARIS, was ORACLE's Global
Account Manager for the Boeing Company. Prior to joining ORACLE, Mr. Griffin
held technical, management, and sales positions for a number of companies. Mr.
Griffin received a B.A. in Organizational Communications from the University
of Utah.
NICHOLAS W. HULSE was appointed Vice President of Marketing in November
1997. Prior to joining ARIS, Mr. Hulse served as Director of Worldwide
Marketing for New Horizons Computer Learning Centers, an international
computer training organization. In addition, Mr. Hulse has served as Director
of National Marketing Programs for Thorn EMI, and served in various
marketing/advertising positions in direct mail, retail, and computer
publishing companies. Mr. Hulse received a four year degree in Marketing from
Northumbria University in England.
STEPHEN J. BRUGGER joined ARIS in April, 1996 and is currently Vice
President, Microsoft Account and Technology Team, responsible for all business
conducted with Microsoft as well as the Microsoft channel relationship. Prior
to this position, Mr. Brugger managed the post merger operational transition
of Oxford Computer Group after their acquisition by ARIS. From June, 1993
until its sale to ARIS in April 1996, Mr. Brugger was President and
subsequently owner of SQLSoft Inc, a Bellevue based consulting and training
company specializing in Microsoft technologies. Mr. Brugger joined SQLSoft in
April, 1989 as Director of Consulting Operations. Mr. Brugger received a B.S.
Degree in Science Education from the Ohio State University.
TINA J. SONG was appointed Vice President of Administration in January 1998,
and served as ARIS' Director of Human Resources and Information Technology
from January 1995 to December 1997. Ms. Song was a Vice President of ARIS from
October 1990 until March 1996, and was a Director of ARIS from October 1990
until November 1994. From April 1993 to January 1995, Ms. Song was also ARIS'
Consulting Resource Manager. Ms. Song received a B.S. in Electrical
Engineering from the General Motors Institute. Ms. Song is the wife of Paul Y.
Song.
DAVID W. MELIN has served as President of ASI and its predecessor
corporations since August 1996. From 1990 to 1996, Mr. Melin owned and
operated Allied Bolt Co., an industrial fastener distribution and
manufacturing company. Mr. Melin was Product Manager for MS-DOS and Microsoft
LAN Manager at Microsoft from 1984 to 1989. Mr. Melin received a B.A. in
Mechanical Engineering from the University of Washington and an M.S. in
Engineering Management from Stanford University.
55
<PAGE>
HUGH SIMPSON-WELLS is Managing Director and Secretary of Oxford and is
Managing Director and Assistant Secretary of Barefoot, the U.K. subsidiaries
of ARIS and is responsible for all operations of Oxford. Mr. Simpson-Wells
founded Oxford in 1983 and it was acquired by ARIS in February 1997. Prior to
founding Oxford, Mr. Simpson-Wells was an engineer with the Ford Motor Company
in the U.K. Mr. Simpson-Wells received a Master's Degree in Engineering
Science from Oxford University.
NORBERT W. SUGAYAN, JR. has served as ARIS' General Counsel since February
1996, and as its Secretary since April 1997. He also serves as Secretary of
ASI, Oxford and Barefoot. Prior to joining ARIS on a full-time basis, Mr.
Sugayan practiced law in Seattle, Washington as of counsel to Lane Powell
Spears Lubersky from February 1996 to December 1996, as a principal of Harris,
Sugayan & Hull, from March 1994 to February 1996 and as an attorney with Bogle
& Gates from February 1992 to March 1994. Prior to February 1992, Mr. Sugayan
practiced law in Seoul, Republic of Korea and Dallas, Texas. Mr. Sugayan
received a B.A. in Economics and English from the University of Michigan, a
J.D. from the University of Notre Dame Law School, and an L.L.M. in
Corporations Law from New York University.
BRUCE R. KENNEDY was appointed as a Director of ARIS in March 1997. Mr.
Kennedy is Chairman Emeritus of Alaska Air Group, Inc., a New York Stock
Exchange listed company. Since 1991, Mr. Kennedy has served as a Director, and
as Chairman of the Executive Committee of the Board, of Alaska Air Group, Inc.
He served as Chairman, Chief Executive Officer and President of Alaska Air
Group, Inc., Chairman, Chief Executive Officer and President of Alaska
Airlines, Inc. and as Chairman of Horizon Air Industries, Inc. from 1979 to
1991.
KENNETH A. WILLIAMS was appointed as a Director of ARIS in March 1997. Mr.
Williams is Chairman and Chief Executive Officer of World Stream
Communications, a consumer Internet broadcasting company, which he founded in
1997. From 1996 through December 1997, Mr. Williams was Vice Chairman and a
director of CUC International, a consumer services company. He was also a
member of the Office of the President of CUC International. Prior to joining
CUC International, Mr. Williams was the Chairman of the Board and Chief
Executive Officer of Sierra On-Line, Inc., a consumer software company, which
he co-founded in 1979 and which was acquired by CUC International in 1996.
The Board of Directors has created an Audit Committee and a Compensation
Committee. The Audit Committee consists of Bruce R. Kennedy and Kenneth A.
Williams (Chair). Among other functions, the Audit Committee makes
recommendations to the Board of Directors regarding the selection of
independent auditors, reviews the results and scope of the audit and other
services provided by the Company's independent auditors and reviews the
Company's balance sheet, statement of operations and cash flows and reviews
and evaluates the Company's internal control functions.
The Compensation Committee consists of Mr. Williams and Mr. Kennedy (Chair).
The Compensation Committee reviews and approves the compensation and benefits
for the Company's executive officers, administers the Company's stock option
plans and makes recommendations to the Board of Directors regarding such
matters.
CHANGE IN CONTROL ARRANGEMENTS
ARIS does not have change of control agreements with any of its Named
Executive Officers or Directors, except for Nicholas W. Hulse.
56
<PAGE>
COMPENSATION SUMMARY
The following table sets forth certain information regarding annual and
long-term compensation for services in all capacities to ARIS earned by ARIS'
Chief Executive Officer and the four other executive officers who earned in
excess of $100,000 in salary and bonus during fiscal 1997, 1996 and 1995 (the
"Named Executive Officers"). ARIS did not make any restricted stock awards,
grant any stock appreciation rights or make any long- term incentive plan
payouts during 1997, 1996 or 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
------------------------------------------------
ANNUAL COMPENSATION SECURITIES
---------------------- -------------------------
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SARS COMPENSATION
--------------------------- ---- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Paul Y. Song.................. 1997 $150,000 $ 92,897 0 $ 4,214(2)
President and Chief Executive
Officer 1996 120,000 90,553 0 3,655(2)
1995 96,000 155,877 0 50,871(3)
Kendall W. Kunz............... 1997 $126,000 $ 51,400 80,000 $ --
Senior Vice President of
North America 1996 108,000 81,644 0 1,190(2)
1995 72,000 135,996 320,000 68,628(4)
John Y. Song.................. 1997 $120,000 $ 29,893 60,000 $ --
Vice President of North Amer-
ica Education 1996 76,000 53,660 0 3,046(2)
1995 60,000 66,834 200,000 31,305(5)
John J. Griffin............... 1997 $ 80,000 $ 51,299 0 $ --
Vice President of Sales 1996 36,000 10,000 40,000 --
1995 N/A N/A N/A
Jeffrey W. Giles.............. 1997 $102,000 $ 29,235 0 $ --
Vice President of Research
and Development 1996 102,000 74,830 0 --
1995 102,000 94,592 0 --
</TABLE>
- --------
(1) Represents payments under ARIS' Executive Profit Bonus Plan.
(2) Represents amount paid by ARIS for automobile expenses.
(3) Includes $48,000 realized upon exercise of non-statutory stock options to
purchase shares of ARIS' Common Stock and $2,871 paid by the Company for
automobile expenses.
(4) Includes $66,900 realized upon exercise of non-statutory stock options to
purchase shares of ARIS' Common Stock and $1,728 paid by the Company for
automobile expenses.
(5) Includes $29,250 realized upon exercise of non-statutory stock options to
purchase shares of ARIS' Common Stock and $2,055 paid by the Company for
automobile expenses.
57
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows information regarding grants of stock options to
the Named Executive Officers during the year ended December 31, 1997.
OPTION GRANTS IN LAST FISCAL YEAR INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL
SHARES GRANTED TO RATES OF STOCK
UNDERLYING EMPLOYEES IN PRICE APPRECIATION
OPTIONS FISCAL EXERCISE PRICE ---------------------
NAME GRANTED (#)(1) YEAR ($)(1)(2) ($/SHARE) EXPIRATION 5%($) 10%($)
- ---- -------------- -------------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Paul Y. Song............ 0 0 N/A N/A N/A N/A
Kendall W. Kunz......... 80,000 6.3675% $ 5.00 1/15/04 $ 162,840 $ 379,487
John Y. Song............ 60,000 4.7756% 5.00 1/15/04 122,130 284,615
John J. Griffin......... 0 0% N/A N/A N/A N/A
Jeffrey W. Gilles....... 0 0% N/A N/A N/A N/A
</TABLE>
- --------
(1) The exercise price per share of each option is equal to the fair market
value per share of the underlying Common Stock on the date of grant.
(2) Options to purchase 1,256,385 shares of Common Stock were granted by the
Company to its employees during 1997.
(3) Amounts represent hypothetical gains that could be achieved for the
respective options exercised at the end of the option term. These gains
are based on assumed rates of appreciation of 5% and 10% compounded
annually from the date the respective options were granted to their
expiration date. The gains shown are net of the option exercise price, but
do not include deductions for taxes or other expenses associated with the
exercise of the options or sale of the underlying shares. The actual
gains, if any, on the stock option exercises will depend on the future
performance of the Common Stock, the optionholder's continued employment
through the option period, and the date on which the options are
exercised.
OPTION EXERCISES AND YEAR-END VALUES
The following table provides information on stock option exercises by the
Named Executive Officers and the number and value of the Named Executive
Officers' unexercised options at December 31, 1997.
AGGREGATED OPTION EXERCISES DURING 1997 AND OPTION VALUES AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED IN-THE-
TOTAL NUMBER OF UNEXERCISED MONEY OPTIONS AT FISCAL YEAR-
VALUE OPTIONS AT FISCAL YEAR END END ($)(1)
ACQUIRED ON ------------------------------- ------------------------------
NAME SHARES EXERCISE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ------ ----------- ------------- -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Paul Y. Song............ 0 0 0 0 0 0
Kendall W. Kunz......... 0 0 0 80,000 0 $ 1,280,000
John Y. Song............ 0 0 0 60,000 0 $ 960,000
John J. Griffin......... 0 0 6,000 34,000 $ 109,920 $ 496,480
Jeffrey W. Gilles....... 0 0 0 0 0 0
</TABLE>
- --------
(1) This amount is the aggregate number of the outstanding options multiplied
by the difference between $21 (the closing price of the Common Stock as
reported on the Nasdaq National Market on December 31, 1997) and the
exercise price of such options.
EXECUTIVE PROFIT BONUS PLAN
In January 1998, the Compensation Committee set the terms for the 1998
Executive Profit Bonus Plan. This plan established a cash bonus pool for
executive officers based on ARIS achieving a threshold pre-tax income target.
When ARIS achieves 90% of the Executive Profit Bonus Plan pre-tax income
target, 10% of the pre-tax
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<PAGE>
income thereafter is contributed to the bonus pool and shared by all
participating executive officers according to the percentage established for
each officer by the Compensation Committee. The bonus pool is doubled should
ARIS achieve 110% of the 1998 target pre-tax operating income. See
"Compensation and Other Information Concerning Executive Officers--Executive
Compensation" for a description of bonuses paid to executive officers in 1997.
DESCRIPTION OF ARIS' 1997 STOCK OPTION PLAN
The 1997 Stock Option Plan (the "1997 Plan") was adopted by ARIS' Board of
Directors and approved by ARIS' shareholders in March 1997 and April 1997,
respectively. At the time of adoption, the aggregate number of shares of
Common Stock reserved for issuance under the 1997 Plan was 2,000,000 shares,
less the 1,134,357 shares that were granted and had not subsequently become
available for future grant under ARIS' 1995 Stock Option Plan (the "1995
Plan"). The ARIS' Board of Directors adopted, and the ARIS shareholders
approved on April 28, 1998, an amendment to the 1997 Plan to increase the
number of shares reserved for issuance pursuant to the 1997 Plan to 2,000,000
shares. Assuming the proposed amendment had been in effect as of the Record
Date and further assuming that all options outstanding under the 1995 Plan had
been exercised, the number of shares remaining available under the 1997 Plan
would have been 1,368,616.
The 1997 Stock Option Plan provides for the grant of qualified and non-
qualified options to employees, directors, officers and non-employee directors
of ARIS by the Plan Administrator. The 1997 Stock Option Plan provides for
automatic, non-discretionary grants of 5,000 non-qualified stock options to
non-employee directors (as defined under Rule 16b (3) of the Exchange Act) for
each year of service (or pro-rata for any portion thereof) on the Board of
Directors of ARIS. For all other grants under the 1997 Stock Option Plan, the
date of grant, number of options, option price, vesting period and other terms
specific to the options are to be determined by the Plan Administrator. The
option price for qualified stock options is based on the fair market value of
ARIS' Common Stock on the date of grant. Options granted under the 1997 Stock
Option Plan expire on the tenth anniversary of the date of grant and vest over
periods of up to four years.
The exercise price per share of options granted to non-employee directors
under the 1997 Stock Option Plan is 100% of the fair market value of ARIS'
Common Stock on the date the option is granted. Generally, options expire on
the tenth anniversary of the date of the option grant except for non-qualified
options granted to United Kingdom resident employees which expire on the
seventh anniversary of the date of the option grant. Options may not be
assigned or transferred except by will or by the laws of descent or
distribution and are exercisable only while the optionee is serving as a
director of ARIS or within 90 days after the optionee ceases to serve as a
director of ARIS (except that if a director dies or becomes disabled while
serving as a director of ARIS, the option is exercisable until the scheduled
expiration date of the option).
ARIS' management relies on stock options as an essential part of the
compensation packages necessary for ARIS to attract and retain experienced
officers and employees and motivate employees to maximize shareholder value.
The Board of Directors of ARIS believes that the proposed increase in the
number of shares available under the 1997 Plan is essential to permit ARIS'
management to continue to provide long-term, equity-based incentives to
present and future key employees. Additionally, the Board of Directors has
determined that any future option grants resulting from the proposed increase
will be at exercise prices equal to at least fair market value at the time of
grant, except in those limited cases where shareholder value would be
maximized by an alternate approach. Accordingly, the value of the future
options is tied to the future performance of ARIS' stock and will provide
value to the recipient only to the extent that shareholders as a whole have
benefited from an increase in the market value of ARIS' Common Stock.
In 1997, ARIS granted options under the 1997 Plan with fair market value
exercise prices to the following Named Executive Officers: Mr. Paul Y. Song,
Mr. Jeffrey W. Gilles and Mr. John J. Griffin, no shares; Mr. Kendall W. Kunz,
80,000 shares; Mr. John Y. Song, 60,000 shares; all executive officers as a
group, 193,000 shares; non-employee directors, 25,834 shares; and all other
employees, 1,037,551 shares. Other than options
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<PAGE>
granted to all new employees and for promotions to existing employees in
amounts specified under certain guidelines adopted by the Compensation
Committee as Plan Administrator, ARIS has not, at the present time, determined
who will receive options to purchase the additional shares of Common Stock
authorized for issuance under the amended 1997 Plan.
DESCRIPTION OF 1998 EMPLOYEE STOCK PURCHASE PLAN
In March 1997 ARIS began investigating the possibility of introducing a
program under which its employees would be able to purchase shares of ARIS
Common Stock on terms that are favorable to such employees. The ARIS Board of
Directors approved the ARIS Corporation 1998 Employee Stock Purchase Plan (the
"Purchase Plan") and recommended that it be approved by the ARIS shareholders
at the ARIS annual meeting of shareholders. Prior to the annual meeting of
shareholders, ARIS received by proxy more than a majority of the votes
necessary to approve the Purchase Plan.
The Purchase Plan provides a means for qualified employees of ARIS and its
designated subsidiaries to purchase shares of ARIS' Common Stock under
favorable terms through payroll deductions. The Purchase Plan authorizes
300,000 shares of common stock to be sold to employees electing to participate
in the Purchase Plan.
The Purchase Plan will be administered by an executive officer of ARIS
designated by the ARIS Board or its Compensation Committee, except for those
items expressly reserved to the Board or the Compensation Committee under the
Purchase Plan. Any discretionary decisions will be applicable equally to all
eligible employees. Employees of ARIS subsidiaries will be eligible to
participate in the Purchase Plan only if the ARIS Board or its Compensation
Committee has designated the subsidiary as eligible for participation.
To be eligible to participate in the Purchase Plan, employees must have been
with ARIS for at least ninety days, work more than 20 hours each week,
customarily work more than five months a year and own less than 5% of ARIS'
stock. The Plan Administrator has the ability to reduce the minimum hourly and
monthly requirement for future offering periods.
The Purchase Plan will be divided into two six-month coextensive offering
and purchase periods beginning on January 1 and July 1 of each year. At the
end of each purchase period, eligible participating employees will purchase
shares of the ARIS' Common Stock at a price equal to 85% of the lesser of (a)
the fair market value of the ARIS Common Stock on the first business day of
the offering period or (b) the fair market value of the Common Stock on the
last business day of the purchase period. The ARIS Board or its Compensation
Committee can establish different offering periods and purchase periods. A
purchase period may be the same as the offering period or may be shorter
consecutive periods within the offering period, as determined by the ARIS
Board or its Compensation Committee. The ARIS Board or its Compensation
Committee can also decrease the amount of the discount for future offering
periods.
Eligible employees may authorize payroll deductions in whole percentages up
to 10% of their regular cash compensation in payment of the discounted
purchase, subject to a maximum fair market value purchase amount in any
calendar year of $25,000. Participants will be automatically reenrolled in the
next offering period unless they have withdrawn from the Purchase Plan.
Termination of an employee's employment with ARIS for any reason will result
in the immediate termination of the employee's participation in the Purchase
Plan. Any accumulated payroll deductions will be refunded to the employee,
without interest.
ARIS' Board of Directors believes that the Purchase Plan provides ARIS with
a further equity-based compensation incentive with which ARIS can continue to
attract, motivate and retain key employees, thereby maximizing shareholder
value.
ARIS PRINCIPAL STOCKHOLDERS
The following table sets forth, as of April 29, 1998, certain information
regarding the beneficial ownership of ARIS' outstanding Common Stock by: (i)
each person who, to the knowledge of management, owned
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<PAGE>
beneficially more than 5% of the Common Stock; (ii) each director and director
nominee of ARIS, (iii) each of the Named Executive Officers for whom
compensation is reported in this Proxy Statement and (iv) all directors and
executive officers of ARIS as a group. Based on information furnished by the
beneficial owners to ARIS, and except as otherwise noted and subject to
community property laws where applicable, ARIS believes that the beneficial
owners listed below have sole voting and investment power with respect to such
shares.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) PERCENT OF CLASS
- ------------------------------------ ------------ ----------------
<S> <C> <C>
Paul Y. Song................................ 4,470,000(2)(3) 45.0521%
2229 112th Avenue NE
Bellevue, Washington 98004
Tina J. Song................................ 4,470,000(2)(3) 45.0521%
2229 112th Avenue NE
Bellevue, Washington 98004
Song Family Limited Partnership............. 4,470,000(2)(3) 45.0521%
3700 First Interstate Center
999 Third Avenue
Seattle, Washington 98104
Stephen J. Brugger.......................... 505,494(4) 5.0948%
2229 112th Avenue NE
Bellevue, Washington 98004
Pilgrim Baxter & Associates, Ltd............ 567,500 5.81%
825 Duportail Road
Wayne, Pennsylvania 19087-5525
DIRECTORS AND NAMED EXECUTIVE OFFICERS
- --------------------------------------
Jeffrey W. Gilles........................... 460,000(5) 4.6362%
Kendall W. Kunz............................. 336,000(6) 3.3797%
John Y. Song................................ 203,500(7) 2.0486%
John J. Griffin............................. 31,000(8) *
Bruce R. Kennedy............................ 5,417(9) *
Kenneth A. Williams......................... 5,417(9) *
All current directors and executive officers
as a group (14 persons).................... 6,174,348(10) 62.2191%
</TABLE>
- --------
* Owns less than 1% of ARIS' outstanding Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Common Stock subject to options currently exercisable or
exercisable within sixty (60) days of the Record Date are deemed
outstanding for purposes of computing the percentage ownership of the
person holding such option but are not deemed outstanding for purposes of
computing the percentage ownership of any other person.
(2) Includes 650,000 shares owned by Song Family Limited Partnership, of
which Mr. Song and Ms. Song are each General Partners. Also includes
522,000 shares owned by Tina Song, the spouse of Mr. Song and 3,298,000
shares owned by Paul Song, the spouse of Ms. Song.
(3) Mr. Song and Ms. Song have shared voting power of ARIS' Common Stock
owned by Song Family Limited Partnership.
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<PAGE>
(4) Includes 2,000 shares registered in the name of Aidan J. Brugger Trust,
40,000 shares registered in the name of Brugger Family Children Trust,
and 2,760 shares registered in the name of Aidan J. Brugger, over all of
which Stephen J. Brugger exercises voting and dispositive power.
(5) Includes 100,000 shares registered in the name of The Jeffrey & Glenda
Gilles Unitrust of which Mr. Gilles is a Co-Trustee. Mr. Gilles exercises
voting and dispositive power over the standard unit trust.
(6) Includes 20,000 shares of Common Stock subject to options that are
exercisable within 60 days of April 30, 1998.
(7) Includes 12,000 shares of Common Stock subject to options that are
exercisable within 60 days of April 30, 1998.
(8) Includes 11,000 shares of Common Stock subject to options that are
exercisable within 60 days of April 30, 1998.
(9) Represents shares of Common Stock subject to options that are exercisable
within 60 days of April 30, 1998.
(10) Includes shares of Common Stock subject to options that are exercisable
within 60 days of April 30, 1998.
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<PAGE>
INTIME BUSINESS
InTime and its wholly owned subsidiary, The Consulting TEAM, Inc. ("TEAM")
are engaged primarily in providing system integration services relating to the
selection, implementation and use of human resources, payroll and selected
software systems. InTime was incorporated in Delaware in January 1994 and
acquired all of the common stock of TEAM, a Florida corporation organized in
1985, and InTime Systems, Inc., a Delaware corporation organized in 1993.
InTime's headquarters are located in West Palm Beach, Florida.
In 1995, InTime developed a proprietary time and attendance management
software system ("TAMS"), which provides management with combined time,
attendance, payroll and human resource information on a real-time basis. TAMS
integrates human resource and payroll systems for producing paychecks,
allowing employers to efficiently and accurately produce paychecks and collect
information to better monitor, analyze and audit human resource costs in their
businesses. Since 1985, TEAM has been providing consulting services to
employers relating to the selection, implementation and use of human resource,
payroll and selected software systems. It is from this experience that TAMS
was developed, incorporating many features that were not available in client
human resource and/or payroll systems.
In February 1997, InTime signed a technology license agreement with ORACLE
allowing ORACLE to promote, market and distribute TAMS/O (OTM) through its
worldwide distribution channels. InTime also continues to market TAMS/O
through its existing sales team.
PRODUCT AND SERVICE DESCRIPTION
Consulting Services
InTime provides consulting services on Human Resource Management Systems
("HRMS") primarily for Fortune 1,000 companies, municipalities and
universities. InTime's focus is directed toward strategic services consulting
and full-system implementation projects for major HRMS applications, such as
ORACLE, PeopleSoft and ADP. TEAM's consulting fulfillment staff is structured
around two major consulting areas: strategic services and HRMS implementation.
The Strategic Services Group provides consulting services on process
reengineering and improvements; HRMS needs evaluation; vendor selection and
negotiations; generalized human resource, payroll and benefit administration;
and establishing human resource information centers. The HRMS Implementation
Group provides consulting services on all aspects of HRMS implementation
projects, including project definition, fit analysis, data modeling and
functional and technical assistance on the implementation of packaged systems
into production environments.
Consulting Staff
TEAM's HRMS consulting staff consists primarily of senior-level consultants
who are experienced with human resource, payroll and benefit administration
practices and recent changes in industry standards, technological advances in
vendor systems, and government compliance regulations. TEAM's staff blends the
functional skills necessary to apply business needs to the system's technology
and technical skills necessary to ensure the system is designed with enough
flexibility to handle ever-changing business practices.
InTime recognizes that its success can be sustained only through the efforts
and quality of its consultants. Management believes it provides responsive
technical and professional support to all of its consultants. Additionally,
TEAM recently established an employee training program to ensure its
consultants are knowledgeable in the latest applications, technology and
project management expertise.
Marketing Consulting Services
InTime's consulting services are marketed through various means: by public
or association presentations and speeches and the preparation of relevant
professional articles; by identifying prospective clients through
participation in professional organizations, direct mail advertising in trade
journals and publications read by corporate executives; by developing
alliances with major HRMS vendors and other third-party consulting
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<PAGE>
organizations; and through referrals or inquiries to TEAM by prospects who
have heard of TEAM's successful engagements with other clients. InTime
continues to expand all of these traditional lead development avenues by
adding new senior sales personnel, offering customer incentives, and marketing
TEAM's proprietary methodologies.
Competition
The IT services industry is extremely competitive and currently highly
fragmented. Although the market is consolidating, management does not believe
any one company is dominant in the HRMS consulting field at the present time.
Some of InTime's competitors possess substantially greater resources, greater
name recognition and a more established client base than InTime. Management of
InTime believes that the significant competitive factors in the sale of
InTime's services include the quality of its consulting services, price and
reputation.
InTime believes that specializing in the implementation of human
resource/payroll/benefit systems is a unique service. By having a
specialization in this area, 13 years of experience and a solid reputation,
management believes that TEAM will continue to have the ability to compete
with larger and more recognized firms. TEAM is one of only a few specialized
firms that provide full-service technical and functional assistance in the
human resource, payroll and benefit systems area.
Prime contractors represent additional competitive challenges. As many
businesses strive to achieve enterprise-wide solutions in their software
selections, some have also gone to enterprise solutions for the systems
integration IT with respect to implementation of these systems. In order to
improve its ability to compete, InTime is taking steps to become an enterprise
solution for certain vendor products.
Consulting Agreements
Consulting services for all of TEAM's projects are documented through a
Professional Services Agreement ("PSA") and a Work Authorization Form ("WAF").
The PSA is written to cover the basic contractual terms, while the WAF
contains the specifics, such as rates and deliverables for each consulting
engagement. By separating the basic contractual terms from specific terms for
individual projects, a consulting engagement can be expanded to accommodate
additional work or rate increases without having to renegotiate the contract.
A typical implementation consulting contract involves two to four staff
members for a period of six months to one year. Strategic service projects are
more focused and average one to two staff members for a period of one month to
six months.
Consultants work with clients on an hourly, daily, weekly or monthly basis.
Generally, TEAM charges its clients for consulting services on an hourly or
per diem rate basis. TEAM has also entered into "fixed price" and "not-to-
exceed bid" contracts, however. These contracts are typically executed after
TEAM has completed a project definition audit to correctly assess the effort
and resources required.
InTime's clients as well as its staff must sign confidential disclosure and
non-compete agreements. These agreements preclude a client from hiring any of
InTime's consultants for a period of six months after InTime's contract with
the client is completed.
Major Customers
During 1997, the following customers constituted 10% or more of InTime's net
revenue:
<TABLE>
<S> <C>
THE NEW YORK TIMES COMPANY........................................ 12.00%
ASPLUNDH TREE SERVICE............................................. 10.70%
</TABLE>
InTime's major customers vary from year to year. See Note 8 to InTime's
Consolidated Financial Statements included elsewhere in this Proxy
Statement/Prospectus.
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<PAGE>
Software Products
InTime currently markets one version of TAMS, TAMS/O, which was specifically
developed to work exclusively with the ORACLE HRMS system. In 1996, the
Company discontinued the sale of a mainframe version of TAMS primarily because
the HRMS market in general has moved to client/server technology. This has
resulted in minimal further expenditures by the Company for the mainframe-
based products.
TAMS/O was specifically developed to work exclusively within the ORACLE
human resource and payroll system. The system was developed pursuant to ORACLE
Application Technical Standards, and therefore provides employers with a
seamless interface between the systems.
Operating in an integrated environment eliminates the traditional need for
multiple interfaces and high manual maintenance efforts associated with stand-
alone time and attendance systems.
TAMS/O can provide employers with many efficiency and cost saving benefits,
including:
. Elimination of duplicate payments, overpayments and underpayments;
. Eliminating the typical "time-crunch" associated with meeting payroll
deadlines, which often lead to multiple errors;
. Eliminating the manual activity involved in consolidating, calculating,
verifying, correcting, balancing and editing time and attendance system
data prior to payroll processing;
. Controlling labor costs by providing management immediate information,
such as attendance and work trends in various units and notice of where
time or cost limits have been exceeded;
. Tracking accrued vacation and leave time and other employee
entitlements, such as family leave, to facilitate the audit process and
reduce auditing cost;
. Scheduling employees for work on many different shifts and plans; and
. Helping management optimize the labor force mix of permanent, part-time,
contract or shared-job employees.
MARKETING AND SALES STRATEGY
TAMS/O
In February 1997, InTime entered into a technology license agreement with
ORACLE that allows for the distribution of the TAMS/O product directly by
ORACLE. Under this agreement, ORACLE may market the product under its own
product name ("OTM"), and the product is listed on the ORACLE price list and
sold with ORACLE HRMS systems. The product may also be licensed directly by
ORACLE's authorized distributors.
Under the agreement, InTime provides support to ORACLE marketing, and
support consultants on the OTM product. Specifically, this includes assisting
ORACLE in developing sales and marketing material, instructing ORACLE
marketing support personnel in the performance of presentation and
demonstration of OTM, and in supporting the global demonstration version of
the OTM product for ORACLE. InTime also agrees to provide technical support in
enhancing OTM for future releases.
During the term of this agreement, ORACLE has the option to acquire from
InTime a worldwide, perpetual, royalty-free, irrevocable, non-exclusive right
and license. In the event ORACLE exercises the option, ORACLE shall pay the
Company the sublicense fees for a period of three years from the option
exercise date.
It is anticipated that the OTM product will be demonstrated to each of
ORACLE's prospective HRMS customers, as the product will be included in their
global demonstration system, and in ORACLE application sales training.
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<PAGE>
Although the agreement is non-exclusive and does allow InTime to directly
market the product, management does not foresee significant benefits in this
course of action and will minimize any direct sales efforts for this product.
ORACLE will be licensing the product directly to its customers under terms
similar to the license terms for ORACLE's own products. InTime will receive a
royalty from each of the licenses ORACLE and/or its distributors conclude
pursuant to the conditions of the agreements.
LICENSE, MAINTENANCE, AND SERVICE AGREEMENT
When InTime makes direct sales of its current TAMS/O product, InTime
provides a warranty of title against major programming defects. The licensee
can also elect an annual maintenance plan at a cost of approximately 19% of
the base license fee. InTime enters into contracts with its customers to
directly customize TAMS/O as part of a separate professional services
agreement. The estimated revenue from implementation and consulting services
can be approximately four to seven times the cost of the license fee.
COMPETITION AND TAMS/O
TAMS/O is the only time and attendance system that is fully integrated and
formally approved (through the CAI approval process) with the ORACLE HRMS
systems. Although there are many stand-alone and independent management
systems on the market, all require interfaces to be maintained and built, with
the resulting duplication of data, additional required training and lower
level of integrated functionality than is offered with TAMS/O.
As a result of the license agreement with ORACLE, it is anticipated that
TAMS/O will be the only time and attendance management system offered directly
by ORACLE with integration with its payroll system.
The agreement with ORACLE is not exclusive; therefore, there can be no
assurance that other companies with financial resources and expertise in this
specialized field do not have or are not currently developing a functionally
equivalent product that will become available to ORACLE in the future. The
computer industry is characterized by rapidly changing technology and is
intensely competitive. InTime's ability to continue to provide ORACLE with a
competitive product will depend on ORACLE's ability to license OTM, and
provide a continuing revenue stream to InTime to enhance and improve it. There
can be no assurance that InTime will be able to compete successfully, or that
those competitors will not develop technologies, products or relationships
that will render TAMS/O obsolete or less marketable, or that InTime will be
able to successfully enhance TAMS/O on an ongoing basis.
DEVELOPMENT
InTime currently is committed to refining TAMS/O and OTM to meet the
changing needs of the marketplace and assuring continued compatibility of the
product with the introduction of any new software. No assurances can be given
that InTime will be able to do so, or if able to do so, that these refinements
and upgrades will be introduced in a timely manner. InTime currently employs
seven development staff members who are expected to devote all or a portion of
their time to development support in accordance with the ORACLE agreement.
InTime's research and development department will handle all product
enhancement activity, maintenance and modification of OTM in connection with
the ORACLE agreement.
EMPLOYEES
As of May 1, 1998, InTime has approximately 94 full-time employees,
including its executive officers. InTime is currently using the services of 15
independent contractors. InTime's staff is divided into 12 employees in
administration, 13 in sales and marketing, eight in product development, one
in software sales, one in training, one in recruiting, and 73 consultants
(including 15 independent contractors). None of InTime's employees or
independent consultants are covered by a collective bargaining agreement; most
are engaged by a standard letter agreement, however. In addition, each staff
person has signed a non-compete and confidential disclosure agreement.
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InTime's success depends on its ability to attract and retain consultants
with the technical skills require to meet client-specific needs. The IT
industry has high consultant turnover rates, and the demand for consultants to
date has substantially exceeded supply. This has resulted in intense
competition for consultants, which InTime expects to increase in the future.
There can be no assurances that InTime will attract and retain the personnel
it requires to conduct its operations successfully or attract additional
personnel for expanded operations. Failure to attract and retain such
personnel or an increase in InTime's consulting turnover rate could have a
material adverse affect on InTime's business, operating results and financial
conditions.
Due to the high demand for IT services and the shortage of qualified IT
consultants, management anticipates that salary increases in the IT industry
will cause salary levels to surpass normal salary levels of other industries.
If the demand continues to be strong, the trend of salary increases could have
a material adverse affect on InTime's business, operating results and
financial conditions, if InTime is unable to pass the increased payroll cost
on to its clients. InTime attempts to pass these costs on to its clients to
offset the increases where possible. There can be no assurances that all
increases can be passed on to its clients.
SEASONALITY
InTime's operating results are adversely affected when client facilities
close due to holidays or inclement weather. InTime generally experiences a
certain amount of seasonality in the fourth quarter due to the number of
holidays and closings of client facilities during that quarter. Further,
InTime may experience lower operating results in the first quarter due in part
to the timing of client budget approval processes.
YEAR 2000 ISSUES
InTime has completed an initial evaluation of its internal systems and
concluded that its current financial systems are Year 2000 compliant.
Accordingly, management believes that the transition to the Year 2000 will not
have a material impact on InTime. InTime's product, TAMS/O, has also been
evaluated and is considered Year 2000 compliant.
InTime is exposed to external Year 2000 risk through InTime's customers and
financial institutions if these third parties' systems are not Year 2000
compliant. These disruptions could include the client's inability to process
payment to InTime or a financial institution's inability to process checks
drawn on InTime or accept deposits and wire transfers. Other suppliers and
vendors that could have an impact on InTime include a loss of data
communications and other interruptions essential to the normal conduct of
business of InTime. InTime is unable to determine the nature or impact of such
interruptions, if any, at this time.
PROPERTIES
InTime currently leases all of its office space. InTime's headquarters is
located in West Palm Beach, Florida, and it maintains additional sales and
marketing offices in the Dallas, TX and Burlingame, CA areas. InTime's
research and development office is in Columbia, SC. Set forth below is a
summary of the offices leased by InTime.
<TABLE>
<CAPTION>
LOCATION SQUARE FEET ANNUAL RENTAL EXPIRATION DATE
-------- ----------- ------------- ---------------
<S> <C> <C> <C>
West Palm Beach, FL................... 10,529 $186,155 Nov. 2001(1)
Columbia, SC.......................... 3,600 $ 40,710 July 1998(2)
Dallas, TX............................ 285 $ 13,927 Jan. 1998(3)
Burlingame, CA........................ 229 $ 13,800 (3)
</TABLE>
- --------
(1) 10,529 square feet in an office complex in West Palm Beach. The lease
expires 2001. The rental rates, including CAM, range from $15.00 to $19.25
per square foot over the life of the lease.
(2) 3,600 square feet, expiring in July 1998. Management currently anticipates
continuing on a month-to-month basis.
(3) Space rented in executive office suites. No long-term arrangements have
been entered into.
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<PAGE>
LEGAL PROCEEDINGS
Not applicable.
MARKET PRICES OF INTIME SECURITIES
Effective February 1995, InTime's units (the "InTime Units"), consisting of
one share of InTime Common Stock and one InTime Warrant to purchase one share
of Common Stock, began trading on the Nasdaq SmallCap Market under the
following symbols: units, TAMSU; InTime Common Stock, TAMSA; and InTime
Warrants, TAMSW.
As of May 4, 1998, InTime believes there were in excess of 300 beneficial
owners for the InTime Units, InTime Common Stock, and Warrants. The high and
low bid prices for the period January 1, 1996 through December 31, 1997 as
reported by Nasdaq are:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
UNITS (TAMSU) HIGH LOW HIGH LOW
------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Fourth Quarter................................. $10.50 $9.00 $7.06 $5.25
Third Quarter.................................. 9.58 8.50 8.50 7.00
Second Quarter................................. 10.75 8.38 8.94 7.25
First Quarter.................................. 9.88 8.25 9.94 8.88
<CAPTION>
1996 1997
------------- -------------
CLASS A COMMON STOCK (TAMSA) HIGH LOW HIGH LOW
---------------------------- ------ ------ ------ ------
<S> <C> <C> <C> <C>
Fourth Quarter................................. $ 8.00 $ 6.89 $ 6.25 $ 4.38
Third Quarter.................................. 7.47 6.50 7.25 5.75
Second Quarter................................. 8.00 6.25 7.25 6.38
First Quarter.................................. 6.89 6.13 7.25 7.00
<CAPTION>
1996 1997
------------- -------------
CLASS A WARRANTS (TAMSW) HIGH LOW HIGH LOW
------------------------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
Fourth Quarter................................. $ 2.75 $ 1.75 $ 1.38 $ 0.81
Third Quarter.................................. 2.25 1.63 1.98 1.06
Second Quarter................................. 2.75 2.00 2.25 1.50
First Quarter.................................. 3.00 2.00 2.12 1.75
</TABLE>
As of May 4, 1998, the closing prices for InTime's Units, InTime Common
Stock and InTime Warrants as reported by Nasdaq, were $9.125, $7.625, and
$1.625 respectively. Such prices reflect inter-dealer prices and do not
reflect retail mark-ups, mark-downs, or commissions. Although there are no
restrictions on InTime's ability to pay dividends to date, InTime has not
declared any cash dividends on any class of security, nor does it anticipate
doing so in the foreseeable future.
68
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
GENERAL
The following selected financial data and discussion should be read in
conjunction with InTime's Consolidated Financial Statements and Notes thereto,
and is qualified in its entirety by the foregoing and by other detailed
financial information included elsewhere in this annual report.
SELECTED FINANCIAL DATA
The following tables set forth selected financial and operating data for the
years ended December 31, 1997 and 1996. The information for the years ended
December 31, 1997 and 1996 has been derived from the Consolidated Financial
Statements of InTime, which have been audited by Price Waterhouse LLP,
InTime's independent accountants and appear elsewhere in this Proxy
Statement/Prospectus.
STATEMENT OF INCOME DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1996 1997
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Revenues:
Consulting Services............................... $ 11,193 $ 12,732
Software Related Services(1)...................... 479 1,003
Other............................................. 65 146
----------- -----------
Net Revenues........................................ 11,737 13,881
Cost and Expenses:
Consulting Services............................... 6,003 7,713
Cost of Software Services(1)...................... 353 508
Sales and Marketing............................... 2,864 1,941
Software Development.............................. 810 649
General and Administrative........................ 1,648 2,798
Income Before Taxes................................. 60 272
Income Taxes Benefit................................ -- 292
----------- -----------
Net Income.......................................... $ 60 $ 564
Net Income Per Share--basic......................... $ .02 $ .22
Net Income Per Share--diluted....................... $ .02 $ .21
</TABLE>
- --------
(1) Software related services revenue is derived from software license fees
and maintenance fees. Software service costs are direct costs associated
with InTime's proprietary software product TAMS/O, including salaries,
wages, travel and other expenses incurred in earning the software related
services revenues.
RESULTS OF OPERATIONS
The following table sets forth expense items as a percentage of net sales
for the periods indicated:
STATEMENT OF INCOME DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1996 1997
----------- -----------
<S> <C> <C>
Net Revenues: 100.00% 100.00%
Consulting Service Costs........................... 51.10 56.00
Software Service Costs............................. 3.00 4.00
Sales/Marketing Expenses........................... 24.40 14.00
Software Development............................... 6.90 5.00
General and Administrative Expenses................ 14.00 20.00
----------- -----------
Income from Operations............................. .01% 2.00%
=========== ===========
</TABLE>
69
<PAGE>
REVENUES
Net revenues for the year ended December 31, 1997 increased by $2,144,000 or
18% over net revenues for 1996. This revenue growth is derived primarily from
two sources: Consulting Services and Software License Fees. Revenue growth
from Consulting Services is derived primarily from the utilization of
consultants and increased billing rates. The increase represents a combination
of increased billing rates, and the strong demand for systems integration
services. Although the demand for consulting services remains strong and the
outlook is good, it is unlikely that InTime, in the future, can continue to
grow at the current rate solely from billing rate increases.
Software related revenue increased by $524,000 from 1996 to 1997 or
approximately 101%. The growth of software related revenue is due primarily to
license fees received from the royalty associated with the ORACLE licensing
agreement as well as direct sales of TAMS/O to customers. The increase in the
revenue was directly affected by the rollout of the ORACLE HMRS product in
June 1997.
In January 1997, InTime entered into an agreement with ORACLE, which allows
for the worldwide, non-exclusive distribution of TAMS/O directly by ORACLE.
Under this agreement, ORACLE may market the product under their own product
name, OTM. The product will be listed on the ORACLE price list and sold with
ORACLE HRMS systems. At this time, management cannot reasonably estimate the
impact on software sales of the ORACLE distribution of OTM.
CONSULTING SERVICE COSTS
For the year ended December 31, 1997, the cost of consulting services
increased by $1,710,000 or 28% and represented 69% of consulting revenues. For
the same period in 1996, the cost of consulting services were 54% of
consulting revenues. The cost of the consulting services as a percentage of
consulting revenues can be impacted by several factors. These factors include
the cost of individual consultants and the actual billable time they achieve
during the year. As the demand for consultants and systems integration
increases, InTime expects that the cost for individual consultants will also
increase. Management anticipates passing these costs along to their clients;
however, there are no assurances that the cost increases can be completely
passed through or passed through at all. During the first half of 1997 InTime
expanded its consulting staff expecting substantial new ORACLE implementation
business. During 1997, the actual billable time ("utilization") of the
consulting staff was below what was anticipated by management because TEAM did
not close the contracts for the implementation of ORACLE HMRS software that
had been anticipated, due to delays in the product release. During 1997, the
mix of ORACLE HRMS implementation consultants represented 66% of InTime's
existing consulting staff. PeopleSoft consultants represented the remaining
33% of InTime's consultants. As a result of the industry demand for systems
integration services, InTime has focused on specific vendor applications and
larger implementations. InTime will be hiring new consultants and training
them on applications that InTime views have the largest growth potential. This
will include ORACLE, PeopleSoft, and ADP. The hiring and training period will
represent non-billable time and will have a negative impact on margins between
consulting revenues and the cost of consulting services. Management believes
that this will be a short-term impact; however, the long-term benefits of
having the resources available to meet demand will outweigh this temporary
impact to earnings.
In addition to the items noted above, InTime also uses independent
contractors. Cost for outside contractors can range 30% to 60% higher than
internal consultants depending on the technical abilities of the contractor.
The mix between employees of InTime and outside contractors could have a
significant impact on the cost of consulting services. The increased costs
associated with the independent contractors generally cannot be passed on to
clients.
SOFTWARE SERVICE COSTS
Software service costs are direct costs primarily associated with InTime's
proprietary TAMS/O product. These costs include salaries, wages, travel and
other expenses incurred from sales support efforts.
70
<PAGE>
For the year ended December 31, 1997, software service costs increased by
$155,000 from the same period in 1996. Software service costs were 51% of
software related revenues for the year ended December 31, 1997. For the year
ended December 31, 1996, such cost were 74% of software related revenues.
Management anticipates that as OTM sales increases, the cost of sales and
sales support will decrease as a result of the ORACLE licensing agreement.
InTime will be required to provide sales support in conjunction with this
contract but management does not anticipate this cost to be material in
relation to the revenue.
SALES AND MARKETING EXPENSES
Sales and marketing expenses as a percentage of net sales decreased from 24%
in 1996 to 14% in 1997. The drop in the percentage of sales and marketing
expense to net revenues can be attributed to a reduced focus on external sales
of the software products TAMS and TAMS/O. In 1996, a significant effort was
put into the distribution of the product but was abandoned due to the delayed
release of the ORACLE HRMS and payroll products. In addition, certain costs
classified as sales and marketing in the prior year have been reclassified to
general and administrative expense to more accurately reflect the nature of
the costs. These costs included the salary of InTime's Chief Executive Officer
as well as rent for the corporate headquarters. In addition, a more
territorial dispersion of sales staff took place in 1997, which reduced travel
and related costs associated with sales-calls and related proposals. As
previously noted, InTime has turned its focus to three primary human resource
and payroll systems applications, which should further assist in maintaining
sales and marketing-related expense at its current levels.
SOFTWARE DEVELOPMENT EXPENSES
Software development costs decreased by $161,000 or 20% during 1997 as
compared to the same period in 1996. Software development costs consist
primarily of salary and wages of the development staff required to support the
existing TAMS/O systems and the ORACLE agreement. Any future additional cost
will be based on the support required as a result of product sales and/or
client specific customization and would be entirely offset by such revenue.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased by $1,150,000 or 70% as
compared to 1996. As a percent of net revenues, general and administrative
expenses were 20% and 14% for the year ended December 31, 1997 and 1996,
respectively. During the third quarter of 1997, InTime accrued a charge of
approximately $182,000 related to the severance for certain officers of InTime
in accordance with InTime's reorganization. In addition, as previously
mentioned, InTime has reclassified certain costs from sales and marketing
expense to general and administrative expenses to more properly reflect the
nature of these expenditures. These costs include the salary of InTime's Chief
Executive Officer as well as the rent for the corporate headquarters. Also
included in general and administrative costs were the recruiting costs for
consulting. InTime experienced a significant increase in the recruiting costs
for 1997 over 1996. Total costs for recruiting during 1997 was $554,000. As a
result of the rapid advances in the IT industry, implementation of HRMS
systems have become increasingly complex. The advances in the technology
systems have required many organizations to turn to IT service firms such as
InTime for implementation support. The advance accompanied with a shortage of
IT consultants qualified to support these new systems has made it increasingly
costly and competitive to hire and retain qualified consultants. As the
industry continues to develop, management anticipates that the cost of
training and recruiting and retaining qualified consultants will continue to
increase. Management is unsure whether the increased costs associated with
hiring and retaining consultants can be passed on to its customers.
RESULTS OF OPERATIONS
For the year ended December 31, 1997, InTime reported net income of $564,362
as compared to net income of $60,335 in 1996. The increase in net income for
1997 was attributable to:
1. A reduction in the overall costs incurred in the development of
software products.
2. Decreased sales and marketing expenses relating to TAMS.
3. Increased revenue from software.
71
<PAGE>
In 1997 InTime signed the ORACLE agreement for the distribution of InTime's
time and attendance software product (OTM). In conjunction with the signing of
the agreement and the shipment of the first product, the company received a
$500,000 advance royalty payment, $387,500 of which is included in the
software revenue for 1997. In addition, InTime sold product directly to
customers representing approximately $600,000 in 1997, which contributed to
the significant increase in software revenues for 1997. Offsetting this
contribution from the software was an increase in the costs of consulting
services for 1997. This increased cost is partially attributable to the
increasing salaries of consultants. As the market becomes increasingly
competitive due to the shortage of qualified consultants, the salaries will
also increase. In addition to the increasing costs, InTime experienced a lower
than anticipated utilization for the year due to a significant investment in
ORACLE consultants and related training. Management does anticipate the ORACLE
consulting margins will improve for 1998.
During 1998, InTime intends to continue to preview new HRMS products as they
are introduced to the market to try to identify first-to-market opportunities
for new classes of HRMS software products and related consulting
opportunities.
InTime's revenue from software sales during 1998 will be directly dependent
upon ORACLE's ability to market and sell its existing HRMS application package
and the OTM software.
LIQUIDITY AND CAPITAL RESOURCES
During 1997, InTime funded its operations from cash generated by operations.
Net cash provided by operations in 1997 was $575,043, as compared to cash used
in operating activities in 1996 of $131,034. For the year ended December 31,
1997, InTime had a net cash increase of $53,418 compared to $53,173 for the
year ended December 31, 1996. At December 31, 1997, InTime had working capital
in the amount of $3,774,089.
InTime does not expect to have significant commitments for capital
expenditures over the next 12 months. Capital expenditures will consist
primarily of computers for new consultants hired during 1998 and replacing
existing computers with the newest technologies. InTime expects that all
capital expenditures will be financed through existing cash flow of InTime.
InTime has no outstanding lines of credit or debt as of December 31, 1997.
Management believes that the cash flow from operations combined with current
cash balances will be adequate.
FORWARD-LOOKING STATEMENTS
Certain statements contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations and elsewhere in this Proxy
Statement/Prospectus are forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act.
Statements that express the "belief," "anticipation," "plans," "expectations,"
and similar expressions are intended to identify forward-looking statements.
The results anticipated by any or all of these forward-looking statements may
not occur. While InTime believes that these statements are accurate, InTime's
business is dependent upon general economic conditions and various conditions
specific to its industry and future trend results cannot be predicted with
certainty.
The forward-looking statements and some of the qualifying factors are:
. ORACLE's ability to license OTM. Qualifying factors include ORACLE's
ability to sell its HRMS software and the introductions of new
competitive technologies;
. The increase in consulting compensation. If the demand for qualified
consultants continues to increase, competition for these resources will
cause the salaries of these employees to increase. These costs may not
be able to be passed on to customers;
. InTime's continued success and future growth will depend on its ability
to attract, develop and retain a sufficient number of experienced and
highly skilled consultants. InTime's inability to recruit, develop and
retain a significant number of experienced and highly qualified
consultants to staff its consulting projects would have an adverse
impact on InTime's performance. InTime's ability to recruit and retain
qualified consultants is dependent on competitive pressures;
72
<PAGE>
. Because InTime's software product, OTM, is dependent on the ORACLE HRMS
software success, any downturn on the sales of ORACLE product would have
an adverse impact on OTM sales;
. Improving of the ORACLE consulting margins. Contributing factors include
ORACLE's ability to sell sufficient number of HRMS systems and the
ability of InTime to pass along those costs associated with attracting,
training ORACLE HRMS consultants given the current market conditions in
the IT service industry.
. The proposed acquisition of InTime by ARIS is dependent on the approval
of InTime's stockholders and the satisfaction of all other conditions to
closing. If the Merger with ARIS is not consummated, InTime will
experience a significant charge to earnings as a result of the legal,
accounting and financial advisory fees and other expenses incurred in
connection therewith.
DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of InTime are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
William E. Berry................... 65 President, Secretary and Chairman of the
Board
Michael D. Matte................... 39 Chief Financial Officer, Treasurer and
Director
John E. Steiner.................... 57 Director
Paul Piper......................... 53 Director
Corine C. Goldkiller............... 51 Senior Vice President--ORACLE
</TABLE>
WILLIAM E. BERRY has been InTime's President, Secretary and a director of
InTime since January 1994. In September 1997, Mr. Berry became InTime's
Chairman of the Board of Directors. Mr. Berry co-founded TEAM, a subsidiary of
InTime. Mr. Berry has been Chairman and Chief Executive Officer of TEAM from
its inception in 1985. In addition to his duties as President and Chief
Executive Officer of InTime, Mr. Berry is directly involved in InTime's
marketing of InTime's consulting services and its software product. Mr. Berry
is the founder and past president of the South Florida Chapter of the
Association of Human Resource Systems Professionals ("HRSP," now known as the
International Association of Human Resource Information Management ("IHRIM"))
and served on the national IHRIM Board of Directors from 1988 to 1993. Mr.
Berry received the IHRIM "Summit Award" for professional excellence in 1996.
Mr. Berry also served on the SHRM National Committee on Human Resource
Information Systems from 1990-1991.
MICHAEL D. MATTE joined InTime as its Chief Financial Officer in October
1996, was appointed its Treasurer in September 1997 and was elected a director
in October 1997. He also assumed substantial operational duties in September
1997. Prior to joining InTime, Mr. Matte served as Chief Financial Officer for
Torwest, Inc., a United States holding company of a Canadian conglomerate from
1992 through October 1996. Prior to that, he served as a senior manager and in
other capacities with Price Waterhouse LLP. Mr. Matte is a CPA and a member of
the American and Florida Institutes of Certified Public Accountants.
PAUL PIPER was appointed to InTime's Board of Directors in November 1997. In
1981, Mr. Piper co-founded Business Information Technology, Inc. ("BIT"), a
human resources systems company. Mr. Piper was BIT's President and Chairman of
the Board from its inception until its acquisition in 1995 by a large publicly
held company. Mr. Piper retired after BIT's acquisition.
JOHN E. STEINER has been a director of InTime since January 1994 and co-
founded TEAM with Mr. Berry. Prior to September 1997, Mr. Steiner served as
InTime's Executive Vice President and Chairman of the Board of Directors from
January 1994 and was President of TEAM since its inception in 1985.
73
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to the
annual and long-term compensation of InTime's Chief Executive Officer, its two
other executive officers and two former executive officers (the "Named
Executive Officers") whose total annual salaries and bonuses exceeded $100,000
for the fiscal year ended December 31, 1997.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) OPTIONS/SARS(#) COMPENSATION($)
- --------------------------- ---- --------- -------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
EXECUTIVE OFFICERS
William E. Berry......... 1997 $225,270 $ 1,500(1) $11,320(2) 75,000/0(3) $4,863(4)
President (Chief Execu- 1996 $196,795 $ 0 $12,000(2) 0 $4,863(4)
tive Officer) and 1995 $188,800 $ 5,665(5) $ 7,132(2) 0 $ 0
Chairman of the Board
Michael Matte............ 1997 $126,250 $ 0 $ 0 100,000/0 $ 0
Vice President of 1996 $ 28,127 $ 0 $ 0 25,000/0 $ 0
Finance (Chief
Financial Officer),
Treasurer and Director
Corine C. Goldkiller..... 1997 $142,292 $10,000(6) $ 0 0 $ 0
Senior Vice President 1996 $118,757 $ 0 $ 0 25,000/0 $ 0
1995 $103,425 $ 7,500(7) $ 0 0 $ 0
FORMER EXECUTIVE OFFICERS
John E. Steiner.......... 1997 $214,226 $ 1,500(1) $11,988(2) 75,000/0(3) $1,521(4)
Executive Vice President 1996 $196,795 $ 0 $12,000(2) 0 $2,629(4)
and Director(8) 1995 $188,800 $ 5,665(5) $ 4,893(2) 0 $ 0
James C. Dean ........... 1997 $130,000 $ 0 $ 0 0 $ 0(5)
Vice President(8) 1996 $127,500 $ 0 $ 0 0 $ 0
1995 $120,000 $20,000(7) $ 0 10,000/0 $ 0
</TABLE>
- --------
(1) Pursuant to their employment agreements, Messrs. Berry and Steiner were
paid bonuses of approximately $1,500 in 1997 based on InTime's net income
in 1996.
(2) Represents compensation in the form of a car allowance and related
expenses. Also includes life insurance payments in 1995.
(3) These InTime Options vest and become exercisable only if the Escrowed
Shares held by them are forfeited and cancelled. The forfeiture and
cancellation of the Escrowed Shares are a condition to consummation of the
Merger. Messrs. Berry and Steiner will forfeit and cancel their respective
Escrowed Shares immediately prior to the closing of the Merger. At the
time of vesting of these InTime Options, InTime will recognize
compensation expense related to these Options of approximately $520,000.
(4) Represents life insurance payments.
(5) Represents bonuses paid on 1994 net income in accordance with Messrs.
Berry and Steiner's employment agreements.
(6) Represents bonus granted in 1997 for performance in 1996.
(7) Represents bonuses related to performance.
(8) Messrs. Steiner and Dean's status as executive officers and employees
ceased in September 1997, although they received (or will receive)
compensation through January 15, 1998 and May 31, 1998, respectively. Such
compensation was accrued in the fiscal quarter ended September 30, 1997.
74
<PAGE>
The following table sets forth certain information with respect to grants of
InTime Options to the Named Executive Officers during the fiscal year ended
December 31, 1997.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES BASE PRICE EXPIRATION
NAME GRANTED IN FISCAL YEAR ($/S)(1) DATE
---- ------------ -------------- ----------- ----------
<S> <C> <C> <C> <C>
William E. Berry......... 75,000/0 22% $5.75(2)/0 07/01/2007(3)
John E. Steiner(4)....... 75,000/0 22% $5.75(2)/0 07/01/2007(3)
Michael Matte............ 100,000/0(5) 29% $4.52(6)/0 05/20/2007
Corine C. Goldkiller..... 0/0 0% $ 0/0 0
James C. Dean(4)......... 0/0 0/0 0/0 0
</TABLE>
- --------
(1) All InTime Options were granted at 100% of fair market value.
(2) Originally granted at an exercise price of $6.50 and repriced in January
1998.
(3) These InTime Options vest and become exercisable only if the Escrowed
Shares held by them are forfeited and cancelled. The forfeiture and
cancellation of the Escrowed Shares are a condition to consummation of the
Merger. Messrs. Berry and Steiner will forfeit and cancel their respective
Escrowed Shares immediately prior to the closing of the Merger. At the
time of vesting of these InTime Options, InTime will recognize
compensation expense related to these Options of approximately $520,000.
(4) Messrs. Steiner and Dean's status as executive officers ceased in
September 1997.
(5) Options are not exercisable until the Escrowed Shares are forfeited, and
they become fully vested upon a change in control. Due to the proposed
Merger, the Escrowed Shares will be forfeited and the options will become
fully vested. Such events will trigger the recognition of compensation
expense of approximately $466,000 pursuant to the terms of the option
grant.
(6) Mr. Matte's InTime Options were originally exercisable at $6.50 and were
repriced in January 1998 based upon a provision in his employment
agreement providing for repricing if the trading price of the InTime
Common Stock closes at least 25% below the exercise price for a stated
period of time.
The following table sets forth certain information with respect to the
exercise of options to purchase common stock and SARs during the fiscal year
ended December 31, 1997, and the unexercised options held and the value
thereof at that date, for each Named Executive Officer.
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS/SARS AT IN-THE-MONEY
ACQUIRED ON VALUE FY-END(#) OPTIONS/SARS AT FY-END($)
NAME EXERCISE(#) REALIZED($) EXERCISABLE/UNEXERCISABLE(1) EXERCISABLE/UNEXERCISABLE(2)(3)
---- ----------- ----------- ------------------------------- -------------------------------
<S> <C> <C> <C> <C>
William E. Berry........ 0 0 0/75,000(4) $0/$0
John E. Steiner......... 0 0 0/75,000(4) $0/$0
Michael D. Matte........ 0 0 12,500/112,500(5) $0/$0
Corine C. Goldkiller.... 0 0 21,309/16,068 $0/$0
James C. Dean(6)........ 7,738 44,493 0/0 $0/$0
</TABLE>
- --------
(1) Exercisable Options include all currently vested Options without
restrictions. Unexercisable Options include unvested Options, Options
which are held in escrow and Options which have certain vesting and/or
exercisability restrictions.
(2) Based upon a fair market value at fiscal year end of $4.875 per share
minus the exercise price.
(3) None of the options were in-the-money.
(4) These InTime Options vest and become exercisable only if the Escrowed
Shares held by them are forfeited and cancelled. The forfeiture and
cancellation of the Escrowed Shares are a condition to consummation of the
Merger. Messrs. Berry and Steiner will forfeit and cancel their respective
Escrowed Shares immediately prior to the Closing of the Merger. At the
time of vesting of these InTime Options, InTime will recognize
compensation expense related to these options of approximately $520,000.
75
<PAGE>
(5) Options are not exercisable until the Escrowed Shares are forfeited, and
they become fully vested upon a change in control. Due to the proposed
Merger, the Escrowed Shares will be forfeited and the options will become
fully vested. Such events will trigger the recognition of compensation
expense of approximately $466,000 pursuant to the terms of the option
grant.
(6) Mr. Dean's status as an employee ceased on September 15, 1997.
Accordingly, all of Mr. Dean's options were cancelled effective December
15, 1998.
EMPLOYMENT AND CONSULTING AGREEMENTS
On November 25, 1997, InTime entered into a new three-year employment
agreement with Mr. William E. Berry, its President, expiring in November 2000.
The agreement with Mr. Berry provides for a base annual salary of $250,000
subject to cost of living increases and an incentive bonus equal to 10% of
InTime's net pretax income above $500,000 (without resort to any consumer
price increase). Mr. Berry may terminate his agreement if: (i) his duties are
substantially modified, (ii) InTime materially breaches such agreement or
(iii) if any entity or person not currently an executive officer or
stockholder of InTime either individually or as part of a group becomes the
beneficial owner of 30% or more of the InTime Common Stock (the "Voluntary
Termination Provisions"). In such an event, Mr. Berry may elect to either: (a)
receive full compensation and benefits payable under his employment agreement
for the remainder of the term of the agreement, or (b) a release from the non-
competition provisions of his agreement. The effect of such provisions may
discourage a hostile takeover even if in the best interest of all other
stockholders. The agreement also provides for a $500,000 key man life
insurance policy, the proceeds to be assigned as Mr. Berry directs. Mr. Berry
is also subject to non-competition and non solicitation of customers
provisions in favor of InTime.
In May 1997, InTime entered into a three-year written employment agreement
with Mr. Michael D. Matte, its Chief Financial Officer, replacing his then-
current agreement and providing a substantially higher compensation package.
The Board of Directors took this action to retain Mr. Matte after he announced
his resignation eight months after commencement of employment. The Board
provided the new compensation package in order to induce Mr. Matte to reject
an offer from a company about to effect an initial public offering, which
offer contained substantial equity incentives. Mr. Matte's new agreement
provides for an annual salary of $130,000, subject to cost of living
increases, and an incentive bonus equal to 10% of InTime's net pretax income
above $500,000 (without resort to any consumer price increase). Mr. Matte was
also granted 100,000 InTime Options exercisable at $6.50 per share, which were
repriced in January of 1998 to $4.52 as discussed above. Such options will
vest upon the forfeiture and cancellation of the Escrowed Shares. Such Options
are also subject to forfeiture provisions and vest bi-annually in equal
increments over a three year term commencing June 30, 1997. Such Options shall
immediately vest upon sale by InTime's principal stockholders of at least 90%
of the InTime Common Stock owned by them or other partial sale of InTime's
assets or a sale of a subsidiary. In certain circumstances involving a sale of
InTime as defined in the employment agreement. Mr. Matte is entitled to
receive a cash payment of $900,000 either from InTime's principal stockholders
or from InTime. Mr. Matte's employment agreement also provides that if he
voluntarily terminates his employment or is terminated without cause, he is
entitled to receive severance equal to three times his salary for the last
fiscal year. The 100,000 InTime Options under his current agreement will
become exercisable and the $900,000 additional bonus will not be earned as a
result of the Merger. Upon termination of Mr. Matte's previous employment
agreement, Mr. Matte will receive the severance payments described above.
Additionally, in January 1998, InTime was authorized by its Board of Directors
to pay Mr. Matte a bonus in 1998 of up to $40,000, subject to meeting
performance criteria established by Mr. Berry, in view of Mr. Matte's
substantial new duties.
One of the conditions of the Merger Agreement is that the existing
employment agreement of Mr. Berry will be terminated and that a proposed new
agreement be executed. Mr. Berry's proposed new agreement is for a two-year
term at an annual salary of $175,000 per year (without costs-of-living
increases) and provides for a maximum annual bonus of $25,000. Additionally,
Mr. Berry shall receive a $150,000 signing bonus and 10,000 ARIS Options
vesting over a two-year period. The Voluntary Termination Provisions in Mr.
Berry's proposed new agreement have been modified and apply only if there is a
material breach by ARIS.
The Merger Agreement further provides that Mr. Matte will enter into a new
employment agreement immediately following the closing of the Merger. Mr.
Matte's proposed new agreement is for a one-year term at
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the same base salary ($130,000 per year). Mr. Matte shall receive a $25,000
signing bonus and 8,000 ARIS Options vesting annually over a four-year term.
His maximum bonus shall be $25,000. His proposed new agreement eliminates all
compensation arrangements arising in the event of a change of control, partial
sale or sale.
In fiscal 1997, Ms. Corine C. Goldkiller, InTime's senior vice president of
human resources consultant, received a salary increase from $125,000 per annum
to $150,000 per annum as an incentive increase. Additionally, Ms. Goldkiller
was granted a $10,000 bonus for her efforts in fiscal 1996.
DIRECTORS' COMPENSATION
InTime's outside directors receive $1,250 for each meeting attended, as cash
compensation for serving on the Board of Directors in addition to
reimbursement of reasonable expenses incurred in attending meetings. Pursuant
to InTime's 1994 Stock Option Plan (the "Plan"), directors who are not
employees receive a grant of 12,000 10-year InTime Options which vest in 1/6
increments every June 30th and December 31st provided the director is still
serving in that capacity. The 1994 initial grant to the outside directors
became fully vested in December 1996. Accordingly, they each automatically
received a new grant of 12,000 Options on January 1, 1997, exercisable at
$7.25 per share. In accordance with the Plan, Mr. Paul Piper became a director
in November 1997 and received a grant of 12,000 InTime Options exercisable at
$7.00 per share, of which 2,000 are currently vested and an additional 2,000
will vest as of June 30, 1998. Directors who are employees of InTime or its
subsidiaries do not receive any compensation for their services as directors.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of May 1, 1998 certain information
relating to the beneficial ownership of the InTime Common Stock by any person
(including any "group") known by InTime (i) to be the beneficial owner of more
than 5% of such securities, (ii) each director and nominee, (iii) each Named
Executive Officer in the Summary Compensation Table, and (iv) all executive
officers and directors as a group. In January 1998, all holders of the then-
outstanding InTime Class B Common Stock agreed to convert those shares to
shares of InTime Class A Common Stock, thereby eliminating "super-voting
rights" previously in existence. The table below gives effect to the
conversion.
<TABLE>
<CAPTION>
AMOUNT AND PERCENTAGE OF
NATURE OF OUTSTANDING
NAME AND ADDRESS BENEFICIAL SECURITIES
BENEFICIAL OWNER OWNERSHIP(1) OWNED(1)(2)
---------------- ------------ -------------
<S> <C> <C>
William E. Berry............................ 1,220,626(2),(3)(4) 27%
1601 Forum Place
West Palm Beach, FL 33041
John E. and Carol E. Steiner................ 1,220,626(2)(4) 27%
1116 Grand Cay Drive
Palm Beach Gardens, FL 33418
Michael D. Matte............................ 16,667(4) *
1601 Forum Place
West Palm Beach, FL 33041
Corine C. Goldkiller........................ 33,211(5) *
1601 Forum Place
West Palm Beach, FL 33041
Paul Piper.................................. 4,500(6) *
6 Snug Hill Court
Hockessin, DE 19707
All Directors and Executive Officers of
InTime as a group
(five persons)(2)(3)(4)(5)(6).............. 2,495,630 54.9%
</TABLE>
- --------
* Less than 1%
(1) Unless otherwise indicated, InTime believes that all persons named in the
table have sole voting and investment power with respect to all securities
beneficially owned by them. Except as otherwise indicated, each beneficial
owner's percentage ownership is determined by assuming that InTime Options
and InTime
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Warrants that are held by such person (but not those held by any other
person) and which are exercisable or convertible within 60 days have been
exercised or converted.
(2) Includes 929,603 Escrowed Shares beneficially owned by each of Messrs.
Steiner and Berry. The forfeiture and cancellation of the Escrowed Shares
are a condition to consummation of the Merger. Messrs. Berry and Steiner
will forfeit and cancel their respective Escrowed Shares immediately prior
to the closing of the Merger resulting in a compensation expense of
approximately $520,000.
(3) Includes 2,000 shares of InTime Common Stock owned by Mr. Berry and
1,218,626 shares of InTime Common Stock held in the name of William E.
Berry, Declaration of Trust U/A which is controlled by William E. Berry,
Trustee.
(4) Includes shares of InTime Common Stock underlying 16,667 vested Options
exercisable at $5.75 per share granted to Mr. Matte. All InTime Options
held by Mr. Matte will vest and become exercisable (to the extent not
already vested) upon the closing of the Merger, resulting in a
compensation expense of approximately $466,000.
(5) Includes 12,378 shares of InTime Common Stock (of which 7,735 are Escrowed
Shares) and 16,666 shares of InTime Common Stock underlying vested options
exercisable at $1.76 and $5.75 per share, respectively.
(6) Includes 4,000 shares of InTime Common Stock underlying vested options
granted to Mr. Piper exercisable at $7.00 per share.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
InTime has entered into employment agreements with certain of its executive
officers (see "Executive Compensation--Employment and Consulting Agreements").
In January 1998, InTime repriced all existing employee and management
Options that were "out-of-the money" to an exercise price of $5.75 per share.
Included in this repricing were 75,000 options granted to each of Messrs.
William E. Berry and John E. Steiner in July 1997 (originally exercisable at
$6.50 per share) and 25,000 Options granted to Mr. Michael Matte when he
joined InTime in October 1996 (originally exercisable at $6.75 per share).
Also repriced were 25,000 InTime Options held by Ms. Corine C. Goldkiller, of
which 16,666 were vested at December 31, 1997. Mr. Matte's 100,000 options
(originally exercisable at $6.50 per share) were also repriced in January 1998
to $4.52 per share pursuant to a provision in his employment agreement as
described above. In January 1998, InTime granted new immediately exercisable
InTime Options to employees who held InTime Options (exercisable at $1.76 per
share) that had been escrowed pursuant to the Escrow Agreement. A condition of
this grant, however, was the cancellation of the escrowed InTime Options. Ms.
Goldkiller, one of these employees receiving new InTime Options, received a
new grant of 7,735 InTime Options exercisable at $5.75 per share and agreed to
the cancellation of her escrowed InTime Options.
During 1997, InTime employed three of Mr. John E. Steiner's adult children
in various non-management positions. One of these individuals reported to Mr.
Steiner. The aggregate compensation paid to Mr. Steiner's children in 1997 was
$89,257. Currently, InTime employs one of Mr. Steiner's adult children.
In connection with Mr. Steiner's move to West Palm Beach, Florida caused by
the moving of InTime's administrative offices from South Carolina, InTime
agreed to reimburse him for housing, relocation expenses and other expenses up
to $65,000. To date, InTime has reimbursed Mr. Steiner $14,149 for such
expenses. Additionally, in connection with Mr. Steiner's early termination
without cause in September 1997, InTime paid Mr. Steiner three months'
severance aggregating $54,951, including unused vacation time, health and
dental premiums following expiration of his employment agreement in February
1998. Such amounts were accrued at the time of termination.
In June 1997, InTime engaged Mr. Sherman Drusin, then an outside director,
to act as a management and sales consultant to its consulting services
business. In November 1997, Mr. Drusin resigned as a director and consultant.
During fiscal 1997, InTime paid Mr. Drusin $97,228 in connection with his
consulting services.
In connection with Mr. James Dean's termination in September 1997, InTime
paid him $44,587, equal to four months salary including health insurance
payments.
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DESCRIPTION OF ARIS CAPITAL STOCK
The authorized capital of ARIS consists of 100,000,000 shares of Common
Stock and 5,000,000 shares of preferred stock, without par value (the
"Preferred Stock"). The following summary description of ARIS' capital stock
is qualified in its entirety by reference to the Restated Articles and the
Restated Bylaws of ARIS, copies of which are filed as exhibits to the
Registration Statement of which this Proxy Statement/Prospectus forms a part.
COMMON STOCK
As of April 26, 1998, there were 10,302,353 shares of ARIS Common Stock
outstanding, held of record by 128 shareholders. Holders of ARIS Common Stock
are entitled to one vote per share on all matters submitted to a vote of
shareholders. There are no cumulative voting rights for the election of
directors. Holders of ARIS Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor, subject to preferences that may be applicable to any
outstanding ARIS Preferred Stock. In the event of the liquidation, dissolution
or winding up of ARIS, holders of ARIS Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities and the
liquidation preference of any outstanding ARIS Preferred Stock. Holders of
ARIS Common Stock have no preemptive, subscription, redemption or conversion
rights. All outstanding shares of ARIS Common Stock are, and all shares of
ARIS Common Stock to be outstanding upon completion of the Merger will be,
fully paid and nonassessable.
PREFERRED STOCK
Pursuant to ARIS' Restated Articles, ARIS' Board of Directors has the
authority, without further action by the shareholders, to issue up to
5,000,000 shares of ARIS Preferred Stock in one or more series and to fix
designations and powers, preferences and relative rights of such shares, and
to increase or decrease the number of shares of any series subsequent to the
issue of that series, but not below the number of shares of such series then
outstanding. Shares of ARIS Preferred Stock which may be redeemed, purchased
or acquired by ARIS may be reissued except as otherwise provided by law. The
issuance of ARIS Preferred Stock in certain circumstances may delay, deter or
prevent a change in control of ARIS, may discourage bids for the ARIS Common
Stock at a premium over its market price and may adversely affect the market
price of, and the voting and other rights of the holders of, the ARIS Common
Stock. ARIS currently has no plans to issue any ARIS Preferred Stock.
WARRANT
As of April 26, 1998, there was one warrant outstanding to purchase 4,000
shares of ARIS Common Stock at a purchase price of $10.00 per share which was
granted to certain professional advisors in connection with ARIS' initial
public offering. The warrant is currently exercisable in whole or in part, at
any time and from time to time until February 2002. The warrant contains
certain protections against dilution resulting from stock splits, stock
dividends and similar events. The warrant may be exercised for cash or
pursuant to certain cashless exercise provisions.
REGISTRATION RIGHTS
The holders of approximately 618,678 shares of ARIS Common Stock are
entitled to certain rights with respect to the registration of such shares
under the Securities Act. All such shares were issued in connection with
certain acquisitions by ARIS. Under the terms of the various agreements
granting registration rights, if ARIS proposes to register any of its
securities under the Securities Act, subject to certain exceptions, either for
its own account or for the account of other security holders exercising
registration rights, such holders are entitled to notice of such registration
and are entitled to include shares of ARIS Common Stock owned by them in such
registration. As part of the Merger Agreement, Messrs. William E. Berry and
John E. Steiner are being granted similar rights with respect to the shares of
ARIS Common Stock that they will receive in the Merger. Further, holders of
approximately 278,611 shares of ARIS Common Stock may require ARIS to file
registration statements on Form S-3 at ARIS' expense. These rights are subject
to certain conditions and limitations, among them the right of the
underwriters of an offering to limit the number of shares included in such
registration in certain circumstances.
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SHAREHOLDER MATTERS
WASHINGTON ANTI-TAKEOVER STATUTE
Washington law contains certain provisions that may have the effect of
delaying or discouraging a hostile takeover of ARIS. In addition, Chapter
23B.19 of the WBCA prohibits a corporation, with certain exceptions, from
engaging in certain significant business transactions with an "Acquiring
Person" (defined as a person who acquires 10% or more of the corporation's
voting securities without the prior approval of the corporation's board of
directors) for a period of five years after such acquisition. The prohibited
transactions include, among others, a merger with, disposition of assets to,
or issuance or redemption of stock to or from, the Acquiring Person, or
allowing the Acquiring Person to receive any disproportionate benefit as a
shareholder. An Acquiring Person is further prohibited from engaging in
significant business transactions with the target corporation unless the per
share consideration paid to holders of outstanding shares of ARIS Common Stock
and other classes of stock of the target corporation meet certain minimum
criteria; provided, however, pursuant to recent legislative revisions
effective July 27, 1997, the per share minimum criteria referenced above apply
only to significant business transactions involving either (i) a merger, share
exchange, or consolidation of a target corporation with an Acquiring Person or
an affiliate or associate of the Acquiring Person, or (ii) the liquidation or
dissolution of a target corporation proposed by, or pursuant to an agreement,
arrangement, or understanding with an Acquiring Person or an affiliate or
associate of an Acquiring Person, which transaction is not otherwise approved
by an affirmative vote of a majority of the disinterested shareholders of the
target corporation. These provisions may have the effect of delaying,
deterring or preventing a change in control of ARIS.
CERTAIN PROVISIONS IN ARIS ARTICLES AND ARIS BYLAWS
Pursuant to the ARIS Articles, the Board of Directors of ARIS is divided
into three classes, as nearly equal in number as possible. One class is
elected at each annual meeting of the shareholders, with the members of each
class holding office for a three-year term or until successors of such class
have been elected and qualified. The ARIS Restated Bylaws provide that: (i)
the Board of Directors consists of seven persons or so many as may from time
to time be designated by the then-existing Board of Directors: (ii) vacancies
in the Board of Directors may be filled by the affirmative vote of a majority
of the remaining directors in office though less than a quorum of the Board of
Directors; (iii) the entire Board of Directors, or any member thereof, may be
removed only by the affirmative vote of at least two-thirds of shares then
present and entitled to vote at an election of such directors at a special
meeting of shareholders called expressly for that purpose; and (iv) director
nominations not made in accordance with certain notice provisions may, at the
discretion of the Chairman of the Board, be disregarded. It is possible that
the provisions discussed above may delay, deter or prevent a change in control
of ARIS.
DIRECTOR AND OFFICER INDEMNIFICATION AND LIABILITY
The ARIS Articles provide that no director shall be personally liable to
ARIS or its shareholders for monetary damages for conduct as a director,
excluding, however, liability for acts or omissions involving intentional
misconduct or knowing violations of law, illegal distributions or transactions
from which the director receives benefits to which the director is not legally
entitled. In addition, the ARIS Restated Bylaws provide for broad
indemnification by ARIS of its officers and directors in accordance with
Washington law. Insofar as the indemnity for liabilities arising under the
Securities Act may be permitted to directors or officers of ARIS pursuant to
the foregoing provisions, ARIS has been informed that in the opinion of the
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the ARIS Common Stock is ChaseMellon
Shareholder Services, 520 Pike Street, Suite 1220, Seattle, Washington 98101.
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COMPARISON OF STOCKHOLDERS' RIGHTS
GENERAL
In connection with the Merger, the InTime stockholders will be converting
their shares of InTime Common Stock into shares of ARIS Common Stock. ARIS is
a Washington corporation and InTime is a Delaware corporation, and thus, the
corporate law applicable to each of them differs materially. Additionally, the
ARIS Articles of Incorporation and Bylaws differ from the InTime Certificate
of Incorporation and Bylaws in several significant respects. Because of the
differences in applicable corporate law and the charter documents of ARIS and
InTime, the rights of a holder of ARIS Common Stock differ from the rights of
a holder of InTime Common Stock.
Below is a summary of some of the important differences between the statutes
applicable to, and the charter documents of, ARIS and InTime. It is not
practical to summarize all of such differences in this Proxy
Statement/Prospectus, but some of the principal differences which could
materially affect the rights of stockholders include the following:
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Although Washington and Delaware have similar provisions with respect to the
indemnification of directors and officers of corporations, there is a
significant difference in the treatment of a potential indemnitee who is
successful on one or more but less than all claims or issues in a proceeding.
Under Washington law, a person is not entitled to mandatory indemnification
unless he or she is wholly successful on the merits, or otherwise, in the
entire proceeding. Delaware law makes indemnification mandatory to the extent
that a person is wholly successful on the merits, or otherwise, as to one or
more, but less than all, claims or issues in a proceeding. Thus, under
Delaware law, an indemnitee may be entitled to partial indemnification even if
he or she is found liable for one or more counts of an action if one or more
of the other counts is dismissed.
In addition, under Delaware law, a corporation may indemnify its directors
or officers for payments made in settlement of derivative actions only to the
extent the directors or officers acted in good faith and in a manner the
director or officer believed to be in or not opposed to the best interests of
the corporation; provided, however, that no indemnification shall be made if
such officer or director is adjudged liable to the corporation unless a court
determines in view of all the circumstances of the case that such officer or
director is fairly and reasonably entitled to indemnity for expenses.
BUSINESS COMBINATION STATUTE
Both Washington and Delaware law contain provisions that may have the effect
of delaying or discouraging a hostile takeover of a corporation, although the
statutes differ in certain respects.
Washington law contains certain provisions that may have the effect of
delaying or discouraging a hostile takeover of the Company. Chapter 23B.19 of
the WBCA prohibits a "Target Corporation" (as defined in the WBCA), with
certain exceptions, from engaging in certain significant business transactions
with an "Acquiring Person" (defined generally as a person who acquires 10% or
more of the corporation's voting securities without the prior approval of the
corporation's board of directors) for a period of five years after such
acquisition. The prohibited transactions include, among others, a merger or
share exchange with, disposition of assets to, or issuance or redemption of
stock to or from, the Acquiring Person, or a reclassification of securities
that has the effect of increasing the proportionate share of the outstanding
securities held by the Acquiring Person. An Acquiring Person may avoid the
prohibition against effecting certain significant business transactions with
the Target Corporation if the board of directors of the Target Corporation, at
the time of the share acquisition, approves the proposed significant business
transaction. After the five-year moratorium, an Acquiring Person may avoid the
prohibition against effecting certain significant business transactions with a
Target Corporation if (i) the per share consideration paid to holders of
outstanding shares of common stock and other classes of stock of the Target
Corporation meets certain minimum criteria, or (ii) the significant business
transaction is approved at
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an annual or special meeting of shareholders by a majority of the votes
entitled to be counted within each voting group entitled to vote separately on
the transaction (excluding shares beneficially owned by an Acquiring Person).
Section 203 of the DGCL contains similar provisions which may have the
effect of delaying or discouraging a hostile takeover of the Company. The
Delaware statute applies to certain business combinations between a
corporation and a stockholder who owns 15% or more of a corporation (an
"Interested Stockholder") during the three-year period after the Interested
Stockholder achieved such level of ownership, in contrast to the 10% ownership
and five-year criteria provided for under Washington law. However, Delaware
law permits business combinations with an Interested Stockholder if approved
by the board of directors or holders of 66 2/3% of the outstanding voting
stock of the corporation. Although, as with Washington law, Delaware law
permits a corporation to opt out of the Interested Stockholder restrictions
through a provision to such effect in the corporation's certificate of
incorporation, InTime has not elected to opt out of such restrictions.
MERGER, SALE OF ASSETS
Under Washington law, a merger, share exchange, dissolution or sale of all
or substantially all the assets of a corporation must be approved by each
voting group entitled to vote separately by two-thirds of all the votes
entitled to be cast, unless otherwise provided in the articles of
incorporation. Under Washington law, a company may provide for a lesser vote,
so long as the vote provided for each voting group entitled to vote separately
is not less than a majority of all the votes to be cast. ARIS' Articles do not
provide for a lesser vote.
Delaware law generally requires majority stockholder approval of mergers and
consolidations, with certain exceptions, including transactions in which the
common stock of the surviving Delaware corporation to be issued or delivered
in connection with the merger does not exceed 20% of the outstanding stock of
such corporation. In light of the general rule under Delaware law allowing a
simple majority of the stockholders to approve mergers, the InTime Certificate
does not include a specific requirement regarding stockholder approval of
mergers that would supersede the specific exceptions to stockholder approval
under Delaware law.
SPECIAL MEETINGS OF SHAREHOLDERS
Under Washington law, the holders of 10% or more of the outstanding stock of
a corporation may call a special meeting of the shareholders, unless in the
case of a publicly held corporation such corporation's articles of
incorporation provide otherwise. ARIS' Articles do not alter the default
provisions of the WBCA in this regard. Delaware law states that such special
meetings may be called only by the board of directors, unless the certificate
of incorporation or bylaws provide otherwise. Accordingly, the InTime
Certificate contains no provision for calling a special stockholders meeting
by InTime stockholders and therefore the holders of InTime Common Stock
generally are not permitted to call a special meeting of the InTime
stockholders.
DISSENTERS' RIGHTS
Both Washington and Delaware law provide shareholders who object to certain
corporate transactions with the right to receive the fair cash value of their
shares. Delaware law, however, eliminates that requirement where the
corporation's shares are either listed on a national securities exchange or
held by more than 2,000 stockholders of record. Dissenters' rights are
available in connection with the proposed Merger because the Nasdaq Small Cap
market on which the InTime shares are traded is not considered a "national
securities exchange under Delaware law. See "--Rights of Dissenting
Shareholders."
LIABILITY OF DIRECTORS
Both Washington and Delaware allow charter documents to eliminate or limit
the personal liability of directors. However, the two statutes prescribe
different limitations. Under Washington law, the articles of incorporation may
not eliminate or limit the liability of a director for (i) acts or omissions
involving intentional misconduct or a knowing violation of law, (ii) approval
of certain distributions or loans contrary to law, or (iii) any transaction
from which the director personally receives a benefit in money, property or
services to which
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the director is not legally entitled. The Delaware statute further excludes
any limitation of director liability (a) where a director has breached the
duty of loyalty to the corporation or its stockholders or (b) for acts or
omissions not in good faith. Each of ARIS' Articles and InTime Certificate
provides for the limitation or elimination of liability of directors to the
fullest extent permitted by law.
AMENDMENT OF ARTICLES/CERTIFICATE OF INCORPORATION
Washington law authorizes a corporation's board of directors to make various
changes to the corporation's articles of incorporation, including changes of
corporate name, designations of rights and preferences of series or classes of
preferred stock if the articles of incorporation specifically allow such
action to be taken without shareholder approval, changes in the number of
outstanding shares in order to effectuate a stock split or stock dividend in
the corporation's own shares and changes to or elimination of provisions with
respect to the par value of its stock. Other amendments to a corporation's
articles of incorporation must be recommended to the shareholders by the board
of directors (unless the board determines that, because of a conflict of
interest or other special circumstances, it should make no recommendations),
and approved by a majority of all votes entitled to be cast by each voting
group which has a right to vote on such amendment.
Under Delaware law, amendments to a corporation's certificate of
incorporation require the approval of stockholders holding a majority of the
outstanding stock entitled to vote thereon unless a different proportion is
specified in the certificate of incorporation.
ACTION WITHOUT A MEETING
Under Washington law, if the articles of incorporation allow it, shareholder
action may be taken without a meeting if written consents setting forth such
action are signed by holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Delaware law authorizes stockholder action without a meeting if consents are
received from holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize such action at a meeting
at which all shares entitled to vote thereon were present and voted.
TRANSACTIONS WITH OFFICERS OR DIRECTORS
Washington law sets forth a safe harbor for transactions between a
corporation and one or more of its directors. A conflicting interest
transaction may not be enjoined, set aside or give rise to damages if (i) it
is approved by a majority, but no fewer than two, of the "qualified directors"
on the board of directors or a duly appointed committee of the board, (ii) it
is approved by the affirmative vote of a majority of all "qualified shares,"
or (iii) at the time of the commitment, the transaction is established to have
been fair to the corporation. For the purposes of this provision, a "qualified
director" is one who does not have (a) a conflicting interest respecting the
transaction or (b) a familial, financial, professional or employment
relationship with a second director, which relationship would be reasonably
expected to exert an influence on the first director's judgment when voting on
the transaction. "Qualified shares" are defined generally as shares other than
those beneficially owned, or the voting of which is controlled, by a director
who has a conflicting interest respecting the transaction or a related person
of such director.
Delaware law provides that contracts or transactions between a corporation
and one or more of its officers or directors or an entity in which they have
an interest is not void or voidable solely because of such interest or the
participation of the director or officer in a meeting of the board or a
committee which authorizes the contract or transaction if (i) the material
facts as to the relationship or interest and as to the contract or transaction
are disclosed or are known to the board or the committee, and the board or
committee in good faith authorizes the contract or transaction by the
affirmative vote of a majority of disinterested directors, (ii) the material
facts as to the relationship or interest and as to the contract or transaction
are disclosed or are known to the stockholders entitled to vote thereon, and
the contract or transaction is specifically approved in good faith by a vote
of the shareholders, or (iii) the contract or transaction is fair as to the
corporation as of the time it is authorized, approved or ratified by the board
of directors, a committee thereof or the stockholders.
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EXPERTS
The financial statements and supplementary financial statements of ARIS
included in this Proxy Statement/Prospectus, except as they relate to Barefoot
Computer Training Limited, have been audited by Price Waterhouse LLP,
independent accountants and, insofar as they relate to Barefoot Computer
Training Limited, by Moores Rowland, independent accountants, whose report
appears herein. Such financial statements have been so included in reliance on
the reports on such independent accountants given on the authority of such
firms as experts in auditing and accounting.
The financial statements of InTime as of December 31, 1997 and 1996 and for
each of the three years in the period ended December 31, 1997 included in this
Proxy Statement/Prospectus have been so included in reliance on the report of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the shares of ARIS Stock offered hereby and certain legal
matters in connection with the Merger will be passed upon for ARIS by Van
Valkenberg Furber Law Group P.L.L.C., Seattle, Washington. Such firm is the
holder of a warrant, expiring on February 28, 2002, to purchase 4,000 shares
of ARIS Common Stock at an exercise price of $10.00 per share.
Certain legal matters in connection with the Merger will be passed upon for
InTime by Michael Harris, P.A., North Palm Beach, Florida and Broad and
Cassel, a partnership including professional associations, Miami, Florida. An
attorney employed by Michael Harris, P.A. beneficially owns 15,395 shares of
InTime Common Stock (not including 4,105 Escrowed Shares, as to which the
holder has agreed to the forfeiture and cancellation immediately prior to the
closing of the Merger).
84
<PAGE>
ARIS CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants (Price Waterhouse)...................... F-2
Report of Independent Accountants (Moores Rowland)........................ F-3
Consolidated Balance Sheets as of December 31, 1996 and 1997.............. F-4
Consolidated Statements of Income for each of the three years ended
December 31, 1997........................................................ F-5
Consolidated Statement of Changes in Shareholders' Equity for each of the
three years ended December 31, 1997...................................... F-6
Consolidated Statements of Cash Flows for each of the three years ended
December 31, 1997........................................................ F-7
Notes to Consolidated Financial Statements................................ F-8
SUPPLEMENTARY CONSOLIDATED FINANCIAL STATEMENTS
Supplementary Consolidated Balance Sheets as of December 31, 1996 and
1997..................................................................... F-22
Supplementary Consolidated Statements of Income for each of the three
years ended
December 31, 1997........................................................ F-23
Supplementary Consolidated Statement of Changes in Shareholders' Equity
for each of the three years ended December 31, 1997...................... F-24
Supplementary Consolidated Statements of Cash Flows for each of the three
years ended
December 31, 1997........................................................ F-25
Notes to Supplementary Consolidated Financial Statements.................. F-26
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of ARIS Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of changes in shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
ARIS Corporation and its subsidiaries at December 31, 1996 and 1997 and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997 in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As described in Note 18, on February 28, 1998 ARIS Corporation merged with
Barefoot Computer Training Limited in a transaction accounted for as a pooling
of interest. The accompanying supplementary financial statements give
retroactive effect to the merger of ARIS Corporation and Barefoot Computer
Training Limited.
In our opinion, based on our audits and the report of other auditors, the
accompanying supplementary consolidated balance sheets and the related
supplementary consolidated statements of income, of changes in shareholders'
equity and of cash flows present fairly, in all material respects, the
financial position of ARIS Corporation and its subsidiaries at December 31,
1996 and 1997 and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We did
not audit the financial statements of Barefoot Computer Training Limited for
the three years ended November 30, 1997 which statements reflect total assets
of $2,708,000 and $3,018,000 at November 30, 1996 and 1997, respectively, and
total revenues of $3,485,000, $5,326,000 and $7,419,000 for the years ended
November 30, 1995, 1996 and 1997, respectively. Those statements were audited
by other auditors whose report thereon has been furnished to us, and our
opinion expressed herein, insofar as it relates to the 1995, 1996 and 1997
amounts included for Barefoot Computer Training Limited is based solely on the
report of the other auditors. We conducted our audits of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Seattle, Washington
January 28, 1998, except as to the
pooling of interests with Barefoot
Computer Training Limited, which is
as of February 28, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Barefoot Computer Training Limited
In our opinion, the balance sheet and the related statements of income, of
cash flows and of changes in stockholders' equity of Barefoot Computer
Training Limited (not presented separately herein) present fairly, in all
materials respects, the financial position of Barefoot Computer Training
Limited at 30 November 1997 and 1996 and the results of its operations and its
cash flows for each of the three years ended 30 November 1997, in conformity
with accounting principles generally accepted in the United States, all
expressed in British Pound Sterling. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ Moores Rowland
Moores Rowland
Chartered Accountants
London, England
April 23, 1998
F-3
<PAGE>
ARIS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 177,000 $ 9,388,000
Investments in marketable securities................ 1,396,000 15,464,000
Accounts receivable, net of allowance for doubtful
accounts of $300,000 and $642,000.................. 5,169,000 11,359,000
Consulting contracts in progress.................... 428,000 618,000
Income tax receivable............................... 186,000
Prepaid expenses and other assets................... 438,000 1,649,000
----------- -----------
Total current assets.............................. 7,794,000 38,478,000
----------- -----------
Property and equipment, net........................... 2,517,000 5,397,000
----------- -----------
Intangible and other assets, net...................... 2,645,000 8,095,000
----------- -----------
Total assets...................................... $12,956,000 $51,970,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 787,000 $ 2,331,000
Accrued payroll..................................... 902,000 2,077,000
Other accrued expenses.............................. 294,000 633,000
Notes payable....................................... 1,500,000
Deferred revenue.................................... 199,000 1,405,000
Income tax payable.................................. 51,000
Deferred income taxes............................... 351,000 29,000
----------- -----------
Total current liabilities......................... 4,033,000 6,526,000
----------- -----------
Deferred income taxes................................. 713,000 526,000
----------- -----------
Commitments and contingencies (Note 9)
Shareholders' equity:
Preferred stock; 5,000,000 shares authorized; none
issued and outstanding............................. -- --
Common stock, no par value; 100,000,000 shares
authorized......................................... -- --
Additional paid-in-capital.......................... 1,943,000 37,504,000
Retained earnings................................... 6,042,000 7,481,000
Net unrealized holding gain (loss) on investments... 225,000 (63,000)
Cumulative foreign currency translation adjustment.. (4,000)
----------- -----------
Total shareholders' equity........................ 8,210,000 44,918,000
----------- -----------
Total liabilities and shareholders' equity...... $12,956,000 $51,970,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
ARIS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues, net:
Consulting.............................. $ 9,725,000 $16,312,000 $29,999,000
Training................................ 4,821,000 9,385,000 21,476,000
Software................................ 205,000 1,201,000 3,656,000
----------- ----------- -----------
Total revenues........................ 14,751,000 26,898,000 55,131,000
----------- ----------- -----------
Cost of sales:
Consulting and training................. 7,176,000 13,353,000 25,460,000
Software................................ 42,000 93,000 322,000
----------- ----------- -----------
Total cost of sales................... 7,218,000 13,446,000 25,782,000
----------- ----------- -----------
Gross profit.......................... 7,533,000 13,452,000 29,349,000
Selling, general and administrative
expense................................ 4,548,000 9,434,000 20,787,000
Amortization of intangible assets....... 4,000 118,000 380,000
Research and development expense........ 307,000
Acquisition expenses.................... 347,000 428,000
----------- ----------- -----------
Income from operations................ 2,981,000 3,246,000 7,754,000
----------- ----------- -----------
Other income (expense):
Investment income....................... 57,000 89,000 280,000
Interest income, net.................... 18,000 35,000 694,000
Other................................... 40,000 (9,000) 1,000
----------- ----------- -----------
115,000 115,000 975,000
----------- ----------- -----------
Income before income tax.............. 3,096,000 3,361,000 8,729,000
Income tax expense........................ 1,086,000 1,347,000 3,384,000
----------- ----------- -----------
Net income................................ $ 2,010,000 $ 2,014,000 $ 5,345,000
=========== =========== ===========
Basic earnings per share.................. $ 0.30 $ 0.28 $ 0.61
=========== =========== ===========
Weighted average number of common shares
outstanding.............................. 6,777,000 7,261,000 8,726,000
=========== =========== ===========
Diluted earnings per share................ $ 0.29 $ 0.27 $ 0.57
=========== =========== ===========
Weighted average number of common and
common equivalent shares outstanding..... 7,012,000 7,403,000 9,444,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
ARIS CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CUMULATIVE
COMMON STOCK NET UNREALIZED FOREIGN
----------------- ADDITIONAL HOLDING CURRENCY TOTAL
SHARES PAID-IN RETAINED GAIN (LOSS) TRANSLATION SHAREHOLDERS'
ISSUED AMOUNT CAPITAL EARNINGS ON INVESTMENTS ADJUSTMENT EQUITY
--------- ------ ----------- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1994................... 4,200,000 $ -- $ 14,000 $ 2,018,000 $ 84,000 $ 2,116,000
Shares issued in
acquisition............ 1,400,000 263,000 263,000
Stock options
exercised.............. 1,191,000 64,000 64,000
Tax benefit related to
stock options
exercised.............. 78,000 78,000
Net income.............. 2,010,000 2,010,000
Unrealized holding gain
on investments......... 111,000 111,000
--------- ----- ----------- ----------- --------- -----------
BALANCE AT DECEMBER 31,
1995................... 6,791,000 -- 419,000 4,028,000 195,000 4,642,000
Shares issued in
acquisitions........... 790,900 1,614,000 1,614,000
Stock redemption........ (40,000) (100,000) (100,000)
Stock options
exercised.............. 14,000 2,000 2,000
Tax benefit related to
stock options
exercised.............. 8,000 8,000
Net income.............. 2,014,000 2,014,000
Unrealized holding gain
on investments......... 30,000 30,000
--------- ----- ----------- ----------- --------- -----------
BALANCE AT DECEMBER 31,
1996................... 7,555,900 -- 1,943,000 6,042,000 225,000 8,210,000
Shares issued in initial
public offering, net of
offering costs......... 2,300,000 31,242,000 31,242,000
Shares and warrants
issued in
acquisitions........... 434,381 4,371,000 4,371,000
Stock redemption........ (415,000) (121,000) (3,906,000) (4,027,000)
Stock options
exercised.............. 46,569 69,000 69,000
Unrealized holding loss
on investments......... (63,000) (63,000)
Realization of holding
gain upon sale of
investments............ (225,000) (225,000)
Foreign currency
translation
adjustment............. $(4,000) (4,000)
Net income.............. 5,345,000 5,345,000
--------- ----- ----------- ----------- --------- ------- -----------
BALANCE AT DECEMBER 31,
1997................... 9,921,850 $ -- $37,504,000 $ 7,481,000 $ (63,000) $(4,000) $44,918,000
========= ===== =========== =========== ========= ======= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
ARIS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 2,010,000 $ 2,014,000 $ 5,345,000
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization....... 201,000 661,000 1,627,000
(Gain) loss on sale of property and
equipment.......................... (18,000) 6,000
Gain on sale of investments......... (280,000)
Purchased research and development.. 307,000
Changes in assets and liabilities
net of effects of acquisitions:
(Increase) in accounts
receivable....................... (484,000) (1,548,000) (3,895,000)
(Increase) in consulting contracts
in progress...................... (49,000) (408,000) (164,000)
(Increase) decrease in income tax
receivable....................... (186,000) 186,000
(Increase) in prepaid expenses and
other assets..................... (36,000) (21,000) (933,000)
Increase (decrease) in accounts
payable.......................... (178,000) 140,000 (68,000)
Increase in accrued expenses...... 116,000 704,000 377,000
Increase (decrease) in deferred
revenue.......................... 124,000 (363,000) 654,000
Increase (decrease) in income
taxes payable.................... 320,000 (383,000) (101,000)
Increase (decrease) in deferred
taxes............................ 196,000 (217,000) (160,000)
----------- ----------- ------------
Net cash provided by operating
activities..................... 2,202,000 706,000 2,588,000
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments.............. (381,000) (462,000) (32,436,000)
Sales of investments.................. 362,000 18,204,000
Purchase of property and equipment.... (911,000) (1,196,000) (2,165,000)
Acquisition of businesses, net of cash
acquired............................. (112,000) (1,427,000) (1,726,000)
Proceeds from sale of property and
equipment............................ 27,000 43,000
----------- ----------- ------------
Net cash used in investing
activities..................... (1,377,000) (2,680,000) (18,123,000)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering,
net of offering costs................ 31,242,000
Stock options exercised............... 64,000 2,000 69,000
Repurchase of common stock............ (100,000) (4,027,000)
Tax benefit related to stock options
exercised............................ 78,000 8,000
Payments on borrowings................ (500,000) (12,363,000)
Proceeds from borrowings.............. 1,500,000 9,825,000
----------- ----------- ------------
Net cash provided by financing
activities..................... 142,000 910,000 24,746,000
----------- ----------- ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS..................... 967,000 (1,064,000) 9,211,000
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR.............................. 274,000 1,241,000 177,000
----------- ----------- ------------
CASH AND CASH EQUIVALENTS AT END OF
YEAR................................. $ 1,241,000 $ 177,000 $ 9,388,000
=========== =========== ============
</TABLE>
See Note 14 for supplemental cash flow information.
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
ARIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and operations
ARIS Corporation (the Company) provides a range of information technology
consulting services including database management, enterprise resource
planning, custom applications development and packaged applications
implementation and training to clients worldwide, with offices in Seattle and
Bellevue, Washington; Beaverton, Oregon; Denver, Colorado; Dallas, Texas;
Fairfax, Virginia; St. Petersburg, Florida, Bloomington, Minnesota; New York,
New York; and Oxford, Birmingham and London, England. The Company also
develops niche software programs which it has licensed in the United States
and Europe.
The Company utilizes the significant accounting policies summarized below in
preparing its financial statements.
Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Estimates
The preparation of 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 financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
Cash and cash equivalents include short-term investments with an original
maturity of three months or less.
Investment securities
The Company's investment securities at December 31, 1996 and 1997 are
classified as available-for-sale and are recorded at fair value. Fair value is
based upon quoted market prices. The increase or decrease in market value from
period to period relating to available-for-sale marketable securities, net of
deferred income tax, is included as a separate component of shareholders'
equity. Cost of securities sold is determined using the specific
identification method.
Property and equipment
Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to income as incurred. Additions, improvements and major
replacements are capitalized. For financial reporting purposes, depreciation
is provided using the straight-line method over the estimated useful lives of
depreciable assets. Estimated useful lives of property and equipment range
from three to eight years.
Intangible assets
Intangible assets include the cost of business acquisitions allocated to
capitalized software, non-compete agreements and goodwill which are amortized
over approximately three years for capitalized software, approximately two
years for non-compete agreements and fifteen years for goodwill. Capitalized
software amortization is computed as described below while the straight-line
method is used for other intangible assets.
F-8
<PAGE>
ARIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The carrying value of intangible assets is assessed for any permanent
impairment by evaluating the operating performance and future undiscounted
cash flows of the underlying assets. Adjustments are made if the sum of the
expected future net cash flows is less than book value in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
which requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of assets
may not be recoverable.
Software development costs
Software development costs incurred in conjunction with product development
are charged to product development expense until technological feasibility is
established. Thereafter, through general release of product, all software
product development costs are capitalized and reported at the lower of
unamortized cost or net realizable value of each product. The establishment of
technological feasibility and the on-going assessment of the recoverability of
costs require considerable judgment by the Company with respect to certain
external factors, including, but not limited to, anticipated future gross
product revenues, estimated economic life and changes in the software and
hardware technology. After consideration of the above factors, the Company
amortizes capitalized software costs at the greater of the amount computed
using (a) the ratio of current revenues for a product to the total of current
and anticipated future revenues, or (b) the straight-line method over the
remaining estimated economic life of the product.
Research and development
Expenditures relating to the development of new products and processes,
including significant improvements and refinements to existing products, are
expensed as incurred. The costs of business acquisitions allocated to in-
process research and development are expensed immediately.
Revenue recognition
Time and material consulting contracts
The Company recognizes revenue as services are rendered.
Fixed-price consulting contracts
Revenues from fixed-price contracts are recognized on the percentage-of-
completion method, measured by the cost incurred to date to estimated total
costs for the contract. This method is used because management considers
expended costs to be the best available measure of contract performance.
Contract costs include all direct labor, material and any other costs related
to contract performance. Selling, general and administrative costs are charged
to expense as incurred. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined. Changes
in job performance, job conditions and estimated profitability, including
those arising from contract penalty provisions, and final contract settlements
may result in revisions to costs and income and are recognized in the period
in which the revisions are determined.
Education and training
Tuition revenue is recognized on the last day the class is held.
Software
The Company accounts for software revenues in accordance with the American
Institute of Certified Public Accountants' Statement of Position 91-1,
Software Revenue Recognition. Revenues earned under software license
agreements with end users are generally recognized when the software has been
shipped, collectibility is probable, and there are no significant obligations
remaining.
F-9
<PAGE>
ARIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company initially defers revenue on the sale of extended software
service contracts which is then recognized on a straight-line basis over the
life of the contract period.
Income taxes
Provision for income taxes has been recorded in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). Under the liability method of SFAS 109, deferred tax assets and
liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using enacted tax
rates and laws that will be in effect when the differences are expected to be
recovered or settled.
Advertising costs
Advertising costs are expensed as incurred. Advertising expenses amounted to
$95,000, $80,000 and $193,000 in 1995, 1996 and 1997, respectively.
Foreign currency translations
The financial statements of the Company's foreign subsidiary have been
translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation" (SFAS 52). Under
the provisions of SFAS 52, all assets and liabilities in the balance sheet of
the foreign subsidiary, whose functional currency is the U.K. Pound Sterling,
are translated at year-end exchange rates, profit and loss accounts are
translated at average exchange rates prevailing during the period and
translation gains and losses are accumulated in a separate component of
shareholders' equity.
Fair value of financial instruments
The carrying amount of cash and cash equivalents and other current assets
and liabilities such as accounts receivable, accounts payable and accrued
liabilities as presented in the consolidated financial statements approximates
fair value based on the short-term nature of these instruments. Investments in
marketable securities are carried at fair value in the accompanying
consolidated balance sheet.
Stock-based compensation
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation," which was effective for
the Company beginning in 1996. Under the provisions of this Statement,
employee stock-based compensation expense is measured using either the
intrinsic-value method as prescribed by Accounting Principles Board Opinion
No. 25 or the fair value method described in Statement No. 123. Companies
choosing the intrinsic-value method are required to disclose the pro forma
impact of the fair value method on net income. The Company has elected to
continue accounting for its employee stock-based compensation under the
provisions of Accounting Principles Board Opinion No. 25. Stock-based awards
granted to other than employees are valued at fair market value on the date of
grant.
Net income per share
Statement of Financial Accounting Standards No. 128 (SFAS 128) was issued in
February 1997. This pronouncement modifies the calculation and disclosure of
earnings per share and was adopted by the Company during 1997. Under the
provisions of SFAS 128, basic earnings per share is calculated as income
available to common stockholders divided by the weighted-average number of
common shares outstanding during the periods. Diluted earnings per share is
based on the weighted-average number of shares of common stock and common
stock equivalents outstanding during the periods, including options and
warrants computed using the treasury stock method. All earnings per share
amounts from prior periods have been restated to reflect the adoption of SFAS
128.
F-10
<PAGE>
ARIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Year 2000
The Company has conducted a review of its data management systems and has
determined that no significant modifications are necessary to existing systems
to allow them to properly process data during year 2000 and thereafter.
2. ACQUISITIONS
The Company has embarked upon an acquisition program which included the
acquisition of one company during 1995, three companies during 1996 and four
companies during 1997. All of these acquisitions have been accounted for by
the purchase method of accounting. Accordingly, the purchase price has been
allocated to the assets acquired and liabilities assumed based on management's
estimates, arms-length negotiations with the sellers and in some cases,
independent appraisals. The common stock issued as consideration in these
acquisitions has been recorded at its estimated fair value at the date the
acquisition was announced. The results of operations of the acquired companies
have been included in consolidated results of operations of the Company from
the date of the acquisitions. The following is a description of the terms of
the various acquisitions:
1995
On January 1, 1995, the Company acquired the stock of Clarity, Inc., a
training company based in Bellevue, Washington in exchange for 1,400,000
shares of the Company's common stock and cash.
A summary of assets acquired, liabilities assumed and purchase price paid is
as follows:
<TABLE>
<S> <C>
Consideration:
Cash............................................................ $117,000
Value of common stock........................................... 263,000
--------
$380,000
========
</TABLE>
The cost allocated to Clarity Inc.'s assets and liabilities at the date of
the acquisition is as follows:
<TABLE>
<S> <C>
Cash............................................................ $ 5,000
Accounts receivable............................................. 300,000
Prepaid and other current assets................................ 76,000
Goodwill........................................................ 64,000
Property and equipment.......................................... 185,000
Accounts payable and accrued liabilities........................ (250,000)
---------
$ 380,000
=========
</TABLE>
1996
On May 1, 1996, the Company acquired the stock of SQLSoft, Inc., a training
company based in Bellevue, Washington in exchange for 707,900 shares of the
Company's common stock.
On October 1, 1996, the Company acquired the assets and liabilities of
SofTeach Corporation, a training company based in Denver, Colorado in exchange
for 42,000 shares of the Company's common stock and a combination of notes
payable and cash.
On October 1, 1996, the Company acquired the stock of Noetix Corporation, a
software development company which develops software modules which interface
with Oracle database applications software in exchange for 40,000 shares of
the Company's common stock and cash.
F-11
<PAGE>
ARIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of assets acquired, liabilities assumed and purchase price paid
for the 1996 acquisitions is as follows:
<TABLE>
<CAPTION>
SQLSOFT, INC. SOFTEACH CORP. NOETIX CORP.
------------- -------------- ------------
<S> <C> <C> <C>
Consideration:
Cash............................ $ 750,000 $ 835,000
Note payable.................... 500,000
Value of common stock........... $1,317,000 152,000 145,000
Acquisition costs............... 26,000
---------- ---------- ----------
$1,317,000 $1,402,000 $1,006,000
========== ========== ==========
The cost allocated to the assets and liabilities at the date of the
acquisition is as follows:
<CAPTION>
SQLSOFT, INC. SOFTEACH CORP. NOETIX CORP.
------------- -------------- ------------
<S> <C> <C> <C>
Cash.............................. $ 60,000 $ 124,000
Accounts receivable............... 537,000 73,000 $ 273,000
Prepaid and other current assets.. 73,000 35,000
Intangible assets:
Software technology--completed.. 384,000
Software technology--in progress
(Charged to research and
development expense)........... 307,000
Non-compete agreements.......... 150,000
Goodwill........................ 942,000 956,000 260,000
Property and equipment............ 464,000 226,000 9,000
Accounts payable and accrued
liabilities...................... (759,000) (12,000) (377,000)
---------- ---------- ----------
$1,317,000 $1,402,000 $1,006,000
========== ========== ==========
</TABLE>
1997
On February 28, 1997, the Company acquired the stock of Oxford Computer
Group Limited (Oxford), a company that provides information technology
consulting and training services with offices in Oxford, London and Birmingham
in exchange for 280,000 shares of unregistered common stock.
On October 1, 1997, the Company acquired the stock of Enterprise Computing
Inc. (doing business as Buller, Owens and Associates (Enterprise)), an
information technology training company located in New York, New York, in
exchange for 62,531 shares of unregistered common stock, 20,844 stock purchase
warrants and cash of $1,560,000. In connection with the acquisition of
Enterprise, the Company entered into a $500,000 earn-out agreement with the
former shareholders based on attainment of certain future financial goals.
On November 1, 1997, the Company acquired the stock of Agiliti, Inc., an
information technology training company located in Bloomington, Minnesota, in
exchange for 50,941 shares of unregistered common stock.
On November 1, 1997, the Company acquired the stock of Absolute!, Inc., an
information technology training company located in Dallas, Texas, in exchange
for 40,909 shares of unregistered common stock and cash of $100,000. In
connection with the acquisition of Absolute!, the Company entered into a
$500,000 earn-out agreement with the former shareholder based on attainment of
certain future financial goals.
F-12
<PAGE>
ARIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of assets acquired, liabilities assumed and purchase price paid
for the 1997 acquisitions is as follows:
<TABLE>
<CAPTION>
OXFORD ENTERPRISE AGILITI ABSOLUTE!
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Consideration:
Cash......................... $1,560,000 $ 100,000
Value of common stock........ $ 1,400,000 1,125,000 $ 950,000 709,000
Value of warrants............ 187,000
Acquisition costs............ 96,000 15,000
----------- ---------- ---------- ---------
$ 1,496,000 $2,872,000 $ 965,000 $ 809,000
=========== ========== ========== =========
The cost allocated to the assets and liabilities at the date of the
acquisition is as follows:
<CAPTION>
OXFORD ENTERPRISE AGILITI ABSOLUTE!
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Cash........................... $ 5,000 $ 40,000
Accounts receivable............ 1,140,000 $ 365,000 $ 493,000 297,000
Prepaid and other current
assets........................ 337,000 39,000 70,000 8,000
Goodwill....................... 1,095,000 2,672,000 1,066,000 902,000
Property and equipment......... 1,283,000 212,000 350,000 60,000
Notes payable.................. (930,000) (76,000)
Accounts payable and accrued
liabilities................... (2,364,000) (416,000) (84,000) (422,000)
----------- ---------- ---------- ---------
$ 1,496,000 $2,872,000 $ 965,000 $ 809,000
=========== ========== ========== =========
</TABLE>
The following unaudited pro forma summary presents the consolidated results
of operations of the Company as if the entities acquired in 1996 and 1997 had
been acquired as of the beginning of the periods presented, including the
impact of adjustments to amortize intangible assets acquired and record
consolidated income tax expense at the Company's effective tax rate.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995(1) 1996(2) 1997(3)
----------- ----------- -----------
<S> <C> <C> <C>
Net sales............................... $21,003,000 $43,235,000 $63,427,000
Net income.............................. $ 2,220,000 $ 2,079,000 $ 4,934,000
Basic earnings per share................ $.29 $.26 $.55
Diluted earnings per share.............. $.28 $.26 $.51
</TABLE>
- --------
(1) Adjusted to include the results of operations of SQLSoft, Inc., SofTeach
Corporation and Noetix Corporation for the year ended December 31, 1995,
including the impact of certain adjustments.
(2) Adjusted to include the results of operations of SQLSoft, Inc., SofTeach
Corporation and Noetix Corporation prior to acquisition and the results of
operations of Oxford, Enterprise, Agiliti and Absolute! for the year ended
December 31, 1996, including the impact of certain adjustments.
(3) Adjusted to include the results of operations of Oxford, Enterprise,
Agiliti and Absolute! prior to acquisition, including the impact of
certain adjustments.
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisition had been in effect for the years presented.
In addition, they are not intended to be a projection of future results and do
not reflect any synergies that might be achieved from combined operations.
The company recorded expenses associated with acquisition of businesses
during 1996 and 1997 of $347,000 and $428,000, respectively. Costs were
primarily for professional fees and expenditures to facilitate
F-13
<PAGE>
ARIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
integration of business systems of acquired businesses with the Company
following the mergers. Additional charges are expected to be recognized in
subsequent reporting periods as businesses acquired during 1997 are further
integrated. During 1996 the Company expensed $307,000 of in-process research
and development costs following the acquisition of Noetix Corporation.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---------- -----------
<S> <C> <C>
Computer equipment................................ $2,528,000 $ 5,114,000
Furniture and fixtures............................ 503,000 1,159,000
Software.......................................... 157,000 250,000
Other............................................. 166,000 870,000
---------- -----------
3,354,000 7,393,000
Less: Accumulated depreciation.................... (837,000) (1,996,000)
---------- -----------
$2,517,000 $ 5,397,000
========== ===========
</TABLE>
4. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
---------- -----------
<S> <C> <C>
Goodwill.......................................... $2,222,000 $ 7,957,000
Capitalized software costs........................ 430,000 430,000
Non-compete agreements............................ 150,000 150,000
Prepaids and other................................ 403,000 1,828,000
---------- -----------
3,205,000 10,365,000
Less: Accumulated amortization.................... (122,000) (621,000)
---------- -----------
3,083,000 9,744,000
Less: Current portion............................. (438,000) (1,649,000)
---------- -----------
Total noncurrent intangibles and other assets..... $2,645,000 $ 8,095,000
========== ===========
</TABLE>
5. INVESTMENTS
Investments in marketable securities at December 31, 1996 and 1997 consist of
mutual fund investments totaling $1,396,000 and investments in debt securities
totaling $15,464,000, respectively. These investments have been classified as
available-for-sale and, accordingly, the excess of fair value over cost, net of
tax, has been included as a separate component of shareholders' equity at
December 31, 1996 and 1997. The debt securities held at December 31, 1997 have
maturities ranging from April 1998 to December 1998.
6. MAJOR CUSTOMERS
During 1995 and 1996, the Company had consulting sales to one customer that
aggregated 22% and 9%, respectively, of total revenue. Accounts receivable
related to this customer were 22% and 7% of total accounts receivable at
December 31, 1995 and 1996, respectively. No single customer accounted for more
than 7% of total revenues in 1997.
F-14
<PAGE>
ARIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Prior to the Company's initial public offering described in Note 10, the
Company qualified as a minority-owned enterprise under the Section 8(a)
program administered by the U.S. Small Business Administration. Total Section
8(a) sales were $2,051,000 and $2,430,000 during 1995 and 1996, respectively.
Subsequent to the initial public offering, the Company no longer qualifies
under Section 8(a).
7. INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal............................... $ 763,000 $1,429,000 $3,023,000
State................................. 40,000 110,000 328,000
Foreign............................... 209,000
---------- ---------- ----------
803,000 1,539,000 3,560,000
---------- ---------- ----------
Deferred:
Federal............................... 264,000 (204,000) (129,000)
State................................. 19,000 12,000 (19,000)
Foreign............................... (28,000)
----------
283,000 (192,000) (176,000)
---------- ---------- ----------
Total tax expense....................... $1,086,000 $1,347,000 $3,384,000
========== ========== ==========
</TABLE>
Pretax operating results of the Company's foreign subsidiary are income of
$516,000 in 1997.
The principal reasons for the variation from the customary relationship
between income taxes at the statutory federal rate and that shown in the
consolidated statements of income are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Statutory federal income tax rate........ $1,053,000 $1,143,000 $2,968,000
Goodwill................................. 1,000 17,000 66,000
State income taxes, net of federal income
tax benefit............................. 39,000 80,000 204,000
Purchased research and development....... 104,000
Nondeductible meals and entertainment.... 8,000 32,000 53,000
Other.................................... (15,000) (29,000) 93,000
---------- ---------- ----------
$1,086,000 $1,347,000 $3,384,000
========== ========== ==========
</TABLE>
F-15
<PAGE>
ARIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Temporary differences which give rise to a significant portion of deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
---------- --------
<S> <C> <C>
Adjustments to cash basis accounting for tax purposes.. $ 672,000 $553,000
Depreciation and amortization.......................... 333,000 300,000
Unrealized gain on marketable securities............... 124,000
Intangible assets...................................... 106,000
Other.................................................. 1,000
---------- --------
Gross deferred tax liabilities....................... 1,130,000 959,000
---------- --------
Bad debt allowance..................................... 8,000 180,000
Accrued vacation and bonuses........................... 39,000 76,000
Research and development credit........................ 19,000
Unrealized loss on marketable securities............... 40,000
NOL carry-forward...................................... 108,000
---------- --------
Gross deferred tax assets............................ 66,000 404,000
---------- --------
$1,064,000 $555,000
========== ========
</TABLE>
8. DEBT
At December 31, 1997, the Company had an $8,000,000 line of credit which is
collateralized by substantially all of the Company's assets. All of this line
was available at December 31, 1997. Borrowings against the line of credit will
bear interest at the lender's prime rate. The amounts outstanding at December
31, 1996 under the Company's line of credit and the notes payable were repaid
during 1997 with proceeds from the Company's initial public offering.
9. COMMITMENTS AND CONTINGENCIES
Lease commitments
The Company rents all its office space under non-cancelable operating leases
with initial terms in excess of one year. Future minimum rental commitments
under operating leases for years ending December 31 are as follows:
<TABLE>
<S> <C>
1998......................................................... $1,759,000
1999......................................................... 1,490,000
2000......................................................... 1,492,000
2001......................................................... 1,373,000
2002......................................................... 933,000
Thereafter................................................... 597,000
----------
$7,644,000
==========
</TABLE>
Rent expense for 1995, 1996 and 1997 was $253,000, $702,000 and $1,778,000,
respectively.
Subsequent to year end the Company entered into an agreement to purchase an
unfinished building for approximately $4,300,000. Management estimates that
the Company will invest an additional $800,000 to complete the building. The
building will serve as the corporate headquarters.
F-16
<PAGE>
ARIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Legal proceedings
The Company is involved in certain legal proceedings that have arisen in the
normal course of business. Based on the advice of legal counsel, management
does not anticipate that these matters will have a material effect on the
Company's consolidated financial position or results of operations.
10. SHAREHOLDERS' EQUITY
In June 1997, ARIS completed an initial public offering of 2,300,000 shares
of common stock with net proceeds of approximately $31,242,000.
During 1997, the Company adopted the ARIS Corporation 1998 Employee Stock
Purchase Plan (the Stock Purchase Plan), which permits employees of the
Company to purchase common stock through payroll deductions at 85% of market
value each six months beginning January 1 and July 1. All full-time employees
of the Company are eligible to participate in the Stock Purchase Plan. An
aggregate of 300,000 shares of common stock has been authorized for issuance
under the Stock Purchase Plan. No shares were purchased as of December 31,
1997.
11. EARNINGS PER SHARE
The difference between the weighted-average number of common shares
outstanding used to calculate basic earnings per share and the weighted-
average number of common and common equivalent shares outstanding used to
calculate diluted earnings per share is the incremental shares attributed to
outstanding options and warrants to purchase common stock computed using the
treasury stock method.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Weighted-average number of common shares
outstanding..................................... 6,777,000 7,261,000 8,726,000
--------- --------- ---------
Effect of dilutive securities:
Warrants....................................... 3,215
Options........................................ 235,000 142,000 714,785
--------- --------- ---------
235,000 142,000 718,000
--------- --------- ---------
Weighted-average number of common and common
equivalent shares outstanding................... 7,012,000 7,403,000 9,444,000
========= ========= =========
</TABLE>
Options to purchase 50,100 shares of common stock at prices ranging from
$23.75 to $31.38 per share were outstanding during the second half of 1997 but
were not included in the computation of diluted earnings per share for 1997
because the options' exercise price was greater than the average market price
of the common shares. The options, which expire in 2007, were still
outstanding at December 31, 1997.
12. STOCK OPTIONS AND WARRANTS
Prior to January 1995, the Company from time to time granted non-qualified
stock options to key employees. These grants were not part of any formal plan.
In January 1995, the Company adopted the ARIS Corporation 1995 Stock Option
Plan (the 1995 Plan) which provides for the granting of qualified or non-
qualified stock options to employees, directors, officers and certain non-
employees of the Company as determined by the Plan Administrator. The Company
authorized 1,600,000 shares of its common stock for issuance under the 1995
Plan. The date of grant, option price, vesting
F-17
<PAGE>
ARIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
period and other terms specific to options granted under the 1995 Plan are to
be determined by the Plan Administrator. The option price for stock options
granted is based on the fair market value of the Company's stock on the date
of grant. Options granted under the 1995 Plan expire seven years from the date
of grant and vest over periods of up to four years. The Company ended grants
under the 1995 Plan in March 1997.
In March 1997, the Company adopted the ARIS Corporation 1997 Stock Option
Plan (the 1997 Plan) which provides for the granting of qualified or non-
qualified stock options to employees, directors, officers and non-employee
directors of the Company as determined by the Plan Administrator. The Company
authorized 2,000,000 shares of its common stock for issuance under the 1997
Plan, subject to certain adjustments, reduced by the number of shares that
have been granted and have not subsequently become available for grant under
the 1995 Plan. The 1997 Plan provides for automatic, non-discretionary grants
of 5,000 non-qualified stock options to non-employee directors for each year
of service. For all other grants under the 1997 Plan, the date of grant,
option price, vesting period and other terms specific to options granted under
the 1997 Plan are to be determined by the Plan Administrator. The option price
for stock options granted is based on the fair market value of the Company's
stock on the date of grant. Options granted under the 1997 Plan expire ten
years from the date of grant and vest over periods of up to four years.
In connection with the acquisition of Enterprise as discussed in Note 2, the
Company issued 20,844 warrants with an exercise price of $23.988 and a fair
value of $8.95 during 1997. Additionally, during 1997 the Company issued 4,000
warrants with an exercise price of $10.00 to certain consultants of the
Company.
A summary of the activity for non-qualified stock options granted prior to
1995, the 1995 Stock Option Plan, and the 1997 Stock Option Plan is presented
below:
<TABLE>
<CAPTION>
1995 1996 1997
-------------------- ----------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
-AVERAGE -AVERAGE -AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- -------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 1,205,000 $0.05 134,000 $0.30 354,000 $ 2.12
Granted................. 120,000 0.34 262,000 2.79 1,255,000 11.32
Exercised............... (1,191,000) 0.05 (14,000) 0.09 (47,000) 1.47
Forfeited............... (28,000) 0.78 (95,000) 7.98
---------- ------- ---------
Outstanding at end of
year................... 134,000 0.30 354,000 2.12 1,467,000 9.63
========== ======= =========
Options exercisable at
year-end............... 111,000 0.29 118,000 0.67 162,000 1.10
========== ======= =========
Weighted-average fair
value of options
granted during the
year................... $0.08 $0.50 $4.81
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------------------------
WEIGHTED
-AVERAGE WEIGHTED- WEIGHTED
RANGE OF REMAINING AVERAGE -AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------- ----------- ----------- --------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ .19-$ 3.62 281,000 5.19 $ 1.74 162,000 $1.10
$ 5.00-$ 9.40 831,000 6.23 $ 6.66 -- --
$13.00-$31.38 355,000 9.71 $22.79 -- --
</TABLE>
F-18
<PAGE>
ARIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related Interpretations in accounting for
stock options issued to employees. Had compensation cost for the Plans been
determined based upon the fair value at the grant date consistent with the
methodology prescribed under Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation, the Company's net income and net
income per share would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net income............................... $2,008,000 $1,993,000 $4,937,000
Basic earnings per share................. $ .30 $ .27 $ .57
Diluted earnings per share............... $ .29 $ .27 $ .52
</TABLE>
The fair value of the options granted was calculated using an option-pricing
model with the following assumptions: dividend yield of zero percent,
volatility of zero percent for periods prior to the initial public offering
and a volatility of 59.32% for the post-initial public offering period, risk
free interest rate ranging from 5.36% to 7.05%, and an expected life of 4.75
years.
13. PROFIT SHARING PLAN
The Company maintains a qualified defined contribution profit sharing 401(k)
plan which covers full time employees with one month of service. Employer
contributions to the plan are discretionary. There were no employer
contributions to the plan for 1995, 1996 or 1997.
14. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION AND NON-CASH INVESTING
AND FINANCING ACTIVITIES
The Company paid interest of $3,000, $34,000 and $144,000 during 1995, 1996
and 1997, respectively. The Company paid $423,000, $2,123,000 and $3,320,000
in income taxes during 1995, 1996 and 1997, respectively.
As more fully described in Note 2, the Company acquired SQLSoft, Inc.,
SofTeach Corporation, Noetix Corporation, Oxford, Enterprise, Agiliti and
Absolute! in exchange for a combination of stock, cash and notes payable.
15. OPERATING BUSINESS GROUPS
The Company is engaged in three distinct businesses consisting of database
consulting services, information technology training and software sales. Total
revenue by segment represents sales to unaffiliated customers. Inter-segment
sales are not material. Operating profit represents total revenue less
operating expenses. In computing operating profit none of the following items
has been added or deducted: general corporate expenses, interest income or
expense or income taxes.
Identifiable assets are those assets used in the operations of each industry
segment. Corporate assets primarily consist of cash, investments and certain
prepaid expenses.
F-19
<PAGE>
ARIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Summarized financial information by business group for 1995, 1996 and 1997 is
as follows:
<TABLE>
<CAPTION>
CONSULTING TRAINING SOFTWARE
GROUP GROUP GROUP CORPORATE TOTAL
----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1995:
Revenue................. $ 9,725,000 $ 4,821,000 $ 205,000 $14,751,000
Operating profit........ 3,645,000 1,161,000 (22,000) $(1,803,000) 2,981,000
Identifiable assets..... 2,740,000 1,189,000 16,000 2,898,000 6,843,000
Depreciation and
amortization........... 58,000 127,000 4,000 12,000 201,000
Capital expenditures.... 201,000 500,000 6,000 204,000 911,000
1996:
Revenue................. $16,312,000 $ 9,385,000 $1,201,000 $26,898,000
Operating profit........ 3,884,000 1,381,000 (325,000) $(1,694,000) 3,246,000
Identifiable assets..... 5,437,000 3,880,000 1,659,000 1,980,000 12,956,000
Depreciation and
amortization........... 26,000 439,000 68,000 128,000 661,000
Capital expenditures.... 28,000 1,001,000 31,000 136,000 1,196,000
1997:
Revenue................. $29,999,000 $21,476,000 $3,656,000 $55,131,000
Operating profit........ 7,805,000 3,041,000 990,000 $(4,082,000) 7,754,000
Identifiable assets..... 7,842,000 15,566,000 2,193,000 26,369,000 51,970,000
Depreciation and
amortization........... 79,000 1,128,000 245,000 175,000 1,627,000
Capital expenditures.... 380,000 1,411,000 105,000 269,000 2,165,000
</TABLE>
16. GEOGRAPHIC SEGMENT INFORMATION
Major operations outside the United States comprise Oxford, which was
purchased by the Company in 1997. Certain information regarding operations in
this geographic segment is presented in the table below. Intercompany sales
between Oxford and ARIS are not material.
<TABLE>
<CAPTION>
AS OF AND FOR THE
YEAR ENDED
DECEMBER 31, 1997
-----------------
<S> <C>
Net sales:
United States.......................................... $45,868,000
Europe................................................. 9,263,000
-----------
$55,131,000
===========
Operating profit:
United States.......................................... $ 7,192,000
Europe................................................. 562,000
-----------
$ 7,754,000
===========
Identifiable assets:
United States.......................................... $47,513,000
Europe................................................. 4,457,000
-----------
$51,970,000
===========
</TABLE>
F-20
<PAGE>
ARIS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
17. QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1996
-----------------------------------------------
Q1 Q2 Q3 Q4
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales................... $ 4,427,000 $ 6,274,000 $ 7,135,000 $ 9,062,000
Gross profit................ 2,246,000 3,260,000 3,433,000 4,513,000
Net income.................. 506,000 789,000 630,000 89,000
Basic earnings per share.... .07 .11 .08 .01
Diluted earnings per share.. .07 .11 .08 .01
<CAPTION>
1997
-----------------------------------------------
Q1 Q2 Q3 Q4
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales................... $10,409,000 $13,507,000 $14,582,000 $16,633,000
Gross profit................ 5,460,000 7,248,000 7,843,000 8,798,000
Net income.................. 1,044,000 1,303,000 1,587,000 1,411,000
Basic earnings per share.... .14 .17 .16 .14
Diluted earnings per share.. .13 .16 .15 .13
</TABLE>
18. SUBSEQUENT EVENT
On February 28, 1998, the Company completed a merger with Barefoot Computer
Training Limited, a company that provides information technology training
services in London, England. Under the terms of the merger, to be accounted
for as a pooling of interests, the Company issued 278,611 shares of its common
stock in exchange for all of the outstanding shares of Barefoot common stock.
All prior periods will be restated to give effect to the merger.
Combined revenues, net income, basic earnings per share and diluted earnings
per share for the year ended December 31, 1996 were $32,224,000, $2,166,000,
$.29 and $.28, respectively; combined revenues, net income, basic earnings per
share and diluted earnings per share for the year ended December 31, 1997 were
$62,550,000, $5,755,000, $.64 and $.59, respectively. This pro forma financial
information is provided for comparative purposes only and may not be
indicative of the results to be expected in the future.
F-21
<PAGE>
ARIS CORPORATION
SUPPLEMENTARY CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 178,000 $ 9,400,000
Investments in marketable securities................ 1,396,000 15,464,000
Accounts receivable, net of allowance for doubtful
accounts of $303,000 and $651,000.................. 6,360,000 12,789,000
Consulting contracts in progress.................... 428,000 618,000
Income tax receivable............................... 118,000
Prepaid expenses and other assets................... 649,000 2,003,000
----------- -----------
Total current assets.............................. 9,129,000 40,274,000
----------- -----------
Property and equipment, net........................... 3,822,000 6,619,000
----------- -----------
Intangible and other assets, net...................... 2,645,000 8,095,000
----------- -----------
Total assets.......................................... $15,596,000 $54,988,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................... $ 1,229,000 $ 2,768,000
Accrued payroll..................................... 957,000 2,148,000
Other accrued expenses.............................. 1,177,000 1,290,000
Notes payable....................................... 1,500,000
Deferred revenue.................................... 1,120,000 2,305,000
Income tax payable.................................. 228,000
Deferred income taxes............................... 351,000 29,000
----------- -----------
Total current liabilities......................... 6,334,000 8,768,000
----------- -----------
Deferred income taxes................................. 756,000 585,000
----------- -----------
Commitments and contingencies (Note 10)
Shareholders' equity:
Preferred stock; 5,000,000 shares authorized; none
issued and outstanding............................. -- --
Common stock, no par value; 100,000,000 shares
authorized......................................... -- --
Additional paid-in-capital.......................... 1,943,000 37,504,000
Retained earnings................................... 6,318,000 8,167,000
Net unrealized holding gain (loss) on investments... 225,000 (63,000)
Cumulative foreign currency translation adjustment.. 20,000 27,000
----------- -----------
Total shareholders' equity........................ 8,506,000 45,635,000
----------- -----------
Total liabilities and shareholders' equity...... $15,596,000 $54,988,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these supplementary consolidated
financial statements.
F-22
<PAGE>
ARIS CORPORATION
SUPPLEMENTARY CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues, net:
Consulting.............................. $ 9,725,000 $16,312,000 $29,999,000
Training................................ 8,306,000 14,711,000 28,895,000
Software................................ 205,000 1,201,000 3,656,000
----------- ----------- -----------
Total revenues........................ 18,236,000 32,224,000 62,550,000
----------- ----------- -----------
Cost of sales:
Consulting and training................. 8,645,000 15,771,000 28,923,000
Software................................ 42,000 93,000 322,000
----------- ----------- -----------
Total cost of sales................... 8,687,000 15,864,000 29,245,000
----------- ----------- -----------
Gross profit.......................... 9,549,000 16,360,000 33,305,000
Selling, general and administrative
expense................................ 6,361,000 12,110,000 24,177,000
Amortization of intangible assets....... 4,000 118,000 380,000
Research and development expense........ 307,000
Acquisition expenses.................... 347,000 428,000
----------- ----------- -----------
Income from operations................ 3,184,000 3,478,000 8,320,000
----------- ----------- -----------
Other income (expense):
Investment income....................... 57,000 89,000 280,000
Interest income, net.................... 24,000 51,000 684,000
Other................................... 40,000 (9,000) 32,000
----------- ----------- -----------
121,000 131,000 996,000
----------- ----------- -----------
Income before income tax.............. 3,305,000 3,609,000 9,316,000
Income tax expense........................ 1,179,000 1,443,000 3,561,000
----------- ----------- -----------
Net income................................ $ 2,126,000 $ 2,166,000 $ 5,755,000
=========== =========== ===========
Basic earnings per share.................. $ 0.30 $ 0.29 $ 0.64
=========== =========== ===========
Weighted average number of common shares
outstanding.............................. 7,056,000 7,540,000 9,005,000
=========== =========== ===========
Diluted earnings per share................ $ 0.29 $ 0.28 $ 0.59
=========== =========== ===========
Weighted average number of common and
common equivalent shares outstanding..... 7,291,000 7,682,000 9,723,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these supplementary consolidated
financial statements.
F-23
<PAGE>
ARIS CORPORATION
SUPPLEMENTARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CUMULATIVE
COMMON STOCK NET UNREALIZED FOREIGN
------------------ ADDITIONAL HOLDING CURRENCY TOTAL
SHARES PAID-IN RETAINED GAIN (LOSS) TRANSLATION SHAREHOLDERS'
ISSUED AMOUNT CAPITAL EARNINGS ON INVESTMENTS ADJUSTMENT EQUITY
---------- ------ ----------- ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1994................... 4,478,611 $ -- $ 14,000 $ 2,026,000 $ 84,000 $ 2,000 $ 2,126,000
Shares issued in
acquisition............ 1,400,000 263,000 263,000
Stock options
exercised.............. 1,191,000 64,000 64,000
Tax benefit related to
stock options
exercised.............. 78,000 78,000
Net income.............. 2,126,000 2,126,000
Foreign currency
translation
adjustment............. (6,000) (6,000)
Unrealized holding gain
on investments......... 111,000 111,000
---------- ----- ----------- ----------- --------- ------- -----------
BALANCE AT DECEMBER 31,
1995................... 7,069,611 -- 419,000 4,152,000 195,000 $(4,000) 4,762,000
Shares issued in
acquisitions........... 790,900 1,614,000 1,614,000
Stock redemption........ (40,000) (100,000) (100,000)
Stock options
exercised.............. 14,000 2,000 2,000
Tax benefit related to
stock options
exercised.............. 8,000 8,000
Net income.............. 2,166,000 2,166,000
Foreign currency
translation
adjustment............. 24,000 24,000
Unrealized holding gain
on investments......... 30,000 30,000
---------- ----- ----------- ----------- --------- ------- -----------
BALANCE AT DECEMBER 31,
1996................... 7,834,511 -- 1,943,000 6,318,000 225,000 20,000 8,506,000
Shares issued in initial
public offering, net of
offering costs......... 2,300,000 31,242,000 31,242,000
Shares and warrants
issued in
acquisitions........... 434,381 4,371,000 4,371,000
Stock redemption........ (415,000) (121,000) (3,906,000) (4,027,000)
Stock options
exercised.............. 46,569 69,000 69,000
Unrealized holding loss
on investments......... (63,000) (63,000)
Realization of holding
gain upon sale of
investments............ (225,000) (225,000)
Foreign currency
translation
adjustment............. 7,000 7,000
Net income.............. 5,755,000 5,755,000
---------- ----- ----------- ----------- --------- ------- -----------
BALANCE AT DECEMBER 31,
1997................... 10,200,461 $ -- $37,504,000 $ 8,167,000 $ (63,000) $27,000 $45,635,000
========== ===== =========== =========== ========= ======= ===========
</TABLE>
The accompanying notes are an integral part of these supplementary consolidated
financial statements.
F-24
<PAGE>
ARIS CORPORATION
SUPPLEMENTARY CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................ $ 2,126,000 $ 2,166,000 $ 5,755,000
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization....... 321,000 857,000 1,900,000
(Gain) loss on sale of property and
equipment.......................... (18,000) 8,000 1,000
Gain on sale of investments......... (280,000)
Purchased research and development.. 307,000
Changes in assets and liabilities
net of effects of acquisitions:
(Increase) in accounts receiv-
able............................. (911,000) (1,921,000) (4,124,000)
(Increase) in consulting contracts
in progress...................... (249,000) (408,000) (164,000)
(Increase) decrease in income tax
receivable....................... (186,000) 186,000
(Increase) in prepaid expenses and
other assets..................... (36,000) 25,000 (1,072,000)
Increase (decrease) in accounts
payable.......................... 90,000 176,000 (74,000)
Increase in accrued expenses...... 565,000 1,608,000 130,000
Increase (decrease) in deferred
revenue.......................... 124,000 (307,000) 669,000
Increase (decrease) in income
taxes payable.................... 374,000 (372,000) 21,000
Increase (decrease) in deferred
taxes............................ 196,000 (217,000) (160,000)
----------- ----------- ------------
Net cash provided by operating
activities..................... 2,582,000 1,736,000 2,788,000
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments.............. (381,000) (462,000) (32,436,000)
Sales of investments.................. 362,000 18,204,000
Purchase of property and equipment.... (1,162,000) (2,366,000) (2,354,000)
Acquisition of businesses, net of cash
acquired............................. (112,000) (1,427,000) (1,726,000)
Proceeds from sale of property and
equipment............................ 27,000 54,000
----------- ----------- ------------
Net cash used in investing ac-
tivities....................... (1,628,000) (3,839,000) (18,312,000)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering,
net of offering costs................ 31,242,000
Stock options exercised............... 64,000 2,000 69,000
Repurchase of common stock............ (100,000) (4,027,000)
Tax benefit related to stock options
exercised............................ 78,000 8,000
Payments on borrowings................ (500,000) (12,363,000)
Proceeds from borrowings.............. 1,500,000 9,825,000
----------- ----------- ------------
Net cash provided by financing
activities..................... 142,000 910,000 24,746,000
----------- ----------- ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS..................... 1,096,000 (1,193,000) 9,222,000
EFFECT OF EXCHANGE RATE CHANGES ON
CASH................................. (4,000)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR.............................. 279,000 1,371,000 178,000
----------- ----------- ------------
CASH AND CASH EQUIVALENTS AT END OF
YEAR................................. $ 1,371,000 $ 178,000 $ 9,400,000
=========== =========== ============
</TABLE>
See Note 15 for supplemental cash flow information.
The accompanying notes are an integral part of these supplementary consolidated
financial statements.
F-25
<PAGE>
ARIS CORPORATION
NOTES TO SUPPLEMENTARY CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and operations
ARIS Corporation (the Company) provides a range of information technology
consulting services including database management, enterprise resource
planning, custom applications development and packaged applications
implementation and training to clients worldwide, with offices in Seattle and
Bellevue, Washington; Beaverton, Oregon; Denver, Colorado; Dallas, Texas;
Fairfax, Virginia; St. Petersburg, Florida, Bloomington, Minnesota; New York,
New York; and Oxford, Birmingham and London, England. The Company also
develops niche software programs which it has licensed in the United States
and Europe.
The Company utilizes the significant accounting policies summarized below in
preparing its financial statements.
Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Estimates
The preparation of 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 financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
Cash and cash equivalents include short-term investments with an original
maturity of three months or less.
Investment securities
The Company's investment securities at December 31, 1996 and 1997 are
classified as available-for-sale and are recorded at fair value. Fair value is
based upon quoted market prices. The increase or decrease in market value from
period to period relating to available-for-sale marketable securities, net of
deferred income tax, is included as a separate component of shareholders'
equity. Cost of securities sold is determined using the specific
identification method.
Property and equipment
Property and equipment are stated at cost. Expenditures for maintenance and
repairs are charged to income as incurred. Additions, improvements and major
replacements are capitalized. For financial reporting purposes, depreciation
is provided using the straight-line method over the estimated useful lives of
depreciable assets. Estimated useful lives of property and equipment range
from three to eight years.
Intangible assets
Intangible assets include the cost of business acquisitions allocated to
capitalized software, non-compete agreements and goodwill which are amortized
over approximately three years for capitalized software, approximately two
years for non-compete agreements and fifteen years for goodwill. Capitalized
software amortization is computed as described below while the straight-line
method is used for other intangible assets.
F-26
<PAGE>
ARIS CORPORATION
NOTES TO SUPPLEMENTARY CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The carrying value of intangible assets is assessed for any permanent
impairment by evaluating the operating performance and future undiscounted
cash flows of the underlying assets. Adjustments are made if the sum of the
expected future net cash flows is less than book value in accordance with
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
which requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of assets
may not be recoverable.
Software development costs
Software development costs incurred in conjunction with product development
are charged to product development expense until technological feasibility is
established. Thereafter, through general release of product, all software
product development costs are capitalized and reported at the lower of
unamortized cost or net realizable value of each product. The establishment of
technological feasibility and the on-going assessment of the recoverability of
costs require considerable judgment by the Company with respect to certain
external factors, including, but not limited to, anticipated future gross
product revenues, estimated economic life and changes in the software and
hardware technology. After consideration of the above factors, the Company
amortizes capitalized software costs at the greater of the amount computed
using (a) the ratio of current revenues for a product to the total of current
and anticipated future revenues, or (b) the straight-line method over the
remaining estimated economic life of the product.
Research and development
Expenditures relating to the development of new products and processes,
including significant improvements and refinements to existing products, are
expensed as incurred. The costs of business acquisitions allocated to in-
process research and development are expensed immediately.
Revenue recognition
Time and material consulting contracts
The Company recognizes revenue as services are rendered.
Fixed-price consulting contracts
Revenues from fixed-price contracts are recognized on the percentage-of-
completion method, measured by the cost incurred to date to estimated total
costs for the contract. This method is used because management considers
expended costs to be the best available measure of contract performance.
Contract costs include all direct labor, material and any other costs related
to contract performance. Selling, general and administrative costs are charged
to expense as incurred. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined. Changes
in job performance, job conditions and estimated profitability, including
those arising from contract penalty provisions, and final contract settlements
may result in revisions to costs and income and are recognized in the period
in which the revisions are determined.
Education and training
Tuition revenue is recognized on the last day the class is held.
Software
The Company accounts for software revenues in accordance with the American
Institute of Certified Public Accountants' Statement of Position 91-1,
Software Revenue Recognition. Revenues earned under software
F-27
<PAGE>
ARIS CORPORATION
NOTES TO SUPPLEMENTARY CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
license agreements with end users are generally recognized when the software
has been shipped, collectibility is probable, and there are no significant
obligations remaining.
The Company initially defers revenue on the sale of extended software
service contracts which is then recognized on a straight-line basis over the
life of the contract period.
Income taxes
Provision for income taxes has been recorded in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109). Under the liability method of SFAS 109, deferred tax assets and
liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using enacted tax
rates and laws that will be in effect when the differences are expected to be
recovered or settled.
Advertising costs
Advertising costs are expensed as incurred. Advertising expenses amounted to
$106,000, $114,000 and $230,000 in 1995, 1996 and 1997, respectively.
Foreign currency translations
The financial statements of the Company's foreign subsidiaries have been
translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards No. 52, "Foreign Currency Translation" (SFAS 52). Under
the provisions of SFAS 52, all assets and liabilities in the balance sheet of
the foreign subsidiaries, whose functional currency is the U.K. Pound
Sterling, are translated at year-end exchange rates, profit and loss accounts
are translated at average exchange rates prevailing during the period and
translation gains and losses are accumulated in a separate component of
shareholders' equity.
Fair value of financial instruments
The carrying amount of cash and cash equivalents and other current assets
and liabilities such as accounts receivable, accounts payable and accrued
liabilities as presented in the consolidated financial statements approximates
fair value based on the short-term nature of these instruments. Investments in
marketable securities are carried at fair value in the accompanying
consolidated balance sheet.
Stock-based compensation
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation," which was effective for
the Company beginning in 1996. Under the provisions of this Statement,
employee stock-based compensation expense is measured using either the
intrinsic-value method as prescribed by Accounting Principles Board Opinion
No. 25 or the fair value method described in Statement No. 123. Companies
choosing the intrinsic-value method are required to disclose the pro forma
impact of the fair value method on net income. The Company has elected to
continue accounting for its employee stock-based compensation under the
provisions of Accounting Principles Board Opinion No. 25. Stock-based awards
granted to other than employees are valued at fair market value on the date of
grant.
Net income per share
Statement of Financial Accounting Standards No. 128 (SFAS 128) was issued in
February 1997. This pronouncement modifies the calculation and disclosure of
earnings per share and was adopted by the Company during 1997. Under the
provisions of SFAS 128, basic earnings per share is calculated as income
available to
F-28
<PAGE>
ARIS CORPORATION
NOTES TO SUPPLEMENTARY CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
common stockholders divided by the weighted-average number of common shares
outstanding during the periods. Diluted earnings per share is based on the
weighted-average number of shares of common stock and common stock equivalents
outstanding during the periods, including options and warrants computed using
the treasury stock method. All earnings per share amounts from prior periods
have been restated to reflect the adoption of SFAS 128.
Year 2000
The Company has conducted a review of its data management systems and has
determined that no significant modifications are necessary to existing systems
to allow them to properly process data during year 2000 and thereafter.
2. POOLING OF INTEREST WITH BAREFOOT COMPUTER TRAINING LIMITED
On February 28, 1998, the Company completed a merger with Barefoot Computer
Training Limited (Barefoot), a company that provides information technology
training services in London, England. Under the terms of the merger, the
Company issued 278,611 shares of its common stock in exchange for all of the
outstanding shares of Barefoot common stock. The acquisition was accounted for
as a pooling-of-interest and, accordingly, all periods included in these
consolidated financial statements have been restated to give effect to the
merger.
Barefoot had a November 30 year end and, accordingly, the Barefoot balance
sheets at November 30, 1996 and 1997 have been combined with the balance
sheets of ARIS at December 31, 1996 and 1997, respectively, and Barefoot's
statements of income for the years ended November 30, 1995, 1996 and 1997 have
been combined with ARIS statements of income for the years ended December 31,
1995, 1996 and 1997, respectively. In order to conform Barefoot's year end to
ARIS's year end, Barefoot's financial statements for the month of December
1997 are not included in the statements of income or cash flows for 1997.
Barefoot's net income for December 1997 will increase retained earnings as of
January 1, 1998.
Amounts for the three years ended December 31, 1997 as previously reported
for ARIS and Barefoot are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
ARIS
Revenue................................ $14,751,000 $26,898,000 $55,131,000
Net income............................. $ 2,010,000 $ 2,014,000 $ 5,345,000
BAREFOOT
Revenue................................ $ 3,485,000 $ 5,326,000 $ 7,419,000
Net income............................. $ 116,000 $ 152,000 $ 410,000
</TABLE>
3. ACQUISITIONS
The Company has embarked upon an acquisition program which included the
acquisition of one company during 1995, three companies during 1996 and four
companies during 1997. All of these acquisitions have been accounted for by
the purchase method of accounting. Accordingly, the purchase price has been
allocated to the assets acquired and liabilities assumed based on management's
estimates, arms-length negotiations with the sellers and in some cases,
independent appraisals. The common stock issued as consideration in these
acquisitions has been recorded at its estimated fair value at the date the
acquisition was announced. The results
F-29
<PAGE>
ARIS CORPORATION
NOTES TO SUPPLEMENTARY CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
of operations of the acquired companies have been included in consolidated
results of operations of the Company from the date of the acquisitions. The
following is a description of the terms of the various acquisitions:
1995
On January 1, 1995, the Company acquired the stock of Clarity, Inc., a
training company based in Bellevue, Washington in exchange for 1,400,000
shares of the Company's common stock and cash.
A summary of assets acquired, liabilities assumed and purchase price paid is
as follows:
<TABLE>
<S> <C>
Consideration:
Cash.......................................... $117,000
Value of common stock......................... 263,000
--------
$380,000
========
</TABLE>
The cost allocated to Clarity Inc.'s assets and liabilities at the date of
the acquisition is as follows:
<TABLE>
<S> <C>
Cash........................................... $ 5,000
Accounts receivable............................ 300,000
Prepaid and other current assets............... 76,000
Goodwill....................................... 64,000
Property and equipment......................... 185,000
Accounts payable and accrued liabilities....... (250,000)
--------
$380,000
========
</TABLE>
1996
On May 1, 1996, the Company acquired the stock of SQLSoft, Inc., a training
company based in Bellevue, Washington in exchange for 707,900 shares of the
Company's common stock.
On October 1, 1996, the Company acquired the assets and liabilities of
SofTeach Corporation, a training company based in Denver, Colorado in exchange
for 42,000 shares of the Company's common stock and a combination of notes
payable and cash.
On October 1, 1996, the Company acquired the stock of Noetix Corporation, a
software development company which develops software modules which interface
with Oracle database applications software in exchange for 40,000 shares of
the Company's common stock and cash.
A summary of assets acquired, liabilities assumed and purchase price paid
for the 1996 acquisitions is as follows:
<TABLE>
<CAPTION>
SQLSOFT, INC. SOFTEACH CORP. NOETIX CORP.
------------- -------------- ------------
<S> <C> <C> <C>
Consideration:
Cash............................. $ 750,000 $ 835,000
Note payable..................... 500,000
Value of common stock............ $1,317,000 152,000 145,000
Acquisition costs................ 26,000
---------- ---------- ----------
$1,317,000 $1,402,000 $1,006,000
========== ========== ==========
</TABLE>
F-30
<PAGE>
ARIS CORPORATION
NOTES TO SUPPLEMENTARY CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The cost allocated to the assets and liabilities at the date of the
acquisition is as follows:
<TABLE>
<CAPTION>
SQLSOFT, INC. SOFTEACH CORP. NOETIX CORP.
------------- -------------- ------------
<S> <C> <C> <C>
Cash............................ $ 60,000 $ 124,000
Accounts receivable............. 537,000 73,000 $ 273,000
Prepaid and other current
assets......................... 73,000 35,000
Intangible assets:
Software technology--
completed.................... 384,000
Software technology--in
progress..................... 307,000
(Charged to research and
development expense)
Non-compete agreements........ 150,000
Goodwill...................... 942,000 956,000 260,000
Property and equipment.......... 464,000 226,000 9,000
Accounts payable and accrued
liabilities.................... (759,000) (12,000) (377,000)
---------- ---------- ----------
$1,317,000 $1,402,000 $1,006,000
========== ========== ==========
</TABLE>
1997
On February 28, 1997, the Company acquired the stock of Oxford Computer
Group Limited (Oxford), a company that provides information technology
consulting and training services with offices in Oxford, London and Birmingham
in exchange for 280,000 shares of unregistered common stock.
On October 1, 1997, the Company acquired the stock of Enterprise Computing
Inc. (doing business as Buller, Owens and Associates (Enterprise)), an
information technology training company located in New York, New York, in
exchange for 62,531 shares of unregistered common stock, 20,844 stock purchase
warrants and cash of $1,560,000. In connection with the acquisition of
Enterprise, the Company entered into a $500,000 earn-out agreement with the
former shareholders based on attainment of certain future financial goals.
On November 1, 1997, the Company acquired the stock of Agiliti, Inc., an
information technology training company located in Bloomington, Minnesota, in
exchange for 50,941 shares of unregistered common stock.
On November 1, 1997, the Company acquired the stock of Absolute!, Inc., an
information technology training company located in Dallas, Texas, in exchange
for 40,909 shares of unregistered common stock and cash of $100,000. In
connection with the acquisition of Absolute!, the Company entered into a
$500,000 earn-out agreement with the former shareholder based on attainment of
certain future financial goals.
A summary of assets acquired, liabilities assumed and purchase price paid
for the 1997 acquisitions is as follows:
<TABLE>
<CAPTION>
OXFORD ENTERPRISE AGILITI ABSOLUTE!
---------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Consideration:
Cash.............................. $1,560,000 $100,000
Value of common stock............. $1,400,000 1,125,000 $950,000 709,000
Value of warrants................. 187,000
Acquisition costs................. 96,000 15,000
---------- ---------- -------- --------
$1,496,000 $2,872,000 $965,000 $809,000
========== ========== ======== ========
</TABLE>
F-31
<PAGE>
ARIS CORPORATION
NOTES TO SUPPLEMENTARY CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The cost allocated to the assets and liabilities at the date of the
acquisition is as follows:
<TABLE>
<CAPTION>
OXFORD ENTERPRISE AGILITI ABSOLUTE!
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Cash........................ $ 5,000 $ 40,000
Accounts receivable......... 1,140,000 $ 365,000 $ 493,000 297,000
Prepaid and other current
assets..................... 337,000 39,000 70,000 8,000
Goodwill.................... 1,095,000 2,672,000 1,066,000 902,000
Property and equipment...... 1,283,000 212,000 350,000 60,000
Notes payable............... (930,000) (76,000)
Accounts payable and accrued
liabilities................ (2,364,000) (416,000) (84,000) (422,000)
----------- ---------- ---------- ---------
$ 1,496,000 $2,872,000 $ 965,000 $ 809,000
=========== ========== ========== =========
</TABLE>
The following unaudited pro forma summary presents the consolidated results
of operations of the Company as if the entities acquired in 1996 and 1997 had
been acquired as of the beginning of the periods presented, including the
impact of adjustments to amortize intangible assets acquired and record
consolidated income tax expense at the Company's effective tax rate.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995(1) 1996(2) 1997(3)
----------- ----------- -----------
<S> <C> <C> <C>
Net sales............................... $24,488,000 $48,561,000 $70,846,000
Net income.............................. $ 2,336,000 $ 2,231,000 $ 5,344,000
Basic earnings per share................ $ .30 $ .27 $ .58
Diluted earnings per share.............. $ .29 $ .27 $ .54
</TABLE>
- --------
(1) Adjusted to include the results of operations of SQLSoft, Inc., SofTeach
Corporation and Noetix Corporation for the year ended December 31, 1995,
including the impact of certain adjustments.
(2) Adjusted to include the results of operations of SQLSoft, Inc., SofTeach
Corporation and Noetix Corporation prior to acquisition and the results of
operations of Oxford, Enterprise, Agiliti and Absolute! for the year ended
December 31, 1996, including the impact of certain adjustments.
(3) Adjusted to include the results of operations of Oxford, Enterprise,
Agiliti and Absolute! prior to acquisition, including the impact of
certain adjustments.
The pro forma results are not necessarily indicative of what actually would
have occurred if the acquisitions had been in effect for the years presented.
In addition, they are not intended to be a projection of future results and do
not reflect any synergies that might be achieved from combined operations.
The Company recorded expenses associated with acquisition of businesses
during 1996 and 1997 of $347,000 and $428,000, respectively. Costs were
primarily for professional fees and expenditures to facilitate integration of
business systems of acquired businesses with the Company following the
mergers. Additional charges are expected to be recognized in subsequent
reporting periods as businesses acquired during 1997 are further integrated.
During 1996 the Company expensed $307,000 of in-process research and
development costs following the acquisition of Noetix Corporation.
F-32
<PAGE>
ARIS CORPORATION
NOTES TO SUPPLEMENTARY CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Computer equipment................................... $3,055,000 $5,769,000
Furniture and fixtures............................... 693,000 1,386,000
Software............................................. 157,000 250,000
Leasehold improvements............................... 894,000 902,000
Other................................................ 202,000 906,000
---------- ----------
5,001,000 9,213,000
Less: Accumulated depreciation....................... (1,179,000) (2,594,000)
---------- ----------
$3,822,000 $6,619,000
========== ==========
</TABLE>
5. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
---------- ----------
<S> <C> <C>
Goodwill............................................. $2,222,000 $7,957,000
Capitalized software costs........................... 430,000 430,000
Non-compete agreements............................... 150,000 150,000
Prepaids and other................................... 614,000 2,182,000
---------- ----------
3,416,000 10,719,000
Less: Accumulated amortization....................... (122,000) (621,000)
---------- ----------
3,294,000 10,098,000
Less: Current portion................................ (649,000) (2,003,000)
---------- ----------
Total noncurrent intangibles and other assets........ $2,645,000 $8,095,000
========== ==========
</TABLE>
6. INVESTMENTS
Investments in marketable securities at December 31, 1996 and 1997 consist
of mutual fund investments totaling $1,396,000 and investments in debt
securities totaling $15,464,000, respectively. These investments have been
classified as available-for-sale and, accordingly, the excess of fair value
over cost, net of tax, has been included as a separate component of
shareholders' equity at December 31, 1996 and 1997. The debt securities held
at December 31, 1997 have maturities ranging from April 1998 to December 1998.
7. MAJOR CUSTOMERS
During 1995 and 1996, the Company had consulting sales to one customer that
aggregated 18% and 8%, respectively, of total revenue. Accounts receivable
related to this customer were 17% and 6% of total accounts receivable at
December 31, 1995 and 1996, respectively. No single customer accounted for
more than 6% of total revenues in 1997.
Prior to the Company's initial public offering described in Note 11, the
Company qualified as a minority-owned enterprise under the Section 8(a)
program administered by the U.S. Small Business Administration. Total Section
8(a) sales were $2,051,000 and $2,430,000 during 1995 and 1996, respectively.
Subsequent to the initial public offering, the Company no longer qualifies
under Section 8(a).
F-33
<PAGE>
ARIS CORPORATION
NOTES TO SUPPLEMENTARY CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal................................. $ 763,000 $1,429,000 $3,023,000
State................................... 40,000 110,000 328,000
Foreign................................. 84,000 65,000 370,000
---------- ---------- ----------
887,000 1,604,000 3,721,000
---------- ---------- ----------
Deferred:
Federal................................. 264,000 (204,000) (129,000)
State................................... 19,000 12,000 (19,000)
Foreign................................. 9,000 31,000 (12,000)
---------- ---------- ----------
292,000 (161,000) (160,000)
---------- ---------- ----------
Total tax expense......................... $1,179,000 $1,443,000 $3,561,000
========== ========== ==========
</TABLE>
Pretax operating results of the Company's foreign subsidiaries are income of
$203,000, $232,000 and $1,082,000 in 1995, 1996 and 1997, respectively.
The principal reasons for the variation from the customary relationship
between income taxes at the statutory federal rate and that shown in the
consolidated statements of income are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Statutory federal income tax rate....... $1,124,000 $1,227,000 $3,167,000
Goodwill................................ 1,000 17,000 66,000
State income taxes, net of federal
income tax benefit..................... 39,000 80,000 204,000
Purchased research and development...... 104,000
Nondeductible meals and entertainment... 8,000 32,000 53,000
Effect of international operations...... 22,000 12,000 (22,000)
Other................................... (15,000) (29,000) 93,000
---------- ---------- ----------
$1,179,000 $1,443,000 $3,561,000
========== ========== ==========
</TABLE>
F-34
<PAGE>
ARIS CORPORATION
NOTES TO SUPPLEMENTARY CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Temporary differences which give rise to a significant portion of deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1996 1997
---------- ----------
<S> <C> <C>
Adjustments to cash basis accounting for tax
purposes........................................ $ 672,000 $ 553,000
Depreciation and amortization.................... 376,000 359,000
Unrealized gain on marketable securities......... 124,000
Intangible assets................................ 106,000
Other............................................ 1,000
---------- ----------
Gross deferred tax liabilities............... 1,173,000 1,018,000
---------- ----------
Bad debt allowance............................... 8,000 180,000
Accrued vacation and bonuses..................... 39,000 76,000
Research and development credit.................. 19,000
Unrealized loss on marketable securities......... 40,000
NOL carry-forward................................ 108,000
---------- ----------
Gross deferred tax assets.................... 66,000 404,000
---------- ----------
$1,107,000 $ 614,000
========== ==========
</TABLE>
9. DEBT
At December 31, 1997, the Company had an $8,000,000 line of credit which is
collateralized by substantially all of the Company's assets. All of this line
was available at December 31, 1997. Borrowings against the line of credit will
bear interest at the lender's prime rate. The amounts outstanding at December
31, 1996 under the Company's line of credit and the notes payable were repaid
during 1997 with proceeds from the Company's initial public offering.
10. COMMITMENTS AND CONTINGENCIES
Lease commitments
The Company rents all its office space under non-cancelable operating leases
with initial terms in excess of one year. Future minimum rental commitments
under operating leases for years ending December 31 are as follows:
<TABLE>
<S> <C>
1998.......................................... $1,914,000
1999.......................................... 1,645,000
2000.......................................... 1,647,000
2001.......................................... 1,528,000
2002.......................................... 1,088,000
Thereafter.................................... 1,450,000
----------
$9,272,000
==========
</TABLE>
Rent expense for 1995, 1996 and 1997 was $335,000, $758,000 and $1,906,000,
respectively.
Subsequent to year end the Company entered into an agreement to purchase an
unfinished building for approximately $4,300,000. Management estimates that
the Company will invest an additional $800,000 to complete the building. The
building will serve as the corporate headquarters.
F-35
<PAGE>
ARIS CORPORATION
NOTES TO SUPPLEMENTARY CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Legal proceedings
The Company is involved in certain legal proceedings that have arisen in the
normal course of business. Based on the advice of legal counsel, management
does not anticipate that these matters will have a material effect on the
Company's consolidated financial position or results of operations.
11. SHAREHOLDERS' EQUITY
In June 1997, ARIS completed an initial public offering of 2,300,000 shares
of common stock with net proceeds of approximately $31,242,000.
During 1997, the Company adopted the ARIS Corporation 1998 Employee Stock
Purchase Plan (the Stock Purchase Plan), which permits employees of the
Company to purchase common stock through payroll deductions at 85% of market
value each six months beginning January 1 and July 1. All full-time employees
of the Company are eligible to participate in the Stock Purchase Plan. An
aggregate of 300,000 shares of common stock has been authorized for issuance
under the Stock Purchase Plan. No shares were purchased as of December 31,
1997.
12. EARNINGS PER SHARE
The difference between the weighted-average number of common shares
outstanding used to calculate basic earnings per share and the weighted-
average number of common and common equivalent shares outstanding used to
calculate diluted earnings per share is the incremental shares attributed to
outstanding options and warrants to purchase common stock computed using the
treasury stock method.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Weighted-average number of common shares
outstanding.................................. 7,056,000 7,540,000 9,005,000
Effect of dilutive securities:
Warrants.................................... 3,215
Options..................................... 235,000 142,000 714,785
--------- --------- ---------
235,000 142,000 718,000
--------- --------- ---------
Weighted-average number of common and common
equivalent shares outstanding................ 7,291,000 7,682,000 9,723,000
========= ========= =========
</TABLE>
Options to purchase 50,100 shares of common stock at prices ranging from
$23.75 to $31.38 per share were outstanding during the second half of 1997 but
were not included in the computation of diluted earnings per share for 1997
because the options' exercise price was greater than the average market price
of the common shares. The options, which expire in 2007, were still
outstanding at December 31, 1997.
13. STOCK OPTIONS AND WARRANTS
Prior to January 1995, the Company from time to time granted non-qualified
stock options to key employees. These grants were not part of any formal plan.
In January 1995, the Company adopted the ARIS Corporation 1995 Stock Option
Plan (the 1995 Plan) which provides for the granting of qualified or non-
qualified stock options to employees, directors, officers and certain non-
employees of the Company as determined by the Plan Administrator. The Company
authorized 1,600,000 shares of its common stock for issuance under the 1995
Plan. The date of grant, option price, vesting period and other terms specific
to options granted under the 1995 Plan are to be determined by the Plan
F-36
<PAGE>
ARIS CORPORATION
NOTES TO SUPPLEMENTARY CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Administrator. The option price for stock options granted is based on the fair
market value of the Company's stock on the date of grant. Options granted
under the 1995 Plan expire seven years from the date of grant and vest over
periods of up to four years. The Company ended grants under the 1995 Plan in
March 1997.
In March 1997, the Company adopted the ARIS Corporation 1997 Stock Option
Plan (the 1997 Plan) which provides for the granting of qualified or non-
qualified stock options to employees, directors, officers and non-employee
directors of the Company as determined by the Plan Administrator. The Company
authorized 2,000,000 shares of its common stock for issuance under the 1997
Plan, subject to certain adjustments, reduced by the number of shares that
have been granted and have not subsequently become available for grant under
the 1995 Plan. The 1997 Plan provides for automatic, non-discretionary grants
of 5,000 non-qualified stock options to non-employee directors for each year
of service. For all other grants under the 1997 Plan, the date of grant,
option price, vesting period and other terms specific to options granted under
the 1997 Plan are to be determined by the Plan Administrator. The option price
for stock options granted is based on the fair market value of the Company's
stock on the date of grant. Options granted under the 1997 Plan expire ten
years from the date of grant and vest over periods of up to four years.
In connection with the acquisition of Enterprise as discussed in Note 3, the
Company issued 20,844 warrants with an exercise price of $23.988 and a fair
value of $8.95 during 1997. Additionally, during 1997 the Company issued 4,000
warrants with an exercise price of $10.00 to certain consultants of the
Company.
A summary of the activity for non-qualified stock options granted prior to
1995, the 1995 Stock Option Plan, and the 1997 Stock Option Plan is presented
below:
<TABLE>
<CAPTION>
1995 1996 1997
--------------------- ------------------ --------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
---------- --------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 1,205,000 $0.05 134,000 $0.30 354,000 $2.12
Granted................. 120,000 0.34 262,000 2.79 1,255,000 11.32
Exercised............... (1,191,000) 0.05 (14,000) 0.09 (47,000) 1.47
Forfeited............... (28,000) 0.78 (95,000) 7.98
---------- ------- ---------
Outstanding at end of
year................... 134,000 0.30 354,000 2.12 1,467,000 9.63
========== ======= =========
Options exercisable at
year-end............... 111,000 0.29 118,000 0.67 162,000 1.10
========== ======= =========
Weighted-average fair
value of options
granted during the
year................... $ 0.08 $ 0.50 $ 4.81
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ .19-$ 3.62 281,000 5.19 $ 1.74 162,000 $1.10
$ 5.00-$ 9.40 831,000 6.23 $ 6.66 -- --
$13.00-$31.38 355,000 9.71 $22.79 -- --
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related Interpretations in accounting for
stock options issued to employees. Had compensation cost for the Plans been
determined based upon the fair value at the grant date consistent with the
methodology
F-37
<PAGE>
ARIS CORPORATION
NOTES TO SUPPLEMENTARY CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
prescribed under Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, the Company's net income and net
income per share would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net income............................... $2,124,000 $2,145,000 $5,347,000
Basic earnings per share................. $ .30 $ .28 $ .59
Diluted earnings per share............... $ .29 $ .28 $ .55
</TABLE>
The fair value of the options granted was calculated using an option-pricing
model with the following assumptions: dividend yield of zero percent,
volatility of zero percent for periods prior to the initial public offering
and a volatility of 59.32% for the post-initial public offering period, risk
free interest rate ranging from 5.36% to 7.05%, and an expected life of 4.75
years.
14. PROFIT SHARING PLAN
The Company maintains a qualified defined contribution profit sharing 401(k)
plan which covers full time employees with one month of service. Employer
contributions to the plan are discretionary. There were no employer
contributions to the plan for 1995, 1996 or 1997.
15. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION AND NON-CASH INVESTING
AND FINANCING ACTIVITIES
The Company paid interest of $5,000, $36,000 and $162,000 during 1995, 1996
and 1997, respectively. The Company paid $462,000, $2,208,000 and $3,375,000
in income taxes during 1995, 1996 and 1997, respectively.
As more fully described in Notes 2 and 3, the Company acquired Barefoot
Computer Training Group, SQLSoft, Inc., SofTeach Corporation, Noetix
Corporation, Oxford, Enterprise, Agiliti and Absolute! in exchange for a
combination of stock, cash and notes payable.
16. OPERATING BUSINESS GROUPS
The Company is engaged in three distinct businesses consisting of database
consulting services, information technology training and software sales. Total
revenue by segment represents sales to unaffiliated customers. Inter-segment
sales are not material. Operating profit represents total revenue less
operating expenses. In computing operating profit none of the following items
has been added or deducted: general corporate expenses, interest income or
expense or income taxes.
Identifiable assets are those assets used in the operations of each industry
segment. Corporate assets primarily consist of cash, investments and certain
prepaid expenses.
F-38
<PAGE>
ARIS CORPORATION
NOTES TO SUPPLEMENTARY CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Summarized financial information by business group for 1995, 1996 and 1997 is
as follows:
<TABLE>
<CAPTION>
CONSULTING TRAINING SOFTWARE
GROUP GROUP GROUP CORPORATE TOTAL
----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1995:
Revenue................. $ 9,725,000 $ 8,306,000 $ 205,000 $18,236,000
Operating profit........ 3,645,000 1,364,000 (22,000) $(1,803,000) 3,184,000
Identifiable assets..... 2,740,000 2,519,000 16,000 2,898,000 8,173,000
Depreciation and
amortization........... 58,000 247,000 4,000 12,000 321,000
Capital expenditures.... 201,000 751,000 6,000 204,000 1,162,000
1996:
Revenue................. $16,312,000 $14,711,000 $1,201,000 $32,224,000
Operating profit........ 3,884,000 1,613,000 (325,000) $(1,694,000) 3,478,000
Identifiable assets..... 5,437,000 6,520,000 1,659,000 1,980,000 15,596,000
Depreciation and
amortization........... 26,000 635,000 68,000 128,000 857,000
Capital expenditures.... 28,000 2,171,000 31,000 136,000 2,366,000
1997:
Revenue................. $29,999,000 $28,895,000 $3,656,000 $62,550,000
Operating profit........ 7,805,000 3,607,000 990,000 $(4,082,000) 8,320,000
Identifiable assets..... 7,842,000 18,584,000 2,193,000 26,369,000 54,988,000
Depreciation and
amortization........... 79,000 1,401,000 245,000 175,000 1,900,000
Capital expenditures.... 380,000 1,600,000 105,000 269,000 2,354,000
</TABLE>
17. GEOGRAPHIC SEGMENT INFORMATION
Major operations outside the United States include Barefoot and h was
purchased by the Company in 1997. Certain information regarding operations in
this geographic segment is presented in the table below. Intercompany sales
between Oxford and ARIS are not material.
<TABLE>
<CAPTION>
AS OF AND FOR THE
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales:
United States............................. $14,751,000 $26,898,000 $45,868,000
Europe.................................... 3,485,000 5,326,000 16,682,000
----------- ----------- -----------
$18,236,000 $32,224,000 $62,550,000
=========== =========== ===========
Operating profit:
United States............................. $ 2,981,000 $ 3,246,000 $ 7,192,000
Europe.................................... 203,000 232,000 1,128,000
----------- ----------- -----------
$ 3,184,000 $ 3,478,000 $ 8,320,000
=========== =========== ===========
Identifiable assets:
United States............................. $ 6,843,000 $12,956,000 $47,513,000
Europe.................................... 1,330,000 2,640,000 7,475,000
----------- ----------- -----------
$ 8,173,000 $15,596,000 $54,988,000
=========== =========== ===========
</TABLE>
F-39
<PAGE>
ARIS CORPORATION
NOTES TO SUPPLEMENTARY CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. QUARTERLY INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
1996
-----------------------------------------------
Q1 Q2 Q3 Q4
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales................... $ 5,636,000 $ 7,680,000 $ 8,342,000 $10,566,000
Gross profit................ 2,928,000 4,033,000 4,092,000 5,307,000
Net income.................. 628,000 913,000 607,000 18,000
Basic earnings per share.... .09 .12 .08 .00
Diluted earnings per share.. .09 .12 .08 .00
<CAPTION>
1997
-----------------------------------------------
Q1 Q2 Q3 Q4
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales................... $12,030,000 $15,436,000 $16,260,000 $18,824,000
Gross profit................ 6,355,000 8,322,000 8,689,000 9,939,000
Net income.................. 1,203,000 1,540,000 1,600,000 1,412,000
Basic earnings per share.... .15 .20 .16 .14
Diluted earnings per share.. .14 .18 .15 .13
</TABLE>
F-40
<PAGE>
INTIME SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997, 1996 AND 1995
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants......................................... F-42
Consolidated Balance Sheet as of December 31, 1997 and 1996............... F-43
Consolidated Statement of Operations for the years ended December 31,
1997, 1996 and 1995...................................................... F-44
Consolidated Statement of Changes in Stockholders' Equity for the years
ended December 31, 1997, 1996 and 1995................................... F-45
Consolidated Statement of Cash Flows for the years ended December 31,
1997, 1996 and 1995...................................................... F-46
Notes to Consolidated Financial Statements................................ F-47
</TABLE>
F-41
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
InTime Systems International, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of changes in stockholders' equity and
of cash flows present fairly, in all material respects, the financial position
of InTime Systems International, Inc. and its subsidiaries at December 31,
1997 and 1996, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
February 26, 1998
Atlanta, Georgia
F-42
<PAGE>
INTIME SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents.......................... $ 1,995,165 $ 1,941,747
Accounts receivable, net of allowance for doubtful
accounts of $156,039 and $102,654, respectively... 2,524,205 2,101,940
Other assets....................................... 86,992 89,601
Deferred tax asset, net (Note 5)................... 291,962 --
----------- -----------
Total current assets............................. 4,898,324 4,133,288
Property and equipment, net of accumulated
depreciation and amortization
(Note 3)............................................ 536,953 633,558
Software development costs, net of accumulated
amortization (Note 4)............................... 156,491 312,491
----------- -----------
$ 5,591,768 $ 5,079,337
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Account payable and accrued expenses.............. $ 493,441 $ 361,888
Deferred revenue.................................. 162,906 126,426
Current obligations under capital leases (Note 6). 88,934 202,903
----------- -----------
Total current liabilities........................ 745,281 691,217
Obligations under capital leases (Note 6).......... -- 124,155
----------- -----------
Total liabilities................................ 745,281 815,372
----------- -----------
Stockholder's equity (Note 9)
Preferred stock:
Par value $1.00 per share; 5,000,000 shares
authorized; no shares issued or outstanding...... -- --
Common stock:
Class A common stock:
Par value $.01 per share; 16,905,279 shares
authorized;
1,975,908 and 1,790,516 shares issued and
outstanding, respectively........................ 19,759 17,905
Class B common stock:
Par value $.01 per share; 3,094,721 shares
authorized;
2,540,588 and 2,715,664 shares issued and
outstanding, respectively........................ 25,406 27,157
Additional paid-in capital......................... 6,198,701 6,180,643
Retained deficit................................... (1,397,379) (1,961,740)
----------- -----------
Total stockholders' equity....................... 4,846,487 4,263,965
Commitments and contingencies (Note 6)............... -- --
----------- -----------
$ 5,591,768 $ 5,079,337
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-43
<PAGE>
INTIME SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues:
Consulting services..................... $12,732,557 $11,193,014 $ 6,773,983
Computer software services.............. 1,003,303 479,019 519,689
Interest income......................... 116,050 41,829 208,451
Other................................... 29,722 23,007 10,919
----------- ----------- -----------
13,881,632 11,736,869 7,513,042
Costs and expenses:
Cost of consulting services............. 7,713,248 6,002,642 4,485,427
Cost of software services............... 508,469 352,674 851,079
Sales and marketing..................... 1,940,519 2,863,599 2,270,667
Computer software research and
development............................ 648,777 810,039 1,139,232
General and administrative.............. 2,798,220 1,647,580 1,015,323
----------- ----------- -----------
Income (loss) before benefit for income
taxes.................................... 272,399 60,335 (2,248,686)
Benefit for income taxes (Note 5)......... 291,962 -- 414,633
----------- ----------- -----------
Net income (loss)....................... $ 564,361 $ 60,335 $(1,834,053)
----------- ----------- -----------
Net income (loss) per share--basic...... $ .22 $ .02 $ (.70)
=========== =========== ===========
Net income (loss) per share--diluted.... $ .21 $ .02 $ (.70)
=========== =========== ===========
Weighted average shares outstanding--
basic.................................. 2,619,522 2,615,950 2,605,040
=========== =========== ===========
Weighted average shares outstanding--
diluted................................ 2,655,493 2,676,475 2,657,597
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-44
<PAGE>
INTIME SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK
----------------- ------------------ ADDITIONAL TOTAL
NUMBER PAR NUMBER PAR PAID-IN RETAINED STOCKHOLDERS'
OF SHARES VALUE OF SHARES VALUE CAPITAL DEFICIT EQUITY
--------- ------- --------- ------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994................... -- -- 3,094,721 $30,947 $ 812,303 $ (188,022) $ 655,228
Issuance of 1,400,000
shares of common stock
in connection with the
initial public offering
(Note 9)............... 1,400,000 $14,000 -- -- 5,348,296 -- 5,362,296
Conversion of 210,000
Class B shares to Class
A shares as
underwriter's over-
allotment option in
connection with the
initial public offering
(Note 9)............... 210,000 2,100 (210,000) (2,100) -- -- --
Net loss................ -- -- -- -- -- (1,834,053) (1,834,053)
--------- ------- --------- ------- ---------- ----------- -----------
Balance at December 31,
1995................... 1,610,000 16,100 2,884,721 28,847 6,160,599 (2,022,075) 4,183,471
Conversion of 169,057
Class B shares to Class
A Shares............... 169,057 1,690 (169,057) (1,690) -- -- --
Exercise of stock op-
tions.................. 11,459 115 -- -- 20,044 -- 20,159
Net income.............. -- -- -- -- -- 60,335 60,335
--------- ------- --------- ------- ---------- ----------- -----------
Balance at December 31,
1996................... 1,790,516 17,905 2,715,664 27,157 6,180,643 (1,961,740) 4,263,965
Conversion of 175,076
Class B shares to Class
A Shares............... 175,076 1,751 (175,076) (1,751) -- -- --
Exercise of stock op-
tions.................. 10,316 103 -- -- 18,058 -- 18,161
Net income.............. -- -- -- -- -- 564,361 564,361
--------- ------- --------- ------- ---------- ----------- -----------
Balance at December 31,
1997................... 1,975,908 $19,759 2,540,588 $25,406 $6,198,701 $(1,397,379) $ 4,846,487
========= ======= ========= ======= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-45
<PAGE>
INTIME SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
---------- ---------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)....................... $ 564,361 $ 60,335 $(1,834,053)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization......... 554,267 393,552 194,989
Provision for doubtful accounts
receivable........................... 165,983 30,654 37,200
Loss on sale-leaseback transaction.... -- 66,679 --
Changes in assets and liabilities:
Increase in accounts receivable..... (588,248) (796,075) (89,925)
Decrease (increase) in other assets. 2,609 (10,417) (59,725)
Increase in deferred income taxes... (291,962) -- (414,633)
Increase (decrease) in accounts
payable and accrued expenses....... 131,553 71,434 (79,608)
Increase in deferred revenue........ 36,480 52,804 73,622
---------- ---------- -----------
Net cash provided by (used in)
operating activities............. 575,043 (131,034) (2,172,133)
---------- ---------- -----------
Cash flows used in investing activities:
Software development costs capitalized.. -- -- (128,697)
Purchases of property and equipment..... (301,662) (88,523) (788,010)
---------- ---------- -----------
Net cash used in investing
activities....................... (301,662) (88,523) (916,707)
---------- ---------- -----------
Cash flows (used in) provided by financing
activities:
Decrease in prepaid IPO costs........... -- -- 583,770
Repayment of notes payable to
stockholders........................... -- -- (625,000)
Repayment of bridge notes to investors.. -- -- (1,500,000)
Proceeds from sale of computer equipment
in sale-leaseback transaction.......... -- 362,041 --
Repayment of capital lease obligations.. (238,124) (109,470) (9,178)
Proceeds from the issuance of common
stock.................................. 18,161 20,159 5,362,296
---------- ---------- -----------
Net cash (used in) provided by
financing activities............. (219,963) 272,730 3,811,888
---------- ---------- -----------
Increase in cash and cash equivalents..... 53,418 53,173 723,048
---------- ---------- -----------
Cash and cash equivalents, beginning of
year..................................... 1,941,747 1,888,574 1,165,526
---------- ---------- -----------
Cash and cash equivalents, end of year.... $1,995,165 $1,941,747 $ 1,888,574
========== ========== ===========
Supplemental disclosure of cash flow
information:
Cash paid during the year for interest
under capital lease obligations (Note
6)..................................... $ 31,993 $ 29,921 $ 1,989
========== ========== ===========
Supplemental disclosure of non-cash
financing and investing activities:
Increase in capital lease obligations
(Note 6)............................... $ -- $ 413,074 $ --
---------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-46
<PAGE>
INTIME SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND BASIS OF FINANCIAL STATEMENT PRESENTATION:
InTime Systems International, Inc. (the "Company") was incorporated in the
State of Delaware on January 3, 1994. Upon formation, the Company acquired all
of the outstanding common stock of The Consulting TEAM, Inc. ("TEAM") and
InTime Systems, Inc. ("InTime"). TEAM and InTime operated under common
control, with common stockholders and management. The Company, as successor,
continued the business activities previously conducted by TEAM and InTime.
TEAM was incorporated in the State of Florida on June 4, 1985. TEAM provides a
wide array of human resource and payroll systems consulting services to
governmental and business entities. InTime was incorporated in the State of
Delaware on February 2, 1993. InTime designs, develops, markets and installs
computer software to aid governmental and business entities in their
management of human resources.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The accompanying consolidated financial statements of the Company include
the operations of TEAM and InTime. All significant transactions and balances
between the Company, TEAM and InTime have been eliminated in consolidation.
Revenue Recognition
Consulting services--The Company performs consulting services generally on a
time and expense basis. Revenues are recognized as services are performed.
Certain reimbursable expenses incurred in the performance of consulting
services are included in net revenues from consulting services and costs of
consulting services provided in the Consolidated Statement of Operations.
Computer software services--Revenue from computer software sales is
recognized upon delivery and customer acceptance, which signifies that the
Company has no significant obligations remaining, and collection of the
resulting receivable is probable, in accordance with AICPA Statement of
Position 91-1, "Software Revenue Recognition." If significant vendor
obligations remain, the Company will accrue for the remaining costs. The
Company does not grant returns or refunds after customer acceptance of the
software.
Software sold is covered under warranty during the period a maintenance plan
is in force and in effect. The Company provides a 90 to 180 day free
maintenance period as part of its initial license agreement with a customer.
Any estimated costs to provide such services are accrued upon product
shipment. A subsequent maintenance plan may be purchased by the customer for a
fee. Such maintenance fee revenue is recognized on a pro rata basis over the
term of the agreements.
In October 1997, the Accounting Standards Executive Committee issued
Statement of Position 97-2, "Software Revenue Recognition". The standard is
effective for fiscal years beginning after December 15, 1997. The Company will
adopt the new standard in January 1998. The effect of adoption is not expected
to be material.
Cash and Cash Equivalents
Cash and cash equivalents include all highly liquid investment instruments
with an original maturity of three months or less.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation for financial reporting purposes is recorded using the straight-
line method over estimated useful lives ranging from three to
F-47
<PAGE>
INTIME SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
five years. Expenditures for maintenance and repairs are charged to expense as
incurred. Gains and losses on sales of equipment are reflected in current
operations.
The carrying value of assets is assessed for any permanent impairment by
evaluating the operating performance and future undiscounted cash flows of the
underlying assets. Adjustments are made if the sum of the expected future net
cash flows is less than book value in accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" which requires that long-
lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of assets may not be
recoverable.
Computer Software Research and Development Costs
All computer software research and development costs are expensed as
incurred prior to the establishment of technological feasibility.
Capitalized Computer Software Development Costs
Capitalized computer software development costs consist principally of
salaries and certain other expenses directly related to the development and
modification of software products in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed".
Capitalization of such costs begins upon establishment of technological
feasibility as defined in SFAS No. 86 and is discontinued when the resulting
product is available for general release.
Amortization of capitalized computer software development costs is provided
at the greater of the ratio of current product revenue to the total of current
and anticipated product revenue or on a straight-line basis over the estimated
economic life of the software, which is not more than five years.
Income Taxes
The Company records taxes under an asset and liability approach recognizing
deferred tax liabilities and assets for the future tax consequences of
temporary differences between the carrying amounts and tax bases of assets and
liabilities.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123, "Accounting for Stock-Based Compensation" which is effective for
transactions entered into in fiscal years beginning after December 15, 1995.
SFAS No. 123 defines a fair value based method of accounting for stock-based
compensation. The Statement allows measurement of compensation cost in
conformity with Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees", provided pro forma disclosure is
made concerning net income as if the fair value approach had been applied. The
Company adopted the disclosure approach permitted by SFAS No. 123 effective
January 1, 1996 and continues to apply the compensatory measurement principles
of APB No. 25.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-48
<PAGE>
INTIME SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--PROPERTY AND EQUIPMENT:
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
---------- ---------
<S> <C> <C>
Furniture and fixtures................................ $ 244,070 $ 235,862
Computer hardware and other equipment................. 982,520 699,104
Vehicle............................................... -- 47,778
Leasehold improvements................................ 18,983 8,945
---------- ---------
1,245,573 991,689
Less--Accumulated depreciation and amortization....... (708,620) (358,131)
---------- ---------
$ 536,953 $ 633,558
========== =========
</TABLE>
Depreciation of property and equipment totaled $350,489, $237,552 and
$99,593 for the years ended December 31, 1997, 1996 and 1995, respectively.
The Company has entered into noncancellable capital leases on the above
vehicle and certain computer equipment. (See Note 6.)
NOTE 4--SOFTWARE DEVELOPMENT EXPENDITURES:
Computer software research and development expenditures are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- ----------
<S> <C> <C> <C>
Total computer software research and
development expenditures...................... $648,777 $810,039 $1,267,929
Less--Additions to capitalized computer
software development costs, before
amortization.................................. -- -- 128,697
-------- -------- ----------
Computer software research and development
expense....................................... $648,777 $810,039 $1,139,232
======== ======== ==========
</TABLE>
In 1997 and 1996, computer software research and development expenses
consisted solely of salary and wages of development staff required to enhance
and maintain the existing systems.
Activity for capitalized software development costs is summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Balance at beginning of year, net............ $ 312,491 $ 468,491 $435,190
Additions.................................... -- -- 128,697
Amortization expense......................... (156,000) (156,000) (95,396)
--------- --------- --------
Balance at end of year, net.................. $ 156,491 $ 312,491 $468,491
========= ========= ========
</TABLE>
F-49
<PAGE>
INTIME SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5--INCOME TAXES:
For the years ended December 31, 1997, 1996 and 1995, the benefit for income
taxes was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 1995
--------- ----- ---------
<S> <C> <C> <C>
Current tax expense:
Federal........................................ $ -- $ -- $ --
State.......................................... -- -- --
--------- ----- ---------
-- -- --
Deferred tax benefit:
Federal........................................ (259,522) -- (349,164)
State.......................................... (32,440) -- (65,468)
--------- ----- ---------
$(291,962) $ -- $(414,632)
========= ===== =========
</TABLE>
The differences between income taxes at the statutory federal income tax
rate of 34% and income taxes shown above are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
--------- -------- ---------
<S> <C> <C> <C>
Tax expense (benefit) at statutory rate..... $ 92,616 $ 20,607 $(764,553)
Increase (decrease) in taxes resulting from:
State income taxes, net of federal income
tax benefit.............................. 20,189 2,576 (95,580)
Change in the valuation allowance......... (426,557) (8,280) 412,114
Realization of deferred tax asset......... -- (37,063) --
Other..................................... 21,790 22,160 33,386
--------- -------- ---------
$(291,962) $ -- $(414,633)
========= ======== =========
</TABLE>
Deferred tax (assets) liabilities arising in accordance with SFAS No. 109
are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Deferred tax assets:
Current deferred tax asset:
Bad debt expense................................... $ (59,685) $ (39,266)
Deferred revenue................................... (62,312) --
Non-current deferred tax assets:
Net operating loss carry-forwards.................. (324,121) (707,146)
--------- ---------
Total deferred tax assets......................... (446,118) (746,412)
--------- ---------
Deferred tax liabilities:
Current deferred tax liability:
Cash to accrual adjustments........................ 88,280 176,563
Non-current deferred tax liability:
Capitalized software development costs............. 59,858 119,529
Tax depreciation over book......................... 6,018 29,926
--------- ---------
Total deferred tax liabilities.................... 154,156 326,018
--------- ---------
Net deferred tax asset before valuation allowance. (291,962) (420,394)
Deferred tax asset valuation allowance............ -- 420,394
--------- ---------
Net deferred tax asset............................ $(291,962) $ --
========= =========
</TABLE>
F-50
<PAGE>
INTIME SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
SFAS No. 109 requires that a valuation allowance be provided if it is more
likely than not that the tax benefits associated with temporary differences
will not be realized. Based on the current facts and circumstances, management
believes that it is more likely than not that the deferred tax assets will be
realized and, accordingly, does not believe that a valuation allowance is
necessary.
NOTE 6--COMMITMENTS:
The Company leases certain office space, equipment and a vehicle under
noncancellable operating lease agreements expiring over the next five years.
In addition, the Company leases certain computer equipment under capital
leases, which will expire over the next three years. The asset balances are
included in property and equipment, net of accumulated depreciation and
amortization, in the consolidated balance sheet. The following is an analysis
of the leased property under capital leases by major classes:
<TABLE>
<CAPTION>
ASSET BALANCES AT
DECEMBER 31,
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Computer and equipment................................. $ 413,074 $ 413,074
Vehicle................................................ -- 47,778
--------- ---------
413,074 460,852
Less: Accumulated amortization......................... (293,977) (113,789)
--------- ---------
$ 119,097 $ 347,063
========= =========
</TABLE>
During 1996, the Company entered into a sale-leaseback transaction whereby
it sold computer equipment with a net book value of $428,720 at a loss of
$66,679 and recorded a capital lease obligation of $362,041. The asset balance
and accumulated amortization related to this transaction included above at
December 31, 1997 is $413,074.
At December 31, 1997, future minimum rentals for noncancellable leases with
terms in excess of one year were as follows:
<TABLE>
<CAPTION>
MINIMUM ANNUAL RENTALS
YEAR ENDING -----------------------
DECEMBER 31, OPERATING CAPITAL
------------ ------------ ----------
<S> <C> <C>
1998................................................. $ 178,888 $ 88,934
1999................................................. 187,416 --
2000................................................. 196,155 --
2001................................................. 205,105 --
2002................................................. -- --
----------- ----------
$ 767,564 $ 88,934
=========== ==========
</TABLE>
Total rent expense under these and other agreements was $253,542, $237,460
and $139,642 for the years ended December 31, 1997, 1996 and 1995,
respectively.
Under the capital leases, the Company recorded interest expense of $31,993,
$29,921 and $1,989 for the years ended December 31, 1997, 1996 and 1995,
respectively.
NOTE 7--SAVINGS PLAN:
The Company has established a defined contribution plan (the "Plan") which
qualifies under Section 401(k) of the Internal Revenue Code for the benefit of
eligible employees and their beneficiaries. Employees may elect to contribute
from 2% to 15% of their annual compensation to the Plan and the Company may
make matching contributions equal to the percentage of the elective
contributions made by the employees. The Company may make an additional
discretionary annual contribution. Employer contributions of $0, $58,427 and
$0 were made to the Plan in the years ended December 31, 1997, 1996 and 1995,
respectively.
F-51
<PAGE>
INTIME SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 8--MAJOR CUSTOMERS:
The Company's operations, as briefly described in Note 1, are conducted
within one business segment.
Customers comprising 10% or greater of the Company's net revenues are
summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
New York Times............................................. 12% 19% -- %
Asplundh Tree Service...................................... 11 12 --
Delta Airlines............................................. 3 7 11
General American Life Insurance Company.................... -- 1 23
All others................................................. 74 61 66
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
NOTE 9--STOCKHOLDERS' EQUITY:
In accordance with the Escrow Agreement dated as of February 16, 1995 (the
"Agreement") certain shares of Class B Common Stock and options to purchase
shares of Class A Common Stock owned by certain officers, directors and
employees of the Company are held in escrow and will not be assignable or
transferable until such time, if ever, as the escrowed shares are released
from escrow in accordance with the Agreement. Shares will be released from
escrow if certain pre-tax income targets are met or when the market value of
the Company's Class A Common Stock reaches certain levels. In the period in
which it is probable that the release requirements will be achieved (the
"Measurement Date"), the Company must record compensation expense equal to the
difference between the market value of the Class A Common Stock on the
Measurement Date and the market value of the shares when placed in escrow.
The Company filed a registration statement with the Securities and Exchange
Commission for an initial public offering of 1,400,000 units, (not including
an underwriter's over-allotment option of 210,000 units) with each unit
consisting of one share of the Company's Class A Common Stock and one
redeemable Class A Warrant which became effective February 16, 1995.
On February 27, 1995 the Company received $4,587,432 in proceeds from the
initial public offering. These proceeds are net of broker commissions and the
repayment of the $1,500,000 private placement notes payable plus accrued
interest.
On January 19, 1998, the Board of Directors approved the conversion of all
shares of Class B Common Stock to Class A Common Stock. After the conversion,
there were no outstanding shares of Class B Common Stock.
NOTE 10--NET INCOME (LOSS) PER SHARE:
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share," which
establishes standards for computing and presenting earnings per share ("EPS")
by replacing the presentation by primary EPS with a presentation of basic EPS.
In addition, SFAS No. 128 requires dual presentation of basic and diluted EPS
on the face of the income statement and requires a reconciliation of the
numerator and denominator of the diluted EPS calculation. The Company has
adopted SFAS No. 128 as of December 31, 1997 and has restated EPS for all
prior periods presented.
F-52
<PAGE>
INTIME SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Net income per share--basic is computed by dividing net income by the
weighted average number of common shares outstanding. Net income per share--
diluted is computed by dividing net income by the weighted average number of
common shares outstanding and dilutive common share equivalents using the
treasury stock method. Dilutive common share equivalents include common shares
issuable upon exercise of outstanding stock options.
In accordance with SFAS No. 128, the calculation of net income (loss) per
share--basic and net income (loss) per share--diluted is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- -----------
<S> <C> <C> <C>
Net Income (Loss) Per Share--Basic
Computation
Net income (loss)........................ $ 564,361 $ 60,335 $(1,834,053)
Income (Loss) available to common
shareholders............................ 564,361 60,335 (1,834,053)
--------- --------- -----------
Average common shares outstanding--basic. 2,626,815 2,615,950 2,605,040
--------- --------- -----------
Net income (Loss) per share--basic....... $ .22 $ .02 $ (.70)
========= ========= ===========
Net Income (Loss) Per Share--Diluted
Computation
Income (Loss) available to common
shareholders............................ $ 564,361 $ 60,335 $(1,834,053)
========= ========= ===========
Incremental shares from assumed
conversions:
Stock Options.......................... 28,678 59,976 --
--------- --------- -----------
Average common shares outstanding--
diluted................................. 2,655,483 2,676,475 2,605,040
--------- --------- -----------
Net income (loss) per share--diluted..... $ .21 $ .02 $ (.70)
========= ========= ===========
</TABLE>
Options to purchase 410,317 shares of common stock at an average price of
$6.91 per share were outstanding during the fourth quarter of 1997, but were
not included in the computation of net income per share--diluted because the
options' exercise price was greater than the average market price of the
common shares. The options, which expire at various dates over the next ten
years, were still outstanding at December 31, 1997.
NOTE 11--STOCK OPTION PLANS:
On January 10, 1994, the Company established the 1994 Stock Option Plan (the
"Stock Plan") for employees, consultants and directors. The Stock Plan
provides for options to buy 300,000 shares of the Company's common stock. The
Stock Plan is administered by the Board of Directors. The Board of Directors
will determine eligibility to receive options, the exercise price, the number
of shares subject to the options, the vesting schedule and the term of any
options granted. On July 1, 1997, the Company increased the number of shares
which can be issued under the Stock Plan to 650,000 shares. The options vest
semi-annually over a three year period each June 30 and December 31, provided
that the grantee is still employed by the Company on each vesting date. The
options expire ten years from their issuance date. On January 19, 1998, the
Board of Directors approved the repricing of all employee options to the then
current market value of $5.75 per share.
In accordance with SFAS No. 123, the fair value of each option under the
Stock Plan is estimated on the date of grant using Black-Scholes option
pricing model with the following weighted average assumptions used for grants
in 1997 and 1996: dividend yield of 0%, expected volatility of 29% and 65%,
respectively, average risk-free interest rate of 6% and an expected life of 5
years.
The Company applies APB No. 25 and related Interpretations in accounting for
its Stock Plan. Accordingly, no compensation cost has been recognized for its
Stock Plan. Had compensation cost for the Company's Stock
F-53
<PAGE>
INTIME SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Plan been determined based on the fair value at the grant dates for awards
consistent with the method of SFAS No. 123, the Company's net income (loss)
and net income (loss) per share would have been the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1997 1996
-------- ---------
<S> <C> <C>
Net income (loss)
As reported............................................ $564,361 $ 60,335
Pro forma.............................................. 267,663 (198,254)
Net income (loss) per share--basic
As reported............................................ $ .22 $ .02
Pro forma.............................................. .10 (.08)
Net income (loss) per share--diluted.....................
As reported............................................ $ .21 $ .02
Pro forma.............................................. .10 (.07)
</TABLE>
A summary of the status of the Company's Stock Plan as of December 31, 1997
and 1996, and changes during these years is presented below:
<TABLE>
<CAPTION>
1997 1997
------------------------ -----------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE
------------------------ -----------------------
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
-------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Options
Outstanding at the
beginning of the year... 382,527 $5.25 369,433 $4.61
Granted.................. 347,800 6.09 97,700 7.06
Exercised................ (10,316) 1.76 (11,459) 1.76
Forfeited................ (199,695) 6.12 (73,147) 3.75
-------- -------
Outstanding at the end of
the year.................. 520,316 5.54 382,527 5.25
======== =======
Options exercisable at the
end of the year........... 278,522 5.81 159,532 3.90
======== =======
Weighted average fair value
of options granted during
the year.................. $2.29 $4.15
</TABLE>
When options are exercised, par value of the shares issued is recorded as an
addition to common stock, and the remainder of the proceeds is credited to
additional paid-in capital. No income or expense has been recognized in
connection with the exercise of these stock options. The following table
summarizes information about options outstanding at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------- -----------------------------------------
RANGE OF EXERCISE WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
PRICE NUMBER REMAINING CONTRACTUAL LIFE EXERCISE PRICE NUMBER EXERCISE PRICE
- ----------------- ------- -------------------------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C>
$1.76--
$7.34 520,316 8.2 years $5.54 278,522 $5.81
</TABLE>
F-54
<PAGE>
INTIME SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--QUARTERLY OPERATING RESULTS (UNAUDITED):
The following is a summary of the unaudited condensed consolidated quarterly
operating results of the Company for 1997 and 1996:
<TABLE>
<CAPTION>
1997 QUARTER ENDED
----------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
----------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Net revenues................ $3,762,885 $3,617,710 $3,228,503 $3,272,534
Expenses.................... 3,558,570 $3,765,203 $2,845,741 $3,147,757
---------- ---------- ---------- ----------
Net income (loss)........... $ 204,315 $ (147,493) $ 382,762 $ 124,777
========== ========== ========== ==========
Net income (loss) per
share--basic............... $ .08 $ (.06) $ .15 $ .05
Net income (loss) per
share--diluted............. $ .08 $ (.06) $ .14 $ .05
Weighted average shares
outstanding
--basic.................... 2,625,500 2,618,755 2,618,259 2,617,052
Weighted average shares
outstanding
--diluted.................. 2,651,059 2,652,463 2,665,280 2,672,245
<CAPTION>
1996 QUARTER ENDED
----------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
----------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Net revenues................ $3,277,310 $3,136,735 $2,961,343 $2,361,481
Expenses.................... 3,118,593 $2,923,085 $2,666,200 $2,968,656
---------- ---------- ---------- ----------
Net income (loss)........... $ 158,717 $ 213,650 $ 295,143 $ (607,175)
========== ========== ========== ==========
Net income (loss) per
share--basic............... $ .06 $ .08 $ .11 $ (.23)
Net income (loss) per
share--diluted............. $ .06 $ .08 $ .11 $ (.23)
Weighted average shares
outstanding
--basic.................... 2,616,499 2,616,499 2,616,470 2,614,835
Weighted average shares
outstanding
--diluted.................. 2,686,437 2,674,818 2,677,577 2,679,118
</TABLE>
F-55
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
BETWEEN
ARIS CORPORATION
AND
INTIME SYSTEMS INTERNATIONAL, INC.
APRIL 26, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Definitions............................................................. A-1
2. Basic Transaction....................................................... A-3
(a)The Merger............................................................ A-3
(b)The Closing........................................................... A-3
(c)Actions at the Closing................................................ A-3
(d)Effect of Merger...................................................... A-3
(e)Procedure for Exchange of Target Shares, Warrants and Options......... A-5
(f)Closing of Transfer Records........................................... A-5
3. Representations and Warranties of the Target............................ A-5
(a)Organization, Qualification, and Corporate Power...................... A-6
(b)Capitalization........................................................ A-6
(c)Authorization of Transaction.......................................... A-6
(d)Noncontravention...................................................... A-6
(e)Filings with the SEC.................................................. A-6
(f)Financial Statements.................................................. A-6
(g)Events Subsequent to Most Recent Fiscal Period End.................... A-7
(h)Undisclosed Liabilities............................................... A-7
(i)First Quarter Results of Operations................................... A-7
(j)Brokers' Fees......................................................... A-7
(k)Continuity of Business Enterprise..................................... A-7
(l)Disclosure............................................................ A-7
(m)Litigation............................................................ A-7
(n)Pooling Treatment..................................................... A-7
4. Representations and Warranties of the Buyer............................. A-8
(a)Organization.......................................................... A-8
(b)Capitalization........................................................ A-8
(c)Authorization of Transaction.......................................... A-8
(d)Noncontravention...................................................... A-8
(e)Filings with the SEC.................................................. A-8
(f)Financial Statements.................................................. A-9
(g)Events Subsequent to Most Recent Fiscal Year End...................... A-9
(h)First Quarter Results of Operations................................... A-9
(i)Undisclosed Liabilities............................................... A-9
(j)Brokers' Fees......................................................... A-9
(k)Continuity of Business Enterprise..................................... A-9
(l)Disclosure............................................................ A-9
(m)Litigation............................................................ A-9
(n)Pooling Treatment..................................................... A-10
5. Covenants............................................................... A-10
(a)General............................................................... A-10
(b)Notices and Consents.................................................. A-10
(c)Regulatory Matters and Approvals...................................... A-10
(d)Fairness Opinion and Comfort Letters.................................. A-10
(e)Listing of Buyer Shares............................................... A-11
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
(f)Operation of Business................................................. A-11
(g)Full Access........................................................... A-11
(h)Notice of Developments................................................ A-11
(i)Insurance and Indemnification......................................... A-11
(j)Continuity of Business Enterprise..................................... A-12
(k)Pooling; Affiliate Certificate........................................ A-12
(l)Pooling............................................................... A-12
(m)Solicitation.......................................................... A-12
(n)Post-Closing Covenants................................................ A-13
6. Conditions to Obligation to Close....................................... A-13
(a)Conditions to Obligation of the Buyer................................. A-13
(b)Conditions to Obligation of the Target................................ A-14
7. Termination............................................................. A-15
(a)Termination of Agreement.............................................. A-15
(b)Effect of Termination................................................. A-16
8. Miscellaneous........................................................... A-16
(a)Survival.............................................................. A-16
(b)Press Releases and Public Announcements............................... A-16
(c)No Third Party Beneficiaries.......................................... A-16
(d)Entire Agreement...................................................... A-17
(e)Succession and Assignment............................................. A-17
(f)Counterparts.......................................................... A-17
(g)Headings.............................................................. A-17
(h)Notices............................................................... A-17
(i)Governing Law......................................................... A-18
(j)Amendments and Waivers................................................ A-18
(k)Severability.......................................................... A-18
(l)Expenses.............................................................. A-18
(m)Construction.......................................................... A-18
(n)Incorporation of Exhibits and Schedules............................... A-18
</TABLE>
Exhibit A-1--Articles of Merger
Exhibit A-2--Certificate of Merger
Exhibit B--Form of Letter of Transmittal
Exhibit C--Permitted Investments
Exhibit D--Target March 31, 1998 Income Statement
Exhibit E--Buyer March 31, 1998 Income Statement
Exhibit F--Form of Affiliate Certificate from Certain Target Stockholders
Exhibit G--Form of Opinion of Counsel to the Target
Exhibit H--Form of Opinion of Accountants Regarding Tax-Free Nature of the
Merger
Exhibit I--Form of Opinion of Counsel to the Buyer
Exhibit J--Form of Agreement to be Bound by Registration Rights Agreement
Exhibit K--Form of Employment Agreement of William E. Berry
Exhibit L--Form of Employment Agreement of Michael D. Matte
Schedule 1--Illustration of Conversion Ratio
Disclosure Schedule--Exceptions to Representations and Warranties
(ii)
<PAGE>
AGREEMENT AND PLAN OF MERGER
Agreement entered into as of April 26, 1998 by and between ARIS Corporation,
a Washington corporation (the "Buyer"), and InTime Systems International,
Inc., a Delaware corporation (the "Target"). The Buyer and the Target are
referred to collectively herein as the "Parties."
This Agreement contemplates a tax-free merger of the Target with and into
the Buyer in a reorganization pursuant to Code Section 368(a)(1)(A). The
Target Stockholders will receive capital stock in the Buyer in exchange for
their capital stock in the Target. The Parties expect that the Merger will
further certain of their business objectives including, without limitation,
(i) the expansion of Buyer's capabilities in human resource systems,
particularly with PeopleSoft and Oracle software, (ii) the acquisition by
Buyer of consulting offices in two strategic locations, thereby strengthening
its nationwide presence, and (iii) the Target's ability to broaden its service
offerings and geographic coverage in combination with those of Buyer.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Articles of Merger" have the meaning set forth in Section 2(c) below.
"Buyer" has the meaning set forth in the preface above.
"Buyer-owned Share" means any Target Share that the Buyer owns beneficially.
"Buyer Comfort Letter" has the meaning set forth in Section 5(d) below.
"Buyer Public Report" has the meaning set forth in Section 4(e) below.
"Buyer Share" means any share of the Common Stock, without par value, of the
Buyer.
"Certificate of Merger" has the meaning set forth in Section 2(c) below.
"Closing" has the meaning set forth in Section 2(b) below.
"Closing Date" has the meaning set forth in Section 2(b) below.
"Confidential Information" means any information concerning the businesses
and affairs of the Target and its Subsidiaries that is not already generally
available to the public.
"Conversion Ratio" has the meaning set forth in Section 2(d)(v) below.
"Definitive Target Proxy Materials" means the definitive proxy materials
relating to the Special Target Meeting.
"Delaware General Corporation Law" means the General Corporation Law of the
State of Delaware, as amended.
"Disclosure Schedule" has the meaning set forth in Section 3 below.
"Dissenting Share" means any Target Share as to which the holder of record
has exercised his or its appraisal rights under the Delaware General
Corporation Law.
A-1
<PAGE>
"Effective Time" has the meaning set forth in Section 2(d)(i) below.
"Escrow Agreement" means that certain Escrow Agreement dated as of February
16, 1995, by and among American Stock Transfer and Trust Company, Target and
the holders of Escrow Shares and Escrow Options.
"Escrow Option" means an option to purchase one share of Class A Common
Stock, par value $.01 per share of the Target, which is subject to the Escrow
Agreement.
"Escrow Share" means one of the 1,934,206 shares of Class B Common Stock,
par value $.01 per share, of the Target, subject to the Escrow Agreement.
"Exchange Agent" has the meaning set forth in Section 2(e)(i) below.
"Fairness Opinion" has the meaning set forth in Section 5(d)(i) below.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"IRS" means the Internal Revenue Service.
"Joint Disclosure Document" means the disclosure document combining the
Prospectus and the Definitive Target Proxy Materials.
"Knowledge" means actual knowledge after reasonable investigation.
"Merger" has the meaning set forth in Section 2(a) below.
"Merger Filings" has the meaning set forth in Section 2(c) below.
"Most Recent Fiscal Period End" has the meaning set forth in Section 3(f)
below.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity
and frequency).
"Party" has the meaning set forth in the preface above.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"Pre-Announcement Buyer Share Price" means $34.56 per Buyer Share.
"Prospectus" means the final prospectus relating to the registration of the
Buyer Shares under the Securities Act.
"Registration Statement" has the meaning set forth in Section 5(c)(i) below.
"Requisite Target Stockholder Approval" means the affirmative vote in favor
of this Agreement and the Merger by the holders of a majority of the Target
Shares present in person or by proxy at the Special Target Meeting.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
A-2
<PAGE>
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen's,
landlord's and similar liens, (b) liens for taxes not yet due and payable or
for taxes that the taxpayer is contesting in good faith through appropriate
proceedings, (c) purchase money liens and liens securing rental payments under
capital lease arrangements, and (d) other liens arising in the Ordinary Course
of Business and not incurred in connection with the borrowing of money.
"Special Target Meeting" has the meaning set forth in Section 5(c)(ii)
below.
"Subsidiary" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of
the directors.
"Surviving Corporation" has the meaning set forth in Section 2(a) below.
"Target" has the meaning set forth in the preface above.
"Target Public Report" has the meaning set forth in Section 3(e) below.
"Target Share" means any share of the Class A Common Stock, par value $.01
per share of the Target, and shall not include any Escrow Share or any Target
Share underlying any Escrow Options.
"Target Share Price" means $9.20 per Target Share.
"Target Stockholder" means any Person who or which holds any Target Shares.
"Washington Business Corporation Act" means the Washington Business
Corporation Act, as amended.
2. Basic Transaction.
(a) The Merger. On and subject to the terms and conditions of this
Agreement, the Target will merge with and into the Buyer (the "Merger") at the
Effective Time. The Buyer shall be the corporation surviving the Merger (the
"Surviving Corporation").
(b) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Van Valkenberg
Furber Law Group P.L.L.C. in Seattle, Washington, commencing at 9:00 a.m.
local time on the first business day following the satisfaction or waiver of
all conditions to the obligations of the Parties to consummate the
transactions contemplated hereby (other than conditions with respect to
actions the respective Parties will take at the Closing itself) or such other
date as the Parties may mutually determine (the "Closing Date").
(c) Actions at the Closing. At the Closing, (i) the Target will deliver to
the Buyer the various certificates, instruments, and documents referred to in
Section 6(a) below, (ii) the Buyer will deliver to the Target the various
certificates, instruments, and documents referred to in Section 6(b) below,
(iii) the Buyer and the Target will file, with the Secretary of State of the
State of Washington the Articles of Merger in the form attached hereto as
Exhibit A-1 and, with the Secretary of State of the State of Delaware, a
Certificate of Merger in the form attached hereto as Exhibit A-2, in
accordance with the Washington Business Corporation Act and the Delaware
General Corporation Law, respectively (the "Merger Filings") and (iv) the
Buyer will deliver to the Exchange Agent in the manner provided below in this
Section 2 the certificate evidencing the Buyer Shares issued in the Merger.
(d) Effect of Merger.
(i) General. The Merger shall become effective at the time (the
"Effective Time") the Buyer and the Target complete the Merger Filings. The
Merger shall have the effect set forth in the Washington Business
Corporation Act and the Delaware General Corporation Law. The Surviving
Corporation may, at any time after the Effective Time, take any action
(including executing and delivering any document) in the name
A-3
<PAGE>
and on behalf of either the Buyer or the Target in order to carry out and
effectuate the transactions contemplated by this Agreement.
(ii) Articles of Incorporation. The Articles of Incorporation of the
Buyer in effect at and as of the Effective Time will remain the Articles of
Incorporation of the Surviving Corporation without any modification or
amendment in the Merger.
(iii) Bylaws. The Bylaws of the Buyer in effect at and as of the
Effective Time will remain the Bylaws of the Surviving Corporation without
any modification or amendment in the Merger.
(iv) Directors and Officers. The directors and officers of the Buyer in
office at and as of the Effective Time will remain the directors and
officers of the Surviving Corporation (retaining their respective positions
and terms of office).
(v) Conversion of Target Shares. At and as of the Effective Time:
(A) each Target Share (other than any Dissenting Share or Buyer-owned
Share) shall be converted into the right to receive 0.266 Buyer Shares;
(B) each outstanding warrant to purchase a Target Share shall be
converted into the right to receive a warrant of like tenor and quality
to purchase 0.266 Buyer Shares at an exercise price equal to (1) the
exercise price of such outstanding warrant divided by the Target Share
Price (2) multiplied by the Pre-Announcement Buyer Share Price;
(C) each outstanding option to purchase a Target Share shall be
converted into the right to receive an option of like tenor and quality
to purchase 0.266 Buyer Shares at an exercise price equal to (1) the
exercise price of such outstanding option divided by the Target Share
Price (2) multiplied by the Pre-Announcement Buyer Share Price;
(D) each Dissenting Share shall be converted into the right to
receive payment from the Surviving Corporation with respect thereto in
accordance with the provisions of the Delaware General Corporation Law;
(E) each Buyer-owned Share shall be canceled; and
(F) each Target Share held in Target's treasury shall be canceled.
The ratio of Buyer Shares to one Target Share is referred to herein as the
"Conversion Ratio." The Conversion Ratio has been determined by dividing (1)
Thirty-Three Million Dollars ($33,000,000) less the value of all Target
Warrants ($5,367,375) and Target Options ($3,462,737) outstanding as of the
date of this Agreement by (2) $34.56, which is the average closing price for
one Buyer Share as reported by the Nasdaq National Market for the ten trading
days from the earlier of (i) the first public announcement of the Merger or
(ii) the date of this Agreement (the "Pre-Announcement Buyer Share Price")
which quotient shall be divided by the outstanding number of Target Shares,
and shall be subject to (x) equitable adjustment in the event of any stock
split, stock dividend, reverse stock split, or other change in the number of
Target Shares outstanding and (y) price adjustment in the event that the
average closing price for one Buyer Share as reported on by the Nasdaq
National Market for the ten trading days immediately preceding the Closing
Date has dropped by more than 8.85% from the Pre-Announcement Buyer Share
Price, in which case the formulas set forth above shall be adjusted to reflect
the average closing price for one Buyer Share as reported by the Nasdaq
National Market for the ten trading days immediately preceding the Closing
Date. No Target Share shall be deemed to be outstanding or to have any rights
other than those set forth above in this Section 2(d)(v) after the Effective
Time. Schedule 1 attached hereto illustrates how the Parties intend the
Conversion Ratio to operate (without giving effect to any subsequent equitable
or price adjustments).
(vi) Buyer Shares. Each Buyer Share issued and outstanding at and as of
the Effective Time will remain issued and outstanding.
A-4
<PAGE>
(e) Procedure for Exchange of Target Shares, Warrants and Options.
(i) Immediately after the Effective Time, (A) the Buyer will furnish to
ChaseMellon Shareholder Services (the "Exchange Agent") a list of the
names, addresses, certificate numbers, certificate amounts and certificate
dates with respect to the Target Shares, warrants to purchase Target Shares
(the "Target Warrants"), Target Stockholders, and Target Warrant holders
and (B) the Buyer will cause the Exchange Agent to mail a letter of
transmittal (with instructions for its use) in the form attached hereto as
Exhibit B to each record holder of outstanding Target Shares or Target
Warrants, as the case may be, for the holder thereof to use in surrendering
the certificates which represented his or its Target Shares or Target
Warrants in exchange for a certificate representing the number of Buyer
Shares or warrants to purchase Buyer Shares (the "Buyer Warrants") to which
he or it is entitled.
(ii) The Buyer will not pay any dividend or make any distribution on
Buyer Shares (with a record date at or after the Effective Time) to any
record holder of outstanding Target Shares until the holder surrenders for
exchange his or its certificates which represented Target Shares. The Buyer
instead will pay the dividend or make the distribution to the Exchange
Agent in trust for the benefit of the holder pending surrender and
exchange. The Buyer may cause the Exchange Agent to invest any cash the
Exchange Agent receives from the Buyer as a dividend or distribution in one
or more of the permitted investments set forth on Exhibit C attached
hereto; provided, however, that the terms and conditions of the investments
shall be such as to permit the Exchange Agent to make prompt payments of
cash to the holders of outstanding Target Shares as necessary. The Buyer
may cause the Exchange Agent to pay over to the Buyer any net earnings with
respect to the investments, and the Buyer will replace promptly any cash
which the Exchange Agent loses through investments. In no event, however,
will any holder of outstanding Target Shares be entitled to any interest or
earnings on the dividend or distribution pending receipt.
(iii) The Buyer may cause the Exchange Agent to return any Buyer Shares
and dividends and distributions thereon, or any Buyer Warrants (including
any additional Buyer Warrants issued upon adjustments thereto), remaining
unclaimed 180 days after the Effective Time, and thereafter each remaining
record holder of outstanding Target Shares or holder of Target Warrants
shall be entitled to look to the Buyer (subject to abandoned property,
escheat, and other similar laws) as a general creditor thereof with respect
to the Buyer Shares and dividends and distributions thereon, or the Buyer
Warrants, to which he or it is entitled upon surrender of his or its
certificates.
(iv) The Buyer shall pay all charges and expenses of the Exchange Agent.
(v) Immediately after the Effective Time, the Buyer will furnish to each
holder of outstanding options to purchase Target Shares ("Target Options")
a confirmation of outstanding Options (with instructions for its use) for
the holder to use in confirming the number of Target Options, exercise
price and vesting schedule and in surrendering all written Option
agreements, if any, which represented his or her Target Options in exchange
for a Stock Option Letter Agreement or Agreements representing options to
purchase Buyer Shares (the "Buyer Options") to which he or she is entitled.
(f) Closing of Transfer Records. From and after the Effective Time, the
transfer books of the Target shall be closed and no transfer of Target Shares,
or instruments convertible into Target Shares, shall thereafter be made. If,
after the Effective Time certificates formerly representing Target Shares, or
instruments convertible into Target Shares, are presented to the Buyer, they
shall be canceled and exchanged for certificates representing Buyer Shares, or
instruments convertible into Buyer Shares, as set forth in Section 2(d)(v)
hereof.
3. Representations and Warranties of the Target. The Target represents and
warrants to the Buyer that the statements contained in this Section 3 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section
3), except as set forth in the disclosure schedule accompanying this Agreement
and initialed by the Parties (the "Disclosure Schedule"). The Disclosure
Schedule will be arranged in paragraphs corresponding to the lettered and
numbered paragraphs contained in this Section 3.
A-5
<PAGE>
(a) Organization, Qualification, and Corporate Power. Each of the Target and
its Subsidiaries is a corporation duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its incorporation. Each of
the Target and its Subsidiaries is duly authorized to conduct business and is
in good standing under the laws of each jurisdiction where such qualification
is required, except where the lack of such qualification would not have a
material adverse effect on the financial condition of the Target and its
Subsidiaries taken as a whole or on the ability of the Parties to consummate
the transactions contemplated by this Agreement. Each of the Target and its
Subsidiaries has full corporate power and authority to carry on the businesses
in which it is engaged and to own and use the properties owned and used by it.
(b) Capitalization. The entire authorized capital stock of the Target
consists of 20,000,000 Target Shares, of which 2,626,815 Target Shares are
issued and outstanding and no Target Shares are held in treasury. All of the
issued and outstanding Target Shares have been duly authorized and are validly
issued, fully paid, and nonassessable. Schedule 1 sets forth the outstanding
Target Options and Target Warrants, or other outstanding or authorized
purchase rights, subscription rights, conversion rights, exchange rights, or
other contracts or commitments that could require the Target to issue, sell,
or otherwise cause to become outstanding any of its capital stock. In
addition, Target has Escrow Shares and Escrow Options subject to the Escrow
Agreement. There are no outstanding or authorized stock appreciation, phantom
stock, profit participation, or similar rights with respect to the Target.
(c) Authorization of Transaction. The Target has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder; provided, however, that
the Target cannot consummate the Merger unless and until it receives the
Requisite Target Stockholder Approval. This Agreement constitutes the valid
and legally binding obligation of the Target, enforceable in accordance with
its terms and conditions.
(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which any of the Target and its Subsidiaries
is subject or any provision of the charter or bylaws of any of the Target and
its Subsidiaries or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument or other arrangement to which
any of the Target and its Subsidiaries is a party or by which it is bound or
to which any of its assets is subject (or result in the imposition of any
Security Interest upon any of its assets), except where the violation,
conflict, breach, default, acceleration, termination, modification,
cancellation, or failure to give notice would not have a material adverse
effect on the ability of the Parties to consummate the transactions
contemplated by this Agreement. Other than in connection with the provisions
of the Washington Business Corporation Act, the Delaware General Corporation
Law, the Securities Exchange Act, the Securities Act, and the state securities
laws, none of the Target and its Subsidiaries need to give any notice to, make
any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(e) Filings with the SEC. The Target has made all filings with the SEC that
it has been required to make under the Securities Act and the Securities
Exchange Act (collectively the "Target Public Reports"). Each of the Target
Public Reports has complied in all material respects with the Securities Act
and the Securities Exchange Act in effect as of their respective dates. None
of the Target Public Reports, as of their respective dates, contained any
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Target has
delivered to the Buyer a correct and complete copy of each Target Public
Report (together with all exhibits and schedules thereto and as amended to
date).
(f) Financial Statements. The Target has filed an Annual Report on Form 10-
KSB for the fiscal year ended December 31, 1997 (the "Most Recent Fiscal
Period End"). The financial statements included in or
A-6
<PAGE>
incorporated by reference into such Target Public Report (including the
related notes and schedules) have been prepared in accordance with GAAP
applied on a consistent basis throughout the periods covered thereby, present
fairly the financial condition of the Target and its Subsidiaries as of the
indicated dates and the results of operations of the Target and its
Subsidiaries for the indicated periods, are correct and complete in all
material respects, and are consistent with the books and records of the Target
and its Subsidiaries.
(g) Events Subsequent to Most Recent Fiscal Period End. Since the Most
Recent Fiscal Period End, there has not been any change which would have a
material adverse effect on the business, financial condition, operations,
results of operations, or future prospects of the Target and its Subsidiaries
taken as a whole.
(h) Undisclosed Liabilities. Neither the Target nor any of its Subsidiaries
has any obligations or liabilities (contingent or otherwise) except
obligations and liabilities (i) that are fully accrued or provided for in all
material respects in the consolidated balance sheet of the Target as of
December 31, 1997 in accordance with GAAP, or disclosed in the notes therein
in accordance with GAAP, (ii) that were incurred after December 31, 1997 in
the Ordinary Course of Business (none of which results from, arises out of,
relates to, is in the nature of, or was caused by any breach of contract,
breach of warranty, tort, infringement, or violation of law), or (iii) that
either individually or in the aggregate would not have a material adverse
effect on the business, financial condition, operations, results of
operations, or future prospects of the Target and its Subsidiaries taken as a
whole. All material agreements currently in effect, including all material
agreements, arrangements or understandings with directors and officers of the
Target are or will be filed as Exhibits to the Target Public Reports.
(i) First Quarter Results of Operations. Attached hereto as Exhibit D is the
consolidated statement of operations of the Target for the quarter ended March
31, 1998 (the "Target March 31, 1998 Income Statement"). The Target March 31,
1998 Income Statement complies, as of the date thereof, in all material
respects with the Securities Exchange Act and the rules and regulations of the
SEC promulgated thereunder, presents fairly the results of operations of the
Target and its Subsidiaries for such quarter, and is correct and complete in
all material respects.
(j) Brokers' Fees. None of the Target and its Subsidiaries has any liability
or obligation to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement.
(k) Continuity of Business Enterprise. The Target operates at least one
significant historic business line, or owns at least a significant portion of
its historic business assets, in each case within the meaning of Reg. Section
1.368-1(d).
(l) Disclosure. The Definitive Target Proxy Materials will comply with the
Securities Exchange Act in all material respects. The Definitive Target Proxy
Materials will not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they will be made, not
misleading; provided, however, that the Target makes no representation or
warranty with respect to any information that the Buyer will supply
specifically for use in the Definitive Target Proxy Materials. None of the
information that the Target will supply specifically for use in the
Registration Statement, or the Prospectus will contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make
the statements made therein, in the light of the circumstances under which
they will be made, not misleading.
(m) Litigation. The Target is not (i) subject to any outstanding injunction,
judgment, order, decree, ruling, or charge or (ii) a party to or, to the
Knowledge of any directors or executive officers of the Target, threatened to
be made a party to, any action, suit, proceeding, hearing, or investigation
of, in, or before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator.
(n) Pooling Treatment. To the Knowledge of any directors or executive
officers of Target, there are no events or circumstances relating to Target
which would preclude Target's ability to enter into a transaction to be
accounted for as a "pooling of interests" under GAAP.
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4. Representations and Warranties of the Buyer. The Buyer represents and
warrants to the Target that the statements contained in this Section 4 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section
4), except as set forth in the Disclosure Schedule. The Disclosure Schedule
will be arranged in paragraphs corresponding to the numbered and lettered
paragraphs contained in this Section 4.
(a) Organization. The Buyer is a corporation duly organized and validly
existing under the laws of the jurisdiction of its incorporation. Each of the
Buyer and its Subsidiaries is duly authorized to conduct business and is in
good standing under the laws of each jurisdiction where such qualification is
required, except where the lack of such qualification would not have a
material adverse effect on the financial condition of the Buyer and its
Subsidiaries taken as a whole or on the ability of the Parties to consummate
the transactions contemplated by this Agreement. Each of the Buyer and its
Subsidiaries has full corporate power and authority to carry on the businesses
in which it is engaged and to own and use the properties owned and used by it.
(b) Capitalization. The entire authorized capital stock of the Buyer
consists of 100,000,000 Buyer Shares, of which 10,302,353 Buyer Shares are
issued and outstanding, and 5,000,000 shares of preferred stock, without par
value, none of which are issued and outstanding. All of the Buyer Shares to be
issued in the Merger have been duly authorized and, upon consummation of the
Merger, will be validly issued, fully paid, and nonassessable. All other Buyer
Shares have been duly authorized and are validly issued, fully paid and
nonassessable. All of the Buyer Shares to be issued upon exercise of the Buyer
Warrants and Buyer Options have been duly authorized, and, upon exercise
thereof, will be validly issued, fully paid and nonassessable. Except as
disclosed in or contemplated by the Buyer Public Reports, there are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require the Buyer to issue, sell, or otherwise cause to become
outstanding any of its capital stock.
(c) Authorization of Transaction. The Buyer has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement constitutes
the valid and legally binding obligation of the Buyer, enforceable in
accordance with its terms and conditions.
(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Buyer is subject or any provision
of the charter or bylaws of the Buyer or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify, or cancel, or require
any notice under any agreement, contract, lease, license, instrument or other
arrangement to which the Buyer is a party or by which it is bound or to which
any of its assets is subject, except where the violation, conflict, breach,
default, acceleration, termination, modification, cancellation, or failure to
give notice would not have a material adverse effect on the ability of the
Parties to consummate the transactions contemplated by this Agreement. Other
than in connection with the provisions of the Washington Business Corporation
Act, the Delaware General Corporation Law, the Securities Exchange Act, the
Securities Act, and the state securities laws, none of the Buyer and its
Subsidiaries needs to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency
in order for the Parties to consummate the transactions contemplated by this
Agreement.
(e) Filings with the SEC. The Buyer has made all filings with the SEC that
it has been required to make under the Securities Act and the Securities
Exchange Act (collectively the "Buyer Public Reports"). Each of the Buyer
Public Reports has complied in all material respects with the Securities Act
and the Securities Exchange Act in effect as of their respective dates. None
of the Buyer Public Reports, as of their respective dates, contained any
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
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(f) Financial Statements. The Buyer has filed an Annual Report on Form 10-K
for the fiscal year ended December 31, 1997 (the "Most Recent Fiscal Period
End"). The financial statements included in or incorporated by reference into
such Buyer Public Report (including the related notes and schedules) have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby, present fairly the financial condition of the Buyer
and its Subsidiaries as of the indicated dates and the results of operations
of the Buyer and its Subsidiaries for the indicated periods, are correct and
complete in all material respects, and are consistent with the books and
records of the Buyer and its Subsidiaries.
(g) Events Subsequent to Most Recent Fiscal Year End. Since the Most Recent
Fiscal Period End, there has not been any change which would have a material
adverse effect on the business, financial condition, operations, results of
operations, or future prospects of the Buyer and its Subsidiaries taken as a
whole.
(h) First Quarter Results of Operations. Attached hereto as Exhibit E is the
consolidated statement of income of the Buyer for the quarter ended March 31,
1998 (the "Buyer March 31, 1998 Income Statement"). The Buyer March 31, 1998
Income Statement complies, as of the date thereof, in all material respects
with the Securities Exchange Act and the rules and regulations of the SEC
promulgated thereunder, presents fairly the results of operations of the Buyer
and its Subsidiaries for such quarter, and is correct and complete in all
material respects.
(i) Undisclosed Liabilities. Neither the Buyer nor any of its Subsidiaries
has any obligations or liabilities (contingent or otherwise) except
obligations and liabilities (i) that are fully accrued or provided for in all
material respects in the consolidated balance sheet of the Buyer as of
December 31, 1997 in accordance with GAAP, or disclosed in the notes therein
in accordance with GAAP, (ii) that were incurred after December 31, 1997 in
the Ordinary Course of Business (none of which results from, arises out of,
relates to, is in the nature of, or was caused by any breach of contract,
breach of warranty, tort, infringement, or violation of law), or (iii) that
either individually or in the aggregate would not have a material adverse
effect on the business, financial condition, operations, results of
operations, or future prospects of the Buyer and its Subsidiaries taken as a
whole. All material agreements currently in effect, including all agreements,
arrangements or understandings with directors and officers of the Target are
filed as Exhibits to the Target Public Reports.
(j) Brokers' Fees. The Buyer does not have any liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement for which any of the Target
and its Subsidiaries could become liable or obligated.
(k) Continuity of Business Enterprise. It is the present intention of the
Buyer to continue at least one significant historic business line of the
Target, or to use at least a significant portion of the Target's historic
business assets in a business, in each case within the meaning of Reg. Section
1.368-1(d).
(l) Disclosure. The Registration Statement and the Prospectus will comply
with the Securities Act and the Securities Exchange Act in all material
respects. The Registration Statement and the Prospectus will not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made therein, in the light of the
circumstances under which they will be made, not misleading; provided,
however, that the Buyer makes no representation or warranty with respect to
any information that the Target will supply specifically for use in the
Registration Statement and the Prospectus. None of the information that the
Buyer will supply specifically for use in the Definitive Target Proxy
Materials will contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they will be made, not
misleading.
(m) Litigation. The Buyer is not (i) subject to any outstanding injunction,
judgment, order, decree, ruling, or charge or (ii) a party to or, to the
Knowledge of any directors or executive officers of the Buyer, threatened to
be made a party to, any action, suit, proceeding, hearing, or investigation
of, in, or before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator.
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(n) Pooling Treatment. To the Knowledge of any directors or executive
officers of Buyer, there are no events or circumstances relating to Buyer
which would preclude Buyer's ability to enter into a transaction to be
accounted for as a "pooling of interests" under GAAP.
5. Covenants. The Parties agree as follows with respect to the period from
and after the execution of this Agreement through the earlier of Closing or
termination of this Agreement.
(a) General. Each of the Parties will use its reasonable best efforts to
take all action and to do all things necessary, proper, or advisable in order
to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions
set forth in Section 6 below).
(b) Notices and Consents. The Target will give any notices (and will cause
each of its Subsidiaries to give any notices) to third parties, and will use
its best efforts to obtain (and will cause each of its Subsidiaries to use its
best efforts to obtain) any third party consents, that the Buyer may
reasonably request in connection with the matters referred to in Section 3(d)
above.
(c) Regulatory Matters and Approvals. Each of the Parties will (and the
Target will cause each of its Subsidiaries to) give any notices to, make any
filings with, and use its best efforts to obtain any authorizations, consents,
and approvals of governments and governmental agencies in connection with the
matters referred to in Section 3(d) and Section 4(d) above. Without limiting
the generality of the foregoing:
(i) Securities Act, Securities Exchange Act, and State Securities
Laws. The Target will prepare and file with the SEC preliminary proxy
materials under the Securities Exchange Act relating to the Special Target
Meeting. The Buyer will prepare and file with the SEC a registration
statement under the Securities Act relating to the offering and issuance of
the Buyer Shares (the "Registration Statement"). The filing Party in each
instance will use its best efforts to respond to the comments of the SEC
thereon and will make any further filings (including amendments and
supplements) in connection therewith that may be necessary, proper, or
advisable. The Buyer will provide the Target, and the Target will provide
the Buyer, with whatever information and assistance in connection with the
foregoing filings that the filing Party may request. The Buyer will take
all actions that may be necessary, proper, or advisable under state
securities laws in connection with the offering and issuance of the Buyer
Shares.
(ii) Delaware General Corporation Law. The Target will call a special
meeting of its stockholders (the "Special Target Meeting") as soon as
practicable in order that the stockholders may consider and vote upon the
adoption of this Agreement and the approval of the Merger in accordance
with the Delaware General Corporation Law. The Target will mail the Joint
Disclosure Document to its stockholders and as soon as practicable. The
Joint Disclosure Document will contain the affirmative recommendation of
the board of directors of the Target in favor of the adoption of this
Agreement and the approval of the Merger; provided, however, that no
director or officer of Target shall be required to violate any fiduciary
duty or other requirement imposed by law in connection therewith.
(d) Fairness Opinion and Comfort Letters. The Target will deliver to the
Buyer on or before the date the Joint Disclosure Document is mailed to its
stockholders (i) a copy of the opinion of Raymond James & Associates, Inc. as
to the fairness of the Merger to the Target Stockholders from a financial
point of view (the "Fairness Opinion"), which copy shall be for the
information of Buyer but may not be relied upon by Buyer and (ii) a letter of
Price Waterhouse LLP stating their conclusions as to the accuracy of certain
information derived from the financial records of the Target and its
Subsidiaries and contained in the Disclosure Document (the "Target Comfort
Letter"). The Fairness Opinion shall be reasonably satisfactory to the Buyer
in form and substance. The Target Comfort Letter shall be reasonably
satisfactory to the Buyer in form and substance and shall be brought down as
of the Closing Date. The Buyer will deliver to the Target on or before the
date the Joint Disclosure Document is mailed to its stockholders a letter of
Price Waterhouse LLP stating their conclusions as to the accuracy of certain
information derived from the financial records of the Buyer and its
Subsidiaries and contained in the Joint Disclosure Document (the "Buyer
Comfort Letter"). The Buyer Comfort Letter shall be reasonably satisfactory to
the Target in form and substance and shall be brought down as of the Closing
Date.
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(e) Listing of Buyer Shares. The Buyer will use its best efforts to cause
the Buyer Shares that will be issued in the Merger to be approved for listing
on the Nasdaq National Market, subject to official notice of issuance, prior
to the Effective Time.
(f) Operation of Business. The Target will not (and will not cause or permit
any of its Subsidiaries to) engage in any practice, take any action, or enter
into any transaction outside the Ordinary Course of Business. Without limiting
the generality of the foregoing:
(i) none of the Target and its Subsidiaries will authorize or effect any
change in its charter or bylaws;
(ii) none of the Target and its Subsidiaries will grant any options,
warrants, or other rights to purchase or obtain any of its capital stock or
issue, sell, or otherwise dispose of any of its capital stock (except upon
the conversion or exercise of options, warrants, and other rights currently
outstanding);
(iii) none of the Target and its Subsidiaries will declare, set aside, or
pay any dividend or distribution with respect to its capital stock (whether
in cash or in kind), or redeem, repurchase, or otherwise acquire any of its
capital stock;
(iv) none of the Target and its Subsidiaries will issue any note, bond,
or other debt security or create, incur, assume, or guarantee any
indebtedness for borrowed money or capitalized lease obligation outside the
Ordinary Course of Business;
(v) none of the Target and its Subsidiaries will impose any Security
Interest upon any of its assets outside the Ordinary Course of Business;
(vi) none of the Target and its Subsidiaries will make any capital
investment in, make any loan to, or acquire the securities or assets of any
other Person outside the Ordinary Course of Business;
(vii) none of the Target and its Subsidiaries will make any change in
employment terms for any of its directors or executive officers, or enter
into any other arrangement or agreement with directors or executive
officers, without the prior written consent of the Buyer, and none of the
Target and its Subsidiaries will make any change in employment terms for
any of its employees outside the Ordinary Course of Business; and
(viii) none of the Target and its Subsidiaries will commit to any of the
foregoing.
(g) Full Access. The Target will (and will cause each of its Subsidiaries
to) permit representatives of the Buyer to have full access to all premises,
properties, personnel, books, records (including tax records), contracts, and
documents of or pertaining to each of the Target and its Subsidiaries. The
Buyer will (and will cause each of its employees and agents to) treat and hold
as such any Confidential Information it receives from any of the Target and
its Subsidiaries in the course of the reviews contemplated by this Section
5(g), will not use any of the Confidential Information except in connection
with this Agreement, and, if this Agreement is terminated for any reason
whatsoever, agrees to return to the Target all tangible embodiments (and all
copies) thereof which are in its possession. The provisions of this Section
5(g) relating to the Confidential Information will survive any termination of
this Agreement.
(h) Notice of Developments. Each Party will give prompt written notice to
the other of any material adverse development causing a breach of any of its
own representations and warranties in Section 3 and Section 4 above. No
disclosure by any Party pursuant to this Section 5(h), however, shall be
deemed to amend or supplement the Disclosure Schedule or to prevent or cure
any misrepresentation, breach of warranty, or breach of covenant.
(i) Insurance and Indemnification.
(i) The Buyer will provide each individual who served as a director or
officer of the Target at any time prior to the Effective Time with
liability insurance for a period of 36 months after the Effective Time in
an amount not less than $5 million and otherwise no less favorable in
coverage than any applicable insurance in effect immediately prior to the
Effective Time; and
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(ii) The Buyer, as the Surviving Corporation in the Merger, will observe
any indemnification provisions now existing in the certificate of
incorporation or bylaws of the Target for the benefit of any individual who
served as a director or officer of the Target at any time prior to the
Effective Time.
(j) Continuity of Business Enterprise. The Buyer will continue at least one
significant historic business line of the Target, or use at least a
significant portion of the Target's historic business assets in a business, in
each case within the meaning of Reg. Section 1.368-1(d).
(k) Pooling; Affiliate Certificate. Target will (i) not (and will cause each
of its affiliates to not) take any action after the date of this Agreement
which would have the effect of causing the Merger to fail to be accounted for
as a "pooling of interests" under GAAP; (ii) cause each of its affiliates to
sell Buyer Shares received in the Merger pursuant to Rule 144 under the
Securities Act; and (iii) cause each of its affiliates to execute an Affiliate
Certificate substantially in the form attached hereto as Exhibit F.
(l) Pooling. Buyer will not (and will cause each of its affiliates to not)
take any action after the date of this Agreement and prior to Closing which
would have the effect of causing the Merger to fail to be accounted for as a
"pooling of interests" under GAAP.
(m) Solicitation. Unless this Agreement is terminated pursuant to Section 7:
(i) The Target shall not initiate, solicit or encourage (including by way
of furnishing nonpublic information or assistance) any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to
lead to, any Competing Transaction, enter into discussions or negotiate
with any person or entity in furtherance of such inquiries or to obtain a
Competing Transaction, or agree to or endorse any Competing Transaction, or
authorize any of its respective officers or directors to take any such
action, and the Target shall instruct and use its reasonable best efforts
to cause its directors, officers, agents and representatives (including,
without limitation, any investment banker, financial advisor, attorney or
accountant retained by it) not to take any such action. If the Target
receives any offer or proposal, written or otherwise, that constitutes, or
may reasonably be expected to lead to, any Competing Transaction, the
Target promptly shall inform the Buyer of such offer or proposal and the
material terms thereof.
(ii) Nothing contained in this Agreement shall prohibit the Target,
subject to authorization by its Board of Directors, from (A) furnishing
information to, or entering into discussions or negotiations with, any
person or entity that, after the date hereof, makes a bona fide proposal to
enter into a Competing Transaction, that on or after the date hereof has
not been initiated, solicited or encouraged by the Target, (B) recommending
to its stockholders or endorsing any, or entering into any definitive
agreement with respect to any, such Competing Transaction, or (C) issue a
communication to its stockholders of the type contemplated by Rule 14d-9(e)
or 14e-2 under the Securities Exchange Act or otherwise communicate the
Board of Directors' position with respect to such proposal to enter into a
Competing Transaction to the Target's stockholders, if, with respect to
(A), (B) or (C) above, (I) the Board of Directors of the Target determines
in good faith that such Competing Transaction is reasonably capable of
being completed, taking into account all legal, financial, regulatory and
other aspects of the Competing Transaction, and would, if consummated, be
more favorable to the Company's stockholders than the transactions
contemplated by this Agreement, (II) the Board of Directors of the Target
reasonably believes that the proposal is made in good faith, and (III) the
Target provides prior notice to the Buyer.
(iii) For purposes of this Agreement, "Competing Transaction" shall mean
any of the following (other than the transactions contemplated under this
Agreement) involving the Target: (A) any merger, consolidation, share
exchange, business combination, recapitalization, liquidation, dissolution
or other similar transaction; (B) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition of substantially all of the assets of
the Target and its Subsidiaries, taken as a whole, in a single transaction
or series of transactions; (C) any tender offer or exchange offer for 50%
or more of the outstanding shares of capital stock of the Target or the
filing of a registration statement under the Securities Act in connection
therewith; (D) any person having acquired beneficial ownership or the right
to acquire beneficial ownership
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of, or any "group" (as such term is defined under Section 13(d) of the
Securities Exchange Act and the rules and regulations promulgated
thereunder) having been formed that beneficially owns or has the right to
acquire beneficial ownership of 50% or more of the then-outstanding shares
of capital stock of the Target; or (E) any public announcement of a
proposal, plan or intention to do any of the foregoing on any agreement to
engage in any of the foregoing.
(n) Post-Closing Covenants. After the Closing Date:
(i) Buyer will use its reasonable best efforts to register, to the extent
it has not already done so, the Buyer Shares issuable upon exercise of the
Buyer Warrants and Buyer Options, and maintain a current prospectus with
respect to such Buyer Shares until the expiration of such Buyer Warrants
and Buyer Options, as the case may be;
(ii) as soon as reasonably practicable, Buyer will use its reasonable
best efforts to file with the Securities and Exchange Commission or
otherwise publicly report an income statement and any other required
financial statements covering at least thirty (30) days of post-Merger
combined operations of Buyer and Target, subject to the business judgment
of the Buyer Board of Directors to delay the filing of such financial
results if such delay is in the best interests of Buyer's shareholders;
provided that Buyer shall file such financial results as part of the Form
10-Q for the period ended September 30, 1998 and shall not commence a firm
commitment underwriting of Buyer Shares until such combined financial
results have been filed; and
(iii) Michael D. Matte shall immediately enter into an employment
agreement in substantially the form attached hereto as Exhibit L.
6. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyer. The obligation of the Buyer to
consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) this Agreement and the Merger shall have received the Requisite
Target Stockholder Approval and comply with the 90% test set forth in
Accounting Pronouncements Board Opinion No. 16, Business Combinations, and
the interpretations and pronouncements promulgated thereunder;
(ii) the Target and its Subsidiaries shall have procured all of the third
party consents specified in Section 5(b) above;
(iii) all Subsidiaries of the Target shall have been merged with and into
Target;
(iv) the representations and warranties set forth in Section 3 above
shall be true and correct in all material respects at and as of the Closing
Date;
(v) the Target shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(vi) no action, suit, or proceeding shall be pending or threatened before
any court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation, (C) affect adversely the right of
the Surviving Corporation to own the former assets, to operate the former
businesses, and to control the former Subsidiaries of the Target, or (D)
affect adversely the right of any of the former Subsidiaries of the Target
to own its assets and to operate its businesses (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect);
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(vii) the Buyer shall have received the resignations, effective as of the
Closing, of each director and officer of the Target and its Subsidiaries
other than those whom the Buyer shall have specified in writing at least
four business days prior to the Closing;
(viii) the employment agreement by and between the Target and William E.
Berry shall have been terminated;
(ix) the Target shall have delivered to the Buyer a certificate signed by
William E. Berry and Michael D. Matte to the effect that each of the
conditions specified above in Section 6(a)(i)-(viii) is satisfied in all
respects;
(x) the Registration Statement shall have become effective under the
Securities Act;
(xi) the Buyer Shares that will be issued in the Merger shall have been
approved for listing on the Nasdaq National Market, subject to official
notice of issuance;
(xii) the Buyer shall have received from Broad and Cassel an opinion in
substantially the form set forth in Exhibit G attached hereto, addressed to
the Buyer, and dated the Closing Date;
(xiii) the Buyer shall have received from Price Waterhouse LLP an
unqualified opinion to the effect that the Merger will constitute a tax-
free reorganization pursuant to Code Section 368(a)(1)(A) in substantially
the form set forth in Exhibit H attached hereto, addressed to the Target
and the Buyer, and dated the Closing Date;
(xiv) the Buyer shall have received from Price Waterhouse LLP a "pooling
of interests" letter in form and substance reasonably acceptable to Buyer,
addressed to the Buyer (but providing for reliance thereon by the Target),
and dated the Closing Date.
(xv) the Target shall have received from Price Waterhouse LLP a "pooling
of interests" letter in form and substance reasonably acceptable to Buyer,
addressed to the Target (but providing for reliance thereon by the Buyer),
and dated the Closing Date.
(xvi) Each of the Target Comfort Letter and Buyer Comfort Letter shall
have been brought down as of the Closing Date and shall be reasonably
satisfactory to the Buyer in form and substance.
(xvii) The Escrow Agreement shall have been canceled or terminated or the
rights of all holders thereunder shall have been waived or otherwise
extinguished.
(xviii) all actions to be taken by the Target in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Buyer.
The Buyer may waive any condition specified in this Section 6(a) if it
executes a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Target. The obligation of the Target to
consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the Registration Statement shall have become effective under the
Securities Act;
(ii) the Buyer Shares that will be issued in the Merger shall have been
approved for listing on the Nasdaq National Market, subject to official
notice of issuance;
(iii) the representations and warranties set forth in Section 4 above
shall be true and correct in all material respects at and as of the Closing
Date;
(iv) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(v) no action, suit, or proceeding shall be pending or threatened before
any court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator wherein an
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unfavorable injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation, (C) affect adversely the right of
the Surviving Corporation to own the former assets, to operate the former
businesses, and to control the former Subsidiaries of the Target, or (D)
affect adversely the right of any of the former Subsidiaries of the Target
to own its assets and to operate its businesses (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect);
(vi) the Buyer shall have delivered to the Target a certificate to the
effect that each of the conditions specified above in Section 6(b)(i)-(v)
is satisfied in all respects;
(vii) this Agreement and the Merger shall have received the Requisite
Target Stockholder Approval;
(viii) the Target shall have received from Van Valkenberg Furber Law
Group P.L.L.C. an opinion in substantially the form set forth in Exhibit H
attached hereto, addressed to the Target, and dated the Closing Date;
(ix) the Target shall have received from Price Waterhouse LLP an
unqualified opinion to the effect that the Merger will constitute a tax-
free reorganization pursuant to Code Section 368(a)(1)(A) in substantially
the form set forth in Exhibit G attached hereto, addressed to the Target
and the Buyer, and dated the Closing Date;
(x) the Target Stockholders who will beneficially own 1% or more of the
Buyer Shares at the Effective Time shall have been granted registration
rights with respect to such Buyer Shares in accordance with the Agreement
to be Bound by Registration Rights Agreement attached hereto as Exhibit J;
(xi) the Buyer shall have entered into an employment agreement, subject
to Closing, with William E. Berry in substantially the form attached hereto
as Exhibit K;
(xii) each of Target Comfort Letter and Buyer Comfort Letter shall have
been brought down as of the Closing Date and shall be reasonably
satisfactory to the Target in form and substance;
(xiii) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Target.
The Target may waive any condition specified in this Section 6(b) if it
executes a writing so stating at or prior to the Closing.
7. Termination.
(a) Termination of Agreement. Either of the Parties may terminate this
Agreement with the prior authorization of its board of directors (whether
before or after stockholder approval) as provided below:
(i) the Parties may terminate this Agreement by mutual written consent at
any time prior to the Effective Time;
(ii) the Buyer may terminate this Agreement by giving written notice to
the Target at any time prior to the Effective Time (A) in the event the
Target has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, the Buyer has notified
the Target of the breach, and the breach has continued without cure for a
period of 30 days after the notice of breach or (B) if the Closing shall
not have occurred on or before August 31, 1998, by reason of the failure of
any condition precedent under Section 6(a) hereof (unless the failure
results primarily from the Buyer breaching any representation, warranty, or
covenant contained in this Agreement);
(iii) the Target may terminate this Agreement by giving written notice to
the Buyer at any time prior to the Effective Time (A) in the event the
Buyer has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, the Target has
notified the Buyer of the
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breach, and the breach has continued without cure for a period of 30 days
after the notice of breach or (B) if the Closing shall not have occurred on
or before August 31, 1998, by reason of the failure of any condition
precedent under Section 6(b) hereof (unless the failure results primarily
from the Target breaching any representation, warranty, or covenant
contained in this Agreement);
(iv) the Target may terminate this Agreement by giving written notice to
the Buyer at any time after the Special Target Meeting in the event this
Agreement and the Merger fail to receive the Requisite Target Stockholder
Approval;
(v) any Party may terminate this Agreement by giving written notice to
the other Party at any time prior to the Effective Time in the event the
Fairness Opinion is withdrawn;
(vi) the Target may withdraw or modify its approval or recommendation of
this Agreement and terminate this Agreement if the Board of Directors of
the Target determines in good faith that a Competing Transaction (as
defined by Section 5(m)) is reasonably capable of being completed, taking
into account all legal, financial, regulatory and other aspects of the
Competing Transaction, and would, if consummated, be more favorable to the
Company's stockholders than the transactions contemplated by this
Agreement; provided, however, that the right of termination by the Target
contemplated by this Section 7(a)(vi) may only be exercised if the Target
shall have complied with all of the provisions of Section 5(m); or
(vii) by either Party, if (a) there shall be a final nonappealable order
of a federal or state court restraining or prohibiting the consummation of
the Merger, or (b) there shall be any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to
the Merger by any governmental authority, that would make the consummation
of the Merger illegal.
(b) Effect of Termination. If any Party terminates this Agreement pursuant
to Section 7(a) above, all rights and obligations of the Parties hereunder
shall terminate without any liability of any Party to any other Party (except
for any liability of any Party then in breach); provided, however, that the
confidentiality provisions contained in Section 5(g) above shall survive any
such termination. Notwithstanding the foregoing, if the Target terminates this
Agreement in accordance with Section 7(a)(vi), the Target shall pay to the
Buyer a termination fee in the amount of One Million Dollars ($1,000,000).
8. Miscellaneous.
(a) Survival. None of the representations, warranties, and covenants of the
Parties (other than the provisions in Section 2 above concerning issuance of
the Buyer Shares, the provisions in Section 5(i) above concerning insurance
and indemnification and the provisions in Section 5(n) concerning Post-Closing
Covenants) will survive the Effective Time.
(b) Press Releases and Public Announcements. No Party shall issue any press
release or make any public announcement relating to the subject matter of this
Agreement without the prior written approval of the other Party; provided,
however, that any Party may make any public disclosure it believes in good
faith is required by applicable law or any listing or trading agreement
concerning its publicly-traded securities (in which case the disclosing Party
will use its best efforts to advise the other Party and its counsel at least
one day prior to making the disclosure).
(c) No Third Party Beneficiaries. This Agreement shall not confer any rights
or remedies upon any Person other than the Parties and their respective
successors and permitted assigns; provided, however, that (i) the provisions
in Section 2 above concerning issuance of the Buyer Shares are intended for
the benefit of the Target Stockholders, (ii) the provisions in Section 5(i)
above concerning indemnification are intended for the benefit of the
individuals specified therein and their respective legal representatives and
(iii) the provisions in Section 5(n) above concerning certain post-closing
covenants for the benefit of Buyer Shares, Buyer Warrants and Buyer Options.
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(d) Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement between the Parties and supersedes
any prior understandings, agreements, or representations by or between the
Parties, written or oral, to the extent they related in any way to the subject
matter hereof.
(e) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior
written approval of the other Party.
(f) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and
then two business days after) it is sent by registered or certified mail,
return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below:
IF TO THE TARGET:
<TABLE>
<S> <C>
William E. Berry Telephone: (561) 478-0022
InTime Systems International, Inc. Facsimile: (561) 689-4759
1601 Forum Place
West Palm Beach, FL 33401
COPY TO:
Michael D. Harris Telephone: (561) 844-3600
Suite 400 Facsimile: (561) 845-0108
712 U.S. Highway One
West Palm Beach, FL 33401
IF TO THE BUYER:
Norbert W. Sugayan, Jr. Telephone: (425) 372-2747
ARIS Corporation Facsimile: (425) 372-2798
2229--112th Avenue NE
Bellevue, WA 98004
COPY TO:
Bradley B. Furber Telephone: (206) 464-0460
Van Valkenberg Furber Law Group P.L.L.C. Facsimile: (206) 464-2857
Suite 1200
1325 Fourth Avenue
Seattle, WA 98104
</TABLE>
Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth
above using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail, or electronic mail), but no
such notice, request, demand, claim, or other communication shall be deemed to
have been duly given unless and until it actually is received by the intended
recipient. Any Party may change the address to which notices, requests,
demands, claims, and other communications hereunder are to be delivered by
giving the other Party notice in the manner herein set forth.
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<PAGE>
(i) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Delaware without giving
effect to any choice or conflict of law provision or rule (whether of the
State of Delaware or any other jurisdiction) that would cause the application
of the laws of any jurisdiction other than the State of Delaware.
(j) Amendments and Waivers. The Parties may mutually amend any provision of
this Agreement at any time prior to the Effective Time with the prior
authorization of their respective boards of directors; provided, however, that
any amendment effected subsequent to stockholder approval will be subject to
the restrictions contained in the Delaware General Corporation Law. No
amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by both of the Parties. No waiver by any Party
of any default, misrepresentation, or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to any prior
or subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
(k) Severability. Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) Expenses. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
(m) Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event 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 otherwise requires. The
word "including" shall mean including without limitation.
(n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
THIS SECTION INTENTIONALLY LEFT BLANK
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<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
ARIS CORPORATION
By: /s/ Paul Y. Song
---------------------------------
Paul Y. Song, President
INTIME SYSTEMS INTERNATIONAL, INC.
By: /s/ William E. Berry
---------------------------------
William E. Berry, President
For purposes of Section 5(n)(iii) (certain Post-Closing Covenants) only:
/s/ Michael D. Matte
- -------------------------------------
Michael D. Matte, individually
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<PAGE>
APPENDIX B
April 26, 1998
Board of Directors
InTime Systems International, Inc.
1601 Forum Place
Fifth Floor
West Palm Beach, FL 33401
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the outstanding common stock, .01 par value, (the
"Common Stock"), of InTime Systems International, Inc. ("InTime") of the
consideration to be received in connection with the proposed merger (the
"Merger") of ARIS Corporation ("ARIS") with InTime pursuant and subject to the
Agreement and Plan of Merger between InTime and ARIS (the "Agreement"). The
consideration to be exchanged by ARIS for all the outstanding Common Stock of
InTime will be approximately 699,310 shares of ARIS common stock based upon a
price of $34.56 per share, determined by the average closing price of the ARIS
common stock as reported by NASDAQ for the previous 10 trading days previous
to the date of the Agreement. The conversion ratio ("Conversion Ratio") is
0.266, as subject to adjustment as set forth in the Agreement. Under the
Agreement, all of the InTime warrants and stock options outstanding on the
closing date will be converted into warrants and stock options to purchase a
number of shares of ARIS common stock based on the Conversion Ratio and
otherwise or substantial equivalent terms.
In connection with our review of the proposed Merger and the preparation of
our opinion herein, we have, among other things:
1. reviewed the financial terms and conditions as stated in the April 24, 1998
draft of the Agreement;
2. reviewed the audited 10-KSB financial statements of InTime as of and for
the years ended December 31, 1997 and 1996;
3. reviewed the InTime Quarterly Reports filed on Form 10-QSB for the quarters
ended March 31, 1998, September 30, 1997 and June 30, 1997;
4. reviewed the audited 10-K financial statements of ARIS as of and for the
years ended December 31, 1997 and 1996;
5. reviewed the ARIS Quarterly Reports filed on Form 10-Q for the quarters
ended September 30, 1997 and June 30, 1997 and certain publicly available
filings with the Securities and Exchange Commission and certain other
relevant financial and operating data;
6. reviewed other InTime financial and operating information requested from
and/or provided by InTime;
7. reviewed certain other publicly available information on InTime; and
8. discussed with members of the senior management of InTime certain
information relating to the aforementioned and any other matters which we
have deemed relevant to our inquiry.
At the request of the Company, Raymond James solicited third party
indications of interest in acquiring all or substantially all of the stock or
assets of the Company.
We have assumed and relied upon the accuracy and completeness of all
information supplied or otherwise made available to us by InTime, ARIS or any
other party and have not attempted to verify independently any of such
information. We have not made or obtained an independent appraisal of the
assets or liabilities (contingent or otherwise) of InTime. With respect to
financial forecasts and other information and data provided to or otherwise
reviewed by or discussed with us, we have assumed that such forecasts and
other information and data
B-1
<PAGE>
have been reasonably prepared in good faith on bases reflecting the best
currently available estimates and judgments of management, and we have relied
upon each party to advise us promptly if any information previously provided
became inaccurate or was required to be updated during the period of or
review. We have assumed that the transaction will be accounted for as a
pooling of interests.
Our opinion is based upon market, economic, financial and other
circumstances and conditions existing and disclosed to us as of April 26, 1998
and any material change in such circumstances and conditions would require a
reevaluation of this opinion, which we are under no obligation to undertake.
We express no opinion as to the underlying business decision to effect the
Merger, the structure or tax consequences of the Agreement or the availability
or advisability of any alternatives to the Merger. Our opinion does not imply
any conclusion as to the likely trading range for the ARIS Common Stock
following consummation of the Merger, which may vary depending on numerous
factors that generally include the price of securities. Our opinion is limited
to the fairness, from a financial point of view, of the terms of the Merger.
We express no opinion with respect to any other reasons, legal, business or
otherwise, that may support the decision of the Board of Directors to approve,
or InTime's decision to consummate, the Merger.
In conducting our investigation and analyses and in arriving at our opinion
expressed herein, we have taken into account such accepted financial and
investment banking procedures and considerations as we have deemed relevant.
For purposes of rendering our opinion, we have assumed in all respect
material to our analysis, that the representations and warranties of each
party contained in the Agreements are true and correct, that each party will
perform all of the covenants and agreements required to be performed by it
under the Agreement and that all conditions to the consummation of the Merger
will be satisfied without waiver thereof. We have also assumed that all
governmental, regulatory or other consents and approvals contemplated by the
Agreement will be obtained and that in the course of obtaining any of those
consents no restrictions will be imposed or waivers made that would be
materially adverse to the interests of InTime or ARIS.
Raymond James & Associates, Inc. ("Raymond James") is actively engaged in
the investment banking business and regularly undertakes the valuation of
investment securities in connection with public offerings, private placements,
business combinations and similar transactions. Raymond James has been engaged
to render financial advisory services to InTime in connection with the
proposed Merger and will receive a fee for such services, which fee is
contingent upon consummation of the Merger. In addition InTime has agreed to
indemnify us against certain liabilities arising out of our engagement.
In the ordinary course of our business, Raymond James may trade in the
securities of InTime for our own account or for the accounts of our customers
and, accordingly, may at any time hold a long or short position in such
securities.
It is understood that this letter is for the information of the Board of
Directors of InTime only in evaluating the proposed Merger and does not
constitute a recommendation to any shareholder of InTime regarding how said
shareholder should vote on the proposed Merger, nor is this letter intended to
confer rights or remedies upon ARIS or the shareholders of the Company or of
ARIS. Furthermore, this letter should not be construed as creating any
fiduciary duty on the part of Raymond James to any such party. This opinion is
not to be quoted or referred to, in whole or in part, without our prior
written consent, which will not be unreasonably withheld.
Based upon and subject to the foregoing, it is our opinion that, as of April
26, 1998, the consideration to be received by the shareholders of InTime
pursuant to the Agreement is fair, from a financial point of view, to the
holders of the Common Stock of InTime.
Very truly yours,
RAYMOND JAMES & ASSOCIATES, INC.
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<PAGE>
APPENDIX C
SECTION 262 OF THE GENERAL CORPORATION LAW
OF THE STATE OF DELAWARE
APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing pursuant
to Section 228 of this title shall be entitled to an appraisal by the Court of
Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation: and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
share, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to Section
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on
a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more than
2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a and b of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are
available pursuant to subsections (b) or (c) hereof that appraisal rights
are available for any or all of the shares of the constituent corporations,
and shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation,
a written demand for appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders
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<PAGE>
entitled to receive either notice, each constituent corporation may fix, in
advance, a record date that shall be not more than 10 days prior to the
date the notice is given, provided, that if the notice is given on or after
the effective date of the merger or consolidation, the record date shall be
such effective date. If no record date is fixed and the notice is given
prior to the effective date, the record date shall be the close of business
on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied
with subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the
corporation surviving the merger or resulting from the consolidation a
statement setting forth the aggregate number of shares not voted in favor of
the merger or consolidation and with respect to which demands for appraisal
have been received and the aggregate number of holders of such shares. Such
written statement shall be mailed to the stockholder within 10 days after his
written request for such a statement is received by the surviving or resulting
corporation or within 10 days after expiration of the period for delivery of
demands for appraisal under subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall by
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
C-3
<PAGE>
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolation shall have the status of authorized and unissued
shares of the surviving or resulting corporation. (Last amended by Ch. 299, L.
'96, eff. 2-1-'96 and Ch. 349, L. '96, eff. 7-1-'96.)
C-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 23B.08.500 through 23B.08.600 of the Washington Business
Corporation Act authorize a court to award, or a corporation's board of
directors to grant, indemnification to directors and officers on terms
sufficiently broad to permit indemnification under certain circumstances for
liabilities arising under the Securities Act of 1933, as amended (the
Securities Act). Article 9 of the registrant's Amended and Restated Bylaws
provides for indemnification of the registrant's directors, officers,
employees and agents to the fullest extent permitted by law.
Section 23B.08.320 of the Washington Business Corporation Act authorizes a
corporation to limit a director's liability to the corporation or its
shareholders for monetary damages for acts or omissions as a director, except
in certain circumstances involving intentional misconduct, knowing violations
of law or illegal corporate loans or distributions, or any transaction from
which the director personally receives a benefit in money, property or
services to which the director is not legally entitled. Article VI of the
registrant's Amended and Restated Articles of Incorporation contains
provisions implementing, to the fullest extent permitted by Washington law,
such limitations on a director's liability to the registrant and its
shareholders.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<C> <S>
2.1 --Agreement and Plan of Merger dated April 26, 1998, by and between
ARIS Corporation ("ARIS") and InTime Systems International, Inc.
("InTime").
3.1* --Amended and Restated Articles of Incorporation of ARIS.
3.2* --Amended and Restated Bylaws of ARIS.
4.1* --Articles IV and V of the Amended and Restated Articles of ARIS (filed
as Exhibit 3.1).
4.2* --Articles II, IV, VI, VII, IX, X and XI of the Amended and Restated
Bylaws of ARIS (filed as Exhibit 3.2).
4.3** --Form of ARIS Warrant
5.1** --Opinion of Van Valkenberg Furber Law Group, P.L.L.C. as to legality
of shares to be issued.
8.1 --Opinion of Price Waterhouse as to certain federal income tax
consequences. See Report of Independent Accountants on page F-2 to
this Registration Statement.
11.1 --Statement re computation of per share earnings.
21.1 --List of the Company's Subsidiaries.
23.1** --Consent of Van Valkenberg Furber Law Group P.L.L.C. (Included in
Exhibit 5.1).
23.2 --Consent of Price Waterhouse LLP, independent certified public
accountants for ARIS.
23.3 --Consent of Price Waterhouse LLP, independent certified public
accountants for InTime.
23.4** --Consent of Moores Rowland Chartered Accountants.
24.1 --Power of Attorney (Included in the signature page to this
Registration Statement).
27.1 --Financial Data Schedule.
</TABLE>
- --------
(*) Filed as an exhibit to the Form S-1 Registration Statement (No. 333-
25409), as amended through the date hereof and incorporated herein by
reference.
(**) To be filed by amendment.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
II-1
<PAGE>
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
(4) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(5) That every prospectus: (i) that is filed pursuant to paragraph (2)
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Securities Act of 1933 and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(6) To respond to requests for information that is incorporated by reference
into the Prospectus pursuant to Items 4, 10(b), 11 or 13 of this Form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
the Registration Statement through the date of responding to the request.
(7) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when it
became effective.
Insofar as the indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
II-2
<PAGE>
SIGNATURES
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF SEATTLE,
STATE OF WASHINGTON, ON MAY 4, 1998.
ARIS CORPORATION
By /s/ Paul Y. Song
-----------------------------------
PAUL Y. SONG
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints Paul Y. Song and Thomas W. Averill, or either
of them, such person's true and lawful attorneys-in-fact and agents, with full
power of substitution, and resubstitution, for such person and in such
person's name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and
necessary to be done as fully to all intents and purposes as such person might
or could do in person, hereby ratify and confirming all that said attorneys-
in-fact and agents, or any substitute or substitutes of any of them, may
lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Paul Y. Song Chairman, President and Chief May 4, 1998
- -------------------------------------- Executive Officer (Principle
PAUL Y. SONG Executive Officer)
/s/ Thomas W. Averill Vice President, Finance and Chief May 4, 1998
- -------------------------------------- Financial Officer (Principle
THOMAS W. AVERILL Financial and Accounting Officer)
/s/ Kendall W. Kunz Senior Vice President of North May 4, 1998
- -------------------------------------- America and Director
KENDALL W. KUNZ
/s/ Bruce R. Kennedy Director May 4, 1998
- --------------------------------------
BRUCE R. KENNEDY
/s/ Kenneth A. Williams Director May 4, 1998
- --------------------------------------
KENNETH A. WILLIAMS
</TABLE>
II-3
<PAGE>
ARIS CORPORATION
FINANCIAL STATEMENT SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES--HISTORICAL
<TABLE>
<CAPTION>
BALANCE AT CHARGE TO BALANCE AT
BEGINNING OF COSTS AND END OF
PERIOD EXPENSES DEDUCTIONS PERIOD
------------ --------- ---------- ----------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Allowance for doubtful accounts... $ 53,050 $ 68,200 $(15,050) $106,200
YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful accounts... $106,200 $233,423 $(60,623) $279,000
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts... $279,000 $ 50,553 $(29,553) $300,000
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts... $300,000 $391,000 $(49,000) $642,000
</TABLE>
ARIS CORPORATION
FINANCIAL STATEMENT SCHEDULE II--VALUATION AND
QUALIFYING ACCOUNTS AND RESERVES--SUPPLEMENTARY
<TABLE>
<CAPTION>
BALANCE AT CHARGE TO BALANCE AT
BEGINNING OF COSTS AND END OF
PERIOD EXPENSES DEDUCTIONS PERIOD
------------ --------- ---------- ----------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful accounts... $106,200 $233,423 $(60,623) $279,000
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts... $279,000 $ 53,553 $(29,553) $303,000
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts... $303,000 $397,000 $(49,000) $651,000
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
2.1 --Agreement and Plan of Merger dated April 26, 1998, by and between
ARIS Corporation ("ARIS") and InTime Systems International, Inc.
("InTime").
3.1* --Amended and Restated Articles of Incorporation of ARIS.
3.2* --Amended and Restated Bylaws of ARIS.
4.1* --Articles IV and V of the Amended and Restated Articles of ARIS (filed
as Exhibit 3.1).
4.2* --Articles II, IV, VI, VII, IX, X and XI of the Amended and Restated
Bylaws of ARIS (filed as Exhibit 3.2).
4.3** --Form of ARIS Warrant
5.1** --Opinion of Van Valkenberg Furber Law Group, P.L.L.C. as to legality
of shares to be issued.
8.1 --Opinion of Price Waterhouse as to certain federal income tax
consequences. See Report of Independent Accountants on F-2 to this
Registration Statement.
11.1 --Statement re computation of per share earnings
21.1 --List of the Company's Subsidiaries.
23.1** --Consent of Van Valkenberg Furber Law Group P.L.L.C. (Included in
Exhibit 5.1).
23.2 --Consent of Price Waterhouse LLP, independent certified public
accountants for ARIS.
23.3 --Consent of Price Waterhouse LLP, independent certified public
accountants for InTime.
23.4 --Consent of Moores Rowland Chartered Accountants.
24.1 --Power of Attorney (Included in the signature page to this
Registration Statement)
27.1 --Financial Data Schedule
</TABLE>
- --------
(*) Filed as an exhibit to the Form S-1 Registration Statement (No. 333-25409),
as amended through the date hereof and incorporated herein by reference.
(**) To be filed by amendment
<PAGE>
EXHIBIT 2.1
EXHIBITS TO THE AGREEMENT AND PLAN OF MERGER HAVE BEEN OMITTED
PURSUANT TO ITEM 601(b)(2) OF REGULATION S-K. THE REGISTRANT
SHALL FURNISH SUPPLEMENTARY A COPY OF ANY OMITTED EXHIBITS TO
THE SECURITIES AND EXCHANGE COMMISSION UPON REQUEST.
AGREEMENT AND PLAN OF MERGER
BETWEEN
ARIS CORPORATION
AND
INTIME SYSTEMS INTERNATIONAL, INC.
APRIL 26, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Definitions............................................................. A-1
2. Basic Transaction....................................................... A-3
(a)The Merger............................................................ A-3
(b)The Closing........................................................... A-3
(c)Actions at the Closing................................................ A-3
(d)Effect of Merger...................................................... A-3
(e)Procedure for Exchange of Target Shares, Warrants and Options......... A-5
(f)Closing of Transfer Records........................................... A-5
3. Representations and Warranties of the Target............................ A-5
(a)Organization, Qualification, and Corporate Power...................... A-6
(b)Capitalization........................................................ A-6
(c)Authorization of Transaction.......................................... A-6
(d)Noncontravention...................................................... A-6
(e)Filings with the SEC.................................................. A-6
(f)Financial Statements.................................................. A-6
(g)Events Subsequent to Most Recent Fiscal Period End.................... A-7
(h)Undisclosed Liabilities............................................... A-7
(i)First Quarter Results of Operations................................... A-7
(j)Brokers' Fees......................................................... A-7
(k)Continuity of Business Enterprise..................................... A-7
(l)Disclosure............................................................ A-7
(m)Litigation............................................................ A-7
(n)Pooling Treatment..................................................... A-7
4. Representations and Warranties of the Buyer............................. A-8
(a)Organization.......................................................... A-8
(b)Capitalization........................................................ A-8
(c)Authorization of Transaction.......................................... A-8
(d)Noncontravention...................................................... A-8
(e)Filings with the SEC.................................................. A-8
(f)Financial Statements.................................................. A-9
(g)Events Subsequent to Most Recent Fiscal Year End...................... A-9
(h)First Quarter Results of Operations................................... A-9
(i)Undisclosed Liabilities............................................... A-9
(j)Brokers' Fees......................................................... A-9
(k)Continuity of Business Enterprise..................................... A-9
(l)Disclosure............................................................ A-9
(m)Litigation............................................................ A-9
(n)Pooling Treatment..................................................... A-10
5. Covenants............................................................... A-10
(a)General............................................................... A-10
(b)Notices and Consents.................................................. A-10
(c)Regulatory Matters and Approvals...................................... A-10
(d)Fairness Opinion and Comfort Letters.................................. A-10
(e)Listing of Buyer Shares............................................... A-11
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
(f)Operation of Business................................................. A-11
(g)Full Access........................................................... A-11
(h)Notice of Developments................................................ A-11
(i)Insurance and Indemnification......................................... A-11
(j)Continuity of Business Enterprise..................................... A-12
(k)Pooling; Affiliate Certificate........................................ A-12
(l)Pooling............................................................... A-12
(m)Solicitation.......................................................... A-12
(n)Post-Closing Covenants................................................ A-13
6. Conditions to Obligation to Close....................................... A-13
(a)Conditions to Obligation of the Buyer................................. A-13
(b)Conditions to Obligation of the Target................................ A-14
7. Termination............................................................. A-15
(a)Termination of Agreement.............................................. A-15
(b)Effect of Termination................................................. A-16
8. Miscellaneous........................................................... A-16
(a)Survival.............................................................. A-16
(b)Press Releases and Public Announcements............................... A-16
(c)No Third Party Beneficiaries.......................................... A-16
(d)Entire Agreement...................................................... A-17
(e)Succession and Assignment............................................. A-17
(f)Counterparts.......................................................... A-17
(g)Headings.............................................................. A-17
(h)Notices............................................................... A-17
(i)Governing Law......................................................... A-18
(j)Amendments and Waivers................................................ A-18
(k)Severability.......................................................... A-18
(l)Expenses.............................................................. A-18
(m)Construction.......................................................... A-18
(n)Incorporation of Exhibits and Schedules............................... A-18
</TABLE>
Exhibit A-1--Articles of Merger
Exhibit A-2--Certificate of Merger
Exhibit B--Form of Letter of Transmittal
Exhibit C--Permitted Investments
Exhibit D--Target March 31, 1998 Income Statement
Exhibit E--Buyer March 31, 1998 Income Statement
Exhibit F--Form of Affiliate Certificate from Certain Target Stockholders
Exhibit G--Form of Opinion of Counsel to the Target
Exhibit H--Form of Opinion of Accountants Regarding Tax-Free Nature of the
Merger
Exhibit I--Form of Opinion of Counsel to the Buyer
Exhibit J--Form of Agreement to be Bound by Registration Rights Agreement
Exhibit K--Form of Employment Agreement of William E. Berry
Exhibit L--Form of Employment Agreement of Michael D. Matte
Schedule 1--Illustration of Conversion Ratio
Disclosure Schedule--Exceptions to Representations and Warranties
(ii)
<PAGE>
AGREEMENT AND PLAN OF MERGER
Agreement entered into as of April 26, 1998 by and between ARIS Corporation,
a Washington corporation (the "Buyer"), and InTime Systems International,
Inc., a Delaware corporation (the "Target"). The Buyer and the Target are
referred to collectively herein as the "Parties."
This Agreement contemplates a tax-free merger of the Target with and into
the Buyer in a reorganization pursuant to Code Section 368(a)(1)(A). The
Target Stockholders will receive capital stock in the Buyer in exchange for
their capital stock in the Target. The Parties expect that the Merger will
further certain of their business objectives including, without limitation,
(i) the expansion of Buyer's capabilities in human resource systems,
particularly with PeopleSoft and Oracle software, (ii) the acquisition by
Buyer of consulting offices in two strategic locations, thereby strengthening
its nationwide presence, and (iii) the Target's ability to broaden its service
offerings and geographic coverage in combination with those of Buyer.
Now, therefore, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Articles of Merger" have the meaning set forth in Section 2(c) below.
"Buyer" has the meaning set forth in the preface above.
"Buyer-owned Share" means any Target Share that the Buyer owns beneficially.
"Buyer Comfort Letter" has the meaning set forth in Section 5(d) below.
"Buyer Public Report" has the meaning set forth in Section 4(e) below.
"Buyer Share" means any share of the Common Stock, without par value, of the
Buyer.
"Certificate of Merger" has the meaning set forth in Section 2(c) below.
"Closing" has the meaning set forth in Section 2(b) below.
"Closing Date" has the meaning set forth in Section 2(b) below.
"Confidential Information" means any information concerning the businesses
and affairs of the Target and its Subsidiaries that is not already generally
available to the public.
"Conversion Ratio" has the meaning set forth in Section 2(d)(v) below.
"Definitive Target Proxy Materials" means the definitive proxy materials
relating to the Special Target Meeting.
"Delaware General Corporation Law" means the General Corporation Law of the
State of Delaware, as amended.
"Disclosure Schedule" has the meaning set forth in Section 3 below.
"Dissenting Share" means any Target Share as to which the holder of record
has exercised his or its appraisal rights under the Delaware General
Corporation Law.
A-1
<PAGE>
"Effective Time" has the meaning set forth in Section 2(d)(i) below.
"Escrow Agreement" means that certain Escrow Agreement dated as of February
16, 1995, by and among American Stock Transfer and Trust Company, Target and
the holders of Escrow Shares and Escrow Options.
"Escrow Option" means an option to purchase one share of Class A Common
Stock, par value $.01 per share of the Target, which is subject to the Escrow
Agreement.
"Escrow Share" means one of the 1,934,206 shares of Class B Common Stock,
par value $.01 per share, of the Target, subject to the Escrow Agreement.
"Exchange Agent" has the meaning set forth in Section 2(e)(i) below.
"Fairness Opinion" has the meaning set forth in Section 5(d)(i) below.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"IRS" means the Internal Revenue Service.
"Joint Disclosure Document" means the disclosure document combining the
Prospectus and the Definitive Target Proxy Materials.
"Knowledge" means actual knowledge after reasonable investigation.
"Merger" has the meaning set forth in Section 2(a) below.
"Merger Filings" has the meaning set forth in Section 2(c) below.
"Most Recent Fiscal Period End" has the meaning set forth in Section 3(f)
below.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity
and frequency).
"Party" has the meaning set forth in the preface above.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"Pre-Announcement Buyer Share Price" means $34.56 per Buyer Share.
"Prospectus" means the final prospectus relating to the registration of the
Buyer Shares under the Securities Act.
"Registration Statement" has the meaning set forth in Section 5(c)(i) below.
"Requisite Target Stockholder Approval" means the affirmative vote in favor
of this Agreement and the Merger by the holders of a majority of the Target
Shares present in person or by proxy at the Special Target Meeting.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
A-2
<PAGE>
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen's,
landlord's and similar liens, (b) liens for taxes not yet due and payable or
for taxes that the taxpayer is contesting in good faith through appropriate
proceedings, (c) purchase money liens and liens securing rental payments under
capital lease arrangements, and (d) other liens arising in the Ordinary Course
of Business and not incurred in connection with the borrowing of money.
"Special Target Meeting" has the meaning set forth in Section 5(c)(ii)
below.
"Subsidiary" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of
the directors.
"Surviving Corporation" has the meaning set forth in Section 2(a) below.
"Target" has the meaning set forth in the preface above.
"Target Public Report" has the meaning set forth in Section 3(e) below.
"Target Share" means any share of the Class A Common Stock, par value $.01
per share of the Target, and shall not include any Escrow Share or any Target
Share underlying any Escrow Options.
"Target Share Price" means $9.20 per Target Share.
"Target Stockholder" means any Person who or which holds any Target Shares.
"Washington Business Corporation Act" means the Washington Business
Corporation Act, as amended.
2. Basic Transaction.
(a) The Merger. On and subject to the terms and conditions of this
Agreement, the Target will merge with and into the Buyer (the "Merger") at the
Effective Time. The Buyer shall be the corporation surviving the Merger (the
"Surviving Corporation").
(b) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Van Valkenberg
Furber Law Group P.L.L.C. in Seattle, Washington, commencing at 9:00 a.m.
local time on the first business day following the satisfaction or waiver of
all conditions to the obligations of the Parties to consummate the
transactions contemplated hereby (other than conditions with respect to
actions the respective Parties will take at the Closing itself) or such other
date as the Parties may mutually determine (the "Closing Date").
(c) Actions at the Closing. At the Closing, (i) the Target will deliver to
the Buyer the various certificates, instruments, and documents referred to in
Section 6(a) below, (ii) the Buyer will deliver to the Target the various
certificates, instruments, and documents referred to in Section 6(b) below,
(iii) the Buyer and the Target will file, with the Secretary of State of the
State of Washington the Articles of Merger in the form attached hereto as
Exhibit A-1 and, with the Secretary of State of the State of Delaware, a
Certificate of Merger in the form attached hereto as Exhibit A-2, in
accordance with the Washington Business Corporation Act and the Delaware
General Corporation Law, respectively (the "Merger Filings") and (iv) the
Buyer will deliver to the Exchange Agent in the manner provided below in this
Section 2 the certificate evidencing the Buyer Shares issued in the Merger.
(d) Effect of Merger.
(i) General. The Merger shall become effective at the time (the
"Effective Time") the Buyer and the Target complete the Merger Filings. The
Merger shall have the effect set forth in the Washington Business
Corporation Act and the Delaware General Corporation Law. The Surviving
Corporation may, at any time after the Effective Time, take any action
(including executing and delivering any document) in the name
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and on behalf of either the Buyer or the Target in order to carry out and
effectuate the transactions contemplated by this Agreement.
(ii) Articles of Incorporation. The Articles of Incorporation of the
Buyer in effect at and as of the Effective Time will remain the Articles of
Incorporation of the Surviving Corporation without any modification or
amendment in the Merger.
(iii) Bylaws. The Bylaws of the Buyer in effect at and as of the
Effective Time will remain the Bylaws of the Surviving Corporation without
any modification or amendment in the Merger.
(iv) Directors and Officers. The directors and officers of the Buyer in
office at and as of the Effective Time will remain the directors and
officers of the Surviving Corporation (retaining their respective positions
and terms of office).
(v) Conversion of Target Shares. At and as of the Effective Time:
(A) each Target Share (other than any Dissenting Share or Buyer-owned
Share) shall be converted into the right to receive 0.266 Buyer Shares;
(B) each outstanding warrant to purchase a Target Share shall be
converted into the right to receive a warrant of like tenor and quality
to purchase 0.266 Buyer Shares at an exercise price equal to (1) the
exercise price of such outstanding warrant divided by the Target Share
Price (2) multiplied by the Pre-Announcement Buyer Share Price;
(C) each outstanding option to purchase a Target Share shall be
converted into the right to receive an option of like tenor and quality
to purchase 0.266 Buyer Shares at an exercise price equal to (1) the
exercise price of such outstanding option divided by the Target Share
Price (2) multiplied by the Pre-Announcement Buyer Share Price;
(D) each Dissenting Share shall be converted into the right to
receive payment from the Surviving Corporation with respect thereto in
accordance with the provisions of the Delaware General Corporation Law;
(E) each Buyer-owned Share shall be canceled; and
(F) each Target Share held in Target's treasury shall be canceled.
The ratio of Buyer Shares to one Target Share is referred to herein as the
"Conversion Ratio." The Conversion Ratio has been determined by dividing (1)
Thirty-Three Million Dollars ($33,000,000) less the value of all Target
Warrants ($5,367,375) and Target Options ($3,462,737) outstanding as of the
date of this Agreement by (2) $34.56, which is the average closing price for
one Buyer Share as reported by the Nasdaq National Market for the ten trading
days from the earlier of (i) the first public announcement of the Merger or
(ii) the date of this Agreement (the "Pre-Announcement Buyer Share Price")
which quotient shall be divided by the outstanding number of Target Shares,
and shall be subject to (x) equitable adjustment in the event of any stock
split, stock dividend, reverse stock split, or other change in the number of
Target Shares outstanding and (y) price adjustment in the event that the
average closing price for one Buyer Share as reported on by the Nasdaq
National Market for the ten trading days immediately preceding the Closing
Date has dropped by more than 8.85% from the Pre-Announcement Buyer Share
Price, in which case the formulas set forth above shall be adjusted to reflect
the average closing price for one Buyer Share as reported by the Nasdaq
National Market for the ten trading days immediately preceding the Closing
Date. No Target Share shall be deemed to be outstanding or to have any rights
other than those set forth above in this Section 2(d)(v) after the Effective
Time. Schedule 1 attached hereto illustrates how the Parties intend the
Conversion Ratio to operate (without giving effect to any subsequent equitable
or price adjustments).
(vi) Buyer Shares. Each Buyer Share issued and outstanding at and as of
the Effective Time will remain issued and outstanding.
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(e) Procedure for Exchange of Target Shares, Warrants and Options.
(i) Immediately after the Effective Time, (A) the Buyer will furnish to
ChaseMellon Shareholder Services (the "Exchange Agent") a list of the
names, addresses, certificate numbers, certificate amounts and certificate
dates with respect to the Target Shares, warrants to purchase Target Shares
(the "Target Warrants"), Target Stockholders, and Target Warrant holders
and (B) the Buyer will cause the Exchange Agent to mail a letter of
transmittal (with instructions for its use) in the form attached hereto as
Exhibit B to each record holder of outstanding Target Shares or Target
Warrants, as the case may be, for the holder thereof to use in surrendering
the certificates which represented his or its Target Shares or Target
Warrants in exchange for a certificate representing the number of Buyer
Shares or warrants to purchase Buyer Shares (the "Buyer Warrants") to which
he or it is entitled.
(ii) The Buyer will not pay any dividend or make any distribution on
Buyer Shares (with a record date at or after the Effective Time) to any
record holder of outstanding Target Shares until the holder surrenders for
exchange his or its certificates which represented Target Shares. The Buyer
instead will pay the dividend or make the distribution to the Exchange
Agent in trust for the benefit of the holder pending surrender and
exchange. The Buyer may cause the Exchange Agent to invest any cash the
Exchange Agent receives from the Buyer as a dividend or distribution in one
or more of the permitted investments set forth on Exhibit C attached
hereto; provided, however, that the terms and conditions of the investments
shall be such as to permit the Exchange Agent to make prompt payments of
cash to the holders of outstanding Target Shares as necessary. The Buyer
may cause the Exchange Agent to pay over to the Buyer any net earnings with
respect to the investments, and the Buyer will replace promptly any cash
which the Exchange Agent loses through investments. In no event, however,
will any holder of outstanding Target Shares be entitled to any interest or
earnings on the dividend or distribution pending receipt.
(iii) The Buyer may cause the Exchange Agent to return any Buyer Shares
and dividends and distributions thereon, or any Buyer Warrants (including
any additional Buyer Warrants issued upon adjustments thereto), remaining
unclaimed 180 days after the Effective Time, and thereafter each remaining
record holder of outstanding Target Shares or holder of Target Warrants
shall be entitled to look to the Buyer (subject to abandoned property,
escheat, and other similar laws) as a general creditor thereof with respect
to the Buyer Shares and dividends and distributions thereon, or the Buyer
Warrants, to which he or it is entitled upon surrender of his or its
certificates.
(iv) The Buyer shall pay all charges and expenses of the Exchange Agent.
(v) Immediately after the Effective Time, the Buyer will furnish to each
holder of outstanding options to purchase Target Shares ("Target Options")
a confirmation of outstanding Options (with instructions for its use) for
the holder to use in confirming the number of Target Options, exercise
price and vesting schedule and in surrendering all written Option
agreements, if any, which represented his or her Target Options in exchange
for a Stock Option Letter Agreement or Agreements representing options to
purchase Buyer Shares (the "Buyer Options") to which he or she is entitled.
(f) Closing of Transfer Records. From and after the Effective Time, the
transfer books of the Target shall be closed and no transfer of Target Shares,
or instruments convertible into Target Shares, shall thereafter be made. If,
after the Effective Time certificates formerly representing Target Shares, or
instruments convertible into Target Shares, are presented to the Buyer, they
shall be canceled and exchanged for certificates representing Buyer Shares, or
instruments convertible into Buyer Shares, as set forth in Section 2(d)(v)
hereof.
3. Representations and Warranties of the Target. The Target represents and
warrants to the Buyer that the statements contained in this Section 3 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section
3), except as set forth in the disclosure schedule accompanying this Agreement
and initialed by the Parties (the "Disclosure Schedule"). The Disclosure
Schedule will be arranged in paragraphs corresponding to the lettered and
numbered paragraphs contained in this Section 3.
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(a) Organization, Qualification, and Corporate Power. Each of the Target and
its Subsidiaries is a corporation duly organized, validly existing, and in
good standing under the laws of the jurisdiction of its incorporation. Each of
the Target and its Subsidiaries is duly authorized to conduct business and is
in good standing under the laws of each jurisdiction where such qualification
is required, except where the lack of such qualification would not have a
material adverse effect on the financial condition of the Target and its
Subsidiaries taken as a whole or on the ability of the Parties to consummate
the transactions contemplated by this Agreement. Each of the Target and its
Subsidiaries has full corporate power and authority to carry on the businesses
in which it is engaged and to own and use the properties owned and used by it.
(b) Capitalization. The entire authorized capital stock of the Target
consists of 20,000,000 Target Shares, of which 2,626,815 Target Shares are
issued and outstanding and no Target Shares are held in treasury. All of the
issued and outstanding Target Shares have been duly authorized and are validly
issued, fully paid, and nonassessable. Schedule 1 sets forth the outstanding
Target Options and Target Warrants, or other outstanding or authorized
purchase rights, subscription rights, conversion rights, exchange rights, or
other contracts or commitments that could require the Target to issue, sell,
or otherwise cause to become outstanding any of its capital stock. In
addition, Target has Escrow Shares and Escrow Options subject to the Escrow
Agreement. There are no outstanding or authorized stock appreciation, phantom
stock, profit participation, or similar rights with respect to the Target.
(c) Authorization of Transaction. The Target has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder; provided, however, that
the Target cannot consummate the Merger unless and until it receives the
Requisite Target Stockholder Approval. This Agreement constitutes the valid
and legally binding obligation of the Target, enforceable in accordance with
its terms and conditions.
(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which any of the Target and its Subsidiaries
is subject or any provision of the charter or bylaws of any of the Target and
its Subsidiaries or (ii) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument or other arrangement to which
any of the Target and its Subsidiaries is a party or by which it is bound or
to which any of its assets is subject (or result in the imposition of any
Security Interest upon any of its assets), except where the violation,
conflict, breach, default, acceleration, termination, modification,
cancellation, or failure to give notice would not have a material adverse
effect on the ability of the Parties to consummate the transactions
contemplated by this Agreement. Other than in connection with the provisions
of the Washington Business Corporation Act, the Delaware General Corporation
Law, the Securities Exchange Act, the Securities Act, and the state securities
laws, none of the Target and its Subsidiaries need to give any notice to, make
any filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(e) Filings with the SEC. The Target has made all filings with the SEC that
it has been required to make under the Securities Act and the Securities
Exchange Act (collectively the "Target Public Reports"). Each of the Target
Public Reports has complied in all material respects with the Securities Act
and the Securities Exchange Act in effect as of their respective dates. None
of the Target Public Reports, as of their respective dates, contained any
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Target has
delivered to the Buyer a correct and complete copy of each Target Public
Report (together with all exhibits and schedules thereto and as amended to
date).
(f) Financial Statements. The Target has filed an Annual Report on Form 10-
KSB for the fiscal year ended December 31, 1997 (the "Most Recent Fiscal
Period End"). The financial statements included in or
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incorporated by reference into such Target Public Report (including the
related notes and schedules) have been prepared in accordance with GAAP
applied on a consistent basis throughout the periods covered thereby, present
fairly the financial condition of the Target and its Subsidiaries as of the
indicated dates and the results of operations of the Target and its
Subsidiaries for the indicated periods, are correct and complete in all
material respects, and are consistent with the books and records of the Target
and its Subsidiaries.
(g) Events Subsequent to Most Recent Fiscal Period End. Since the Most
Recent Fiscal Period End, there has not been any change which would have a
material adverse effect on the business, financial condition, operations,
results of operations, or future prospects of the Target and its Subsidiaries
taken as a whole.
(h) Undisclosed Liabilities. Neither the Target nor any of its Subsidiaries
has any obligations or liabilities (contingent or otherwise) except
obligations and liabilities (i) that are fully accrued or provided for in all
material respects in the consolidated balance sheet of the Target as of
December 31, 1997 in accordance with GAAP, or disclosed in the notes therein
in accordance with GAAP, (ii) that were incurred after December 31, 1997 in
the Ordinary Course of Business (none of which results from, arises out of,
relates to, is in the nature of, or was caused by any breach of contract,
breach of warranty, tort, infringement, or violation of law), or (iii) that
either individually or in the aggregate would not have a material adverse
effect on the business, financial condition, operations, results of
operations, or future prospects of the Target and its Subsidiaries taken as a
whole. All material agreements currently in effect, including all material
agreements, arrangements or understandings with directors and officers of the
Target are or will be filed as Exhibits to the Target Public Reports.
(i) First Quarter Results of Operations. Attached hereto as Exhibit D is the
consolidated statement of operations of the Target for the quarter ended March
31, 1998 (the "Target March 31, 1998 Income Statement"). The Target March 31,
1998 Income Statement complies, as of the date thereof, in all material
respects with the Securities Exchange Act and the rules and regulations of the
SEC promulgated thereunder, presents fairly the results of operations of the
Target and its Subsidiaries for such quarter, and is correct and complete in
all material respects.
(j) Brokers' Fees. None of the Target and its Subsidiaries has any liability
or obligation to pay any fees or commissions to any broker, finder, or agent
with respect to the transactions contemplated by this Agreement.
(k) Continuity of Business Enterprise. The Target operates at least one
significant historic business line, or owns at least a significant portion of
its historic business assets, in each case within the meaning of Reg. Section
1.368-1(d).
(l) Disclosure. The Definitive Target Proxy Materials will comply with the
Securities Exchange Act in all material respects. The Definitive Target Proxy
Materials will not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they will be made, not
misleading; provided, however, that the Target makes no representation or
warranty with respect to any information that the Buyer will supply
specifically for use in the Definitive Target Proxy Materials. None of the
information that the Target will supply specifically for use in the
Registration Statement, or the Prospectus will contain any untrue statement of
a material fact or omit to state a material fact necessary in order to make
the statements made therein, in the light of the circumstances under which
they will be made, not misleading.
(m) Litigation. The Target is not (i) subject to any outstanding injunction,
judgment, order, decree, ruling, or charge or (ii) a party to or, to the
Knowledge of any directors or executive officers of the Target, threatened to
be made a party to, any action, suit, proceeding, hearing, or investigation
of, in, or before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator.
(n) Pooling Treatment. To the Knowledge of any directors or executive
officers of Target, there are no events or circumstances relating to Target
which would preclude Target's ability to enter into a transaction to be
accounted for as a "pooling of interests" under GAAP.
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4. Representations and Warranties of the Buyer. The Buyer represents and
warrants to the Target that the statements contained in this Section 4 are
correct and complete as of the date of this Agreement and will be correct and
complete as of the Closing Date (as though made then and as though the Closing
Date were substituted for the date of this Agreement throughout this Section
4), except as set forth in the Disclosure Schedule. The Disclosure Schedule
will be arranged in paragraphs corresponding to the numbered and lettered
paragraphs contained in this Section 4.
(a) Organization. The Buyer is a corporation duly organized and validly
existing under the laws of the jurisdiction of its incorporation. Each of the
Buyer and its Subsidiaries is duly authorized to conduct business and is in
good standing under the laws of each jurisdiction where such qualification is
required, except where the lack of such qualification would not have a
material adverse effect on the financial condition of the Buyer and its
Subsidiaries taken as a whole or on the ability of the Parties to consummate
the transactions contemplated by this Agreement. Each of the Buyer and its
Subsidiaries has full corporate power and authority to carry on the businesses
in which it is engaged and to own and use the properties owned and used by it.
(b) Capitalization. The entire authorized capital stock of the Buyer
consists of 100,000,000 Buyer Shares, of which 10,302,353 Buyer Shares are
issued and outstanding, and 5,000,000 shares of preferred stock, without par
value, none of which are issued and outstanding. All of the Buyer Shares to be
issued in the Merger have been duly authorized and, upon consummation of the
Merger, will be validly issued, fully paid, and nonassessable. All other Buyer
Shares have been duly authorized and are validly issued, fully paid and
nonassessable. All of the Buyer Shares to be issued upon exercise of the Buyer
Warrants and Buyer Options have been duly authorized, and, upon exercise
thereof, will be validly issued, fully paid and nonassessable. Except as
disclosed in or contemplated by the Buyer Public Reports, there are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require the Buyer to issue, sell, or otherwise cause to become
outstanding any of its capital stock.
(c) Authorization of Transaction. The Buyer has full power and authority
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement constitutes
the valid and legally binding obligation of the Buyer, enforceable in
accordance with its terms and conditions.
(d) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Buyer is subject or any provision
of the charter or bylaws of the Buyer or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify, or cancel, or require
any notice under any agreement, contract, lease, license, instrument or other
arrangement to which the Buyer is a party or by which it is bound or to which
any of its assets is subject, except where the violation, conflict, breach,
default, acceleration, termination, modification, cancellation, or failure to
give notice would not have a material adverse effect on the ability of the
Parties to consummate the transactions contemplated by this Agreement. Other
than in connection with the provisions of the Washington Business Corporation
Act, the Delaware General Corporation Law, the Securities Exchange Act, the
Securities Act, and the state securities laws, none of the Buyer and its
Subsidiaries needs to give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental agency
in order for the Parties to consummate the transactions contemplated by this
Agreement.
(e) Filings with the SEC. The Buyer has made all filings with the SEC that
it has been required to make under the Securities Act and the Securities
Exchange Act (collectively the "Buyer Public Reports"). Each of the Buyer
Public Reports has complied in all material respects with the Securities Act
and the Securities Exchange Act in effect as of their respective dates. None
of the Buyer Public Reports, as of their respective dates, contained any
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
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(f) Financial Statements. The Buyer has filed an Annual Report on Form 10-K
for the fiscal year ended December 31, 1997 (the "Most Recent Fiscal Period
End"). The financial statements included in or incorporated by reference into
such Buyer Public Report (including the related notes and schedules) have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods covered thereby, present fairly the financial condition of the Buyer
and its Subsidiaries as of the indicated dates and the results of operations
of the Buyer and its Subsidiaries for the indicated periods, are correct and
complete in all material respects, and are consistent with the books and
records of the Buyer and its Subsidiaries.
(g) Events Subsequent to Most Recent Fiscal Year End. Since the Most Recent
Fiscal Period End, there has not been any change which would have a material
adverse effect on the business, financial condition, operations, results of
operations, or future prospects of the Buyer and its Subsidiaries taken as a
whole.
(h) First Quarter Results of Operations. Attached hereto as Exhibit E is the
consolidated statement of income of the Buyer for the quarter ended March 31,
1998 (the "Buyer March 31, 1998 Income Statement"). The Buyer March 31, 1998
Income Statement complies, as of the date thereof, in all material respects
with the Securities Exchange Act and the rules and regulations of the SEC
promulgated thereunder, presents fairly the results of operations of the Buyer
and its Subsidiaries for such quarter, and is correct and complete in all
material respects.
(i) Undisclosed Liabilities. Neither the Buyer nor any of its Subsidiaries
has any obligations or liabilities (contingent or otherwise) except
obligations and liabilities (i) that are fully accrued or provided for in all
material respects in the consolidated balance sheet of the Buyer as of
December 31, 1997 in accordance with GAAP, or disclosed in the notes therein
in accordance with GAAP, (ii) that were incurred after December 31, 1997 in
the Ordinary Course of Business (none of which results from, arises out of,
relates to, is in the nature of, or was caused by any breach of contract,
breach of warranty, tort, infringement, or violation of law), or (iii) that
either individually or in the aggregate would not have a material adverse
effect on the business, financial condition, operations, results of
operations, or future prospects of the Buyer and its Subsidiaries taken as a
whole. All material agreements currently in effect, including all agreements,
arrangements or understandings with directors and officers of the Target are
filed as Exhibits to the Target Public Reports.
(j) Brokers' Fees. The Buyer does not have any liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement for which any of the Target
and its Subsidiaries could become liable or obligated.
(k) Continuity of Business Enterprise. It is the present intention of the
Buyer to continue at least one significant historic business line of the
Target, or to use at least a significant portion of the Target's historic
business assets in a business, in each case within the meaning of Reg. Section
1.368-1(d).
(l) Disclosure. The Registration Statement and the Prospectus will comply
with the Securities Act and the Securities Exchange Act in all material
respects. The Registration Statement and the Prospectus will not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made therein, in the light of the
circumstances under which they will be made, not misleading; provided,
however, that the Buyer makes no representation or warranty with respect to
any information that the Target will supply specifically for use in the
Registration Statement and the Prospectus. None of the information that the
Buyer will supply specifically for use in the Definitive Target Proxy
Materials will contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made therein,
in the light of the circumstances under which they will be made, not
misleading.
(m) Litigation. The Buyer is not (i) subject to any outstanding injunction,
judgment, order, decree, ruling, or charge or (ii) a party to or, to the
Knowledge of any directors or executive officers of the Buyer, threatened to
be made a party to, any action, suit, proceeding, hearing, or investigation
of, in, or before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator.
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(n) Pooling Treatment. To the Knowledge of any directors or executive
officers of Buyer, there are no events or circumstances relating to Buyer
which would preclude Buyer's ability to enter into a transaction to be
accounted for as a "pooling of interests" under GAAP.
5. Covenants. The Parties agree as follows with respect to the period from
and after the execution of this Agreement through the earlier of Closing or
termination of this Agreement.
(a) General. Each of the Parties will use its reasonable best efforts to
take all action and to do all things necessary, proper, or advisable in order
to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions
set forth in Section 6 below).
(b) Notices and Consents. The Target will give any notices (and will cause
each of its Subsidiaries to give any notices) to third parties, and will use
its best efforts to obtain (and will cause each of its Subsidiaries to use its
best efforts to obtain) any third party consents, that the Buyer may
reasonably request in connection with the matters referred to in Section 3(d)
above.
(c) Regulatory Matters and Approvals. Each of the Parties will (and the
Target will cause each of its Subsidiaries to) give any notices to, make any
filings with, and use its best efforts to obtain any authorizations, consents,
and approvals of governments and governmental agencies in connection with the
matters referred to in Section 3(d) and Section 4(d) above. Without limiting
the generality of the foregoing:
(i) Securities Act, Securities Exchange Act, and State Securities
Laws. The Target will prepare and file with the SEC preliminary proxy
materials under the Securities Exchange Act relating to the Special Target
Meeting. The Buyer will prepare and file with the SEC a registration
statement under the Securities Act relating to the offering and issuance of
the Buyer Shares (the "Registration Statement"). The filing Party in each
instance will use its best efforts to respond to the comments of the SEC
thereon and will make any further filings (including amendments and
supplements) in connection therewith that may be necessary, proper, or
advisable. The Buyer will provide the Target, and the Target will provide
the Buyer, with whatever information and assistance in connection with the
foregoing filings that the filing Party may request. The Buyer will take
all actions that may be necessary, proper, or advisable under state
securities laws in connection with the offering and issuance of the Buyer
Shares.
(ii) Delaware General Corporation Law. The Target will call a special
meeting of its stockholders (the "Special Target Meeting") as soon as
practicable in order that the stockholders may consider and vote upon the
adoption of this Agreement and the approval of the Merger in accordance
with the Delaware General Corporation Law. The Target will mail the Joint
Disclosure Document to its stockholders and as soon as practicable. The
Joint Disclosure Document will contain the affirmative recommendation of
the board of directors of the Target in favor of the adoption of this
Agreement and the approval of the Merger; provided, however, that no
director or officer of Target shall be required to violate any fiduciary
duty or other requirement imposed by law in connection therewith.
(d) Fairness Opinion and Comfort Letters. The Target will deliver to the
Buyer on or before the date the Joint Disclosure Document is mailed to its
stockholders (i) a copy of the opinion of Raymond James & Associates, Inc. as
to the fairness of the Merger to the Target Stockholders from a financial
point of view (the "Fairness Opinion"), which copy shall be for the
information of Buyer but may not be relied upon by Buyer and (ii) a letter of
Price Waterhouse LLP stating their conclusions as to the accuracy of certain
information derived from the financial records of the Target and its
Subsidiaries and contained in the Disclosure Document (the "Target Comfort
Letter"). The Fairness Opinion shall be reasonably satisfactory to the Buyer
in form and substance. The Target Comfort Letter shall be reasonably
satisfactory to the Buyer in form and substance and shall be brought down as
of the Closing Date. The Buyer will deliver to the Target on or before the
date the Joint Disclosure Document is mailed to its stockholders a letter of
Price Waterhouse LLP stating their conclusions as to the accuracy of certain
information derived from the financial records of the Buyer and its
Subsidiaries and contained in the Joint Disclosure Document (the "Buyer
Comfort Letter"). The Buyer Comfort Letter shall be reasonably satisfactory to
the Target in form and substance and shall be brought down as of the Closing
Date.
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(e) Listing of Buyer Shares. The Buyer will use its best efforts to cause
the Buyer Shares that will be issued in the Merger to be approved for listing
on the Nasdaq National Market, subject to official notice of issuance, prior
to the Effective Time.
(f) Operation of Business. The Target will not (and will not cause or permit
any of its Subsidiaries to) engage in any practice, take any action, or enter
into any transaction outside the Ordinary Course of Business. Without limiting
the generality of the foregoing:
(i) none of the Target and its Subsidiaries will authorize or effect any
change in its charter or bylaws;
(ii) none of the Target and its Subsidiaries will grant any options,
warrants, or other rights to purchase or obtain any of its capital stock or
issue, sell, or otherwise dispose of any of its capital stock (except upon
the conversion or exercise of options, warrants, and other rights currently
outstanding);
(iii) none of the Target and its Subsidiaries will declare, set aside, or
pay any dividend or distribution with respect to its capital stock (whether
in cash or in kind), or redeem, repurchase, or otherwise acquire any of its
capital stock;
(iv) none of the Target and its Subsidiaries will issue any note, bond,
or other debt security or create, incur, assume, or guarantee any
indebtedness for borrowed money or capitalized lease obligation outside the
Ordinary Course of Business;
(v) none of the Target and its Subsidiaries will impose any Security
Interest upon any of its assets outside the Ordinary Course of Business;
(vi) none of the Target and its Subsidiaries will make any capital
investment in, make any loan to, or acquire the securities or assets of any
other Person outside the Ordinary Course of Business;
(vii) none of the Target and its Subsidiaries will make any change in
employment terms for any of its directors or executive officers, or enter
into any other arrangement or agreement with directors or executive
officers, without the prior written consent of the Buyer, and none of the
Target and its Subsidiaries will make any change in employment terms for
any of its employees outside the Ordinary Course of Business; and
(viii) none of the Target and its Subsidiaries will commit to any of the
foregoing.
(g) Full Access. The Target will (and will cause each of its Subsidiaries
to) permit representatives of the Buyer to have full access to all premises,
properties, personnel, books, records (including tax records), contracts, and
documents of or pertaining to each of the Target and its Subsidiaries. The
Buyer will (and will cause each of its employees and agents to) treat and hold
as such any Confidential Information it receives from any of the Target and
its Subsidiaries in the course of the reviews contemplated by this Section
5(g), will not use any of the Confidential Information except in connection
with this Agreement, and, if this Agreement is terminated for any reason
whatsoever, agrees to return to the Target all tangible embodiments (and all
copies) thereof which are in its possession. The provisions of this Section
5(g) relating to the Confidential Information will survive any termination of
this Agreement.
(h) Notice of Developments. Each Party will give prompt written notice to
the other of any material adverse development causing a breach of any of its
own representations and warranties in Section 3 and Section 4 above. No
disclosure by any Party pursuant to this Section 5(h), however, shall be
deemed to amend or supplement the Disclosure Schedule or to prevent or cure
any misrepresentation, breach of warranty, or breach of covenant.
(i) Insurance and Indemnification.
(i) The Buyer will provide each individual who served as a director or
officer of the Target at any time prior to the Effective Time with
liability insurance for a period of 36 months after the Effective Time in
an amount not less than $5 million and otherwise no less favorable in
coverage than any applicable insurance in effect immediately prior to the
Effective Time; and
A-11
<PAGE>
(ii) The Buyer, as the Surviving Corporation in the Merger, will observe
any indemnification provisions now existing in the certificate of
incorporation or bylaws of the Target for the benefit of any individual who
served as a director or officer of the Target at any time prior to the
Effective Time.
(j) Continuity of Business Enterprise. The Buyer will continue at least one
significant historic business line of the Target, or use at least a
significant portion of the Target's historic business assets in a business, in
each case within the meaning of Reg. Section 1.368-1(d).
(k) Pooling; Affiliate Certificate. Target will (i) not (and will cause each
of its affiliates to not) take any action after the date of this Agreement
which would have the effect of causing the Merger to fail to be accounted for
as a "pooling of interests" under GAAP; (ii) cause each of its affiliates to
sell Buyer Shares received in the Merger pursuant to Rule 144 under the
Securities Act; and (iii) cause each of its affiliates to execute an Affiliate
Certificate substantially in the form attached hereto as Exhibit F.
(l) Pooling. Buyer will not (and will cause each of its affiliates to not)
take any action after the date of this Agreement and prior to Closing which
would have the effect of causing the Merger to fail to be accounted for as a
"pooling of interests" under GAAP.
(m) Solicitation. Unless this Agreement is terminated pursuant to Section 7:
(i) The Target shall not initiate, solicit or encourage (including by way
of furnishing nonpublic information or assistance) any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to
lead to, any Competing Transaction, enter into discussions or negotiate
with any person or entity in furtherance of such inquiries or to obtain a
Competing Transaction, or agree to or endorse any Competing Transaction, or
authorize any of its respective officers or directors to take any such
action, and the Target shall instruct and use its reasonable best efforts
to cause its directors, officers, agents and representatives (including,
without limitation, any investment banker, financial advisor, attorney or
accountant retained by it) not to take any such action. If the Target
receives any offer or proposal, written or otherwise, that constitutes, or
may reasonably be expected to lead to, any Competing Transaction, the
Target promptly shall inform the Buyer of such offer or proposal and the
material terms thereof.
(ii) Nothing contained in this Agreement shall prohibit the Target,
subject to authorization by its Board of Directors, from (A) furnishing
information to, or entering into discussions or negotiations with, any
person or entity that, after the date hereof, makes a bona fide proposal to
enter into a Competing Transaction, that on or after the date hereof has
not been initiated, solicited or encouraged by the Target, (B) recommending
to its stockholders or endorsing any, or entering into any definitive
agreement with respect to any, such Competing Transaction, or (C) issue a
communication to its stockholders of the type contemplated by Rule 14d-9(e)
or 14e-2 under the Securities Exchange Act or otherwise communicate the
Board of Directors' position with respect to such proposal to enter into a
Competing Transaction to the Target's stockholders, if, with respect to
(A), (B) or (C) above, (I) the Board of Directors of the Target determines
in good faith that such Competing Transaction is reasonably capable of
being completed, taking into account all legal, financial, regulatory and
other aspects of the Competing Transaction, and would, if consummated, be
more favorable to the Company's stockholders than the transactions
contemplated by this Agreement, (II) the Board of Directors of the Target
reasonably believes that the proposal is made in good faith, and (III) the
Target provides prior notice to the Buyer.
(iii) For purposes of this Agreement, "Competing Transaction" shall mean
any of the following (other than the transactions contemplated under this
Agreement) involving the Target: (A) any merger, consolidation, share
exchange, business combination, recapitalization, liquidation, dissolution
or other similar transaction; (B) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition of substantially all of the assets of
the Target and its Subsidiaries, taken as a whole, in a single transaction
or series of transactions; (C) any tender offer or exchange offer for 50%
or more of the outstanding shares of capital stock of the Target or the
filing of a registration statement under the Securities Act in connection
therewith; (D) any person having acquired beneficial ownership or the right
to acquire beneficial ownership
A-12
<PAGE>
of, or any "group" (as such term is defined under Section 13(d) of the
Securities Exchange Act and the rules and regulations promulgated
thereunder) having been formed that beneficially owns or has the right to
acquire beneficial ownership of 50% or more of the then-outstanding shares
of capital stock of the Target; or (E) any public announcement of a
proposal, plan or intention to do any of the foregoing on any agreement to
engage in any of the foregoing.
(n) Post-Closing Covenants. After the Closing Date:
(i) Buyer will use its reasonable best efforts to register, to the extent
it has not already done so, the Buyer Shares issuable upon exercise of the
Buyer Warrants and Buyer Options, and maintain a current prospectus with
respect to such Buyer Shares until the expiration of such Buyer Warrants
and Buyer Options, as the case may be;
(ii) as soon as reasonably practicable, Buyer will use its reasonable
best efforts to file with the Securities and Exchange Commission or
otherwise publicly report an income statement and any other required
financial statements covering at least thirty (30) days of post-Merger
combined operations of Buyer and Target, subject to the business judgment
of the Buyer Board of Directors to delay the filing of such financial
results if such delay is in the best interests of Buyer's shareholders;
provided that Buyer shall file such financial results as part of the Form
10-Q for the period ended September 30, 1998 and shall not commence a firm
commitment underwriting of Buyer Shares until such combined financial
results have been filed; and
(iii) Michael D. Matte shall immediately enter into an employment
agreement in substantially the form attached hereto as Exhibit L.
6. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyer. The obligation of the Buyer to
consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) this Agreement and the Merger shall have received the Requisite
Target Stockholder Approval and comply with the 90% test set forth in
Accounting Pronouncements Board Opinion No. 16, Business Combinations, and
the interpretations and pronouncements promulgated thereunder;
(ii) the Target and its Subsidiaries shall have procured all of the third
party consents specified in Section 5(b) above;
(iii) all Subsidiaries of the Target shall have been merged with and into
Target;
(iv) the representations and warranties set forth in Section 3 above
shall be true and correct in all material respects at and as of the Closing
Date;
(v) the Target shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(vi) no action, suit, or proceeding shall be pending or threatened before
any court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation, (C) affect adversely the right of
the Surviving Corporation to own the former assets, to operate the former
businesses, and to control the former Subsidiaries of the Target, or (D)
affect adversely the right of any of the former Subsidiaries of the Target
to own its assets and to operate its businesses (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect);
A-13
<PAGE>
(vii) the Buyer shall have received the resignations, effective as of the
Closing, of each director and officer of the Target and its Subsidiaries
other than those whom the Buyer shall have specified in writing at least
four business days prior to the Closing;
(viii) the employment agreement by and between the Target and William E.
Berry shall have been terminated;
(ix) the Target shall have delivered to the Buyer a certificate signed by
William E. Berry and Michael D. Matte to the effect that each of the
conditions specified above in Section 6(a)(i)-(viii) is satisfied in all
respects;
(x) the Registration Statement shall have become effective under the
Securities Act;
(xi) the Buyer Shares that will be issued in the Merger shall have been
approved for listing on the Nasdaq National Market, subject to official
notice of issuance;
(xii) the Buyer shall have received from Broad and Cassel an opinion in
substantially the form set forth in Exhibit G attached hereto, addressed to
the Buyer, and dated the Closing Date;
(xiii) the Buyer shall have received from Price Waterhouse LLP an
unqualified opinion to the effect that the Merger will constitute a tax-
free reorganization pursuant to Code Section 368(a)(1)(A) in substantially
the form set forth in Exhibit H attached hereto, addressed to the Target
and the Buyer, and dated the Closing Date;
(xiv) the Buyer shall have received from Price Waterhouse LLP a "pooling
of interests" letter in form and substance reasonably acceptable to Buyer,
addressed to the Buyer (but providing for reliance thereon by the Target),
and dated the Closing Date.
(xv) the Target shall have received from Price Waterhouse LLP a "pooling
of interests" letter in form and substance reasonably acceptable to Buyer,
addressed to the Target (but providing for reliance thereon by the Buyer),
and dated the Closing Date.
(xvi) Each of the Target Comfort Letter and Buyer Comfort Letter shall
have been brought down as of the Closing Date and shall be reasonably
satisfactory to the Buyer in form and substance.
(xvii) The Escrow Agreement shall have been canceled or terminated or the
rights of all holders thereunder shall have been waived or otherwise
extinguished.
(xviii) all actions to be taken by the Target in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Buyer.
The Buyer may waive any condition specified in this Section 6(a) if it
executes a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Target. The obligation of the Target to
consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the Registration Statement shall have become effective under the
Securities Act;
(ii) the Buyer Shares that will be issued in the Merger shall have been
approved for listing on the Nasdaq National Market, subject to official
notice of issuance;
(iii) the representations and warranties set forth in Section 4 above
shall be true and correct in all material respects at and as of the Closing
Date;
(iv) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(v) no action, suit, or proceeding shall be pending or threatened before
any court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator wherein an
A-14
<PAGE>
unfavorable injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation, (C) affect adversely the right of
the Surviving Corporation to own the former assets, to operate the former
businesses, and to control the former Subsidiaries of the Target, or (D)
affect adversely the right of any of the former Subsidiaries of the Target
to own its assets and to operate its businesses (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect);
(vi) the Buyer shall have delivered to the Target a certificate to the
effect that each of the conditions specified above in Section 6(b)(i)-(v)
is satisfied in all respects;
(vii) this Agreement and the Merger shall have received the Requisite
Target Stockholder Approval;
(viii) the Target shall have received from Van Valkenberg Furber Law
Group P.L.L.C. an opinion in substantially the form set forth in Exhibit H
attached hereto, addressed to the Target, and dated the Closing Date;
(ix) the Target shall have received from Price Waterhouse LLP an
unqualified opinion to the effect that the Merger will constitute a tax-
free reorganization pursuant to Code Section 368(a)(1)(A) in substantially
the form set forth in Exhibit G attached hereto, addressed to the Target
and the Buyer, and dated the Closing Date;
(x) the Target Stockholders who will beneficially own 1% or more of the
Buyer Shares at the Effective Time shall have been granted registration
rights with respect to such Buyer Shares in accordance with the Agreement
to be Bound by Registration Rights Agreement attached hereto as Exhibit J;
(xi) the Buyer shall have entered into an employment agreement, subject
to Closing, with William E. Berry in substantially the form attached hereto
as Exhibit K;
(xii) each of Target Comfort Letter and Buyer Comfort Letter shall have
been brought down as of the Closing Date and shall be reasonably
satisfactory to the Target in form and substance;
(xiii) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Target.
The Target may waive any condition specified in this Section 6(b) if it
executes a writing so stating at or prior to the Closing.
7. Termination.
(a) Termination of Agreement. Either of the Parties may terminate this
Agreement with the prior authorization of its board of directors (whether
before or after stockholder approval) as provided below:
(i) the Parties may terminate this Agreement by mutual written consent at
any time prior to the Effective Time;
(ii) the Buyer may terminate this Agreement by giving written notice to
the Target at any time prior to the Effective Time (A) in the event the
Target has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, the Buyer has notified
the Target of the breach, and the breach has continued without cure for a
period of 30 days after the notice of breach or (B) if the Closing shall
not have occurred on or before August 31, 1998, by reason of the failure of
any condition precedent under Section 6(a) hereof (unless the failure
results primarily from the Buyer breaching any representation, warranty, or
covenant contained in this Agreement);
(iii) the Target may terminate this Agreement by giving written notice to
the Buyer at any time prior to the Effective Time (A) in the event the
Buyer has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, the Target has
notified the Buyer of the
A-15
<PAGE>
breach, and the breach has continued without cure for a period of 30 days
after the notice of breach or (B) if the Closing shall not have occurred on
or before August 31, 1998, by reason of the failure of any condition
precedent under Section 6(b) hereof (unless the failure results primarily
from the Target breaching any representation, warranty, or covenant
contained in this Agreement);
(iv) the Target may terminate this Agreement by giving written notice to
the Buyer at any time after the Special Target Meeting in the event this
Agreement and the Merger fail to receive the Requisite Target Stockholder
Approval;
(v) any Party may terminate this Agreement by giving written notice to
the other Party at any time prior to the Effective Time in the event the
Fairness Opinion is withdrawn;
(vi) the Target may withdraw or modify its approval or recommendation of
this Agreement and terminate this Agreement if the Board of Directors of
the Target determines in good faith that a Competing Transaction (as
defined by Section 5(m)) is reasonably capable of being completed, taking
into account all legal, financial, regulatory and other aspects of the
Competing Transaction, and would, if consummated, be more favorable to the
Company's stockholders than the transactions contemplated by this
Agreement; provided, however, that the right of termination by the Target
contemplated by this Section 7(a)(vi) may only be exercised if the Target
shall have complied with all of the provisions of Section 5(m); or
(vii) by either Party, if (a) there shall be a final nonappealable order
of a federal or state court restraining or prohibiting the consummation of
the Merger, or (b) there shall be any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to
the Merger by any governmental authority, that would make the consummation
of the Merger illegal.
(b) Effect of Termination. If any Party terminates this Agreement pursuant
to Section 7(a) above, all rights and obligations of the Parties hereunder
shall terminate without any liability of any Party to any other Party (except
for any liability of any Party then in breach); provided, however, that the
confidentiality provisions contained in Section 5(g) above shall survive any
such termination. Notwithstanding the foregoing, if the Target terminates this
Agreement in accordance with Section 7(a)(vi), the Target shall pay to the
Buyer a termination fee in the amount of One Million Dollars ($1,000,000).
8. Miscellaneous.
(a) Survival. None of the representations, warranties, and covenants of the
Parties (other than the provisions in Section 2 above concerning issuance of
the Buyer Shares, the provisions in Section 5(i) above concerning insurance
and indemnification and the provisions in Section 5(n) concerning Post-Closing
Covenants) will survive the Effective Time.
(b) Press Releases and Public Announcements. No Party shall issue any press
release or make any public announcement relating to the subject matter of this
Agreement without the prior written approval of the other Party; provided,
however, that any Party may make any public disclosure it believes in good
faith is required by applicable law or any listing or trading agreement
concerning its publicly-traded securities (in which case the disclosing Party
will use its best efforts to advise the other Party and its counsel at least
one day prior to making the disclosure).
(c) No Third Party Beneficiaries. This Agreement shall not confer any rights
or remedies upon any Person other than the Parties and their respective
successors and permitted assigns; provided, however, that (i) the provisions
in Section 2 above concerning issuance of the Buyer Shares are intended for
the benefit of the Target Stockholders, (ii) the provisions in Section 5(i)
above concerning indemnification are intended for the benefit of the
individuals specified therein and their respective legal representatives and
(iii) the provisions in Section 5(n) above concerning certain post-closing
covenants for the benefit of Buyer Shares, Buyer Warrants and Buyer Options.
A-16
<PAGE>
(d) Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement between the Parties and supersedes
any prior understandings, agreements, or representations by or between the
Parties, written or oral, to the extent they related in any way to the subject
matter hereof.
(e) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior
written approval of the other Party.
(f) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and
then two business days after) it is sent by registered or certified mail,
return receipt requested, postage prepaid, and addressed to the intended
recipient as set forth below:
IF TO THE TARGET:
<TABLE>
<S> <C>
William E. Berry Telephone: (561) 478-0022
InTime Systems International, Inc. Facsimile: (561) 689-4759
1601 Forum Place
West Palm Beach, FL 33401
COPY TO:
Michael D. Harris Telephone: (561) 844-3600
Suite 400 Facsimile: (561) 845-0108
712 U.S. Highway One
West Palm Beach, FL 33401
IF TO THE BUYER:
Norbert W. Sugayan, Jr. Telephone: (425) 372-2747
ARIS Corporation Facsimile: (425) 372-2798
2229--112th Avenue NE
Bellevue, WA 98004
COPY TO:
Bradley B. Furber Telephone: (206) 464-0460
Van Valkenberg Furber Law Group P.L.L.C. Facsimile: (206) 464-2857
Suite 1200
1325 Fourth Avenue
Seattle, WA 98104
</TABLE>
Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth
above using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail, or electronic mail), but no
such notice, request, demand, claim, or other communication shall be deemed to
have been duly given unless and until it actually is received by the intended
recipient. Any Party may change the address to which notices, requests,
demands, claims, and other communications hereunder are to be delivered by
giving the other Party notice in the manner herein set forth.
A-17
<PAGE>
(i) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Delaware without giving
effect to any choice or conflict of law provision or rule (whether of the
State of Delaware or any other jurisdiction) that would cause the application
of the laws of any jurisdiction other than the State of Delaware.
(j) Amendments and Waivers. The Parties may mutually amend any provision of
this Agreement at any time prior to the Effective Time with the prior
authorization of their respective boards of directors; provided, however, that
any amendment effected subsequent to stockholder approval will be subject to
the restrictions contained in the Delaware General Corporation Law. No
amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by both of the Parties. No waiver by any Party
of any default, misrepresentation, or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to any prior
or subsequent default, misrepresentation, or breach of warranty or covenant
hereunder or affect in any way any rights arising by virtue of any prior or
subsequent such occurrence.
(k) Severability. Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) Expenses. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby.
(m) Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event 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 otherwise requires. The
word "including" shall mean including without limitation.
(n) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
THIS SECTION INTENTIONALLY LEFT BLANK
A-18
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
ARIS CORPORATION
By: /s/ Paul Y. Song
---------------------------------
Paul Y. Song, President
INTIME SYSTEMS INTERNATIONAL, INC.
By: /s/ William E. Berry
---------------------------------
William E. Berry, President
For purposes of Section 5(n)(iii) (certain Post-Closing Covenants) only:
/s/ Michael D. Matte
- -------------------------------------
Michael D. Matte, individually
A-19
<PAGE>
EXHIBIT 11.1
CALCULATION OF EARNINGS PER SHARE
ARIS -- HISTORICAL
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Weighted-average number of common shares
outstanding(a)............................... 6,777,000 7,261,000 8,726,000
---------- ---------- ----------
Effect of dilutive securities:
Warrants.................................... 3,215
Options..................................... 235,000 142,000 714,785
---------- ---------- ----------
235,000 142,000 718,000
---------- ---------- ----------
Weighted-average number of common and common
equivalent shares outstanding(b)............. 7,012,000 7,403,000 9,444,000
========== ========== ==========
Net income(c)................................. $2,010,000 $2,014,000 $5,345,000
========== ========== ==========
Basic earnings per share(c)/(a)............... $ .30 $ .28 $ .61
========== ========== ==========
Diluted earnings per share(c)/(b)............. $ .29 $ .27 $ .57
========== ========== ==========
</TABLE>
ARIS -- SUPPLEMENTARY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Weighted-average number of common shares
outstanding(a)............................... 7,056,000 7,540,000 9,005,000
Effect of dilutive securities:
Warrants.................................... 3,215
Options..................................... 235,000 142,000 714,785
---------- ---------- ----------
235,000 142,000 718,000
---------- ---------- ----------
Weighted-average number of common and common
equivalent shares outstanding(b)............. 7,291,000 7,682,000 9,723,000
========== ========== ==========
Net income.................................... $2,126,000 $2,166,000 $5,755,000
========== ========== ==========
Basic earnings per share(c)/(a)............... $ .30 $ .29 $ .64
========== ========== ==========
Diluted earnings per share(c)/(b)............. $ .29 $ .28 $ .59
========== ========== ==========
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF ARIS CORPORATION
1. Oxford Computer Group Limited
a. Barefoot Computer Training Limited
b. MMT Computing (Reading) Limited
2. ARIS Software, Inc.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of ARIS Corporation of our report dated
January 28, 1998, except as to the pooling of interests with Barefoot Computer
Training Limited which is as of February 28, 1998, relating to the financial
statements of ARIS Corporation, which appears in such Prospectus. We also
consent to the application of such report to the Financial Statement Schedule
for the three years ended December 31, 1997 when such schedule is read in
conjunction with the financial statements referred to in our report. The
audits referred to in such report also included this schedule. We also consent
to the references to us under the headings "Experts" and "Selected Historical
Financial Information" in such Prospectus. However, it should be noted that
Price Waterhouse LLP has not prepared or certified such "Selected Historical
Financial Information."
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Seattle, Washington
May 5, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of ARIS Corporation of our report dated
February 26, 1998, relating to the financial statements of InTime Systems
International Inc., which appears in such Prospectus. We also consent to the
references to us under the headings "Experts" and "Selected Historical
Financial Information" in such Prospectus. However, it should be noted that
Price Waterhouse LLP has not prepared or certified such "Selected Historical
Financial Information."
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Atlanta, Georgia
May 5, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form-4 of ARIS Corporation of our report dated 23
April 1998 relating to the financial statements of Barefoot Computer Training
Limited which appear in such Prospectus. We also consent to the references to
us under the headings "Experts" and "Selected Historical Financial
Information" in such Prospectus. However, it should be noted that Moores
Rowland has not prepared or certified such "Selected Historical Financial
Information."
/s/ Moores Rowland
Moores Rowland
Chartered Accountants
London, England
May 5, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
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0
0
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<INCOME-TAX> 3,384
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<EPS-PRIMARY> .61
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</TABLE>
