<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 5, 1999.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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)
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<S> <C> <C>
WASHINGTON 7379 91-1497147
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
OR ORGANIZATION)
2229 112TH AVENUE NE CT CORPORATION SYSTEM
BELLEVUE, WASHINGTON 98004 520 PIKE STREET
(425) 372-2747 SEATTLE, WASHINGTON 98101
(ADDRESS AND TELEPHONE NUMBER (206) 622-4511
OF REGISTRANT'S PRINCIPAL (NAME, ADDRESS AND TELEPHONE
EXECUTIVE OFFICES) NUMBER OF
AGENT FOR SERVICE)
</TABLE>
COPIES TO:
<TABLE>
<S> <C> <C>
CHRISTOPHER J. BARRY, ESQ. CHRISTYNE M. MAYBERRY ROBERT C. SEIDEL, ESQ.
MATTHEW W. RUNKEL, ESQ. DIRECTOR OF LEGAL AFFAIRS TIMOTHY M. WOODLAND, ESQ.
DORSEY & WHITNEY LLP ARIS CORPORATION CAIRNCROSS & HEMPELMANN, P.S.
1420 FIFTH AVENUE 2229 112TH AVENUE NE 701 FIFTH AVENUE
SEATTLE, WASHINGTON 98101 BELLEVUE, WASHINGTON 98004 SEATTLE, WASHINGTON 98104
TELEPHONE: (206) 903-8800 TELEPHONE: (425) 372-2747 TELEPHONE: (206) 587-0700
FACSIMILE: (206) 903-8820 FACSIMILE: (425) 372-2799 FACSIMILE: (206) 587-2308
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
Upon consummation of the merger described herein.
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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- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
OFFERING PRICE AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED SHARE PRICE(1) FEE(2)
- ---------------------------------------------------------------------------------------------------------------
Common stock, without par value.... 1,423,875 N/A $10,041,697 $2,791.59
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Computed pursuant to Rules 457(f) and (c) under the Securities Act based on
the average of the high and low per share prices of common stock, without
par value, of fine.com on August 3, 1999 as reported on the Nasdaq Stock
Market.
(2) Pursuant to Rule 457(b) under the Securities Act, $2,450 of the registration
fee was paid on June 28, 1999 in connection with the filing of preliminary
proxy materials of fine.com. Accordingly, a registration fee of $341.59 is
being paid herewith.
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 BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE> 2
LOGO
August 6, 1999
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders of
fine.com International Corp., to be held at the Century Square Plaza Building,
16th Floor, Room 1625, located at 1501 Fourth Avenue, Seattle, Washington, on
Tuesday, August 31, 1999, at 8:00 a.m., local time. At this meeting, you will be
asked to consider a proposal to approve the Agreement and Plan of Merger dated
as of May 17, 1999 and amended and restated as of August 5, 1999 among fine.com,
ARIS Corporation, ARIS Interactive, Inc., a wholly owned subsidiary of ARIS,
Daniel M. Fine, Frank Hadam and Herbert L. Fine, by which fine.com will be
merged with and into ARIS Interactive. The attached proxy statement/prospectus
describes the proposed merger and the merger agreement in detail and provides
additional pertinent information about fine.com and ARIS. YOU ARE URGED TO READ
CAREFULLY THE FULL TEXT OF THE PROXY STATEMENT/PROSPECTUS AND ITS ANNEXES.
If the merger agreement and the merger are approved by the shareholders of
fine.com:
- fine.com will merge with and into ARIS Interactive, and ARIS Interactive
will be the surviving corporation;
- each outstanding share of fine.com common stock will be converted into
the right to receive shares of ARIS common stock or a combination of
shares of ARIS common stock and cash (the "Merger Consideration") as
described in the proxy statement/prospectus;
- each outstanding fine.com warrant to purchase one share of fine.com
common stock will be converted into the right to purchase the Merger
Consideration; and
- each outstanding fine.com option to purchase fine.com common stock will
be converted into one ARIS option to purchase shares of ARIS common stock
based on the exchange ratio in computing the Merger Consideration.
fine.com has retained the investment banking firm of Ragen MacKenzie
Incorporated as its financial advisor in connection with the merger. Ragen
MacKenzie has rendered its opinion, a copy of which is attached as Annex B 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
fine.com shareholders pursuant to the merger agreement is fair, from a financial
point of view, to the shareholders of fine.com. THE BOARD OF DIRECTORS OF
FINE.COM HAS DETERMINED THAT THE TERMS OF THE MERGER AGREEMENT AND THE PROPOSED
MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, FINE.COM AND ITS SHAREHOLDERS
AND UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER
AGREEMENT AND THE MERGER.
FOR RISKS IN CONNECTION WITH THE MERGER, SEE "RISK FACTORS" BEGINNING ON PAGE
19.
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,
Daniel M. Fine
Chairman and Chief Executive Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE SECURITIES TO BE ISSUED UNDER THIS PROXY
STATEMENT/PROSPECTUS OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This proxy statement/prospectus dated August 6, 1999, was first mailed to
shareholders on or about August 10, 1999.
<PAGE> 3
FINE.COM INTERNATIONAL CORP.
1525 Fourth Avenue, Suite 800
Seattle, Washington 98101-2915
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
ON TUESDAY, AUGUST 31, 1999
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of fine.com
International Corp. will be held at the Century Square Plaza Building, 16th
Floor, Room 1625, located at 1501 Fourth Avenue, Seattle, Washington, on
Tuesday, August 31, 1999, at 8:00 a.m., local time, for the following purposes:
(1) To consider and vote upon approval of the Agreement and Plan of Merger
dated as of May 17, 1999 and amended and restated as of August 5, 1999 among
fine.com, ARIS Corporation, ARIS Interactive, Inc., a wholly owned subsidiary of
ARIS, Daniel M. Fine, Frank Hadam and Herbert L. Fine, pursuant to which
fine.com will be merged into ARIS Interactive. Pursuant to the merger agreement:
- fine.com will merge with and into ARIS Interactive, and ARIS Interactive
will be the surviving corporation;
- each outstanding share of fine.com common stock will be converted into
the right to receive shares of ARIS common stock or a combination of
shares of ARIS common stock and cash as described in the proxy
statement/prospectus that accompanies this notice;
- each outstanding fine.com warrant to purchase one share of fine.com
common stock will be converted into the right to purchase the
consideration to be paid for each share of fine.com common stock in the
merger; and
- each outstanding fine.com option to purchase fine.com common stock will
be converted into one ARIS option to purchase shares of ARIS common
stock, based on the exchange ratio in computing the Merger Consideration.
The complete text of the merger agreement is attached as Annex 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 of the special meeting.
Pursuant to the bylaws of fine.com, the board of directors has fixed the
close of business on July 30, 1999 as the record date for the determination of
the shareholders entitled to notice of and to vote at the special meeting or any
adjournment of the special meeting. Shareholders of fine.com are entitled to
assert statutory dissenters' rights in the merger, as described in more detail
in the accompanying proxy statement/prospectus.
By Order of the Board of Directors,
Timothy J. Carroll
Secretary
Seattle, Washington
August 6, 1999
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES THAT YOU OWN.
EACH SHAREHOLDER, WHETHER OR NOT YOU PLAN 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 SHAREHOLDER MAY
BE REVOKED AT ANY TIME BEFORE IT IS EXERCISED. ANY SHAREHOLDER 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 SHAREHOLDER 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> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
QUESTIONS AND ANSWERS ABOUT THE ARIS/FINE.COM MERGER........ 1
SUMMARY..................................................... 4
The Companies............................................. 4
fine.com's Reasons for the Merger......................... 6
Recommendation of fine.com's Board of Directors........... 6
Opinion of fine.com's Financial Advisor................... 6
ARIS' Reasons for the Merger.............................. 6
Summary of the Merger..................................... 7
Interests of Certain Persons in the Merger................ 10
Material Federal Income Tax Consequences of the Merger.... 11
Restrictions on the Ability to Sell ARIS Common Stock..... 11
You Have Statutory Dissenters' Rights..................... 11
Accounting Treatment...................................... 12
Risk Factors.............................................. 12
Markets and Market Prices................................. 12
Where You Can Find More Information....................... 13
You Should Not Place Undue Reliance on Forward-Looking
Statements in this Proxy Statement/ Prospectus......... 13
SUMMARY HISTORICAL FINANCIAL DATA........................... 14
ARIS Summary Financial Data............................... 14
fine.com Summary Financial Data........................... 15
Unaudited Summary Pro Forma Combined Consolidated
Financial Data......................................... 16
Comparative Per Share Information......................... 18
RISK FACTORS................................................ 19
Risks Related to the Merger............................... 19
Risks Related to ARIS' Business........................... 22
Risks Related to fine.com's Business...................... 34
THE SPECIAL MEETING......................................... 39
Use of Proxies at the Special Meeting..................... 39
Revocation of Proxies..................................... 39
Record Date; Shareholders Entitled to Vote at the Special
Meeting................................................ 39
Quorum; Vote Required for Approval........................ 39
Statutory Dissenters' Rights.............................. 40
Solicitation of Proxies................................... 41
Recommendation of the fine.com Board of Directors......... 41
THE MERGER.................................................. 42
Background of the Merger.................................. 42
ARIS' Reasons for the Merger.............................. 46
ARIS Board Approval....................................... 47
fine.com's Reasons for the Merger......................... 47
fine.com Board Approval and Recommendation................ 49
Opinion of Financial Advisor to fine.com.................. 49
Material Federal Income Tax Consequences.................. 54
Accounting Treatment...................................... 58
Statutory Dissenters' Rights.............................. 58
Stock Ownership Following Merger.......................... 58
Resale of ARIS Common Stock............................... 59
Conversion of Shares; Procedures for Exchange of
Certificates........................................... 59
</TABLE>
i
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
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<S> <C>
INTERESTS OF CERTAIN PERSONS IN THE MERGER.................. 60
General................................................... 60
Interest as Holder of fine.com Common Stock............... 60
Insurance and Indemnification............................. 60
ARIS Employment Agreement with Daniel M. Fine............. 60
Anticipated Employment Arrangements with Timothy J.
Carroll................................................ 61
Indemnification Obligations............................... 61
Stock Options Held by Executive Officers.................. 61
Affiliate Agreements...................................... 62
THE MERGER AGREEMENT........................................ 63
General................................................... 63
Merger Consideration...................................... 63
Corporate Matters......................................... 65
Conditions to Completion of the Merger.................... 65
Representations and Warranties............................ 67
Covenants................................................. 69
Non-Solicitation.......................................... 69
Termination............................................... 69
Payment of Termination Fee and Expenses................... 70
Indemnification Obligations of Daniel M. Fine, Frank Hadam
and Herbert L. Fine.................................... 71
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION.......... 73
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL
STATEMENTS................................................ 77
MANAGEMENT OF ARIS AFTER THE MERGER......................... 79
Directors and Executive Officers after the Merger......... 79
Executive Compensation.................................... 81
VOTING SECURITIES AND PRINCIPAL HOLDERS..................... 88
ARIS...................................................... 88
fine.com.................................................. 89
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 91
INFORMATION ABOUT ARIS...................................... 92
Business.................................................. 92
ARIS Selected Financial Data.............................. 103
ARIS' Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 103
Consulting Announcement...................................
Liquidity and Capital Resources........................... 111
Year 2000 Readiness Disclosure............................ 113
Qualitative and Quantitative Disclosures about Market
Risk................................................... 114
New Accounting Pronouncements............................. 114
INFORMATION ABOUT FINE.COM.................................. 115
Business.................................................. 115
fine.com Selected Financial Data.......................... 120
fine.com's Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 121
Liquidity and Capital Resources........................... 125
Seasonality and Inflation................................. 126
Year 2000 Readiness Disclosure............................ 126
COMPARISON OF RIGHTS OF HOLDERS OF ARIS COMMON STOCK AND
HOLDERS OF FINE.COM COMMON STOCK.......................... 128
Comparison of Preferences and Rights of ARIS Common Stock
and fine.com Common Stock.............................. 128
Undesignated Preferred Stock.............................. 128
</TABLE>
ii
<PAGE> 6
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PAGE
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Election and Number of Directors; Filling Vacancies;
Removal................................................ 129
Power to Call Special Meeting of Shareholders............. 129
Directors' Committees..................................... 129
Shareholder Rights Plan................................... 129
Percentage of Voting Stock; Influence Over Affairs........ 129
DESCRIPTION OF ARIS CAPITAL STOCK........................... 130
Common Stock.............................................. 130
Preferred Stock........................................... 130
Warrants.................................................. 130
Washington Anti-Takeover Statute.......................... 131
Certain Provisions in the ARIS Articles of Incorporation
and the ARIS Bylaws.................................... 132
Director and Officer Indemnification and Liability........ 132
TRANSFER AGENT AND REGISTRAR................................ 132
EXPERTS..................................................... 132
LEGAL MATTERS............................................... 133
OTHER MATTERS............................................... 133
WHERE YOU CAN FIND MORE INFORMATION......................... 133
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.................. F-1
ANNEX A - AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
ANNEX B - RAGEN MACKENZIE INCORPORATED FAIRNESS OPINION
ANNEX C - CHAPTER 23B.13 RCW ET. SEQ. REGARDING DISSENTERS'
RIGHTS
</TABLE>
iii
<PAGE> 7
QUESTIONS AND ANSWERS ABOUT THE ARIS/FINE.COM MERGER
Q: WHY ARE WE PROPOSING TO MERGE?
A: The ARIS/fine.com merger will result in fine.com shareholders becoming
shareholders of ARIS through the exchange of their fine.com common stock for
ARIS common stock or a combination of ARIS common stock and cash on what the
fine.com board of directors believes are favorable terms.
- The board of directors of fine.com believes that, through the merger,
fine.com will realize benefits, including:
- greater financial resources to support the expansion of fine.com's
operations than would be available to fine.com as an independent
company;
- obtaining access to additional training resources for fine.com's
employees and customers;
- providing fine.com with additional sources of business leads;
- improving the development and retention of fine.com's employees and
consultants, by creating better career paths; and
- providing immediate additional value and liquidity in the investment
of fine.com's shareholders based upon fine.com's stock price prior to
the announcement of the merger.
- The board of directors of ARIS believes that, through the merger, ARIS
will realize benefits, including:
- expanding ARIS' ability to deliver Internet-based solutions, including
strategic Internet consulting, creative Web site design, and technical
development; and
- adding approximately 50 trained information technology consultants in
a time of intense competition for talented personnel among information
technology employers.
Q: WHAT WILL I RECEIVE IN THE MERGER AND HOW WILL IT BE CALCULATED?
A. If the merger is completed, each of your shares of fine.com common stock will
automatically become the right to receive from ARIS $4.5531 worth of ARIS common
stock, or a combination of ARIS common stock and cash with a combined value
equal to $4.5531. The actual amount of ARIS common stock and cash, if any, you
will receive will be calculated based on the average of the closing prices of
ARIS common stock during a measurement period of ten trading days ending on the
second trading day before the fine.com special meeting of shareholders. In this
proxy statement/prospectus we will refer to the average of the closing prices
over this ten-day measurement period as the "Average ARIS Closing Price."
- If the Average ARIS Closing Price is $12.25 or above, each of your shares
will give you the right to receive $4.5531 worth of ARIS common stock.
- If the Average ARIS Closing Price is less than $12.25 but at least $9.25,
each of your shares will give you the right to receive .3717 shares of
ARIS common stock
1
<PAGE> 8
and an amount of cash equal to the difference between the value of the
ARIS common stock received and $4.5531, for a total value per share of
$4.5531.
- If the Average ARIS Closing Price is less than $9.25, each of your shares
will give you the right to receive $1.1150 cash plus shares of ARIS
common stock, for a total value per share of $4.5531.
Note that at and after the closing of the merger, ARIS common stock may be
trading at a higher price or a lower price than the price used to calculate the
number of shares of ARIS common stock you receive.
By way of example, as of July 30, 1999, the closing price of ARIS common
stock was $7.50 and the ten-day average closing price ending on that day was
$7.58 per share. If this average price were the Average ARIS Closing Price, each
of your shares would give you the right to receive .4536 shares of ARIS common
stock and $1.1150 cash for a total value of $4.5531 per share.
The following table shows the number of shares and deemed value of ARIS
common stock and the amount of cash (if any) you would receive based on
different assumed Average ARIS Closing Prices:
<TABLE>
<CAPTION>
VALUE OF ARIS
SHARES RECEIVED TOTAL VALUE OF
ASSUMED NUMBER OF ARIS BASED ON AMOUNT OF CASH CONSIDERATION
AVERAGE ARIS SHARES RECEIVED PER AVERAGE PRICE FOR RECEIVED PER RECEIVED PER
CLOSING PRICE FINE.COM SHARE MEASUREMENT PERIOD FINE.COM SHARE FINE.COM SHARE
- ------------- ------------------- ------------------ -------------- --------------
<S> <C> <C> <C> <C>
$13.00 .3502 $4.5531 -0- $4.5531
$12.25 .3717 $4.5531 -0- $4.5531
$12.00 .3717 $4.4604 $0.0927 $4.5531
$11.00 .3717 $4.0887 $0.4644 $4.5531
$10.00 .3717 $3.7170 $0.8361 $4.5531
$ 9.25 .3717 $3.4381 $1.1150 $4.5531
$ 9.00 .3820 $3.4381 $1.1150 $4.5531
$ 8.00 .4298 $3.4381 $1.1150 $4.5531
$ 7.00 .4912 $3.4381 $1.1150 $4.5531
$ 6.00 .5730 $3.4381 $1.1150 $4.5531
</TABLE>
At the special meeting of shareholders, we will announce the Average ARIS
Closing Price and the consideration that fine.com shareholders will receive in
the merger for each share of fine.com common stock.
Q. WHEN DO YOU EXPECT TO COMPLETE THE MERGER?
A. We anticipate that we will complete the merger by the end of August 1999 and
as soon as possible following the approval of the merger agreement and the
merger by the fine.com shareholders at the special meeting. However, we cannot
predict the exact timing.
Q. SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A. No. After we complete the merger ARIS will instruct ChaseMellon Shareholder
Services, the exchange agent, to send you instructions explaining how to
exchange your fine.com common stock for the appropriate number of shares of ARIS
common stock, and cash, if any.
2
<PAGE> 9
Q. HOW DO I VOTE?
A. Mail your signed proxy card in the enclosed return envelope as soon as
possible so that your shares may be represented at the special meeting. If your
shares are held in "street name" by your broker, your broker will vote your
shares only if you provide instructions on how to vote. You should follow the
directions provided by your broker regarding how to instruct your broker to vote
your shares. Without instructions, your shares will not be voted at the special
meeting and it will have the same effect as voting against approval of the
merger.
Q. HOW CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY PROXY?
A. You may change your vote by delivering a signed notice of revocation or a
later-dated, signed proxy card to fine.com's corporate secretary before the
special meeting, or by attending the special meeting and voting in person. If
you have instructed your broker to vote shares held in "street name," you must
instruct your broker to change your vote.
Q. WHO CAN I CALL WITH QUESTIONS?
A. If you have any questions about the merger, please call Timothy J. Carroll,
Executive Vice President of Finance and Operations of fine.com. His toll-free
telephone number is 1-877-346-3266.
3
<PAGE> 10
SUMMARY
This summary highlights selected information, and may not contain all of
the information that is important to you. You should carefully read this entire
document and the other documents we refer to for a more complete understanding
of the merger. In particular, you should read the merger agreement, the Ragen
MacKenzie Incorporated fairness opinion and Section 23B.13.010 et seq. of the
Washington Business Corporation Act regarding dissenters' rights, which are
attached as Annexes A, B and C to this proxy statement/prospectus.
THE COMPANIES
FINE.COM INTERNATIONAL CORP.
fine.com provides strategic consulting, technical development and graphic
design services and solutions to allow its clients to utilize Internet-based
interactive technologies. fine.com's Internet application development process
combines marketing expertise with state-of-the-art interactive database
compilation and dissemination techniques and technologies.
fine.com develops marketing-driven, interactive, database-oriented Internet
applications for business clients who seek to establish a commercial presence
on, or conduct Internet commerce over, the Web. fine.com has built and
implemented Internet, Extranet and Intranet sites for clients such as Amway
Corporation, Fuji Photo Film Co. Ltd., General Electric Company, Immunex
Corporation, Intel Corporation, Japan Airlines Company, Ltd., Marriott
International, Inc., Microsoft Corporation, Mitsui & Co., Ltd. of Japan, the
Nasdaq-Amex Stock Market, Optiva Corporation, Penford Corporation, Windermere
Services Company and WOWFactor.
fine.com designs, develops and implements customized software applications
that allow its clients to gather and communicate business information through
the Internet. fine.com believes that an online presence should function as an
integrated piece of an organization's overall marketing, commerce and business
strategy. fine.com's services with respect to a particular client's interactive
Web site may fall within any combination of up to three major areas:
- Web Site Planning. Web site planning generally consists of both high
level marketing and business process consultation, and specifying in
detail a site's feature set and functionality;
- Web Site Development. fine.com's process of developing interactive Web
sites combines six elements: graphic design; multimedia production;
custom programming; database development; legacy systems integration; and
quality assurance; and
- Web Site Maintenance. Maintaining and updating a Web site helps protect a
client's investment in its site. Maintenance may include supporting,
augmenting and enhancing the information collection and analysis efforts
provided for in the Web site's feature set.
fine.com was incorporated in Washington in 1994. fine.com's headquarters
are located at 1525 Fourth Avenue, Suite 800, Seattle, Washington 98101-2915,
and the toll-free telephone number at that address is 1-877-346-3266.
4
<PAGE> 11
ARIS CORPORATION
ARIS provides an integrated information technology solution consisting of
consulting and training services primarily focused on Oracle, Microsoft,
PeopleSoft, Sun and Lotus technologies. ARIS also develops, markets and supports
proprietary software products that enhance Oracle database management and Oracle
packaged applications and ARIS' human resource management systems consulting
practice.
- Consulting. ARIS provides information technology consulting services
primarily to clients that require assistance planning, designing,
developing, testing and deploying their specific technology requirements
and infrastructure. ARIS currently focuses on three core consulting
competencies: packaged application implementation, custom application
development (including Internet-based systems), and systems architecture
planning and deployment;
- Training. ARIS provides vendor-certified and custom training to
information technology professionals, including training on Microsoft
BackOffice, Oracle database and tools, Sun Solaris and Java, Lotus Notes
and Domino, Internet and networking technologies. It provides
instructor-led training through regularly scheduled open enrollment
classes, private classes (using both standard and customized content),
and Internet- and Intranet-based training. ARIS also provides other
training related services such as information technology skills
assessment, "train the trainer" programs, curriculum development and
education consulting services; and
- Software. Currently, ARIS distributes, markets and sells the NoetixViews,
ARIS DFRAG, TAMS and TAMS/O software products. In addition, ARIS is
currently developing a proprietary distributed data warehouse query and
resource management system software application, and expects to release
this new product during 1999.
ARIS recently announced its intention to focus its consulting business on
offering solutions that add to internal enterprise information systems the
ability to communicate and collaborate with customers, suppliers and business
partners over the Internet and to engage in electronic commerce. ARIS intends to
evaluate each of its service and product offerings, including the continued role
of its training and software businesses, its orientation toward particular
software vendors and its vendor-specific consulting services, to determine
whether and how each can contribute to providing an integrated enterprise
information and electronic commerce solution for clients.
ARIS' training operations have not been profitable in recent periods. On
August 2, 1999, ARIS announced the closure of training centers in New York,
Minneapolis and Chicago. ARIS is exploring strategic alternatives for its
training business, including one or more of the following:
- the possible sale and divestment of some or all of its training
operations;
- additional restructuring, including the possible closure of additional
offices; or
- the closure of its training center operations in their entirety.
5
<PAGE> 12
FINE.COM'S REASONS FOR THE MERGER (SEE PAGE 47)
The board of directors of fine.com believes that, through the merger,
fine.com will realize benefits, including:
- greater financial resources to support the expansion of fine.com's
operations than would be available to fine.com as an independent company;
- obtaining access to additional training resources for fine.com's
employees and customers;
- providing fine.com with additional sources of business leads through
marketing to ARIS' clients;
- improving the development and retention of fine.com's employees and
consultants by creating better career paths; and
- providing immediate additional value and liquidity in the investment of
fine.com's shareholders based upon fine.com's stock price prior to the
date the merger was announced.
RECOMMENDATION OF FINE.COM'S BOARD OF DIRECTORS (SEE PAGE 41)
After careful consideration, fine.com's board of directors unanimously
determined the merger to be fair to you and in your best interests, and declared
the merger advisable. fine.com's board of directors approved the merger
agreement and the merger and unanimously recommends that you vote to approve the
merger agreement and the merger.
OPINION OF FINE.COM'S FINANCIAL ADVISOR (SEE PAGE 49)
On May 17, 1999, Ragen MacKenzie Incorporated, fine.com's financial
advisor, delivered its oral opinion to fine.com's board of directors that the
merger consideration set forth in the merger agreement was fair from a financial
point of view to fine.com's shareholders. Ragen MacKenzie delivered its written
fairness opinion on August 5, 1999 that the merger consideration set forth in
the amended and restated merger agreement was fair from a financial point of
view to fine.com's shareholders. The complete opinion of Ragen MacKenzie is
attached as Annex B. We urge you to read it in its entirety.
ARIS' REASONS FOR THE MERGER (SEE PAGE 46)
The board of directors of ARIS believes that, through the merger, ARIS will
realize benefits, including:
- expanding ARIS' ability to deliver Internet-based solutions, including
strategic Internet consulting, creative Web site design, and technical
development; and
- adding approximately 50 trained information technology consultants in a
time of intense competition for talented personnel among information
technology employers.
6
<PAGE> 13
SUMMARY OF THE MERGER
SHAREHOLDER ACTION REQUIRED FOR THE MERGER TO BE COMPLETED (SEE PAGE 39)
The merger agreement must be approved by a vote of the holders of
two-thirds (2/3) of the outstanding common stock of fine.com for the merger to
occur. You can vote in person or by proxy at the special meeting of shareholders
to which this proxy statement/ prospectus relates. The special meeting will be
held on August 31, 1999, at 8:00 a.m. local time at the Century Square Plaza
Building, 16th Floor, Room 1625, located at 1501 Fourth Avenue, Seattle,
Washington.
If you do not vote your shares, the effect will be the same as voting
against the merger agreement and the merger.
STRUCTURE OF THE TRANSACTION (SEE PAGE 63)
fine.com will merge with and into ARIS Interactive and ARIS Interactive
will be the surviving entity. fine.com common stock will be exchanged for shares
of ARIS common stock and cash, if any, depending upon the Average ARIS Closing
Price. Following the merger, as a shareholder of ARIS, you will have an equity
stake in fine.com's parent company but will no longer have any direct interest
in fine.com alone.
COMPLETION AND EFFECTIVENESS OF THE MERGER
We will complete the merger when all of the conditions to completion of the
merger, as set forth in the merger agreement, are satisfied or waived. The
merger will become effective when we file articles of merger with the Secretary
of State of the State of Washington.
CONDITIONS TO COMPLETION OF THE MERGER (SEE PAGE 65)
Our respective obligations to complete the merger are subject to the prior
satisfaction or waiver of the conditions listed below. The conditions that must
be satisfied or waived before the merger is completed include, among others:
- the merger agreement must be approved by the holders of two-thirds (2/3)
of the outstanding fine.com common stock;
- the number of shares held by shareholders exercising statutory
dissenters' rights must not exceed ten percent (10%) of the number of
shares of fine.com common stock outstanding;
- fine.com must obtain any required consents from third parties relating to
the merger;
- we must each receive an opinion of tax counsel to the effect that the
merger will qualify as a tax-deferred reorganization for United States
federal income tax purposes with respect to shares of ARIS common stock
received as a result of the merger;
- Daniel M. Fine must have signed an employment agreement with ARIS;
7
<PAGE> 14
- the shares of ARIS common stock to be issued to fine.com shareholders in
the merger must have been approved for quotation on the Nasdaq National
Market; and
- we must have taken all other actions and delivered all related agreements
necessary to complete the transactions contemplated by the merger.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 69)
The merger agreement may be terminated at any time before the completion of
the merger under the circumstances summarized below:
- ARIS and fine.com may terminate the merger agreement by mutual consent.
- Either company may terminate the merger agreement if:
- the fine.com shareholders fail to approve the merger at the special
meeting; or
- the closing has not occurred on or before December 31, 1999, because a
condition has not been satisfied, unless the failure to satisfy the
condition results from the terminating company's breach of the merger
agreement.
- ARIS may terminate the merger agreement if:
- fine.com or any of its major shareholders executing the merger
agreement has breached any material representation, warranty, covenant
or obligation in the merger agreement, and the breach has continued
without cure for a period of 20 days after notice of the breach;
- fine.com or any of its major shareholders executing the merger
agreement:
- initiates, solicits, or encourages any inquiries or makes any
proposal or offer for a merger, consolidation or similar
transaction with fine.com or for any purchase of all or a
significant portion of the assets or equity securities of
fine.com; or
- engages in any negotiations concerning or provides any
confidential information or data to or has any discussions with
any persons related to any such proposal, or otherwise facilitate
any effort or attempt to make or implement any such proposal;
- the board of directors of fine.com withdraws or modifies in a manner
adverse to ARIS its approval or recommendation of the merger or fails
to reaffirm such approval or recommendation when requested by ARIS; or
- the number of shares of fine.com common stock held by shareholders
exercising their statutory dissenters' rights exceeds ten percent
(10%) of the shares of fine.com common stock outstanding.
- fine.com may terminate the merger agreement if:
- ARIS has breached any material representation, warranty, covenant or
obligation in the merger agreement, and the breach has continued
without cure for a period of 20 days after notice of the breach; or
8
<PAGE> 15
- fine.com receives an unsolicited written offer for a merger,
consolidation or similar transaction with fine.com or to acquire all
or a significant portion of the assets or equity securities of
fine.com or an unsolicited tender offer is made for fine.com common
stock, and:
- the fine.com board of directors determines that such a
transaction is more favorable to the shareholders of fine.com
than the merger with ARIS;
- fine.com has given ARIS five business days prior notice of its
intent to terminate the merger agreement and ARIS does not offer
to amend the merger agreement so that it is at least as favorable
to the shareholders of fine.com as the unsolicited offer; and
- fine.com is not otherwise in breach of its representations,
warranties, covenants and obligations under the merger agreement.
PAYMENT OF TERMINATION FEE AND EXPENSES (SEE PAGE 70)
fine.com has agreed to pay ARIS a termination fee of $500,000 and
reasonable out-of-pocket expenses actually incurred by ARIS if the merger
agreement is terminated in the circumstances described in the merger agreement.
ARIS has agreed to pay fine.com a termination fee of $500,000 and reasonable
out-of-pocket expenses actually incurred by fine.com if the merger agreement is
terminated in other circumstances described in the merger agreement.
NO OTHER NEGOTIATIONS INVOLVING FINE.COM (SEE PAGE 69)
Until the merger is completed or the merger agreement is terminated,
fine.com and the major shareholders of fine.com who are parties to the merger
agreement have agreed not to directly or indirectly take any of the following
actions:
- initiate, solicit, or encourage any inquiries or make any proposal or
offer for a merger, consolidation or similar transaction with fine.com or
for any purchase of all or a significant portion of the assets or equity
securities of fine.com; or
- except to the extent legally required for the discharge by the board of
directors of fine.com of its fiduciary duties as advised in writing by
legal counsel, engage in any negotiations concerning, or provide any
confidential information or data to or have any discussion with any
persons related to any such proposal, or otherwise facilitate any effort
or attempt to make or implement any such proposal.
DIRECTORS AND CERTAIN OFFICERS OF FINE.COM HAVE ENTERED INTO VOTING
AGREEMENTS
The directors and certain officers of fine.com, including the major
shareholders of fine.com who are parties to the merger agreement, have each
entered into a voting agreement with ARIS. The voting agreements require these
persons to vote all shares of fine.com common stock beneficially owned by them
in favor of the merger agreement and against any competing acquisition proposal
or other proposal inconsistent with the merger agreement or which may delay the
likelihood of the completion of the merger. ARIS did not pay any additional
consideration in connection with the voting agreements.
9
<PAGE> 16
On July 30, 1999, the record date, the directors and officers of fine.com
who have signed the voting agreements owned approximately 39.3% of the
outstanding shares of the fine.com common stock.
You are urged to read the form of voting agreement included as Exhibit C to
the merger agreement. The merger agreement is attached as Annex A to this proxy
statement/prospectus.
INDEMNIFICATION OBLIGATIONS OF DANIEL M. FINE, FRANK HADAM AND HERBERT L.
FINE (SEE PAGE 71)
Daniel M. Fine, Frank Hadam and Herbert L. Fine, directors and major
shareholders of fine.com, each signed the merger agreement and joined with
fine.com in making the representations and warranties about fine.com in the
merger agreement. These persons have also agreed to indemnify personally ARIS
for up to an aggregate of $1 million for any damages arising out of breaches of
these representations and warranties. No other holder of fine.com common stock
will have any indemnification obligations under the merger agreement after
completion of the merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (SEE PAGE 60)
When considering the recommendation of fine.com's board of directors, you
should be aware that some members of fine.com's management may have interests in
the merger that are different from, or in addition to, yours.
In particular:
- it is a condition to ARIS' obligations to proceed with the merger that
Daniel M. Fine, Chairman and Chief Executive Officer of fine.com, enter
into an employment agreement with ARIS that will become effective upon
completion of the merger. Mr. Fine's employment agreement will have the
following principal terms:
- two-year term;
- base salary of $150,000;
- signing bonus of $100,000;
- "stay" bonus of up to $125,000, payable in quarterly installments over
the two year initial term so long as Mr. Fine remains an employee with
ARIS;
- an agreement not to compete with ARIS Interactive for up to two years
following termination of employment; and
- severance pay if Mr. Fine is terminated by ARIS without cause.
- ARIS and fine.com anticipate that Timothy J. Carroll, Executive Vice
President of Finance and Operations of fine.com, will enter into an
employment agreement with ARIS upon completion of the merger to serve in
senior management of ARIS or ARIS Interactive. While all the terms of Mr.
Carroll's employment have not been finalized, ARIS and fine.com expect
Mr. Carroll's employment agreement will have the following principal
terms:
- base salary of $130,000;
- grants of options to purchase 12,500 shares of ARIS common stock in
each of his first two years of employment; and
10
<PAGE> 17
- an agreement not to compete with ARIS Interactive for up to two years
following termination of employment.
Mr. Carroll has an employment agreement with fine.com that includes a
change of control provision, which could require ARIS to pay Mr. Carroll
his base salary with fine.com of $115,000 per year through October 19,
2001, the remaining term of this employment agreement, if Mr. Carroll's
employment is terminated following the merger in the circumstances
described in the fine.com employment agreement. ARIS has agreed to pay
Mr. Carroll $175,000 to buy out his rights under the change of control
provisions of this agreement.
Mr. Carroll holds unvested options to purchase 85,909 shares of fine.com
common stock at an average exercise price of $3.20 per share that will be
converted into options to purchase ARIS common stock pursuant to the
merger, and will vest and become immediately exercisable if Mr. Carroll's
employment is terminated following the merger in the circumstances
described in the fine.com employment agreement.
As a result, Messrs. Fine and Carroll could be more likely to approve the
merger agreement and the merger than if they did not have these additional
interests.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE 54)
We have structured the merger so that, in general, ARIS, ARIS Interactive,
fine.com and their respective shareholders will not recognize gain or loss for
United States federal income tax purposes, except fine.com shareholders will
recognize gain with respect to cash received as part of the merger consideration
or in lieu of fractional shares. It is a waivable condition to each company's
obligation to complete the merger that we each receive a legal opinion to this
effect. If fine.com does not receive a legal opinion as to the tax effect of the
merger, fine.com and ARIS may nevertheless proceed with the merger. Regardless
of whether we receive a legal opinion, the IRS may challenge the tax-deferred
nature of the merger. A successful IRS challenge to the reorganization status of
the merger could result in significant adverse tax consequences to you and to
ARIS and ARIS Interactive.
RESTRICTIONS ON THE ABILITY TO SELL ARIS COMMON STOCK (SEE PAGE 59)
All shares of ARIS common stock you receive in connection with the merger
will be freely transferable unless you are considered an "affiliate" of either
company for purposes of the Securities Act of 1933, as amended. Shares of ARIS
common stock held by fine.com affiliates may only be sold pursuant to a
registration statement or exemption from registration under the Securities Act.
The affiliates of fine.com as of the date the merger agreement was signed have
entered into affiliate agreements with ARIS agreeing to be bound by these resale
restrictions.
YOU HAVE STATUTORY DISSENTERS' RIGHTS (SEE PAGE 40)
You are entitled to dissenters' rights in the merger under the provisions
of Section 23B.13.010 et seq. of the Washington Business Corporation Act and to
have the fair value of fine.com shares paid to you in cash. A copy of Section
23B.13.010 et seq. of the Washington Business Corporation Act is attached as
Annex C to this proxy statement/prospectus. The amount to be paid to dissenting
fine.com shareholders could be more than or less than the value they would
receive in the merger. To exercise dissenters'
11
<PAGE> 18
rights, you must follow procedures that include giving notice to fine.com and
not voting to approve the merger.
If holders of more than 10% of fine.com common stock exercise their
statutory dissenters' rights, ARIS may terminate the merger agreement and
fine.com would be required to pay the $500,000 termination fee.
ACCOUNTING TREATMENT
The merger will be accounted for under the purchase method of accounting.
RISK FACTORS
The merger and an investment in securities of ARIS involve risks and
uncertainties related to the businesses of ARIS and fine.com and other risks and
uncertainties discussed in the section "Risk Factors" beginning on page 19, and
elsewhere in this proxy statement/prospectus.
MARKETS AND MARKET PRICES
Since June 18, 1997, ARIS common stock has been quoted on the Nasdaq
National Market under the symbol "ARSC." On May 17, 1999, the last trading day
before the announcement that we had entered into the merger agreement, the
closing sale price of ARIS common stock as quoted on the Nasdaq National Market
was $8.00 per share. On July 30, 1999, the closing sale price of ARIS common
stock as quoted on the Nasdaq National Market was $7.50 per share.
Since August 12, 1997, fine.com common stock has been quoted on the Nasdaq
SmallCap Market under the symbol "FDOT." On May 17, 1999, the closing sale price
of fine.com common stock as reported on the Nasdaq SmallCap Market was $2.25 per
share. On July 30, 1999, the closing sale price of fine.com common stock as
reported on the Nasdaq SmallCap Market was $3.72 per share.
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 and fine.com common stock as reported on the Nasdaq SmallCap
Market.
<TABLE>
<CAPTION>
ARIS COMMON STOCK FINE.COM COMMON STOCK
- ------------------------------------------------ -----------------------------------------------
HIGH LOW HIGH LOW
------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997 YEAR ENDED JANUARY 31, 1998
First Quarter................ N/A N/A First Quarter.................. N/A N/A
Second Quarter (from June
18)........................ $22.75 $19.13 Second Quarter................. N/A N/A
Third Quarter
Third Quarter................ $31.38 $21.00 (from August 12)............... $8.88 $6.50
Fourth Quarter............... $26.38 $19.75 Fourth Quarter................. $7.25 $4.38
YEAR ENDED DECEMBER 31, 1998 YEAR ENDED JANUARY 31, 1999
First Quarter................ $30.50 $21.00 First Quarter.................. $6.38 $4.50
Second Quarter............... $36.38 $25.88 Second Quarter................. $6.06 $3.50
Third Quarter................ $30.38 $21.94 Third Quarter.................. $4.88 $1.38
Fourth Quarter............... $24.50 $ 8.88 Fourth Quarter................. $3.88 $1.38
YEAR ENDING DECEMBER 31, 1999 YEAR ENDING JANUARY 31, 2000
First Quarter................ $14.63 $ 8.00 First Quarter.................. $3.13 $1.88
Second Quarter............... $10.25 $ 7.50 Second Quarter................. $3.91 $1.88
Third Quarter
(through July 30, 1999).... $ 9.25 $ 6.75
</TABLE>
12
<PAGE> 19
As of the record date for the special meeting, there were approximately 132
record holders of ARIS common stock and approximately 54 record holders of
fine.com common stock.
fine.com has never paid cash dividends on its capital stock. ARIS has not
paid cash dividends on its capital stock since 1993, when it was a private
company. The current policies of ARIS and fine.com are to retain earnings for
use in their businesses, and they do not expect to pay cash dividends in the
foreseeable future.
We cannot predict what the market price of ARIS common stock or fine.com
common stock will be at any time before or after the merger. We urge you to
obtain current market quotations for ARIS common stock.
WHERE YOU CAN FIND MORE INFORMATION
If you have any questions about the merger, please call Timothy J. Carroll,
Executive Vice President of Finance and Operations of fine.com, toll-free at
1-877-346-3266.
YOU SHOULD NOT PLACE UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS IN THIS PROXY
STATEMENT/PROSPECTUS
This proxy statement/prospectus contains forward-looking statements with
respect to ARIS' and fine.com's anticipated financial condition, results of
operations and business, about both companies' plans, goals and strategies, and
about the expected effect of the merger on ARIS' business and financial
performance. You can identify some, but not all, forward-looking statements
through our use of words such as "anticipate," "believe," "plan," "estimate,"
"expect," and "intend," statements that an action or event "may," "might,"
"could," "should," or "will" be taken or occur, or other similar expressions.
Forward-looking statements are based on the estimates and opinions of the
management of the company making the statements at the time the statements are
made, and are not guarantees of future performance. Forward-looking statements
are subject to risks and uncertainties that could cause actual results to differ
materially from the results contemplated by the forward-looking statements. Some
of these risks and uncertainties are described in the section entitled "Risk
Factors" beginning on page 19. You should not place undue reliance on
forward-looking statements.
13
<PAGE> 20
SUMMARY HISTORICAL FINANCIAL DATA
ARIS SUMMARY FINANCIAL DATA
ARIS provides the following financial information to help you in your
analysis of the financial aspects of the merger. You should read the following
financial information in conjunction with the Consolidated Financial Statements
of ARIS and related notes, and ARIS' Management's Discussion and Analysis of
Financial Condition and Results of Operations included in this proxy
statement/prospectus. The information as of June 30, 1998 and 1999 and for the
six-month period ended June 30, 1998 and 1999 is unaudited and reflects all
adjustments that are, in the opinion of ARIS management, necessary for a fair
statement of the results as of the dates and for the periods presented and is
not necessarily indicative of the operating results for the entire year.
The following financial information reflects the acquisition in February
1998 of Barefoot Computer Training Limited and in June 1998 of InTime Systems
International Inc. These acquisitions were accounted for as poolings of
interests. In addition to Barefoot and InTime, ARIS acquired two companies in
1998, four companies in 1997 and three companies in 1996. More information about
ARIS' acquisitions can be found in Notes 2 and 4 to ARIS' consolidated financial
statements. See pages F-12 through F-18.
Also in 1998, ARIS restructured its training operations, and incurred
expenses of an aggregate of $2,185,000 including employee severance, equipment
and asset abandonment and the closing of facilities.
In August 1999, ARIS announced the closing of three training centers. ARIS
expects to recognize a charge to income in the quarter ending September 30, 1999
in connection with the closure, which it presently estimates will be
approximately $5,500,000. This charge is not reflected in the following summary
financial data. See "Information About ARIS -- Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Significant
Events".
ARIS
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------ -----------------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- -------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF
OPERATIONS DATA:
Revenues...................... $15,079 $25,530 $43,896 $76,286 $115,894 $54,396 $60,058
Income from operations........ 1,639 717 3,473 8,447 2,882 1,207 3,387
Net income.................... 1,051 705 2,234 5,899 1,400 346 2,245
Basic earnings per share...... 0.22 0.09 0.27 0.60 0.13 0.03 0.20
Diluted earnings per share.... 0.19 0.09 0.26 0.56 0.12 0.03 0.20
Shares used in basic earnings
per share calculation....... 4,832 7,851 8,337 9,803 11,115 11,062 11,076
Shares used in diluted
earnings per share
calculation................. 5,620 8,102 8,497 10,532 11,900 12,069 11,420
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
------------------------------------------------ -----------------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- -------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL BALANCE SHEET DATA:
Total assets.................. $ 7,390 $12,306 $20,675 $60,551 $ 69,481 66,891 $67,155
Shareholders' equity.......... 2,781 9,358 13,190 50,482 55,314 52,169 55,141
</TABLE>
14
<PAGE> 21
FINE.COM SUMMARY FINANCIAL DATA
fine.com provides the following financial information to help you in your
analysis of the financial aspects of the merger. You should read the following
financial information in conjunction with the Consolidated Financial Statements
of fine.com and related notes and fine.com's Management's Discussion and
Analysis of Financial Condition and Results of Operations included in this proxy
statement/prospectus. The information as of April 30, 1998 and 1999 and for the
three-month periods ended April 30, 1998 and 1999 is unaudited and reflects all
adjustments that are, in the opinion of fine.com management, necessary for a
fair statement of the results, as of the dates and for the periods presented and
is not necessarily indicative of the operating results for the entire year.
The following financial information reflects the merger in July 1998 with
Meta4 Digital Design, Inc., which was accounted for as a pooling of interests.
In addition, fine.com acquired another company in February 1998 which was
accounted for under the purchase method of accounting. More information about
fine.com's business combinations can be found in Note 2 to fine.com's
consolidated financial statements. See page F-40.
In the third and fourth quarters of fiscal 1999, fine.com implemented an
operational realignment and incurred expenses of an aggregate of $986,000
including employee severance, increases to accounts receivable reserves,
write-offs of assets and work-in-process and closure costs of the London (U.K.)
office.
FINE.COM
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 31, QUARTER ENDED APRIL 30,
---------------- -----------------------------
1998 1999 1998 1999
------ ------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
HISTORICAL STATEMENT OF OPERATIONS DATA:
Revenues.............................. $6,023 $ 6,133 $1,332 $1,875
Income (loss) from operations......... (122) (3,807) (583) 16
Net income (loss)..................... (55) (3,566) (368) 16
Basic and diluted earnings (loss) per
share.............................. (0.03) (1.34) (0.14) 0.01
Shares used in basic earnings (loss)
per share calculation.............. 1,922 2,668 2,665 2,687
Shares used in diluted earnings (loss)
per share calculation.............. 1,922 2,668 2,665 2,693
</TABLE>
<TABLE>
<CAPTION>
AS OF JANUARY 31, AS OF APRIL 30,
------------------ -----------------------------
1998 1999 1998 1999
------- -------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
HISTORICAL BALANCE SHEET DATA:
Total assets.......................... $7,965 $ 5,070 $7,648 $3,702
Shareholders' equity.................. 6,565 3,123 6,298 3,178
</TABLE>
15
<PAGE> 22
UNAUDITED SUMMARY PRO FORMA COMBINED CONSOLIDATED FINANCIAL DATA
The following selected unaudited pro forma combined financial data have
been derived from the unaudited pro forma combined financial information
included in this proxy statement/prospectus beginning on page 73 which gives
effect to the merger accounted for as a purchase, and should be read in
conjunction with that pro forma combined financial information and related
notes.
In preparing the unaudited pro forma combined income statement information,
we have used ARIS' results for the year ended December 31, 1998 and the six
months ended June 30, 1999 and fine.com's results for the year ended January 31,
1999 and the six months ended April 30, 1999 and we have assumed that the merger
took effect at the beginning of the fiscal periods presented. In preparing the
unaudited pro forma combined balance sheet data, we used the balance sheet of
ARIS at June 30, 1999, and the balance sheet of fine.com at April 30, 1999,
assuming the merger had been completed on those dates.
The six-month period ended April 30, 1999 for fine.com includes the fourth
quarter of fiscal 1999 and the first quarter of fiscal 2000, and are presented
for informational and comparative purposes only. Accordingly, the statement of
operations for fine.com for the quarter ended January 31, 1999 is included in
the unaudited pro forma combined statement of operations for the year-ended
January 31, 1999 and for the six-month period ended April 30, 1999. fine.com's
unaudited results of operations for the quarter ended January 31, 1999 included
the following: revenues $1,516,000; cost of sales $1,159,000; selling, general
and administrative $1,149,000; and net loss $825,000.
To determine the assumed consideration to be paid to fine.com shareholders,
we have used the average of the closing prices of the ARIS common stock for the
10 trading days ended July 30, 1999, which was $7.58 per share, resulting in an
aggregate purchase price of approximately $12,250,000 comprising the issuance of
approximately 1,220,000 shares of ARIS common stock and payment of approximately
$3,000,000 in cash. The actual merger consideration paid will be based on the
average of the closing prices of ARIS common stock in the ten trading days
ending on the second trading day before the fine.com special meeting of
shareholders, so the actual merger consideration may vary significantly from
that used in preparation of the pro forma combined financial information.
We have allocated the estimated purchase costs of the merger on a
preliminary basis to assets and liabilities based on ARIS management's estimate
of the fair value with excess costs over net assets being allocated to goodwill.
The allocation is subject to change when ARIS makes a final determination of
purchase costs and fair values of assets of fine.com. The effects of any changes
could be material.
The unaudited pro forma combined financial information is provided for
illustrative purposes only, and is not necessarily indicative of the results
that would have been achieved if the merger had been completed at the times
indicated, and is not necessarily indicative of the future operating results or
financial condition of ARIS after the merger.
The unaudited pro forma combined financial statements do not reflect the
closure of three ARIS training centers announced in August 1999. See
"Information About ARIS -- Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Significant Events."
16
<PAGE> 23
UNAUDITED SUMMARY PRO FORMA COMBINED CONSOLIDATED FINANCIAL DATA
(In thousands except per share data)
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1998 JUNE 30, 1999
----------------- ----------------
<S> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS DATA:
Revenues..................................... $122,027 $63,448
Income (loss) from operations................ (4,253) 896
Net income (loss)............................ (4,167) (281)
Basic earnings (loss) per share.............. (0.34) (0.02)
Diluted earnings (loss) per share............ (0.34) (0.02)
Shares used in basic earnings (loss) per
share calculation.......................... 12,335 12,296
Shares used in diluted earnings (loss) per
share calculation.......................... 12,335 12,296
</TABLE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1999
-------------------
<S> <C>
PRO FORMA BALANCE SHEET DATA:
Total assets................................................ $77,604
Shareholders' equity........................................ 64,892
</TABLE>
17
<PAGE> 24
COMPARATIVE PER SHARE INFORMATION
The following summarizes per share information for ARIS and fine.com on a
historical, pro forma and equivalent basis. We used the closing price of ARIS
common stock on July 30, 1999 to determine the consideration to be paid to
fine.com shareholders for the purpose of making the calculations on a pro forma
and equivalent basis. We have assumed the merger took place on the date of the
balance sheet for balance sheet information and at the beginning of the period
shown for income statement information. These calculations exclude common stock
equivalents. You should refer to the pro forma consolidated combined financial
information and the Consolidated Financial Statements of ARIS and fine.com for
information concerning common stock equivalents.
Neither ARIS nor fine.com has paid any dividends for the periods shown
below.
<TABLE>
<CAPTION>
AT AND FOR THE AT AND FOR THE SIX
YEAR ENDED MONTHS ENDED
DECEMBER 31, 1998 JUNE 30, 1999
----------------- ------------------
<S> <C> <C>
HISTORICAL -- ARIS
Basic earnings per common share.............. $ 0.13 $ 0.20
Diluted earnings per common share............ 0.12 0.20
Book value per common share.................. 4.98 4.85
PRO FORMA COMBINED PER ARIS SHARE
Basic earnings (loss) per common share....... $(0.34) $(0.02)
Diluted earnings (loss)per common share...... (0.34) (0.02)
Book value per common share.................. 5.17 5.17
</TABLE>
<TABLE>
<CAPTION>
AT AND FOR THE AT AND FOR THE SIX
YEAR ENDED MONTHS ENDED
JANUARY 31, 1999 APRI1 30, 1999
------------------- ------------------
<S> <C> <C>
HISTORICAL -- FINE.COM*
Basic earnings (loss) per common share....... $(1.34) $(0.30)
Diluted earnings (loss) per common share..... (1.34) (0.30)
Book value per common share.................. 1.17 1.19
PRO FORMA EQUIVALENT PER FINE.COM SHARE
Basic earnings (loss) per common share....... $(0.15) $(0.01)
Diluted earnings (loss) per common share..... (0.15) (0.01)
Book value per common share.................. 2.36 2.36
</TABLE>
* The six-month period ended April 30, 1999 for fine.com includes the fourth
quarter of fiscal 1999 and the first quarter of fiscal 2000, and are presented
for informational and comparative purposes only.
18
<PAGE> 25
RISK FACTORS
You should consider the following factors carefully in evaluating the
merger and the investment in the ARIS common stock offered in this proxy
statement/prospectus.
RISKS RELATED TO THE MERGER
ARIS AND FINE.COM MAY NOT SUCCESSFULLY INTEGRATE THEIR BUSINESS OPERATIONS.
The merger involves the combination of companies that have previously
operated separately. Integrating the operations of ARIS with those of fine.com
after the merger may be difficult and time consuming. After the merger has been
completed, ARIS may integrate, among other things, the product and service
offerings, the product development, sales and marketing, research and
development, administrative and customer service functions, and the management
information systems of fine.com with those of ARIS. The integration of our
combined operations may temporarily distract management from the day-to-day
business of the combined company after the merger. ARIS may fail to manage this
integration effectively or to achieve any of the anticipated benefits that both
companies hope will result from the merger.
ARIS COULD LOSE KEY FINE.COM AND ARIS PERSONNEL NECESSARY TO THE COMBINED
COMPANY'S SUCCESS.
One of the keys to the success of ARIS Interactive's business after the
merger will be its ability to retain fine.com's and ARIS' skilled technical
employees and attract additional skilled employees. These employees are
currently highly sought after and the market for their services is highly
competitive. The merger and the process of integrating the two companies may
cause key employees of both companies to seriously consider other employment
opportunities. If one or more of fine.com's or ARIS' managers, programmers or
sales or customer support personnel leaves after we complete the merger, ARIS'
business could be seriously harmed.
ARIS EXPECTS TO INCUR POTENTIALLY SIGNIFICANT INTEGRATION COSTS AND
AMORTIZATION OF INTANGIBLES AND GOODWILL IN CONNECTION WITH THE MERGER.
ARIS expects to incur restructuring and integration costs from integrating
fine.com's operations with those of ARIS. These costs may be substantial and may
include costs for redundant operations, facilities and equipment and other
merger-related costs. ARIS has not yet determined whether the amount of these
costs will be significant. ARIS expects to charge these costs to operations in
the quarter in which the merger is completed, and this will be a charge to ARIS'
operating results for that quarter.
ARIS will account for the merger under the purchase method of accounting.
As a result, ARIS will be required to allocate a portion of the value of the
consideration paid to fine.com shareholders to intangible assets and goodwill,
and must amortize these intangible assets and goodwill over periods ranging from
one to six years. The amortization of these assets will adversely affect ARIS'
operating results for the periods over which the amortization occurs. The
identity of and estimated amounts to be allocated to these intangible assets and
the periods over which they will be amortized are described in Note b of Notes
to Unaudited Pro Forma Combined Financial Information.
19
<PAGE> 26
SOME OF FINE.COM'S MANAGEMENT HAVE ADDITIONAL INTERESTS IN THE MERGER.
In considering the recommendation by the fine.com board of directors to
approve the merger, fine.com shareholders should recognize that some of
fine.com's management have interests in the merger that are different from, or
in addition to, yours, including among other things, employment arrangements,
potential severance benefits and indemnification rights. These interests are
described under the headings "The Merger -- Background of the Merger" and
"Interests of Certain Persons in the Merger."
ARIS' STOCK PRICE IS VOLATILE.
The trading price of ARIS common stock has fluctuated significantly in the
past. Often, these fluctuations have been greater than those experienced by the
stock market in general. The future trading price of ARIS common stock may
continue experiencing wide price fluctuations in response to such factors as:
- actual or anticipated fluctuations in revenues or operating results, and
changes in earnings estimates by securities analysts;
- failure to meet securities analysts' expectations of performance;
- analyst and market reaction to ARIS' decision to focus its consulting
operations on integrated solutions that include Internet-based and
electronic commerce applications and its decision to consider strategic
alternatives for its training operations, and to any announcements of
developments relating to these initiatives;
- announcements of technological innovations or new products by ARIS or its
competitors;
- changing information technology spending habits of ARIS' clients and
prospective clients;
- changes in relationships between ARIS and key vendors of software
products;
- developments in or disputes regarding copyrights, trademarks, patents and
other proprietary rights;
- proposed and completed acquisitions by ARIS or its competitors;
- the mix of products and services sold;
- the timing of significant project commissions and their completion;
- product and services pricing, discounts and margins; and
- general conditions in the information technology industry or the
industries in which clients compete.
20
<PAGE> 27
These factors as well as general stock market trends and economic
conditions, could adversely affect the market price of ARIS common stock.
Securities class action litigation against companies is not uncommon following
periods of volatility in the market price of their securities. ARIS could become
a defendant in such litigation in the future. Securities litigation could be
costly and divert management's attention and resources from ARIS' business. This
could have a material adverse effect on ARIS' business, financial condition and
results of operations. Any adverse determination in litigation could subject
ARIS to significant liabilities.
THE FAILURE TO SATISFY CONDITIONS TO OUR COMPLETION OF THE MERGER OTHER
THAN APPROVAL OF FINE.COM'S SHAREHOLDERS COULD JEOPARDIZE THE MERGER.
Even if fine.com's shareholders approve the merger, the merger may not
close unless several other conditions are satisfied or waived. These include:
- there must be no material adverse change in the business of fine.com or
in the business of ARIS (other than changes that this proxy
statement/prospectus discloses have occurred or may occur);
- the number of shares held by fine.com shareholders exercising statutory
dissenters' rights must not exceed ten percent (10%) of the number of
fine.com shares of common stock outstanding;
- certain third parties must have consented to the merger;
- the representations and warranties of ARIS and fine.com in the merger
agreement must be true and correct in all material respects at closing;
- ARIS and fine.com must have complied with their obligations in the merger
agreement through the closing;
- no injunction or order preventing the completion of the merger may be in
effect;
- the shares of ARIS common stock to be issued to fine.com shareholders in
the merger must have been approved for listing on the Nasdaq National
Market; and
- ARIS and fine.com must each receive an opinion of tax counsel to the
effect that the merger will qualify as a tax-deferred reorganization for
United States federal income tax purposes with respect to shares of ARIS
common stock received as a result of the merger.
OUR FAILURE TO COMPLETE THE MERGER COULD BE COSTLY TO FINE.COM AND ITS
SHAREHOLDERS.
If the merger is not completed:
- fine.com may be required to pay ARIS a termination fee of $500,000 plus
reasonable out-of-pocket fees actually incurred by ARIS;
- the price of fine.com common stock may decline, assuming that current
market prices reflect a market assumption that the merger will be
completed; and
- fine.com must still pay its costs related to the merger, such as legal,
accounting and financial advisory fees.
21
<PAGE> 28
In addition, the pending merger may cause fine.com's customers to delay or
defer contracting decisions. Any delay or deferral in contracting decisions by
fine.com customers could have a material adverse effect on fine.com's business,
regardless of whether or not the merger is ultimately completed. Similarly,
current and prospective fine.com employees may experience uncertainty about
their future roles with ARIS until ARIS' strategies with regard to fine.com are
announced or executed. This may adversely affect fine.com's ability to attract
and retain key management, sales, marketing, creative and technical personnel.
Further, if the merger is terminated and fine.com's board of directors
determines to seek another merger or business combination, there can be no
assurance that it will be able to find a partner willing to pay an equivalent or
more attractive price than that which would be paid in the merger. In addition,
while the merger agreement is in effect and subject to certain limited
exceptions, fine.com is prohibited from soliciting, initiating or encouraging or
entering into certain extraordinary transactions, such as a merger, sale of
assets or other business combination, with any party other than ARIS. See "The
Merger Agreement -- Non Solicitation."
Finally, if the merger is not completed, fine.com could experience
significant morale problems with its employees, which could result in large
numbers of employees leaving. Failure to complete the merger also could result
in current or prospective clients of fine.com leaving or not engaging fine.com,
which would have a material adverse effect on fine.com's business and results of
operations. In this event, fine.com could be forced to try to locate another
merger partner, sell assets or find other financing. If this were to occur, the
price per share to be received by fine.com shareholders in any other merger or
in a sale may be significantly less than the value of the consideration to be
paid in this merger with ARIS.
THE IRS MAY CHALLENGE THE TAX-DEFERRED NATURE OF THE MERGER.
ARIS and fine.com will not obtain a ruling from the Internal Revenue
Service that the merger will generally be tax-deferred to fine.com shareholders.
It is a waivable condition to each company's obligation to complete the merger
that we each receive a legal opinion to this effect. Even if we do not receive a
legal opinion as to the tax effect of the merger, fine.com and ARIS may
nevertheless proceed with the merger. Regardless of whether we receive a legal
opinion, the IRS may challenge the tax-deferred nature of the merger. If the IRS
is successful in any challenge (a) fine.com shareholders may be required to pay
tax on any gain realized in the merger and (b) fine.com would be treated as
selling all of its assets to ARIS Interactive in a fully taxable transaction and
ARIS Interactive and ARIS would be responsible for paying all taxes due on any
gain resulting from the taxable sale. See "The Merger -- Material Federal Income
Tax Consequences."
RISKS RELATED TO ARIS' BUSINESS
ARIS RECENTLY DECIDED TO FOCUS ITS CONSULTING BUSINESS ON OFFERING
SOLUTIONS THAT INTEGRATE INTERNET-BASED AND ELECTRONIC COMMERCE
APPLICATIONS WITH INTERNAL INFORMATION SYSTEMS, AND THE SUCCESS OF THIS
INITIATIVE IS UNCERTAIN.
ARIS' decision to focus its consulting business on offering solutions that
integrate Internet-based and electronic commerce applications with internal
information systems involves risks. While ARIS has been developing experience in
working with Internet-based and electronic commerce applications, it has less
experience with engagements involving
22
<PAGE> 29
these applications than with engagements involving internal information systems
such as enterprise resource planning and package software applications. To be
successful ARIS will need to develop additional expertise in the areas of
Internet-based applications and electronic commerce, whether or not the merger
with fine.com is completed.
ARIS plans to devote significant personnel and financial resources and
management attention to this initiative. It is likely that the initiative will
not result in immediate increases in revenue that offset expenses incurred. ARIS
may allocate resources away from revenue-producing activities to manage and plan
the initiative and to participate in developing additional capacity to offer
Internet-based and electronic commerce solutions. The focus on the initiative
also may lead to the de-emphasis of other existing service and software
offerings, or even in ARIS ceasing to offer some existing services or products,
resulting in reduced revenue and the possibility of restructuring or other
charges to income. Accordingly, ARIS' revenues and profits in the short run may
be adversely affected, and its ability to effectively complete existing
consulting assignments within planned budgets may be reduced.
The long-term success of the initiative is not assured. For the initiative
to be successful, ARIS must:
- attract and retain key personnel with experience in Internet-based and
electronic commerce applications;
- establish favorable relationships with vendors of Internet-based and
electronic commerce software applications;
- adapt to rapidly changing technologies and client business needs;
- develop project management and implementation standards, project
methodologies, quality assurance standards and other best practices to
apply to Internet and electronic commerce consulting engagements;
- refocus its marketing and sales approaches to reflect its Internet and
electronic commerce capabilities;
- develop the capability to deliver consistent, high quality cost effective
solutions that integrate internal information systems with Internet-based
and electronic commerce applications; and
- compete successfully with established and new companies that provide
similar services.
ARIS may not be successful in developing and marketing consulting service
offerings that achieve acceptance in the market, or that result in the delivery
to clients of consistent, high quality cost effective solutions.
ARIS Internet and electronic commerce strategy may not result in increased
revenues or profits in the long run, and could result in reduced revenues or
profits, or even in losses. If the initiative is not successful, ARIS' business,
results of operations and financial condition will be adversely affected.
23
<PAGE> 30
ARIS' TRAINING OPERATIONS HAVE BEEN UNPROFITABLE, AND THE FUTURE OF ARIS'
TRAINING BUSINESS IS UNCERTAIN.
ARIS' training operations were not profitable in the first, second and
fourth quarters of 1998 and the first and second quarters of 1999. In August
1999, ARIS announced the closure of training centers in New York, Minneapolis
and Chicago, and anticipates a charge to income of approximately $5,500,000 in
the quarter ending September 30, 1999 in connection with the closures. Failure
by ARIS to restore the profitability of its training operations will have a
continued material adverse effect on ARIS' results of operations and financial
condition, and could adversely impact the operations and profitability of its
consulting and software businesses due to the shared resources of ARIS'
integrated consulting, training and software strategy.
ARIS is exploring strategic alternatives for its training business,
including one or more of the following:
- The possible sale and divestment of some or all of its training
operations;
- additional restructuring, including the possible closure of additional
offices; or
- the closure of ARIS' training center operations in their entirety.
If ARIS' training operations are sold, restructured or discontinued, ARIS
may be required to record a significant charge to its earnings for the quarter
in which the action occurs.
CHANGES IN TECHNOLOGY REQUIREMENTS AND SPENDING PATTERNS OF ARIS' CLIENTS
AND TARGET CLIENTS COULD ADVERSELY AFFECT ARIS' BUSINESS.
ARIS believes the information technology needs of its clients and
prospective clients have changed over time and may continue to shift away from
what have historically been ARIS' core services towards newer technologies or
technology trends. For example, a large percentage of ARIS' consulting revenues
has historically come from the implementation and integration of packaged
software applications and enterprise resource planning software technologies,
particularly those developed by Oracle. ARIS believes that client spending on
packaged software applications and enterprise resource planning technologies and
services related to those technologies has declined as a percentage of total
client information technology spending, while spending on electronic commerce
and other Internet-related technologies has increased. A further decline in
spending for packaged software applications and enterprise resource planning
software and services could adversely impact ARIS' consulting and software
operations. ARIS also believes that spending on information technology training
has decreased as a percentage of total information technology spending.
In response to its beliefs concerning trends in client requirements and
spending, ARIS has recently announced the decision to focus its consulting
business on offering solutions that add to internal information systems the
ability to communicate and collaborate with customers, suppliers and business
partners over the Internet and engage in electronic commerce. However, it is
possible that ARIS has not correctly identified the current trend in client
requirements or that its actions will not correctly respond to those trends.
ARIS may not be successful in identifying current or future trends in technology
or information technology spending or in modifying its consulting and training
offerings to benefit from
24
<PAGE> 31
these trends. ARIS' inability to timely identify and capitalize on these trends
could have a material adverse effect on ARIS' business, financial condition and
results of operations.
ARIS' SUCCESS DEPENDS ON ITS ABILITY TO RECRUIT AND RETAIN INFORMATION
TECHNOLOGY PROFESSIONALS.
ARIS' future success will depend in large part on its ability to attract,
develop, motivate and retain highly skilled information technology
professionals, particularly project managers, consultants and instructors.
Information technology professionals are in high demand and are likely to remain
a limited resource for the foreseeable future. Demand is particularly high at
present for information technology professionals with knowledge and experience
with Internet-based and electronic commerce applications and ARIS will need to
attract and retain people with these skills to succeed in the initiatives in its
consulting business involving these applications. ARIS competes for consultants
and project managers with other consulting firms, software vendors and in-house
information technology departments. ARIS competes for instructors with other
training service providers, software and hardware vendors and the in-house
information technology training departments of major corporations. ARIS may not
be successful in hiring and retaining a sufficient number of information
technology professionals to staff its consulting projects and to meet demand for
instructor-led classes. Higher salaries resulting from competition could
increase ARIS' costs and decrease its profitability.
ARIS' BUSINESS IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE.
ARIS' success depends in part on its ability to identify emerging
technology trends and develop information technology solutions that keep pace
with continually changing technology, evolving industry standards, emerging
competition, frequent new product and service introductions and changing client
preferences. Information technology changes rapidly, and new products and
services emerge frequently, rendering existing products and services obsolete.
Technology and business requirements are changing particularly rapidly in the
areas of applications that use the Internet and electronic commerce, where ARIS
has decided to focus its consulting efforts. To keep pace with changes in the
market, ARIS must constantly evaluate its service and product offerings. ARIS
may not be able to timely recognize emerging information technology trends and
may not be able to expend the financial and other resources necessary to develop
and bring new services to market in a timely and cost-effective manner, hire
additional qualified personnel and make beneficial acquisitions. Also, new
products, services and technologies developed by others could render those of
ARIS noncompetitive or obsolete.
25
<PAGE> 32
THE MARKET FOR INTERNET-BASED AND ELECTRONIC COMMERCE APPLICATIONS IS NEW,
RAPIDLY EVOLVING AND HIGHLY UNCERTAIN, AND DEPENDS ON CONTINUED USE AND
EXPANSION OF THE INTERNET.
The success of ARIS' strategy of focusing its consulting business on
solutions that integrate internal information systems with Internet-based and
electronic commerce applications will depend on the continued use and expansion
of the Internet as a platform for communication and commerce. If the Internet
does not continue to grow as a widespread communications medium and commercial
marketplace, the demand for these services may be significantly reduced.
The Internet could lose its viability if the Internet infrastructure is
unable to support the demands placed on it by continued growth, or due to delays
in the development or adoption of new equipment, standards and protocols to
handle increased levels of Internet activity, security, reliability, cost, ease
of use, accessibility and quality of service. Other concerns that could inhibit
the growth of the Internet and its use by business as a medium for communication
and commerce include:
- concerns about security of transactions conducted over the Internet;
- concerns about privacy and the use of data collected and stored recording
interactions over the Internet;
- the possibility that federal, state, local or foreign governments will
adopt laws or regulations limiting the use of the Internet or the use of
information collected from communications or transactions over the
Internet; and
- the possibility that governments will seek to tax Internet commerce.
The use of the Internet is evolving rapidly, and many companies are
developing new products and services that use the Internet. ARIS does not know
what forms of products and services may emerge as alternatives to its existing
services or to any future Internet-based or electronic commerce features and
services ARIS may introduce. ARIS plans to spend considerable resources to
improve its capacity to offer Internet-based and electronic commerce solutions,
to stay abreast of and anticipate market trends and new technology and to
educate potential clients about its solutions. However, even with these efforts,
clients may not find that ARIS' services address their evolving needs, and
market acceptance of ARIS services may not increase.
ARIS' ABILITY TO MANAGE GROWTH SUCCESSFULLY IS UNCERTAIN.
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 growth effectively, ARIS must continue to improve its
operational, financial and other management processes and systems. ARIS' success
also depends largely on its management's ability to maintain high levels of
employee utilization, project and instructional quality and competitive pricing
for ARIS' services. None of the senior management of ARIS previously has managed
a business of its size or has any experience managing a public company other
than ARIS. No assurance can be given that they will be successful in managing
ARIS' growth.
26
<PAGE> 33
Since 1995, ARIS has pursued an aggressive growth strategy by acquiring
companies in complementary service, product and geographic markets. ARIS may not
be able to integrate its recent acquisitions or any future acquisition
successfully into its organization. Any failure to integrate any of its recent
or future acquisitions successfully, or 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.
ARIS DEPENDS ON KEY VENDORS OF SOFTWARE TECHNOLOGY.
ARIS relies on formal and informal relationships with key providers of
software technology, in particular, Microsoft, Oracle, Lotus, PeopleSoft and
Sun. ARIS participates in a number of Microsoft, Oracle, Lotus, PeopleSoft and
Sun programs that may enable it 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 other
consequences which might adversely affect ARIS' ability to compete successfully.
ARIS UNDERTAKES PROJECTS THAT ARE SUBJECT TO A NUMBER OF SIGNIFICANT 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 agreements 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
clients could adversely affect revenue and operating results, damage ARIS'
reputation, and adversely affect ARIS' ability to attract new business.
ARIS has increasingly undertaken fixed price consulting projects. 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 contract is based could have a material adverse
effect on the profitability of such projects.
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 the failure. Although ARIS generally attempts to limit contractually its
liability for damages arising from negligent acts, errors, mistakes or omissions
in rendering its services, these limitations of liability may not be
enforceable. ARIS maintains general liability insurance coverage, including
coverage for errors and omissions, of up to $5 million in the aggregate. ARIS
cannot be sure that this coverage will continue to be available on commercially
reasonable terms or will be available in sufficient amounts to cover one or more
large claims. One or more large claims against ARIS that exceed its insurance
coverage or changes in the terms of the 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.
ARIS' consulting engagements often involve the implementation of software
applications that replace systems of the client that are not Y2K compliant. If
ARIS is not able for any reason to meet its contractual obligations with a
client, it could be found liable for
27
<PAGE> 34
damages as a result of that client's Y2K exposure. These damages could include
costs associated with remediating the client's systems to make them Y2K
compliant, and other damages the client suffers because its systems are not Y2K
compliant. These damages can be very large in some cases. ARIS tries to
negotiate appropriate limitations of liability to clients and disclaimers
regarding Y2K exposure and other liability. ARIS believes that its existing
insurance will cover damages that may result from Y2K related claims, but ARIS
does not carry any specialized coverage for potential Y2K liability. ARIS'
insurers could take the position that the insurance does not cover Y2K claims
and could refuse to pay these claims.
ARIS FACES RISKS RELATED TO ITS INTERNATIONAL OPERATIONS.
A substantial portion of ARIS' revenue is derived from operations outside
the United States, principally in the information technology training market.
Risks inherent in conducting business internationally include:
- unexpected changes in regulatory requirements;
- difficulties in staffing and managing foreign operations;
- differing employment laws and practices in foreign countries;
- language and cultural barriers;
- longer payment cycles and seasonal reductions in business activity during
the summer months in Europe and some other parts of the world;
- currency exchange fluctuations; and
- potentially adverse tax consequences.
Any of these factors could adversely affect the success of ARIS'
international operations, and its financial condition and results of operations.
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.
ARIS FACES RISKS FROM ITS STRATEGY OF GROWTH BY ACQUISITION.
ARIS may continue to acquire businesses that management believes will
complement its operations. The success of any acquisition depends on, among
other things, ARIS' ability to identify and acquire businesses on terms that
management considers attractive, integrate acquired businesses into ARIS'
organization and retain the acquired businesses' key personnel and principal
clients. Any future acquisitions, including the acquisition of fine.com, would
be accompanied by the risks commonly encountered in such transactions,
including:
- difficulties associated with assimilating the personnel and operations of
the acquired business;
- the risk that ARIS will not achieve expected financial results or
strategic goals for the acquired business;
- the potential disruption of its ongoing business;
- the diversion of significant management and other resources; and
28
<PAGE> 35
- the need to impose and maintain uniform standards, controls, procedures
and policies.
ARIS may not be able to identify future acquisition candidates or to
successfully overcome the risks and challenges encountered in completing and
integrating future acquisitions. Any failure or inability by ARIS to implement
and manage its acquisition strategy could have a material adverse effect on
ARIS' business, financial condition, and results of operations. Future
acquisitions also could require ARIS to issue equity securities on terms that
dilute the interests of existing shareholders, incur 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.
THE INFORMATION TECHNOLOGY CONSULTING, TRAINING AND SOFTWARE INDUSTRIES ARE
HIGHLY COMPETITIVE.
The information technology consulting, training and software industries are
generally regarded as separate industries, each of which is highly competitive
and characterized by rapid technological change. 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' principal competitors in the delivery of consulting services are the
consulting divisions of the large multinational accounting firms, the consulting
divisions of software vendors such as Oracle, Microsoft, Lotus and PeopleSoft,
and numerous international, national and regional information technology
consulting firms. ARIS faces competition in the delivery of information
technology training services from the in-house information technology
departments of prospective clients, the training divisions and authorized
training channels of software vendors such as Oracle, Sun, and Microsoft, and
independent international, national and regional companies with information
technology training operations. ARIS' decision to focus its consulting business
on solutions that integrate enterprise information systems with Internet-based
and electronic commerce applications will result in competition with companies
that specialize in Internet and electronic commerce solutions, as well as many
of ARIS' existing competitors. The market for these solutions is intensely
competitive, and is characterized by rapid advances in technology and changing
client requirements.
ARIS' software products compete with software products distributed by other
companies. Although ARIS believes few commercially available products currently
compete directly with ARIS' NoetixViews suite of products, Oracle has announced
that it will be introducing software with some similar features and
functionality during 1999 and has announced that it intends to bundle this
product, without additional charge, with its release of Oracle 11i. Oracle or
others could develop new software products that compete successfully against
NoetixViews or ARIS' other software products.
New and future products or services developed by competitors may be better
adapted to existing or new technological or other trends, and may achieve
greater market acceptance than ARIS' software products and services. Any failure
by ARIS to compete successfully in the consulting, training or software market
could have a material adverse effect on its business, financial condition and
results of operations.
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ARIS MAY NEED ADDITIONAL FINANCING AFTER THE MERGER, WHICH MAY NOT BE
AVAILABLE ON A TIMELY BASIS, ON FAVORABLE TERMS OR AT ALL.
ARIS believes that it should be able to satisfy the cash requirements of
its existing business and the business of fine.com from its existing cash
resources, its bank credit facilities and cash flow from operations. However, if
results of operations after the merger are less favorable than ARIS now
anticipates or if unanticipated costs or expenses are incurred, ARIS may require
additional financing. ARIS also may encounter opportunities for acquisitions of
businesses or products, joint ventures or other business initiatives that may
require the commitment of cash in excess of ARIS' available resources. If ARIS
requires cash in addition to its available resources, ARIS may have to obtain
additional equity or debt financing. Financing may not be available on a timely
basis, on favorable terms or at all. If ARIS obtains financing through the sale
of equity securities, holders of ARIS common stock may experience significant
dilution. Failure to obtain financing if and when needed could require ARIS to
restrict its operations or forego available opportunities.
ARIS' OPERATING RESULTS MAY VARY SIGNIFICANTLY FROM QUARTER TO QUARTER.
ARIS' operations and related revenue and operating results 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 consulting projects and
project delays;
- any decision to sell, restructure or discontinue all or a portion of
ARIS' training operations;
- fluctuation in results arising from ARIS' decision to focus on solutions
that integrate internal information systems with Internet-based
applications and electronic commerce;
- variations in utilization rates and average billing rates for consultants
and project managers due to vacations, holidays and the integration of
newly hired consultants;
- inability 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 demand for the company's software product offerings and the
introduction by third parties of competitive software products;
- variations in fill rates in training classes;
- the need to integrate acquired businesses;
- changes in corporate information technology spending trends; 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
unfavorable variations in operating results in any particular quarter.
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ARIS RELIES ON KEY PERSONNEL.
ARIS' continued success will depend in large part on the continued services
of a number of key employees including Paul Song, ARIS' founder, President,
Chief Executive Officer and Chairman. The loss of the services of Mr. Song,
other members of senior management or other key personnel could have a material
adverse effect on ARIS. Since the end of the second quarter of 1999, several
members of senior management have discontinued their employment with ARIS,
including ARIS' Vice President of North America Education and its Vice President
of Law and Corporate Affairs, General Counsel and Secretary. 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, ARIS cannot be certain that the non-competition and non-solicitation
provisions of these agreements would be enforced by a court. The loss of one or
more key employees, particularly to a current or potential competitor, could
result in the loss of existing or potential clients, which would adversely
affect ARIS' revenues and operating income.
ARIS MAY NOT BE ABLE TO ENFORCE ITS INTELLECTUAL PROPERTY RIGHTS AND OTHERS
MAY CLAIM THAT ARIS IS INFRINGING THEIR INTELLECTUAL PROPERTY RIGHTS.
ARIS uses 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. These measures may not be adequate to deter
misappropriation, ARIS may not be able to detect and stop unauthorized uses of
its intellectual property. 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 and it might not be successful.
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'
competitors also may independently develop products or methodologies
functionally similar to ARIS' products and methodologies.
ARIS develops custom software applications, training courses and
methodologies for third-party software products. ARIS owns the training courses,
methodologies, and courseware through agreements with employees and
subcontractors, but ownership of software applications developed for clients is
often assigned to the client, although ARIS tries to retain licenses that allow
it to use the applications in future consulting projects for other clients. ARIS
also develops software application tools in the course of its consulting
projects. ARIS generally seeks to retain 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 disputes may arise that
could affect ARIS' ability to resell or reuse some of these products and
methodologies.
ARIS uses technology developed by third parties. It believes that there are
currently sufficient alternative sources of third-party technology available if
any particular third-party
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technology that it is currently using were to be discontinued or otherwise
become unavailable. However, licenses for any technology owned or developed by
third parties that might be required for provision of ARIS' services might not
be available in the future on reasonable terms, or at all. ARIS' inability to
obtain any such licenses could have a material adverse effect on its business
and operations. Although ARIS does not believe that either its services or its
use of technology owned by third parties infringes the proprietary rights of any
third parties, third parties might in the future assert claims against ARIS
based on such services or use and those claims might be successful.
Litigation may be necessary in the future to enforce ARIS' intellectual
property rights and to protect its proprietary information, to determine the
validity and scope of the proprietary rights of third parties or to defend
against claims of infringement or invalidity. Litigation of this nature, whether
or not successful, could result in substantial costs and diversion of resources
and management time, which could have a material adverse effect on ARIS'
business. Third parties might claim that ARIS' current or future products,
courseware or services infringe their proprietary rights. An adverse outcome in
litigation could result in ARIS being liable for substantial damages and in
injunctive or other equitable relief that could directly or indirectly prohibit
ARIS from marketing the affected courseware or product or providing the affected
service, or could force ARIS to change the affected product, courseware or
service. A judgment of this nature could have a material adverse effect on ARIS.
PAUL SONG AND HIS FAMILY OWN ENOUGH ARIS COMMON STOCK TO EXERCISE
SIGNIFICANT CONTROL OVER ITS AFFAIRS.
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 also a shareholder. A family limited partnership controlled by
Mr. and Mrs. Song is the fourth largest shareholder. As of July 30, 1999, Mr.
and Mrs. Song beneficially own approximately 39.0% of the outstanding shares of
ARIS common stock. As a result, Mr. and Mrs. Song will likely be able to exert
significant control over ARIS' affairs and management and the outcome of any
matters requiring a shareholder vote, including the election of the members of
the board of directors. This control could delay or prevent a change in control
of ARIS. As of July 30, 1999, other relatives of Mr. and Mrs. Song hold less
than 2% of the outstanding shares of ARIS common stock. Assuming the issuance of
1,234,079 shares as a result of the merger, Mr. and Mrs. Song would beneficially
own approximately 35.1% the outstanding shares of ARIS common stock.
YEAR 2000 DISRUPTIONS, REMEDIATION AND UNCERTAINTIES MAY ADVERSELY AFFECT
ARIS' BUSINESS.
The Year 2000 ("Y2K") issue is the result of computer programs being
written using only the last two digits to refer to a year, which may prevent
these computer programs from properly recognizing a year that begins with "20"
instead of the familiar "19." For example, computer programs or products that
have time-sensitive software may recognize a date ending in "00" as the year
1900 rather than the year 2000. Y2K problems in ARIS' own systems or the systems
and products of its material suppliers or vendors could interrupt ARIS'
operations or disrupt its ability to supply products and services to clients.
ARIS believes that its internally developed products and services are Y2K
compliant, but cannot be certain that they do not contain undetected errors or
defects in processing
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Y2K data. Software or technology provided by third parties may contain errors or
defects in processing Y2K data that are not detected by the third-party
providers or in ARIS' own testing, regardless of any assurances ARIS may receive
from the providers. Failure by ARIS or its software or technology providers to
adequately address Y2K issues could adversely affect ARIS' business operations.
Correction of Y2K 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.
ARIS could become involved in disputes with clients about Y2K problems with
solutions that it developed or implemented through its consulting and software
businesses or the interaction of ARIS' solutions with other applications. While
ARIS believes that its current products are Y2K compliant, they may contain
undetected errors in processing Y2K data. In addition, ARIS' clients and/or
other vendors further customize some of ARIS' applications after ARIS'
involvement has ended, so some previously completed applications might not
continue to meet Y2K compliance standards. Claims by customers or former
customers arising from Y2K issues could materially adversely affect ARIS'
business, financial condition and results of operations.
There is considerable uncertainty in many industries in which ARIS' clients
and potential clients operate concerning the scope and magnitude of problems
that will be associated with the century change. Significant delays in or
cancellation of clients' or potential clients' decisions to purchase ARIS'
products and services due to the reallocation of resources to address Y2K or due
to other Y2K issues, could have a material adverse effect on ARIS' business,
financial condition and results of operations. See "Information about
ARIS -- ARIS' Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000 Readiness Disclosure."
PROVISIONS OF WASHINGTON LAW AND ARIS' ARTICLES OF INCORPORATION MAY DELAY
OR PREVENT A CHANGE IN CONTROL OF ARIS.
ARIS is subject to anti-takeover provisions of Chapter 23B.17 of the
Washington Business Corporation Act 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 Washington Business Corporation Act prohibits a corporation
registered under the Securities Exchange Act of 1934, as amended, 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. Further, ARIS' articles of incorporation provide for a
classified board of directors with staggered, three-year terms. Also, the board
of directors 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
ARIS' articles of incorporation and under the Washington Business Corporation
Act, 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 ARIS common stock.
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RISKS RELATED TO FINE.COM'S BUSINESS
FINE.COM HAS HAD RECENT LOSSES AND MAY REQUIRE ADDITIONAL FINANCING.
For the year ended January 31, 1999, fine.com had a net loss of
approximately $3.6 million. A portion of this loss was attributable to certain
charges in the third and fourth quarters for office closure costs, write-offs
for accounts receivable and work-in-progress considered by management to be
uncollectible or unbillable, and cost overruns on fixed-fee projects. Although
fine.com had net income of $16,000 for the quarter ended April 30, 1999, it is
uncertain whether profitable operations will continue in the future. fine.com
believes that its cash and cash equivalents will be sufficient to fund its
operations through January 31, 2000. fine.com believes that it has taken
appropriate action to realign and strengthen its operations, including a plan to
increase sales and internal productivity and decrease overhead cost structure.
However, fine.com may not be able to achieve or sustain profitable operations.
If the merger is not completed, further development of fine.com's business may
require additional financing. Financing may not be available to fine.com when
needed on favorable terms if at all.
FINE.COM'S BUSINESS DEPENDS ON ACCEPTANCE OF THE INTERNET BY THE MARKETING
COMMUNICATIONS INDUSTRY.
fine.com's business involves the design and implementation of Web sites for
businesses. The market for information gathering and dissemination through the
Internet continues to develop. This rapidly evolving market is characterized by
an increasing number of market entrants who have introduced or developed
products and services for communication and commerce over the Internet. Demand
and market acceptance for recently introduced products and services are subject
to a high level of uncertainty. The use of the Internet in marketing,
information gathering and dissemination, particularly by businesses that have
historically relied upon traditional means of marketing, generally requires the
acceptance of new methods of conducting business and exchanging information. If
commerce and communication through the Internet fail to gain widespread
acceptance or develop more slowly than expected, fine.com's business would be
materially adversely affected.
FINE.COM DEPENDS ON CERTAIN KEY EMPLOYEES.
fine.com depends on the services of certain key personnel, the loss of
whose services would have a material adverse effect on fine.com's business. In
particular, fine.com depends on the services of Daniel M. Fine, Chairman and
Chief Executive Officer, and the successful continuation of fine.com's business
by ARIS Interactive after the merger is expected to be dependent on the services
of Mr. Fine, who will be employed as ARIS' Director of Business Development,
Interactive Services. fine.com also depends on the services of qualified and
experienced marketing, technical and creative personnel. fine.com generally does
not enter into employment agreements with these employees. Any of these
employees could leave fine.com and go to work for businesses that compete with
fine.com. In seeking qualified personnel, fine.com is required to compete with
companies having greater financial and other resources and prospects than
fine.com. In particular, in the Seattle, Washington market, an increasing number
of software and Internet companies compete for the services of skilled
developers and software designers. The future success of fine.com's business is
dependent on its ability to attract and retain qualified personnel, and
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failure or inability to hire or retain key personnel would have a material
adverse affect on the financial prospects and operations of fine.com's business.
FINE.COM'S MARKET IS HIGHLY COMPETITIVE.
The market for fine.com's services is highly competitive and is
characterized by demands to adopt and use new capabilities and technologies, and
to respond rapidly to evolving client requirements. fine.com faces competition
from a number of sources, including Web site service firms, communications,
telephone and telecommunications companies, computer hardware and software
companies, established online services companies, direct Internet access
providers, advertising agencies and specialized and integrated marketing
communication firms, and the in-house information technology organizations of
potential customers. Many of fine.com's competitors have announced plans to
offer expanded Web site planning, creation and/or maintenance services and many
competitors or potential competitors have longer operating histories, longer
customer relationships and significantly greater financial, management,
technological, development, sales, marketing and other resources than fine.com.
fine.com expects competition to intensify in the future, as anticipated growth
in the industry attracts other participants. fine.com might not be able to
compete effectively, if at all, and its inability to do so would have a material
adverse effect on fine.com's business.
FINE.COM'S BUSINESS DEPENDS ON SUCCESSFUL BIDDING AND PRICING.
fine.com attempts to price its services and bid on Internet development
projects in a manner which considers competitive factors, the value perceived by
its clients and its internal cost structure. Some projects are contracted on a
time and materials basis where fine.com bills for hours and costs incurred by
its staff on client projects. Other projects are priced and billed on a
fixed-fee basis or on a not-to-exceed ceiling in the contractual price. On
fixed-bid contracts fine.com attempts to take into account estimated direct and
indirect costs associated with the project, associated allocations of overhead
and factors related to specific technology or process risks associated with the
complexity of the project. fine.com believes that it has refined its internal
processes to appropriately estimate the costs of performing on a fixed-fee
basis. However, the failure to anticipate technical problems, estimate costs
accurately or control costs during performance of a fixed-fee contract may
reduce fine.com's profit or cause a loss on a particular project. Unforeseen
costs or other factors may arise that could materially delay the project or
otherwise increase the cost of performance. For a fixed-fee or similar project,
fine.com's contractual revenues may not exceed its direct and indirect costs
attributable to the project.
FINE.COM MAY BE UNABLE TO ENFORCE ITS INTELLECTUAL PROPERTY RIGHTS AND
OTHERS MAY CLAIM THAT FINE.COM IS INFRINGING THEIR INTELLECTUAL PROPERTY
RIGHTS.
fine.com believes that its business is not dependent upon any patents,
copyrights or trademarks and it does not currently have any registered patents,
copyrights or trademarks. Consequently, it relies on a combination of common law
and statutory law to protect its trademarks, proprietary information, know-how
and trade secrets. The majority of fine.com's current agreements with its
clients contain provisions granting to the client intellectual property rights
to some of fine.com's work product, including customized programming that is
created during the course of a project. fine.com anticipates that agreements
with future clients may contain similar provisions. Other existing agreements to
which fine.com is a party are, and future agreements may be, silent as to the
ownership of
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such rights. To the extent that the ownership of such intellectual property
rights is expressly granted to a client or is ambiguous, fine.com's ability to
reuse or resell such rights will or may be limited.
fine.com uses technology developed by third parties. It believes that there
are currently sufficient alternative sources of third-party technology available
if any particular third-party technology that it is currently using were to be
discontinued or otherwise become unavailable. However, licenses for any
technology owned or developed by third parties that might be required for
provision of fine.com's services might not be available in the future on
reasonable terms, or at all. fine.com's inability to obtain any such licenses
could have a material adverse effect on its business and operations. Although
fine.com does not believe that either its services or its use of technology
owned by third parties infringes the proprietary rights of any third parties,
third parties might in the future assert claims against fine.com based on such
services or use and those claims might not be successful.
Litigation may be necessary in the future to enforce fine.com's
intellectual property rights and to protect its proprietary information, to
determine the validity and scope of the proprietary rights of third parties or
to defend against claims of infringement or invalidity. Litigation of this
nature, whether or not successful, could result in substantial costs and
diversion of resources and management time, which could have a material adverse
effect on fine.com's business. Third parties might claim that fine.com's current
or future services infringe their proprietary rights. An adverse outcome in
litigation could result in ARIS being liable for substantial damages and in
injunctive or other equitable relief that could directly or indirectly prohibit
fine.com from providing the affected service, or could force fine.com to change
the affected service. A judgment of this nature could have a material adverse
effect on fine.com.
FINE.COM MAY FACE POTENTIAL LIABILITY BASED ON THE ACTIONS OF CLIENTS AND
OTHERS USING ITS SERVICES.
fine.com and other Internet application developers face potential liability
for the actions of clients and others using their services, including liability
for infringement of intellectual property rights, rights of publicity,
defamation, libel and criminal activity under the laws of the United States and
foreign jurisdictions. fine.com has obtained errors and omissions insurance,
although there can be no assurance that such insurance will be adequate. Any
imposition of liability based on the actions of clients and others using
fine.com's services could have a material adverse effect on fine.com.
FINE.COM DEPENDS ON THE CONTINUED DEVELOPMENT OF THE INTERNET.
fine.com's ability to generate revenues from the planning, development and
maintenance of commercial Web sites will depend upon the continued development
of an infrastructure for providing Internet access and carrying Internet
traffic. The Internet may not prove to be a viable commercial marketplace due to
inadequate development of the necessary infrastructure or delays in the
development of complementary products. Moreover, other critical issues
concerning the commercial use of the Internet (including security, reliability,
cost, ease of use and access, and quality of service) are being developed and
delays or inabilities to find solutions may adversely impact the anticipated
growth of Internet use. It is difficult to predict whether the Internet will
prove to be and remain a viable commercial marketplace. If the infrastructure
and complementary products necessary to support the Internet's commercial
viability are not developed or if the Internet
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does not become a viable marketplace, fine.com's business would be materially
adversely affected.
FINE.COM'S BUSINESS IS SUBJECT TO RAPID TECHNOLOGICAL CHANGE.
fine.com's success depends in part on its ability to identify emerging
technology trends and develop information technology solutions that keep pace
with continually changing technology, evolving industry standards, emerging
competition and frequent service, software and other product introductions and
changing client preferences. Information technology changes rapidly, and new
products and services emerge frequently, rendering existing products and
services obsolete. To keep pace with changes in the market, fine.com must
constantly evaluate its service and product offerings. fine.com may not be able
to timely recognize emerging information technology trends and may not be able
to expend the financial and other resources necessary to develop and bring new
services to market in a timely and cost-effective manner and hire additional
qualified personnel. Also, new products, services and technologies developed by
others could render those of fine.com noncompetitive or obsolete.
YEAR 2000 DISRUPTIONS, REMEDIATION AND UNCERTAINTIES MAY SIGNIFICANTLY
AFFECT FINE.COM'S BUSINESS.
Y2K problems in fine.com's own systems or the systems and products of its
material suppliers or vendors could interrupt fine.com's operations or disrupt
its ability to supply products and services to clients. fine.com believes that
its internally developed applications and services are Y2K compliant, but cannot
be certain that they do not contain undetected errors or defects in processing
Y2K data. Software or technology provided by third parties may contain errors or
defects in processing Y2K data that are not detected by the third-party
providers or in fine.com's own testing, regardless of any assurances fine.com
may receive from the providers. Failure by fine.com or its software or
technology providers to adequately address Y2K issues could adversely affect
fine.com's business operations. Correction of Y2K problems could require
fine.com to incur unanticipated expenses, and such expenses could have a
material adverse effect on fine.com business, financial condition and results of
operations.
fine.com could become involved in disputes with clients about Y2K problems
with solutions that it developed or implemented or the interaction of fine.com's
solutions with other applications. While fine.com believes that its current
applications are Y2K compliant, they may contain undetected errors in processing
Y2K data. fine.com develops customized Web applications for its clients, some of
which contain date-related data. The clients and/or other vendors further
customize some of fine.com's applications after fine.com's involvement has
ended, so some previously completed applications might not continue to meet Y2K
compliance standards. Also, due to the fact that fine.com's applications are
owned and managed by clients, there can be no assurance that the applications
have been tested to verify for Y2K compliance. Claims by customers or former
customers arising from Y2K issues could materially adversely affect fine.com's
business, financial condition and results of operations.
There is considerable uncertainty in many industries in which fine.com's
clients and potential clients operate concerning the scope and magnitude of
problems that will be associated with the century change. Many of fine.com's
clients maintain their Internet operations on servers which may be impacted by
Y2K complications. The failure of clients
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to ensure that their servers are Y2K compliant could adversely affect the
clients and, in turn, adversely affect fine.com's business if clients are forced
to cease or interrupt Internet operations or experience malfunctions related to
their equipment. Significant delays in, or cancellation of clients' or potential
clients' decisions to purchase fine.com's applications and services, due to the
reallocation of resources to address Y2K or due to other Y2K issues, could have
a material adverse effect on fine.com's business, financial condition and
results of operations. See "Information about fine.com -- fine.com Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000 Readiness Disclosure."
FINE.COM DEPENDS ON ITS EXPERTISE WITH MICROSOFT SOFTWARE AND ON THE
CONTINUED ACCEPTANCE OF MICROSOFT'S PRODUCTS AND STANDARDS.
fine.com is dependent upon its expertise with Microsoft software and relies
upon this software in creating Internet solutions for its clients. Although
fine.com participates in the Microsoft Solution Provider Partner and Site
Builders Network programs, fine.com cannot ensure that its relationship with
Microsoft will continue or that it will continue to derive benefits from that
relationship. If Microsoft's products, standards or approach to the Internet or
other markets were to fall into disfavor or other parties were able to develop
products, standards or approaches which had greater market acceptance than those
offered by Microsoft, fine.com's business could be materially adversely
affected. Although fine.com has developed expertise in UNIX systems through its
acquisition of Meta4 Digital Design, Inc., fine.com is still primarily dependent
on its expertise with Microsoft software. Any failure of fine.com to maintain
its expertise in Microsoft systems or any negative changes to Microsoft or its
operating systems could have a material adverse effect on fine.com's business.
FINE.COM'S BUSINESS COULD BE AFFECTED BY INCREASED GOVERNMENT REGULATION.
fine.com is not currently subject to direct regulation by any government
agency, other than regulations applicable to businesses generally. However, it
is possible that laws and regulations may be adopted with respect to the
Internet, covering issues such as user privacy and pricing, characteristics and
quality of products and services. The adoption of any such laws or regulations
may decrease the growth of the Internet (which could in turn decrease the demand
for fine.com's services), increase fine.com's cost of doing business, cause
fine.com to modify its operations or otherwise have an adverse effect on
fine.com's business. Moreover, the applicability to the Internet of existing
laws governing issues such as property ownership, libel and personal privacy is
uncertain. fine.com cannot predict the impact, if any, that any future laws or
regulations, or the applicability of such existing laws, may have on its
business.
FINE.COM'S STOCK PRICE IS VOLATILE.
The market price of fine.com's common stock has been highly volatile and
subject to wide fluctuations in response to quarterly variations in operating
results, announcements of activities by competitors and other events and
factors. fine.com's stock price may also be affected by broader market trends
unrelated to fine.com's performance.
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THE SPECIAL MEETING
This proxy statement/prospectus is being furnished to you in connection
with the solicitation by fine.com's board of directors of proxies for the
special meeting of shareholders. The special meeting will be held at the Century
Square Plaza Building, 16th Floor, Room 1625, located at 1501 Fourth Avenue,
Seattle, Washington at 8:00 a.m. local time on Tuesday, August 31, 1999, and at
any adjournment or postponement of the meeting. The approximate date of mailing
this proxy statement/prospectus and the accompanying proxy card to you is August
10, 1999.
USE OF PROXIES AT THE SPECIAL MEETING
fine.com will assure that properly executed proxies that it receives before
the special meeting are voted at the special meeting as you instruct on the
proxy. Executed proxies with no instructions indicated will be voted FOR the
approval of the merger agreement, as set forth below under "Approval of the
Merger." The fine.com board of directors knows of no matters that will be
presented for a vote at the special meeting other than the merger and merger
agreement. If other matters are properly presented, the persons designated as
proxies on the enclosed proxy card intend to vote on the matters in accordance
with their judgment.
fine.com requests that you complete, date and sign the accompanying proxy
card and return it promptly in the enclosed postage-paid envelope, even if you
are planning to attend the special meeting.
You should not forward any stock certificates with your proxy cards. You
should deliver stock certificates only in accordance with instructions set forth
in a letter of transmittal that will be sent to you shortly after the effective
date of the merger.
REVOCATION OF PROXIES
You may change your vote by delivering a signed notice of revocation or a
later-dated, signed proxy card to fine.com's corporate secretary before the
special meeting, or by attending the special meeting and voting in person. If
you have instructed your broker to vote shares held in "street name," you must
instruct your broker to change your vote.
RECORD DATE; SHAREHOLDERS ENTITLED TO VOTE AT THE SPECIAL MEETING
Only the holders of fine.com common stock as of the close of business on
July 30, 1999, 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 2,692,144 shares of fine.com common stock. The
holders of fine.com common stock will be entitled to one vote on each matter
presented for shareholder approval at the special meeting for each share held on
the record date.
QUORUM; VOTE REQUIRED FOR APPROVAL
Pursuant to the fine.com bylaws, the presence in person or by proxy of
holders of shares of fine.com common stock representing a majority of the votes
entitled to be cast at the special meeting constitutes a quorum for the
transaction of business at the special meeting. Abstentions and broker non-votes
are included in the calculation of the number
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of votes represented at a meeting for purposes of determining whether a quorum
has been achieved.
The approval of the merger agreement and the merger will require the
affirmative vote of the holders of two-thirds (2/3) of the outstanding shares of
fine.com common stock entitled to vote. Accordingly, a failure to submit a proxy
card (or to vote in person at the special meeting), a broker non-vote or a
failure to vote by fine.com shareholders will have the same effect as a vote
against the merger agreement and the merger.
The voting agreements signed by the directors and certain officers of
fine.com obligate them to vote in favor of the merger agreement and the merger.
As of the record date for the special meeting, these directors and officers
owned an aggregate of 1,057,541 shares representing 39.3% of the outstanding
shares of fine.com common stock.
STATUTORY DISSENTERS' RIGHTS
We describe below the steps which you must take if you are a fine.com
shareholder and you wish to exercise dissenters' rights with respect to the
merger. This description is a summary only and is not complete. You should read
RCW 23B.13.010 et seq. of the Washington Business Corporation Act, a copy of
which is attached as Annex C to this proxy statement/prospectus. FAILURE TO TAKE
ANY ONE OF THE REQUIRED STEPS MAY RESULT IN TERMINATION OF YOUR DISSENTERS'
RIGHTS UNDER THE WASHINGTON BUSINESS CORPORATION ACT. If you are a fine.com
shareholder considering dissenting, you should consult your own legal advisor.
To exercise dissenters' rights, you must satisfy five conditions:
- YOU MUST BE A SHAREHOLDER OF RECORD. To be entitled to dissenters'
rights, you must be the record holder of the dissenting shares as of July
30, 1999. If your shares are held in street name or are held of record by
a broker or other person, you must take action to cause the broker or
other holder of record take the steps described below to dissent with
respect to the shares you beneficially own.
- YOU MUST FILE A WRITTEN NOTICE BEFORE THE SPECIAL MEETING. You must send
a written notice to fine.com of your intention to exercise dissenters'
rights for your shares. This written notice must be received by fine.com
before the vote is taken to approve the merger and merger agreement.
Voting against the merger, by itself, does not constitute notice of an
intention to exercise dissenters' rights.
- YOU MUST NOT VOTE IN FAVOR OF THE MERGER. You must not vote your shares
at the special meeting in favor of the merger and the merger agreement.
This requirement may be satisfied in one of the following ways:
- if you do not return your proxy card and you do not vote at the
special meeting in favor of the merger and merger agreement;
- if you submit a properly executed proxy with instructions to vote
"against" the merger or to "abstain" from voting; or
- if you revoke a proxy and later "abstain" from or vote "against" the
merger.
A vote for the merger is a waiver of dissenters' rights. If you return a
signed proxy card and do not indicate a voting preference, the proxies
will vote your shares in favor of the merger and the merger agreement, and
this will constitute a waiver of
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your dissenters' rights. Failure to vote does not constitute a waiver of
dissenters' rights.
- YOU MUST FILE A WRITTEN DISSENTERS' NOTICE AFTER THE MERGER. If the
merger is approved, ARIS Interactive (as successor to fine.com) will
deliver a written dissenters' notice to all fine.com shareholders who
have satisfied the above requirements. You must complete this notice,
including demanding payment of fair value for your shares, stating your
name and address, and certifying the number of dissenting shares held of
record on July 30, 1999. You must send this completed written notice to
ARIS Interactive by the date specified in the notice.
- YOU MUST SEND YOUR STOCK CERTIFICATES FOR DISSENTING SHARES TO ARIS
INTERACTIVE. You must send your fine.com stock certificates for
dissenting shares to ARIS Interactive no later than the date specified in
the written dissenters' notice.
If any of the conditions described above are not satisfied, you will have
waived your dissenters' rights. If all of the conditions described above are
satisfied, ARIS Interactive will pay to each fine.com shareholder who properly
exercises his or her dissenters' rights the "fair value" of the dissenting
shares, plus interest, as determined by ARIS Interactive. If ARIS Interactive
does not make payment within 60 days or if a dissenting fine.com shareholder is
dissatisfied with the payment of fair value, the dissenting shareholder must
notify ARIS Interactive within 30 days after payment is made and must provide
his or her own estimate of the fair value of the dissenting shares and demand
payment from ARIS Interactive. If the parties cannot agree on the fair value of
the dissenting shares, ARIS Interactive must commence a court proceeding to
determine the value of the shares, plus interest. The costs of the court
proceeding, including reasonable compensation for any appraisers appointed by
the court and attorneys' fees, will be assessed as the court considers
equitable.
THE "FAIR VALUE" OF ANY DISSENTING SHARES MAY BE HIGHER, THE SAME, OR LOWER
THAN THE MERGER CONSIDERATION TO BE PAID FOR SHARES OF FINE.COM COMMON STOCK IN
THE MERGER.
If the number of shares of fine.com common stock held by fine.com
shareholders who exercise dissenters' rights exceeds 10% of the total number of
shares of fine.com common stock outstanding, ARIS may immediately terminate the
merger and fine.com would be required to pay to ARIS the $500,000 termination
fee. See "The Merger Agreement -- Payment of Termination Fee and Expenses."
SOLICITATION OF PROXIES
fine.com will bear the cost of solicitation of proxies for the special
meeting. ChaseMellon Shareholder Services will assist in the solicitation of
proxies by fine.com for a fee of $6,500, plus reimbursement for reasonable
out-of-pocket expenses. In addition, directors, officers and regular employees
of fine.com may solicit proxies personally or by telephone, mail, facsimile or
telegram. Such persons will receive no additional compensation. fine.com will
reimburse custodians, brokerage houses, nominees and other fiduciaries for their
reasonable expenses in sending the proxy materials to their principals.
RECOMMENDATION OF THE FINE.COM BOARD OF DIRECTORS
The board of directors of fine.com has approved the merger agreement and
the merger and recommends that you vote FOR approval of the merger and the
merger agreement.
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THE MERGER
BACKGROUND OF THE MERGER
The timing, terms and conditions of the merger agreement are the result of
arms-length negotiations between representatives of fine.com and ARIS. Set forth
below is a summary of the negotiations.
On March 5, 1999, Kendall Kunz, Senior Vice President of North America of
ARIS, telephoned Daniel M. Fine, Chairman and Chief Executive Officer of
fine.com, regarding the potential sale of fine.com to ARIS. The discussion held
was general in nature and included only an overview of the general businesses of
fine.com and ARIS. Specific terms of the potential sale were not discussed
during the telephone conversation.
On March 11, 1999, Mr. Kunz met with Mr. Fine and Timothy J. Carroll,
Executive Vice President of Finance and Operations of fine.com, to discuss the
businesses of the two companies and the interest in pursuing a combination of
ARIS and fine.com. Discussions centered on the business overview of historical
and forecasted financial statements of each company. No specific financial terms
of the potential acquisition of fine.com by ARIS were discussed.
On March 26, 1999, Mr. Kunz met with Mr. Fine at ARIS' corporate office in
Bellevue, Washington to continue discussions on the advantages of combining the
two companies. Also discussed were the financial condition of each company,
including budgets, capital structures and organizational structures. As a result
of the discussions, ARIS expressed an interest in pursuing an acquisition of
fine.com to be accounted for as a pooling-of-interests, whereby ARIS would issue
its common stock in exchange for the outstanding common stock, options and
warrants of fine.com for an aggregate purchase price to be approximately $14
million. fine.com management indicated that fine.com would like to move forward
with further discussions and begin the due diligence process.
On April 9, 1999, ARIS, fine.com, the independent accountants and legal
counsel for both ARIS and fine.com met to further discuss coordination of due
diligence and the timing of the potential acquisition. ARIS and fine.com agreed
on the basic structure and terms of the potential acquisition.
Messrs. Song and Fine held a series of conversations from April 23, 1999 to
April 29, 1999, in which they discussed changing the accounting treatment for
the merger from pooling-of-interests to purchase accounting because
pooling-of-interests accounting was probably not available. The independent
accountants for each company agreed with Messrs. Song's and Fine's conclusions
regarding the availability of pooling-of-interests accounting treatment. ARIS
stated that it was unwilling to proceed with a purchase transaction at a
valuation of $14 million because in a purchase transaction ARIS would be
required to record and amortize goodwill thereby adversely affecting its future
reported earnings. fine.com and ARIS agreed to a purchase price of $12.5 million
for all of the shares of fine.com common stock outstanding at the time the
merger agreement was signed, not including the value of unexercised options and
warrants. It was also agreed that ARIS would replace outstanding options and
warrants to purchase fine.com common stock with options and warrants to purchase
ARIS common stock in a manner that would preserve the value of the fine.com
options and warrants.
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On April 15, 1999, the board of directors of ARIS met to discuss the
potential acquisition of fine.com. ARIS management presented its board of
directors with an overview of the fine.com business and benefits that may be
realized from a combination with fine.com. The ARIS board of directors directed
ARIS management to continue with negotiations for the potential acquisition of
fine.com upon substantially the revised terms of the merger.
At subsequent meetings from April 29, 1999 to May 14, 1999, ARIS, fine.com,
and the independent accountants and legal counsel for each company held further
discussions relating to the accounting treatment, timing and the pricing of the
potential acquisition of fine.com by ARIS. ARIS and fine.com held general
discussions on numerous issues, including certain employment arrangements, the
post-merger management team, due diligence coordination, capitalization
structures, status of fine.com's options and warrants and customer contracts.
ARIS and fine.com also discussed various tax and accounting related matters,
including historical, current and anticipated business performance.
On May 13, 1999, ARIS' board met to review the progress of the merger
discussions. Several members of the board of ARIS were concerned about the
dilutive effect of paying the entire purchase price in ARIS common stock and
proposed that a portion of the purchase price be paid in cash. This concern was
communicated by ARIS management to fine.com management on May 14, 1999.
On May 13, 1999, fine.com engaged Ragen MacKenzie for the purpose of
reviewing the terms of the merger for fairness to fine.com's shareholders.
On May 14, 1999, fine.com distributed a draft of the merger agreement to
its board of directors.
At a meeting held on May 15, 1999, in Bellevue, Washington, representatives
of fine.com and ARIS and the legal counsel for each company held further
discussions relating to the terms and conditions of the potential merger. ARIS'
and fine.com's representatives agreed that:
- the merger consideration payable for each share of fine.com common stock
would not exceed $4.5531 (representing a total price not exceeding $12.25
million for all of the fine.com common stock outstanding when the merger
agreement was signed);
- ARIS would pay the merger consideration by issuing up to .3717 shares of
ARIS common stock for each share of fine.com common stock (representing
an issuance of up to 1,000,000 shares of ARIS common stock for all of the
fine.com common stock outstanding when the merger agreement was signed);
- if the issuance of .3717 shares of ARIS common stock resulted in a value
of less than $4.5531 for each share of fine.com common stock, ARIS would
pay the difference in cash up to $1.9513 (representing a maximum total
cash payment of up to $5.25 million for all of the fine.com common stock
outstanding when the merger agreement was signed); and
- ARIS would replace outstanding fine.com options and warrants to purchase
fine.com common stock with options or warrants to purchase ARIS common
stock.
The revised merger consideration and resulting exchange ratios were
discussed in detail.
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On May 16, 1999, representatives of ARIS, fine.com and the legal counsel
for each company met to discuss the revised terms and conditions of the
potential acquisition of fine.com by ARIS to be reflected in the merger
agreement to be presented to each company's board of directors for review and
approval. On the evening of May 16, 1999, a revised draft merger agreement was
circulated to the board of directors of ARIS and to the board of directors of
fine.com.
On May 17, 1999, the board of directors of ARIS met to review and discuss
the terms and conditions of the merger and the merger agreement. The ARIS board
of directors unanimously approved the acquisition of fine.com through ARIS
Interactive upon substantially the terms and conditions set forth in the merger
agreement.
Also on May 17, 1999, the board of directors of fine.com met to discuss the
merger agreement and the merger. fine.com management presented its board of
directors with an overview of ARIS, including, among other things, the
description of ARIS' operations, its financial condition, and the anticipated
advantages that may be realized from a combination with fine.com. Ragen
MacKenzie presented its oral opinion to the effect that the consideration to be
received by the shareholders of fine.com pursuant to the merger agreement is
fair, from a financial point of view, to the holders of fine.com common stock.
The fine.com board of directors also considered alternatives to the merger,
including other potential acquisition candidates and the possibility of
continuing as an independent company. The fine.com board of directors, after
receiving the oral fairness opinion from Ragen MacKenzie and upon further
discussion and consideration, unanimously approved the merger agreement and
merger.
During the evening of May 17, 1999, the merger agreement was finalized and
ARIS, ARIS Interactive, fine.com and Daniel M. Fine, Frank Hadam and Herbert L.
Fine signed the merger agreement and Messrs. Fine, Hadam and Fine also signed
voting agreements to vote their fine.com common stock in favor of the merger.
ARIS and fine.com also signed a teaming agreement similar to agreements ARIS has
with a number of independent third parties under which each of ARIS and fine.com
would market the products and services of the other pending the merger.
On the morning of May 18, 1999, the merger was publicly announced.
During the period from June 28, 1999 through July 23, 1999, Messrs. Kunz
and Fine jointly met with existing and potential clients to discuss ARIS'
service offerings after completion of the merger. During this time, Messrs. Kunz
and Fine also discussed with each other the developments in ARIS' business since
the execution of the merger agreement, including developments in the consulting
and training operations.
On July 23, 1999, legal counsel for fine.com telephoned Norbert W. Sugayan,
then ARIS' Vice President of Law and Corporate Affairs and General Counsel, to
discuss developments in ARIS' consulting and training operations. fine.com's
counsel and Mr. Sugayan discussed the impact of these changes on ARIS' business
and the possibility that these developments might result in a drop in ARIS'
stock price, at least in the short term.
During the week of July 26, 1999, Messrs. Kunz and Fine continued their
joint meetings with existing and potential clients to discuss ARIS' service
offerings after completion of the merger.
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On July 28, 1999, Messrs. Song, Kunz and Fine discussed the developments in
ARIS' consulting and training businesses since the execution of the merger
agreement and the possible impact of these changes on ARIS' business and on
ARIS' stock price. In addition, Mr. Fine asked Mr. Song to consider the
possibility of amending the terms of the merger agreement to eliminate the
possibility that fine.com shareholders might receive ARIS stock and cash valued
at less than $4.5531 per share of fine.com common stock in the merger.
On July 30, 1999, Mr. Song telephoned Mr. Fine and proposed an amendment to
the merger agreement that would eliminate the possibility that, due to declines
in ARIS' stock price, the fine.com shareholders could receive per-share
consideration of less than $4.5531 in ARIS common stock and cash in the merger.
Mr. Song and Mr. Fine agreed that the merger agreement should be amended to
eliminate this possibility, and also agreed to eliminate the ability of fine.com
to terminate the merger agreement, and not complete the merger, in response to
changes in ARIS' business arising from the recent developments relating to ARIS'
consulting and training operations and other changes as this proxy
statement/prospectus discloses have occurred or may occur. Later that day, legal
counsel for ARIS circulated a draft amended and restated merger agreement to
fine.com's management and legal counsel.
On August 2, 1999, representatives of ARIS, fine.com and the legal counsel
for each company discussed the revisions to the terms and conditions of the
merger that would be made in the amended and restated merger agreement. ARIS'
and fine.com's representatives agreed that:
- the merger consideration payable for each share of fine.com common stock
would be fixed at $4.5531 (representing a total price of $12.25 million
for all of the fine.com common stock outstanding when the merger
agreement was signed);
- ARIS would pay the merger consideration by initially issuing up to .3717
shares of ARIS common stock for each share of fine.com common stock
(representing an issuance of up to 1,000,000 shares of ARIS common stock
for all of the fine.com common stock outstanding when the merger
agreement was signed);
- if the issuance of .3717 shares of ARIS common stock for each share of
fine.com common stock did not result in a per share value of $4.5531 ARIS
would pay the difference in cash up to $1.1150 per share (representing a
maximum total cash payment of $3 million for all of the outstanding
fine.com common stock outstanding when the merger agreement was signed);
- if .3717 shares of ARIS common stock and $1.1150 in cash per share did
not result in a value of $4.5531 per share, then any remaining difference
would be paid with ARIS common stock; and
- some representations and warranties of ARIS would be modified or
eliminated and a condition to fine.com's obligation to consummate the
merger would be modified or removed to eliminate the ability of fine.com
to terminate the merger agreement, and not complete the merger, in
response to changes in ARIS' business arising from the recent
developments relating to ARIS' consulting and training operations and
other changes as may be disclosed in this proxy statement/prospectus.
On August 2, 1999, the board of directors of ARIS met to review and discuss
the terms and conditions of the amended and restated merger agreement. The ARIS
board of directors unanimously reconfirmed its approval of the acquisition of
fine.com through
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ARIS Interactive upon substantially the terms and conditions set forth in the
amended and restated merger agreement.
On August 3, 1999, the board of directors of fine.com met to discuss the
amended and restated merger agreement. Prior to the meeting, Ragen MacKenzie
provided fine.com's management with a draft of its written fairness opinion and
notified management of its willingness to present its oral opinion to the board
to the effect that the consideration to be received by the shareholders of
fine.com pursuant to the amended and restated merger agreement is fair, from a
financial point of view, to the holders of fine.com common stock. The fine.com
board of directors reviewed the recent developments in ARIS' business and
discussed the fairness opinion from Ragen MacKenzie and upon further discussion
and consideration approved the amended and restated merger agreement. The board
reconfirmed its approval of the merger upon substantially the terms and
conditions set forth in the amended and restated merger agreement and its
recommendation to the fine.com shareholders.
On August 5, 1999, the amended and restated merger agreement was finalized
and ARIS, ARIS Interactive, fine.com and Messrs. Fine, Hadam and Fine signed the
amended and restated merger agreement.
On August 6, 1999, the amendment and restatement of the merger agreement
was publicly announced.
ARIS' REASONS FOR THE MERGER
The board of directors of ARIS believes that, through the merger, ARIS will
realize positive benefits, including:
- expanding ARIS' ability to deliver Web-based solutions, including
strategic Web consulting, creative design, and technical development; and
- adding approximately 50 trained information technology consultants in a
time of intense competition for talented personnel among information
technology employers.
The board of directors of ARIS also considered a variety of risks and other
potentially negative factors in deliberations concerning the merger. In
particular, ARIS' board of directors considered:
- fine.com's losses and need for working capital;
- the possibility that some of fine.com's employees might terminate their
employment and not be available to ARIS;
- the difficulties in integrating the business, operations and personnel of
fine.com with those of ARIS; and
- the fact that the merger would result in the addition of goodwill to
ARIS' balance sheet, the period over which ARIS would have to amortize
the goodwill and the fact that the merger might result in a significant
charge to income in the quarter in which it became effective.
The board did not make a quantitative analysis of the factors considered,
but concluded that the anticipated benefits of the merger outweighed the
possible detriments.
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This discussion is not intended to be exhaustive, but is intended to
include the important factors considered by ARIS' board of directors in
evaluating the merger. The board did not assign relative weights to the factors
considered, and the determination was made after considering the factors as a
whole. Individual directors may have given different degrees of importance to
different factors.
ARIS BOARD APPROVAL
For the reasons discussed above, the ARIS board of directors determined
that the terms of the merger agreement and the merger are in the best interests
of ARIS and its shareholders and approved the merger by a unanimous vote. The
board of directors subsequently approved the amendment and restatement of the
merger agreement and reconfirmed its approval of the merger upon the terms and
conditions set forth in the amended and restated merger agreement.
FINE.COM'S REASONS FOR THE MERGER
The board of directors of fine.com believes that, through the merger,
fine.com will realize benefits, including:
- greater financial resources to support the expansion of fine.com's
operations than would be available to fine.com as an independent company;
- obtaining access to additional training resources for fine.com's
employees and customers;
- providing fine.com with additional sources of business leads through
marketing to ARIS' clients;
- improving the development and retention of fine.com's employees and
consultants by creating better career paths; and
- providing immediate additional value and liquidity in the investment of
fine.com's shareholders based upon fine.com's stock price prior to the
date the merger was announced.
In reaching its conclusion to approve the merger, and to reconfirm its
approval of the merger upon substantially the terms and conditions set forth in
the amended and restated merger agreement, the board of directors of fine.com
considered a number of factors including, among others:
- the past financial and operational performance of fine.com and ARIS,
including:
- the closure of three ARIS training centers and the possibility that
ARIS may in the future sell training operations, in whole or in part;
and
- ARIS' decision to focus its consulting business on solutions that
integrate internal information systems with Internet-based and
electronic commerce applications.
- the projected financial and operational performance of fine.com for the
current fiscal year;
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- the current and past trading prices of ARIS common stock and fine.com
common stock;
- the opinions of its financial advisor, Ragen MacKenzie Incorporated, that
the merger consideration was fair to the fine.com shareholders from a
financial point of view;
- the potential that the value of ARIS common stock would increase after
the merger and that if the merger occurred fine.com shareholders would
share in any increase due to their ownership of ARIS common stock;
- various alternatives to the merger, including the alternative of
remaining an independent company, and the risks associated with those
alternatives;
- the past performance and reputation of the ARIS management team, and Paul
Song in particular, and the belief that fine.com and ARIS have similar
approaches to business;
- terms of the amended and restated merger agreement including the
representations, warranties and covenants, and the conditions to each
party's obligation to consummate the merger; and
- the ability of fine.com and ARIS to complete the merger.
The fine.com board of directors also considered a variety of risks and
potentially negative factors in deliberations concerning the merger. In
particular, the board of fine.com considered the following:
- the possibility that the Average ARIS Closing Price would exceed $12.25,
and that fine.com shareholders would receive less than .3717 shares of
ARIS common stock in the merger for each fine.com share and would not
have the opportunity to receive upside benefits from an Average ARIS
Closing Price exceeding $12.25;
- that there may be a sizable number of fine.com shareholders who purchased
their shares of fine.com common stock at more than the $4.5531 maximum
value per share to be received in the merger;
- the risk that fine.com could lose existing and prospective clients and
key employees after announcement of the merger or if the merger were not
to be consummated;
- conflicts of interest of Daniel M. Fine and Timothy J. Carroll;
- indemnification obligations of Daniel M. Fine, Herbert L. Fine and Frank
Hadam;
- the $500,000 termination fee payable to ARIS may prevent others from
proposing an alternative transaction that may be more advantageous to
fine.com shareholders; and
- if the merger is not consummated, fine.com would have incurred
significant legal, accounting and other financial advisory fees.
The board did not make a quantitative analysis of the factors considered,
but concluded that the anticipated benefits of the merger outweighed the
possible detriments.
This discussion is not intended to be exhaustive, but is intended to
include the important factors considered by fine.com's board of directors in
evaluating the merger. The
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board did not assign relative weights to the factors considered, and the
determination was made after considering the factors as a whole. Individual
directors may have given different degrees of importance to different factors.
FINE.COM BOARD APPROVAL AND RECOMMENDATION
For the reasons discussed above, the fine.com board of directors has
approved the merger agreement and has determined that the terms of the merger
agreement and merger are fair to, and in the best interests of, fine.com and the
fine.com shareholders. Accordingly, the fine.com board has unanimously
recommended that you vote FOR approval of the merger agreement and merger. The
board of directors subsequently approved the amendment and restatement of the
merger agreement and reconfirmed its approval of the merger and that the merger
is fair to, and in the best interests of, fine.com and the fine.com
shareholders. The fine.com board also reconfirmed their recommendation that you
vote FOR approval of the amended and restated merger agreement and the merger.
OPINION OF FINANCIAL ADVISOR TO FINE.COM
The board of directors of fine.com, on behalf of the fine.com shareholders,
requested Ragen MacKenzie Incorporated to render its opinion as to whether the
consideration to be paid by ARIS pursuant to the merger agreement is fair, from
a financial point of view, to the shareholders of fine.com. fine.com retained
Ragen MacKenzie based upon its prominence as an investment banking and financial
advisory firm with experience in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of securities, private placements and
valuations for corporate purposes.
On May 17, 1999, Ragen MacKenzie delivered its oral opinion to the board of
directors of fine.com, to the effect that as of May 17, 1999, the consideration
to be received by the shareholders of fine.com pursuant to the merger agreement
was fair from a financial point of view to the holders of fine.com common stock.
On August 3, 1999, Ragen MacKenzie provided fine.com management with a
draft of its written fairness opinion and notified management that it would be
willing to deliver its oral opinion to the board of directors of fine.com to the
effect that as of August 3, 1999, the consideration to be received by the
shareholders of fine.com pursuant to the amended and restated merger agreement
was fair from a financial point of view to the holders of fine.com common stock.
On August 5, 1999, Ragen MacKenzie delivered its written opinion to
fine.com that, as of the date of such opinion, based on Ragen MacKenzie's review
and subject to certain material assumptions, limitations, procedures followed
and qualifications described below and set forth in its opinion, the
consideration to be received by the shareholders from the merger is fair to the
shareholders, from a financial point of view. Ragen MacKenzie assumed no
adjustment or modification will be made to the merger consideration set forth in
the opinion. The merger consideration was determined through arm's length
negotiations between the parties and was not determined by Ragen MacKenzie. The
opinion is addressed to the board of directors and is directed only to the
financial terms of the merger agreement. Ragen MacKenzie is not making, and the
opinion should not be construed as, a recommendation to any shareholder as to
whether or not a shareholder should approve the merger. Additionally, the
fairness opinion does not compare the relative
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merits of the merger with those of any other transactions or business strategies
available to fine.com as alternatives to the merger, and Ragen MacKenzie was not
requested to, and did not, solicit the interest of any other party in acquiring
fine.com.
THE FULL TEXT OF THE FAIRNESS OPINION WHICH CONTAINS A DESCRIPTION OF THE
ASSUMPTIONS AND QUALIFICATIONS MADE, MATTERS CONSIDERED AND LIMITATIONS IMPOSED
ON THE REVIEW AND ANALYSIS IS SET FORTH AS ANNEX B AND SHOULD BE READ IN ITS
ENTIRETY. THE SUMMARY OF THE ANALYSIS AND OPINION SET FORTH HEREIN IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE OPINION. THE BOARD OF DIRECTORS OF FINE.COM
IMPOSED NO CONDITIONS OR LIMITATIONS ON THE SCOPE OF RAGEN MACKENZIE'S
INVESTIGATION OR THE METHODS OR PROCEDURES TO BE FOLLOWED IN RENDERING THE
FAIRNESS OPINION.
In rendering the fairness opinion, Ragen MacKenzie, among other things:
- reviewed the amended and restated merger agreement;
- reviewed and analyzed certain consolidated historic and projected
financial and operating data of fine.com, including certain audited and
unaudited financial statements for fine.com and unaudited estimates
prepared by management for fine.com;
- reviewed and analyzed certain other internal information concerning the
business and operations of fine.com furnished to it by management;
- reviewed the financial terms, to the extent publicly available,
information concerning the terms of certain other business combinations
that Ragen MacKenzie deemed generally relevant;
- reviewed share price and trading volume for fine.com and ARIS from 1997
to present;
- reviewed with the management of fine.com its operations, historical
financial performance, and projected future operating results for a five
(5) year period;
- compared certain publicly available financial data of companies whose
securities are publicly traded, which Ragen MacKenzie deemed generally
comparable to the business of fine.com, to similar data for fine.com; and
- conducted such other financial studies, analyses and investigations, and
considered such other information as Ragen MacKenzie deemed appropriate.
Ragen MacKenzie expressed no opinion as to what the value of the ARIS
common stock will be when issued to the shareholders in the merger or the price
at which the ARIS common stock will actually trade following the merger at any
time. In addition, Ragen MacKenzie was not asked to consider, and the Ragen
MacKenzie opinion does not address fine.com's underlying business decision to
engage in the merger or the relative merits of the merger as compared to any
alternative business strategies that might exist for fine.com or the effect of
any other transaction in which fine.com might engage.
In preparing its fairness opinion, Ragen MacKenzie relied, without
independent verification, on the accuracy and completeness of all information
that was publicly available, supplied or otherwise communicated to Ragen
MacKenzie by fine.com. Ragen MacKenzie assumed that the financial estimates
(including the underlying assumptions and bases thereof) examined by it were
reasonably prepared and reflected the best currently available estimates and
good faith judgments of fine.com as to the future
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<PAGE> 57
performance of fine.com. Ragen MacKenzie did not make an independent evaluation
or appraisal of the assets or liabilities (contingent or otherwise) or prospects
of fine.com. The fairness opinion is based upon financial, economic, market and
other conditions and circumstances existing and disclosed to Ragen MacKenzie as
of the date of the fairness opinion.
In conjunction with rendering its fairness opinion, Ragen MacKenzie
considered a variety of financial and comparative analyses, including:
- a discounted cash flow analysis;
- an analysis of selected transactions pursuant to which selected public
and private companies have acquired other companies;
- an analysis of certain publicly available financial data of companies
whose securities are publicly traded, which Ragen MacKenzie deemed
generally comparable to the business of fine.com, to similar data of
fine.com; and
- an analysis of the relative contribution to the combined entity of both
companies to sales, earnings before interest, taxes, depreciation and
amortization ("EBITDA"), earnings before interest and taxes ("EBIT"), net
income and book value for the most recent financial statements.
For purposes of its analysis, Ragen MacKenzie relied upon the most recent
Annual Report on Form 10-K and Quarterly Reports on Form 10-Q for ARIS and
Annual Report on Form 10-KSB and Quarterly Report on Form 10-QSB for fine.com
and certain interim reports to shareholders of each of ARIS and fine.com.
Ragen MacKenzie's fairness opinion is directed only to the fairness, from a
financial point of view, of the merger consideration to be paid by ARIS to the
shareholders of fine.com and does not constitute a recommendation concerning how
shareholders should vote with respect to the merger agreement or a statement as
to the tax consequences of the transaction to the shareholders or as to the
effect of the representations and warranties of the major shareholders of
fine.com who signed the merger agreement.
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<PAGE> 58
DISCOUNTED CASH FLOW ANALYSIS
Ragen MacKenzie analyzed the projected performance of fine.com, on a
stand-alone basis, using a discounted cash flow analysis. The discounted cash
flow approach assumes, as a basic premise, that the intrinsic value of any
business or property is the current value of the future cash flow that the
business or property will generate for its owners. To establish a current
implied value under this approach, future cash flow must be estimated and an
appropriate discount rate determined. Ragen MacKenzie used, without
verification, estimates and other information provided by fine.com to estimate
the after-tax free cash flows, defined as total projected cash revenue minus
total projected cash expenses (including tax expense) ("Free Cash Flows") for
years ending January 31, 2000 through the year ending January 31, 2004,
inclusive. To determine a perpetuity value, growth rates were applied for each
year through the year ending January 31, 2004 ranging from 1.0% to 3.0%. Based
on the forecasts provided by management, Ragen MacKenzie assumed revenues and
calculated free cash flows for the periods presented as set forth in the
following table:
<TABLE>
<CAPTION>
YEAR ENDING JANUARY 31,
--------------------------------------------------
2000 2001 2002 2003 2004
------ ------- ------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Assumed Revenues............. $8,515 $11,070 $14,390 $18,707 $24,320
Free Cash Flow............... 614 1,141 2,106 3,487 5,437
</TABLE>
The Free Cash Flows and the perpetuity values were then discounted to the
present, using discount rates ranging from 22.5% to 32.5%. These discount rates
reflected Ragen MacKenzie's analysis of fine.com's weighted average cost of
capital, using a beta of 1.7 and taking into account such factors as market
capitalization and liquidity.
SELECTED COMPARABLE TRANSACTION ANALYSIS
Ragen MacKenzie also analyzed selected transactions in which certain public
and private companies (the "Acquiring Companies") acquired other companies (the
"Target Companies"). Ragen MacKenzie compared the purchase price paid in each
company acquisition, which it believes could be used as a comparable based on
similarities of the business, with the latest twelve months or reported period,
on an annualized basis, as a multiple of revenues. These calculations produced a
multiple of 1.73 x revenues. Ragen MacKenzie also reviewed the premiums paid in
those transactions involving public companies. These premiums were all under
50%. The comparable transactions used were: US Web Corporation's mergers with
Metrix Communications, Tucker Networks, Gray Peak Technologies, Kallista Inc.,
Ensemble Corp., Ikonic Interactive, W3 Design Inc., Electronic Images Inc.,
Virtual Marketing Inc., Dream Media Inc., USWEB Hollywood, USWEB Phoenix,
Cybernautics Inc., and undisclosed divestors; CKS Group Incorporated's mergers
with Sitespecific Inc., McKinney & Silver, Donovan and Green, and Schell/
Mullaney Group; ARIS Corporation's mergers with Absolute! Inc., Agiliti Inc.,
Enterprise Computing, and Cray Solutions Group; and Caribiner Incorporated's
merger with Watts-Silverstein.
SELECTED COMPARABLE COMPANY ANALYSIS
Using publicly available information, Ragen MacKenzie compared selected
financial information for fine.com with similar information for certain selected
publicly traded
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<PAGE> 59
companies that Ragen MacKenzie deemed comparable based upon their similar
business. Such comparable companies included Cambridge Technology Partners,
CIBER Inc., Computer Outsourcing Services Inc., Computer Task Group, Leapnet
Inc., K2 Design, Technology Solutions Company, and The Judge Group. This
analysis showed aggregate values that resulted in an average
- latest twelve months Sales multiple of 1.2x;
- latest twelve months EBITDA multiple of 9.0x; and
- latest twelve months EBIT multiple of 11.0x.
CONTRIBUTION ANALYSIS
Ragen MacKenzie looked at the relative contribution to the combined entity
of both companies to sales, EBITDA, EBIT, net income and book value for the most
recent financial statements. Based on an average ten-day ARIS' closing stock
price of $7.58 as of July 30, 1999, fine.com shareholders would receive 10.0% of
the equity value of the combined company and approximately $3.0 million in cash.
Excluding the impact of synergies, fine.com is contributing:
- 5.3% of combined shareholders' equity;
- 6.8% of combined total assets; and
- 6.0% of pro forma combined sales, 0.0% of EBITDA, 0.0% of EBIT and 0.0%
of net income.
The summary set forth above describes the material analyses made by Ragen
MacKenzie. The preparation of a fairness opinion involves various determinations
as to the most appropriate and relevant methods of financial analysis and the
application of these methods to the particular circumstances. Each of the
analyses was performed by Ragen MacKenzie to provide a different perspective on
the transaction and contribute to the total mix of information available to the
shareholders. Ragen MacKenzie did not form a conclusion as to whether any one
the analyses, considered in isolation, supported or failed to support an opinion
as the fairness from a financial point of view of the merger consideration.
Instead Ragen MacKenzie, in reaching its conclusion, considered the results of
the analyses taken as a whole. Ragen MacKenzie's conclusion involved significant
elements of judgment and qualitative analyses as well as a financial and
quantitative analyses. Ragen MacKenzie did not place particular emphasis or
weighting on any individual factor, but instead concluded that its analysis
taken as a whole supported its opinion. Accordingly, notwithstanding the
separate factors summarized above, Ragen MacKenzie believes that its analyses
must be considered as a whole and that selecting portions of its analysis and
the factors it considered without considering all analyses and factors, could
create an incomplete or misleading view of the evaluation process underlying its
opinion. Any estimates contained in these analyses are not necessarily
indicative of actual values or predictive of future results or values, which may
be significantly more or less favorable than as set forth therein. The analyses
performed were prepared solely as part of Ragen MacKenzie's analysis of the
fairness of the consideration to be paid by ARIS pursuant to the merger
agreement from a financial point of view to fine.com and were conducted in
connection with the delivery of the fairness opinion. The analyses assume the
value of the ARIS stock was the ten-day average close of $7.58 as of July 30,
1999. In addition, the analyses do not purport to be appraisals and may not
reflect the
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<PAGE> 60
prices at which fine.com could actually be sold to ARIS or other parties.
Accordingly, these analyses and estimates are inherently subject to substantial
uncertainty and Ragen MacKenzie does not assume responsibility for any future
variations from these analyses or estimates.
The foregoing paragraphs summarize the significant quantitative and
qualitative analyses performed by Ragen MacKenzie in arriving at the fairness
opinion. In performing its analyses, Ragen MacKenzie made numerous assumptions
about industry performance, general business, financial, economic, and market
conditions and other matters, many of which are beyond the control of fine.com.
The preparation of a fairness opinion involves various determinations as to the
appropriate and relevant quantitative and qualitative methods of financial
analyses and the application of those methods to this opinion and, therefore,
such an opinion is not readily susceptible to summary description. Ragen
MacKenzie believes that its analyses must be considered as a whole and that a
review of any portions of its analyses and of the factors considered, without
considering all analyses and factors, could create a misleading or incomplete
view of the process underlying its opinion. Furthermore, events occurring after
the date of the Ragen MacKenzie fairness opinion may materially affect the
assumptions used in preparing the Ragen MacKenzie fairness opinion and
accordingly the Ragen MacKenzie fairness opinion is necessarily based upon
market, economic, and other conditions that exist and can be evaluated as of
August 5, 1999, the date of the opinion, and on information available to Ragen
MacKenzie as of such date. In addition, analyses relating to the value of the
business or securities do not purport to be appraisals, or to reflect the prices
at which such businesses or securities can actually be sold. Analyses based on
projected future results are not necessarily indicative of actual future results
that may be significantly more or less favorable than suggested by such analyses
and are subject to substantial uncertainty. The opinion and Ragen MacKenzie's
analyses were only one of many factors considered by the fine.com board in their
respective evaluations of the proposed merger and should not be viewed as
determinative of the views of the fine.com board with respect to the proposed
merger consideration or the proposed merger.
Pursuant to an engagement letter dated May 13, 1999, Ragen MacKenzie will
receive $150,000 for its services in rendering fairness opinions to fine.com.
The fee was not contingent on any particular analysis or on the completion of
the merger. Ragen MacKenzie will also be reimbursed for certain of its expenses.
In the normal course of its business, Ragen MacKenzie may actively trade the
securities of fine.com or ARIS for its own account or for the accounts of its
customers and, therefore, may at any time hold a long or short position in these
securities. fine.com (and, upon completion of the merger, ARIS Interactive as
the successor-in-interest to fine.com's business) has agreed to indemnify Ragen
MacKenzie, its directors, officers, employees, agents and controlling persons
and hold it harmless against any losses, claims, damages, liabilities and
expenses (or actions in respect thereof), joint or several, to which any
indemnified party may become subject which arise out of or in connection with
its engagement by fine.com unless it is finally judicially determined that any
such losses, claims, damages or liabilities arose out of the gross negligence,
bad faith or willful misconduct of Ragen MacKenzie.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material U.S. federal income tax
considerations of the merger that are generally applicable to you. This
discussion is based on currently existing provisions of the Internal Revenue
Code of 1986, as amended
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<PAGE> 61
(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, ARIS Interactive, fine.com or fine.com shareholders as
described below.
You should be aware that this discussion does not deal with all U.S.
federal income tax considerations that may be relevant to you in light of your
particular circumstances, such as if you are a dealer in securities, a bank, an
insurance company or tax-exempt organization, if you are subject to the
alternative minimum tax provisions of the Code, if you are a foreign person, if
you acquired your shares in connection with stock option or stock purchase plans
or in other compensatory transactions, or if you hold your shares as a hedge or
as part of a hedging, straddle, conversion or other risk reduction transaction.
This discussion assumes that you hold your shares as capital assets within the
meaning of Section 1221 of the Code. 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).
WE URGE YOU TO CONSULT YOUR OWN TAX ADVISOR AS TO THE SPECIFIC CONSEQUENCES
OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THE MERGER TO YOU AND YOUR PARTICULAR CIRCUMSTANCES.
Neither ARIS nor fine.com 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. The obligations of ARIS and fine.com to consummate
the merger are conditioned on the delivery of an opinion from Dorsey & Whitney
LLP that the merger will be treated as a tax-deferred reorganization under
Section 368(a) 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, and no assurance can be given that a contrary position will
not be successfully asserted by the IRS or adopted by a court if the issues are
litigated.
Subject to the limitations and qualifications referred to herein, assuming
the merger qualifies as a reorganization, the following U.S. federal income tax
consequences will result:
- the merger will qualify as a reorganization under Section 368(a) of the
Code;
- no gain or loss will be recognized by ARIS, ARIS Interactive or fine.com
as a result of the merger;
- no gain or loss will be recognized by the shareholders of fine.com who
exchange shares of fine.com common stock for shares of ARIS common stock
pursuant to the merger, except with respect to any cash received by such
fine.com shareholders in the merger;
- gain, if any, but not loss, will be recognized by fine.com shareholders
upon the exchange of fine.com common stock for cash pursuant to the
merger. Such gain will be recognized, but not in excess of the amount of
cash received, in an amount equal to the difference, if any, between (a)
the fair market value of the ARIS common stock and cash received and (b)
the fine.com shareholder's adjusted tax basis in the fine.com common
stock surrendered in exchange therefor pursuant
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<PAGE> 62
to the merger. If the receipt of cash payments has the effect of a
distribution of a dividend to a fine.com shareholder, some or all of the
gain recognized will be treated as a dividend taxed as ordinary income.
If the exchange does not have the effect of a distribution of a dividend,
all of the gain recognized would be a capital gain, provided the fine.com
common stock is a capital asset in the hands of the fine.com shareholder
at the time of the merger;
- the aggregate tax basis of the ARIS common stock received by a fine.com
shareholder who exchanges fine.com common stock in the merger will be the
same as the aggregate tax basis of the fine.com common stock surrendered
in exchange therefor, decreased by the amount of any cash received by
such fine.com shareholder which is treated as a redemption rather than a
dividend and increased by the amount of any non-dividend gain recognized
by such fine.com shareholder in connection with the merger;
- the holding period of the ARIS common stock received by a fine.com
shareholder pursuant to the merger will include the period during which
the fine.com common stock surrendered therefor was held, provided the
fine.com common stock is a capital asset in the hands of the fine.com
shareholder at the time of the merger; and
- a fine.com shareholder who receives cash in lieu of a fractional share
interest in ARIS common stock will recognize gain or loss measured by the
difference between the amount of cash received and the portion of their
tax basis in their fine.com common stock allocable to the fractional
share interest. Such gain or loss recognized would generally be a capital
gain or loss, provided the fine.com common stock is a capital asset in
the hands of the fine.com shareholder at the time of the merger. However,
if the receipt of cash in lieu of a fractional share interest is
essentially equivalent to a dividend to that fine.com shareholder, some
or all of the gain recognized will be treated as a dividend taxed as
ordinary income.
The tax opinion of Dorsey & Whitney LLP will be subject to certain
assumptions and qualifications and will be based on the truth and accuracy of
certain representations of ARIS, fine.com and certain shareholders of fine.com,
including representations in certain certificates delivered to counsel by the
respective management of ARIS and fine.com and certain shareholders of fine.com.
Of particular importance are the assumptions and representations relating to the
"substantially all assets" requirement and the "continuity of interest"
requirement.
To satisfy the "substantially all assets" requirement, ARIS Interactive
must, pursuant to the merger, acquire "substantially all" of the assets of
fine.com held immediately prior to the merger. The IRS ruling guidelines define
"substantially all" to mean at least 90% of the fair market value of a
corporation's net assets and at least 70% of the fair market value of a
corporation's gross assets. The merger agreement and certificates from the
management of ARIS and the management and certain shareholders of fine.com
regarding the "substantially all assets" requirement contemplate that the 90%
and 70% standards will be applied. No assurance can be made that the
"substantially all assets" requirement will be satisfied, and if such
requirement is not satisfied, the merger would not be treated as a tax-deferred
reorganization.
To satisfy the "continuity of interest" requirement, fine.com shareholders
must, in the aggregate, receive a significant equity interest in ARIS in
exchange for their shares in
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<PAGE> 63
fine.com. The fine.com shareholders 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 fine.com shareholders in the merger. In order to satisfy the
requirement, the fine.com shareholders must not, pursuant to a plan or intent
existing at or prior to the effective date of the merger, dispose of or transfer
so much of either (i) their fine.com common stock in anticipation of the merger
to ARIS or to any person related to ARIS 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 fine.com shareholders, as a group, would
not be considered to have received a "significant equity interest" in the
fine.com business being conducted by ARIS in exchange for their fine.com common
stock. 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 ARIS and the management and certain shareholders of fine.com
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 "substantially all assets" requirement, the
"continuity of interest" requirement or otherwise) could result in significant
adverse tax consequences to you. You would recognize gain or loss with respect
to each share of fine.com common stock surrendered equal to the difference
between your basis in such share and the fair market value, as of the effective
date of the merger, of the ARIS common stock and cash, if any, received in
exchange therefor. Such gain or loss recognized would be a capital gain or loss,
provided the fine.com common stock was a capital asset in your hands at the time
of the merger. In such event, your aggregate basis in the ARIS common stock you
receive would equal its fair market value, and your holding period for such
stock would begin the day after the closing of the merger.
Any fine.com shareholder who dissents from the merger and receives cash in
exchange for his, her or its fine.com common stock will recognize gain or loss
equal to the difference between the amount of cash received and his, her or its
basis in such shares. Such gain or loss would normally be a capital gain or
loss, provided the fine.com common stock is a capital asset in the hands of the
fine.com shareholder at the time of the merger. However, in certain
circumstances, the cash received by a dissenting fine.com shareholder may be
treated as a dividend. These circumstances may arise if the dissenting fine.com
shareholder is treated as owning, under special attribution rules, the stock
owned by certain family members, option stock, stock owned by some estates and
trusts of which the fine.com shareholder is a beneficiary and stock owned by
certain entities in which the fine.com shareholder owns an interest. Because of
the complexity of these rules, each dissenting fine.com shareholder is
particularly urged to consult his or her own tax advisor.
Certain non-corporate fine.com shareholders may be subject to backup
withholding tax at a rate of 31% on cash payments received in the merger. Backup
withholding will not apply, however, to a shareholder who furnishes a correct
taxpayer identification number 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
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<PAGE> 64
on Form W-8 or who is otherwise exempt from backup withholding. A shareholder
who fails to provide the correct taxpayer identification number on Form W-9 may
be subject to a $50 penalty imposed by the IRS.
You will be required to retain records and file with your U.S. federal
income tax return a statement setting forth facts relating to the merger.
ACCOUNTING TREATMENT
For financial reporting purposes, the merger will be accounted for using
the purchase method of accounting.
STATUTORY DISSENTERS' RIGHTS
You may by following the procedure prescribed in Section 23B.13.010 et seq.
of the Washington Business Corporation Act, exercise appraisal rights and
receive cash for your shares of fine.com common stock. Your statutory
dissenters' rights are described under "The Special Meeting -- Statutory
Dissenters' Rights."
STOCK OWNERSHIP FOLLOWING MERGER
In the merger, fine.com shareholders will receive shares of ARIS common
stock and cash, if any, equal to a value of $4.5531 per fine.com share, based on
the Average ARIS Closing Price (as defined and explained on pages 1 and 2). The
following table sets forth the total number of shares of ARIS common stock and
cash to be issued to fine.com shareholders based on different assumed Average
ARIS Closing Prices and based on the number of issued and outstanding shares of
fine.com common stock as of July 30, 1999. The following table also sets forth
the percentage of the total issued and outstanding shares of ARIS common stock
to be held by the fine.com shareholders, based on the number of issued and
outstanding shares of ARIS common stock as of July 30, 1999 (assuming the
issuance of the ARIS common stock to be issued to fine.com shareholders in
connection with the merger but not including additional shares of ARIS common
stock reserved for issuance for fine.com options and warrants to be replaced
with ARIS options and warrants):
<TABLE>
<CAPTION>
TOTAL PERCENTAGE OWNERSHIP
TOTAL NUMBER OF AMOUNT OF CASH OF ISSUED AND OUTSTANDING
ASSUMED ARIS SHARES PAYABLE TO SHARES OF
AVERAGE ARIS ISSUABLE TO FINE.COM FINE.COM ARIS COMMON STOCK
CLOSING PRICE SHAREHOLDERS SHAREHOLDERS ISSUED TO FINE.COM SHAREHOLDERS
- ------------- -------------------- -------------- -------------------------------
<S> <C> <C> <C>
$13.00 942,789 -0- 7.8%
$12.25 1,000,670 -0- 8.3%
$12.00 1,000,670 $ 249,562 8.3%
$11.00 1,000,670 $1,250,232 8.3%
$10.00 1,000,670 $2,250,902 8.3%
$ 9.25 1,000,670 $3,001,741 8.3%
$ 9.00 1,028,399 $3,001,741 8.5%
$ 8.00 1,157,083 $3,001,741 9.5%
$ 7.00 1,322,381 $3,001,741 10.7%
$ 6.00 1,542,599 $3,001,741 12.2%
</TABLE>
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RESALE OF ARIS COMMON STOCK
ARIS common stock issued in connection with the merger will be freely
transferable, except that shares issued to any fine.com shareholder that is an
"affiliate" of fine.com 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. All affiliates of fine.com as of the date the merger
agreement was signed have executed agreements that prohibit the sale, transfer
or other disposition of ARIS common stock received by such affiliates in the
merger, except under certain circumstances, in order to comply with the
requirements of certain federal securities laws. The major shareholders of
fine.com who have executed the merger agreement have represented and warranted
to ARIS that they have no present intention to dispose of certain of the shares
of ARIS common stock to be received by such shareholders in the merger in order
to comply with the requirements of certain United States federal tax laws. See
"-- Material Federal Income Tax Consequences."
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
As soon as practicable after the merger becomes effective, ChaseMellon
Shareholder Services, the exchange agent for the merger, will mail a letter of
transmittal (with instructions for its use) to each record holder of shares of
fine.com common stock. You should use the letter of transmittal when
surrendering the certificates which represent your shares of fine.com common
stock in exchange for a certificate representing the number of shares of ARIS
common stock to which you are entitled.
YOU SHOULD NOT SURRENDER YOUR FINE.COM COMMON STOCK CERTIFICATES
UNTIL YOU RECEIVE A LETTER OF TRANSMITTAL.
No further transfer of any shares of fine.com common stock will be made on
the stock transfer books after the effectiveness of the merger. If a fine.com
stock certificate is presented to the exchange agent, the certificate will be
canceled and will be exchanged as described above.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
GENERAL
Members of fine.com's management have interests in the merger that are in
addition to their interests as shareholders of fine.com. The boards of directors
of fine.com and ARIS were each aware of these interests and considered them,
among other matters, in approving the merger agreement and merger.
INTEREST AS HOLDER OF FINE.COM COMMON STOCK
All shareholders of fine.com common stock, including all officers and
directors of fine.com, are being treated the same with respect to the merger
consideration to be received in the merger.
INSURANCE AND INDEMNIFICATION
ARIS has agreed to provide each individual who served as a director or
officer of fine.com at any time prior to the effectiveness of the merger with
continuing liability insurance for a period of 24 months after the effectiveness
of the merger in an amount not less than the director and officer liability
coverage of fine.com in existence at May 17, 1999. In addition, ARIS will
observe any indemnification provisions existing as of May 17, 1999 in fine.com's
articles of incorporation or bylaws for the benefit of any individual who served
as director or officer of fine.com prior to the effective date of the merger.
ARIS EMPLOYMENT AGREEMENT WITH DANIEL M. FINE
As a condition to the merger, ARIS will enter into an employment agreement
with Daniel M. Fine. Mr. Fine's employment agreement will have the following
principal terms:
- two-year term;
- base salary of $150,000;
- signing bonus of $100,000;
- "stay" bonus of up to $125,000, payable in quarterly installments over
the two year initial term so long as Mr. Fine remains an employee with
ARIS;
- an agreement not to compete with ARIS or its affiliates for a period of
two years following termination of employment, for the offer, sale or
marketing of any products or services that are competitive with those
then offered by ARIS Interactive;
- severance pay equal to the lesser of Mr. Fine's then current base salary
for one year or through the remaining term of the employment agreement
plus the lesser of "stay" bonus payments for one year or through the
remaining term of the employment agreement if Mr. Fine is terminated by
ARIS without cause (as defined in the employment agreement); and
- severance pay in the same amount if Mr. Fine terminates his employment
because of a reduction in the character and scope of his duties, level of
responsibility or working conditions, a reduction in his salary, a breach
of the employment
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agreement by ARIS that is not cured within 30 days of notice to ARIS or a
requirement that Mr. Fine be based outside the Seattle metropolitan area.
ANTICIPATED EMPLOYMENT ARRANGEMENTS WITH TIMOTHY J. CARROLL
ARIS and fine.com anticipate that Timothy J. Carroll, Executive Vice
President of Finance and Operations of fine.com, will enter into an employment
agreement with ARIS upon completion of the merger to serve in senior management
of ARIS or ARIS Interactive. While all the terms of Mr. Carroll's employment
have not been finalized, ARIS and fine.com expect Mr. Carroll's employment
agreement will have the following principal terms:
- base salary of $130,000;
- grants of options to purchase 12,500 shares of ARIS common stock in
each of his first two years of employment; and
- an agreement not to compete with ARIS Interactive for up to two years
following termination of employment.
Mr. Carroll has an employment agreement with fine.com that includes a
change of control provision, which could require ARIS to pay Mr. Carroll his
base salary with fine.com of $115,000 per year through October 19, 2001, the
remaining term of this employment agreement, if Mr. Carroll's employment is
terminated following the merger in the circumstances described in the fine.com
employment agreement. ARIS has agreed to pay Mr. Carroll $175,000 to buy out his
rights under the change of control provisions of this agreement.
Mr. Carroll holds unvested options to purchase 85,909 shares of fine.com
common stock at an average exercise price of $3.20 per share that will be
converted into options to purchase ARIS common stock pursuant to the merger, and
will vest and become immediately exercisable if Mr. Carroll's employment is
terminated following the merger in the circumstances described in the fine.com
employment agreement.
INDEMNIFICATION OBLIGATIONS
Daniel M. Fine, Frank Hadam and Herbert L. Fine, directors and major
shareholders of fine.com, have certain indemnification obligations under the
merger agreement for up to $1 million. See "The Merger
Agreement -- Indemnification Obligations of Daniel M. Fine, Frank Hadam and
Herbert L. Fine."
STOCK OPTIONS HELD BY EXECUTIVE OFFICERS
Bill Poole, Vice President of fine.com, currently holds options to purchase
3,000 shares of fine.com common stock under fine.com's 1997 Stock Option Plan.
By the terms of the option plan, if Mr. Poole's employment with ARIS is
terminated at any time within two years after the date of the merger, the
vesting of all of these options will automatically accelerate and they will
become fully exercisable.
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AFFILIATE AGREEMENTS
It is a condition to consummation of the merger that each person who is an
"affiliate" of fine.com, execute an agreement 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 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 a holder who was an affiliate of fine.com (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 ARIS common stock
during the four calendar weeks before the sale. One year after the effective
date of the merger, a holder who was an affiliate of fine.com will be able to
sell ARIS common stock without these limitations if ARIS is current with its
Exchange Act informational filings and the holder is not then an affiliate of
ARIS.
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THE MERGER AGREEMENT
GENERAL
The following is a summary of the material provisions of the amended and
restated merger agreement, a copy of which is attached as Annex 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. We urge you to read the merger agreement and the related agreements
attached as Annex A in their entirety.
MERGER CONSIDERATION
CONVERSION OF FINE.COM COMMON STOCK
Each share of fine.com common stock outstanding immediately prior to the
date the merger becomes effective (other than any share to which any shareholder
has exercised his or its dissenters' rights under Section 23B.13.010 et seq. of
the Washington Business Corporation Act) will be converted into the right to
receive the following consideration:
- that number of shares of ARIS common stock equal to the lesser of (x)
.3717 or (y) $4.5531 divided by the Average ARIS Closing Price (as
defined and explained on page 1), plus
- an amount in cash equal to the lesser of (x) $1.1150, or (y) the amount
(if any) by which $4.5531 exceeds the number of shares of ARIS common
stock received multiplied by the Average ARIS Closing Price, plus
- if the total value of the foregoing stock and cash consideration is less
than $4.5531, an additional number of shares of ARIS common stock with a
value equal to the difference between $4.5531 and the value of the
foregoing stock and cash consideration.
The conversion ratio is subject to adjustment if there is a stock split,
stock dividend, reverse stock split, or other change in the number of
outstanding shares of fine.com common stock. The actual conversion ratio will
not be determined until the end of the second trading day before the fine.com
special meeting of shareholders, when the Average ARIS Closing Price will first
be known.
During the 90-day period ended July 30, 1999, the market price of ARIS
common stock ranged from a low of $6.75 to a high of $10.25 per share. ARIS'
stock price may be affected by a number of factors, including but not limited to
announcements by ARIS relating to its business, pending transactions (such as
the merger), performance of and investor expectations for ARIS and fine.com,
trading activity in ARIS common stock and general economic and market
conditions.
You will not be issued fractional shares of ARIS common stock in connection
with the merger, and you will not be issued certificates for any such fractional
shares. In lieu of such fractional shares, you will receive (after aggregating
all fractional shares of ARIS common stock issuable to you), cash (rounded to
the nearest whole cent), without interest, equal to the amount of fractional
shares of ARIS common stock issuable to you multiplied by the Average ARIS
Closing Price.
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Each outstanding share of fine.com common stock with respect to which
dissenters' rights have properly been exercised will be converted into the right
to receive payment from ARIS, in accordance with the provisions of Section
23B.13.010 et seq. of the Washington Business Corporation Act.
CONVERSION OF FINE.COM OPTIONS
Subject to the provisions contained in the merger agreement, each
outstanding option to purchase a share of fine.com common stock outstanding
immediately prior to the effectiveness of the merger will be terminated, and no
fine.com option shall be accelerated in vesting (other than options held by
employees of fine.com that ARIS notifies fine.com will not be continued as
employees of ARIS Interactive, and options held by Timothy J. Carroll, Executive
Vice President of Finance and Operations of fine.com, that vest automatically if
Mr. Carroll's employment is terminated by ARIS following the merger in the
circumstances described in his employment agreement with fine.com). ARIS will
grant to some fine.com employees who will continue as employees of ARIS options
to purchase shares of ARIS common stock under the terms of the ARIS 1997 Stock
Option Plan. The new options granted under the ARIS 1997 Stock Option Plan will
have the following attributes, among others:
- Number of Shares. Holders of options to purchase shares of fine.com
common stock will receive an option to purchase a number of shares of
ARIS common stock equal to (x) the number of shares of fine.com common
stock represented by the holder's fine.com options, multiplied by (y) the
dollar value of the ARIS common stock or ARIS common stock and cash, if
any, received in the merger for each share of fine.com common stock
exchanged pursuant to the merger, divided by the Average ARIS Closing
Price (as defined and explained on page 1).
- Exercise Price. The exercise price for ARIS options will be equal to (x)
the exercise price per share of the outstanding fine.com option divided
by (y) the dollar value of the ARIS common stock or ARIS common stock and
cash, if any, received in the merger for each share of fine.com common
stock exchanged pursuant to the merger, divided by the Average ARIS
Closing Price.
- Vesting Schedule. The vesting schedule for the new ARIS options will have
the same vesting schedule as the fine.com options being replaced by ARIS.
New ARIS options granted to holders of fine.com options that were
previously granted under the terms of fine.com's 1997 Stock Option Plan
will automatically accelerate and become fully vested upon a holder's
termination of employment with ARIS at any time during the two-year
period following the effectiveness of the merger.
CONVERSION OF FINE.COM WARRANTS
Each warrant to purchase a share of fine.com common stock outstanding
immediately before the effective date of the merger will be converted into the
right to receive a warrant to purchase that number of shares of ARIS common
stock and cash, if any, received for each outstanding share of fine.com common
stock exchanged in the merger upon payment of the exercise price per share of
such outstanding warrant.
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CORPORATE MATTERS
The merger agreement provides that, before the effective date of the
merger, neither fine.com 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 (other than with the prior
written consent of ARIS), including, among other things:
- authorizing or effecting any change in its charter or bylaws;
- granting or accelerating 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;
- the acceleration of vesting of options held by Timothy J. Carroll if
Mr. Carroll's employment is terminated following the merger in the
circumstances described in his employment agreement with fine.com; or
- the acceleration of vesting of options for employees of fine.com that
ARIS notifies fine.com will not be continued as employees of the
surviving corporation after the effective date of the merger;
- 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;
- issuing any note, bond, or other debt security or creating, incurring,
assuming, or guaranteeing any obligation of any third party or any
indebtedness for borrowed money or capitalized lease obligation;
- selling or disposing of material assets or imposing any security interest
upon its assets;
- making any capital investment in, making any loan to, or acquiring the
securities or assets of any other entity;
- changing the employment terms for any of its directors, officers, and
employees, or amending any employment agreement or increasing the
compensation of directors, officers and employees; and
- taking any action that will preclude the merger from being treated as a
tax-deferred reorganization.
CONDITIONS TO COMPLETION OF THE MERGER
FINE.COM CONDITIONS TO COMPLETION OF THE MERGER
The obligation of fine.com to consummate the merger is subject to the
satisfaction, at the closing, of a number of conditions, including, among
others:
- the merger agreement and the merger must have been approved by the
holders of two-thirds (2/3) of the outstanding fine.com common stock;
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- the representations and warranties of ARIS and ARIS Interactive in the
merger agreement must be true and correct in all material respects at the
closing;
- ARIS and ARIS Interactive must have complied with their covenants and
obligations in the merger agreement in all material respects through the
closing;
- since August 5, 1999, there must have been no material adverse change in
the business of ARIS and its subsidiaries, taken as a whole, which this
proxy statement/prospectus does not disclose has occurred or may occur;
- the shares of ARIS common stock to be issued to fine.com shareholders
must have been approved for quotation on the Nasdaq National Market;
- ARIS and ARIS Interactive must have taken all other actions and delivered
all related agreements necessary to complete the transactions
contemplated by the merger agreement;
- the registration statement containing this proxy statement/prospectus
must have been declared effective under the Securities Act;
- fine.com must have received various opinions and other documents; and
- fine.com must have received an opinion of Dorsey & Whitney LLP that the
merger will qualify as a tax-deferred reorganization with respect to
shares of ARIS common stock received as a result of the merger.
ARIS CONDITIONS TO COMPLETION OF THE MERGER
The obligation of ARIS to consummate the merger is subject to the
satisfaction, at the closing, of a number of conditions, including, among
others:
- the merger agreement and the merger must have been approved by the
holders of two-thirds (2/3) of the outstanding fine.com common stock;
- the number of shares held by shareholders exercising statutory
dissenters' rights must not exceed ten percent (10%) of the number of
shares of fine.com common stock outstanding;
- fine.com must have obtained any required consents from third parties
relating to the merger;
- the representations of fine.com and the major shareholders of fine.com
who signed the merger agreement must be true and correct in all material
respects at the closing;
- fine.com must have complied with its covenants and obligations in the
merger agreement in all material respects through the closing;
- no action, suit or proceeding may be pending or threatened in which an
unfavorable injunction or other result would prevent consummation of any
of the transactions contemplated by the merger agreement;
- there must have been no material adverse change in the business of
fine.com;
- the shares of ARIS common stock to be issued to fine.com shareholders in
the merger must have been approved for quotation on the Nasdaq National
Market;
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- fine.com must have taken all other actions and delivered all related
agreements necessary to complete the transactions contemplated by the
merger agreement;
- the registration statement containing this proxy statement/prospectus
must have been declared effective under the Securities Act;
- ARIS must have received various certificates and other documents;
- Daniel M. Fine must have signed an employment agreement with ARIS; and
- ARIS must have received an opinion of Dorsey & Whitney LLP to the effect
that the merger will qualify as a tax-deferred reorganization with
respect to shares of ARIS common stock received as a result of the
merger.
Receipt of a tax opinion from Dorsey & Whitney LLP is one of each company's
conditions to completion of the merger. Dorsey & Whitney LLP may not be able to
deliver an opinion that the merger will qualify as a tax-deferred reorganization
for United States federal income tax purposes if certain circumstances arise. If
we do not receive an opinion as to the tax effect of the merger, fine.com and
ARIS may nevertheless proceed with the merger. Circumstances in which Dorsey &
Whitney LLP may not be able to deliver a legal opinion include:
- ARIS, fine.com or certain shareholders of fine.com are unable to certify
that the total amount of cash paid to shareholders of fine.com equals or
is less than fifty percent of the total value of all outstanding fine.com
shares as of the date of the merger, including cash received as part of
the merger consideration, cash received in lieu of fractional shares of
ARIS and cash paid to shareholders of fine.com who exercise statutory
dissent rights;
- ARIS, fine.com or certain shareholders of fine.com are unable to certify
that the amount of cash paid by fine.com equals or is less than ten
percent of the fair market value of fine.com's net assets immediately
prior to the merger, including cash paid to shareholders of fine.com who
exercise statutory dissent rights, to shareholders of fine.com or as
expenses in connection with the merger; and
- ARIS, fine.com or certain shareholders of fine.com are unable to, or fail
to, provide certain representations and warranties in support of the tax
opinion, including but not limited to those representations set forth on
Exhibit D to the merger agreement. A copy of the merger agreement,
including exhibits, is attached as Annex A to this proxy
statement/prospectus. We urge you to read Annex A in its entirety.
REPRESENTATIONS AND WARRANTIES
We each made a number of representations and warranties in the merger
agreement regarding aspects of our respective business, financial condition,
structure and other major facts pertinent to the merger. The major shareholders
of fine.com who signed the merger agreement joined in making the representations
and warranties regarding fine.com.
REPRESENTATIONS AND WARRANTIES REGARDING FINE.COM
- corporate organization, qualification to do business and corporate power;
- fine.com's capitalization;
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- authorization of the merger agreement by fine.com;
- the effect of the merger on obligations of fine.com and under applicable
laws;
- fine.com's filings with the Securities and Exchange Commission;
- fine.com's financial statements;
- changes in fine.com's business since January 31, 1999;
- fine.com's liabilities;
- litigation involving fine.com;
- intellectual property used by fine.com;
- fine.com's product and service warranties;
- fine.com's Y2K compliance;
- fine.com's employee benefit plans;
- fine.com's employees;
- fine.com's customers;
- fine.com's obligations for brokers' fees;
- the continuity of fine.com's business;
- the execution of affiliate agreements by all affiliates of fine.com;
- tax matters relating to the merger;
- the execution of voting agreements by the directors of fine.com and the
major shareholders of fine.com who signed the merger agreement; and
- the accuracy of this proxy statement/prospectus and its compliance with
the requirements of federal securities laws.
REPRESENTATIONS AND WARRANTIES REGARDING ARIS
- corporate organization of ARIS and ARIS Interactive;
- capitalization of ARIS and ARIS Interactive;
- litigation involving ARIS and ARIS Interactive;
- authorization of the merger agreement by ARIS and ARIS Interactive;
- the effect of the merger on obligations of ARIS and ARIS Interactive and
under applicable laws;
- ARIS' and ARIS Interactive's obligations for brokers' fees;
- continuation of the historical business of fine.com after the merger; and
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- the accuracy of the registration statement containing this proxy
statement/ prospectus and the registration statement's compliance with
the requirements of federal securities laws.
COVENANTS
The merger agreement contains various, customary, covenants of fine.com and
ARIS:
- each party will, among other things, use its reasonable best efforts to
consummate the merger;
- ARIS will use its best efforts to cause the shares of ARIS common stock
to be issued in the merger to be approved for quotation on the Nasdaq
National Market; and
- fine.com will continue to operate its business in the ordinary course
through the effective date of the merger.
NON-SOLICITATION
Until the merger is completed or the merger agreement is terminated,
fine.com and the major shareholders of fine.com who have executed the merger
agreement have agreed not to directly or indirectly take any of the following
actions:
- initiate, solicit, or encourage any proposals for a merger, consolidation
or similar transaction involving fine.com, or any purchase of all or a
significant portion of the assets or equity securities of fine.com; and
- engage in any negotiations concerning, or provide any confidential
information or data to or have any discussion with any persons related to
any such proposal, or otherwise facilitate any effort or attempt to make
or implement any such proposal.
TERMINATION
The merger agreement may be terminated at any time before the completion of
the merger under the circumstances summarized below:
- ARIS and fine.com may terminate the merger agreement by mutual consent.
- Either company may terminate the merger agreement if:
- the fine.com shareholders fail to approve the merger at the special
meeting; or
- the closing has not occurred on or before December 31, 1999 because a
condition has not been satisfied, unless the failure to satisfy the
condition results from the terminating company's breach of the merger
agreement.
- ARIS may terminate the merger agreement if:
- fine.com or any of its major shareholders executing the merger
agreement has breached any material representation, warranty, covenant
or obligation in the merger agreement, and the breach has continued
without cure for a period of 20 days after notice of the breach;
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- fine.com or any of its major shareholders executing the merger
agreement:
- - initiates, solicits, or encourages any inquiries or makes any proposal or
offer for a merger, consolidation or similar transaction with fine.com or for
any purchase of all or a significant portion of the assets or equity
securities of fine.com; or
- - engages in any negotiations concerning, or provides any confidential
information or data to or has any discussion with any persons related to any
such proposal, or otherwise facilitate any effort or attempt to make or
implement any such proposal;
- the board of directors of fine.com withdraws or modifies in a manner
adverse to ARIS its approval or recommendation of the merger or fails
to reaffirm such approval or recommendation when requested by ARIS; or
- the number of shares of fine.com common stock held by shareholders
exercising their statutory dissenters' rights exceeds ten percent
(10%) of the shares of fine.com common stock outstanding.
- fine.com may terminate the merger agreement if:
- ARIS has breached any material representation, warranty, covenant or
obligation in the merger agreement, and the breach has continued,
without cure for a period of 20 days after notice of the breach; or
- fine.com receives an unsolicited written offer for a merger,
consolidation or similar transaction with fine.com or to acquire all
or a significant portion of the assets or equity securities of
fine.com or an unsolicited tender offer is made for fine.com common
stock, and:
- the fine.com board of directors determines that such a transaction is
more favorable to the shareholders of fine.com than the merger with
ARIS;
- fine.com has given ARIS five business days prior notice of its
intent to terminate the merger agreement and ARIS does not offer
to amend the merger agreement so that it is at least as favorable
to the shareholders of fine.com as the unsolicited offer; and
- fine.com is not otherwise in breach of its representations,
warranties, covenants and obligations under the merger agreement.
PAYMENT OF TERMINATION FEE AND EXPENSES
fine.com has agreed to pay ARIS a termination fee of $500,000 and
reasonable out-of-pocket expenses actually incurred by ARIS if the merger
agreement is terminated in the following circumstances:
- by either party, if the fine.com shareholders fail to approve the merger
at the special shareholder meeting;
- by ARIS, as a result of any breach of any material representation,
warranty, covenant or obligation of fine.com or major shareholder of
fine.com who is a party to the agreement;
- by ARIS, in the event that fine.com or any of its major shareholders
executing the agreement initiates, solicits, or encourages any inquiries
or makes any proposal or
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offer for the merger, consolidation or similar transaction involving
fine.com, or any purchase of all or a significant portion of the assets
or equity securities of fine.com;
- by ARIS, in the event that the board of directors of fine.com withdraws
or modifies in a manner adverse to ARIS its approval or recommendation of
the merger or fails to reaffirm such approval or recommendation when
requested by ARIS; or
- by ARIS, if the number of shares of fine.com common stock held by
shareholders exercising their dissenters' rights exceeds ten percent
(10%) of the outstanding fine.com shares.
- by fine.com, in the event that fine.com receives an unsolicited written
offer to acquire all or a significant portion of the assets or equity
securities of fine.com, and:
- the board of directors determines that such a transaction is more
favorable to the shareholders of fine.com than the merger with ARIS;
- fine.com has given ARIS five business days prior notice of its intent
to terminate the merger agreement and ARIS does not offer to amend the
agreement so that it is at least as favorable to the shareholders of
fine.com as the unsolicited offer; and
- fine.com is not otherwise in breach of its representations,
warranties, covenants and obligations under the agreement.
ARIS has agreed to pay fine.com a termination fee of $500,000 and
reasonable out-of-pocket expenses actually incurred by fine.com if the merger
agreement is terminated in the following circumstances:
- by ARIS, other than in a manner specified in the agreement; or
- by fine.com as a result of any breach of any material representation or
warranty of ARIS, other than ARIS' representation and warranty regarding
the accuracy of the registration statement containing this proxy
statement/prospectus and the registration statement's compliance with the
requirements of federal securities laws.
INDEMNIFICATION OBLIGATIONS OF DANIEL M. FINE, FRANK HADAM AND HERBERT L. FINE
Daniel M. Fine, Frank Hadam, and Herbert L. Fine, directors and major
shareholders of fine.com who have signed the merger agreement, have each agreed
to personally indemnify ARIS after the effective date of the merger against any
damages incurred or suffered by ARIS (other than damages covered by insurance)
from any of the following:
- any misrepresentation or breach of any warranty made by the major
shareholders in the merger agreement;
- any claim by any current or former fine.com shareholder alleging:
- violations of Section 5, 11, or 12 of the Securities Act;
- violation of Section 10(b) or 14(a) of the Exchange Act (other than
with respect to this proxy statement/prospectus);
- intentional or negligent misrepresentation;
- breach of fiduciary duty; or
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- any misstatement of material fact or omission to state a fact that is
required to be stated or necessary to make the statements made, in the
light of the circumstances under which they were made, not misleading.
The major shareholders are not obligated to indemnify ARIS until the total
amount of damages exceeds $50,000. The amount of the major shareholders'
indemnification obligations are as follows:
- for a period of up to two years following the effective date of the
merger, an amount up to $1,000,000 for any misrepresentation or breach of
any of the following warranties:
- capitalization of fine.com;
- litigation involving fine.com;
- intellectual property used by fine.com;
- fine.com's Y2K compliance; or
- any representation and warranty that any of the major shareholders had
actual knowledge of the facts that a reasonable person in the
circumstances should have concluded would constitute an inaccuracy or
breach; and
- for a period of one year following the effective date of the merger, an
amount up to ten percent of the total consideration received in the
merger by the major shareholders for any other misrepresentations or
breach of warranty.
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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, through its wholly owned
subsidiary ARIS Interactive, and fine.com on a combined pro forma basis. These
unaudited pro forma combined financial statements have been prepared from the
historical consolidated financial statements of ARIS and fine.com and should be
read in conjunction therewith.
The Unaudited Pro Forma Balance Sheet presents the combined financial
position of ARIS as of June 30, 1999 and fine.com as of April 30, 1999, and the
Unaudited Pro Forma Combined Statements of Operations present the results of
operations for the years ended December 31, 1998 for ARIS and January 31, 1999
for fine.com and the six months ended June 30, 1999 for ARIS and April 30, 1999
for fine.com.
The six-month period ended April 30, 1999 for fine.com includes the fourth
quarter of fiscal 1999 and the first quarter of fiscal 2000, and are presented
for informational and comparative purposes only. Accordingly, the statement of
operations for fine.com for the quarter ended January 31, 1999 is included in
the unaudited pro forma combined statement of operations for the year-ended
January 31, 1999 and the six-month period ended April 30, 1999. fine.com's
unaudited results of operations for the quarter ended January 31, 1999 included
the following: revenues $1,516,000; cost of sales $1,159,000; selling, general
and administrative $1,149,000; and net loss $825,000.
To determine the assumed consideration to be paid to fine.com shareholders,
we have used the average of the closing prices of the ARIS common stock for the
10 trading days ended July 30, 1999, which was $7.58 per share, resulting in an
aggregate purchase price of approximately $12,250,000 comprising the issuance of
approximately 1,220,000 shares of ARIS common stock and payment of approximately
$3,000,000 in cash. The actual merger consideration paid will be based on the
average of the closing prices of ARIS common stock in the ten trading days
ending on the second trading day before the fine.com special meeting of
shareholders, so the actual merger consideration may vary significantly from
that used in preparation of the pro forma combined financial information.
We have allocated the estimated purchase costs of the merger on a
preliminary basis to assets and liabilities based on ARIS management's estimate
of the fair value with excess costs over net assets being allocated to goodwill.
The allocation is subject to change when ARIS makes a final determination of
purchase costs and fair values of assets of fine.com. The effects of any changes
could be material.
The unaudited pro forma combined financial information is provided for
illustrative purposes only, and is not necessarily indicative of the results
that would have been achieved if the merger had been completed at the times
indicated, and is not necessarily indicative of the future operating results or
financial condition of ARIS after the merger.
The unaudited pro forma combined financial statements do not reflect the
closure of three ARIS training centers announced in August 1999. See
"Information About ARIS -- Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Significant Events."
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ARIS CORPORATION
UNAUDITED PRO FORMA
COMBINED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
ARIS FINE.COM
JUNE 30, APRIL 30, PRO FORMA COMBINED
1999 1999 ADJUSTMENTS NOTES PRO FORMA
-------- --------- ----------- ----- ---------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents....... $ 6,901 $ 705 $(3,570) (a ) $ 4,036
Investments in marketable
securities................... 2,002 -- -- 2,002
Accounts receivable............. 27,388 1,218 -- 28,606
Other current assets............ 4,801 335 -- 5,136
------- ------ ------- -------
Total current assets......... 41,092 2,258 (3,570) 39,780
Property and equipment, net....... 15,623 1,368 -- 16,991
Intangibles and other assets...... 10,440 75 10,318 (b ) 20,833
------- ------ ------- -------
Total assets................. $67,155 $3,701 $ 6,748 $77,604
======= ====== ======= =======
Current liabilities:
Accounts payable................ $ 1,926 $ 149 $ -- $ 2,075
Accrued liabilities............. 7,553 160 175 (c ) 7,888
Deferred revenue................ 2,248 136 -- 2,384
Other current liabilities....... -- 33 -- 33
------- ------ ------- -------
Total current liabilities.... 11,727 478 175 12,380
Capital lease obligations......... -- 45 -- 45
Deferred income taxes............. 287 -- -- 287
Shareholders' equity:
Common stock and additional
paid-in capital................. 45,232 6,946 2,805 54,983
Retained earnings (deficit)....... 10,201 (3,768) 3,768 (d ) 10,201
Accumulated other comprehensive
loss............................ (292) -- -- (292)
------- ------ ------- -------
Total shareholders' equity... 55,141 3,178 6,573 64,892
------- ------ ------- -------
Total liabilities and
shareholders' equity:...... $67,155 $3,701 $ 6,748 $77,604
======= ====== ======= =======
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements
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ARIS CORPORATION
UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
ARIS FINE.COM
YEAR ENDED YEAR ENDED
DECEMBER 31, JANUARY 31, PRO FORMA COMBINED
1998 1999 ADJUSTMENTS NOTES PRO FORMA
------------ ----------- ----------- ----- ---------
<S> <C> <C> <C> <C> <C>
Revenues, net:
Consulting................. $ 64,036 $ 6,133 $ -- $ 70,169
Training................... 40,398 -- -- 40,398
Software................... 11,460 -- -- 11,460
-------- ------- ------- --- --------
Total revenues.......... 115,894 6,133 -- 122,027
Cost of sales:
Consulting................. 34,477 4,163 -- 38,640
Training................... 18,773 -- -- 18,773
Software................... 1,710 -- -- 1,710
Reorganization expenses.... 303 -- -- 303
-------- ------- ------- --------
Total cost of sales..... 55,263 4,163 -- 59,426
-------- ------- ------- --------
Gross profit............ 60,631 1,970 -- 62,601
Selling, general and
administrative............. 48,822 5,777 163 (c) 54,762
Amortization of intangible
assets..................... 631 -- 3,165 (b) 3,796
Research and development
expense.................... 2,641 -- -- 2,641
Acquisition expenses......... 5,655 -- -- 5,655
-------- ------- ------- --------
Total operating
expenses.............. 57,749 5,777 3,328 66,854
-------- ------- ------- --------
Income (loss) from
operations................. 2,882 (3,807) (3,328) (4,253)
-------- ------- ------- --------
Other income (expense),
net........................ 1,158 139 (174) (e) 1,123
Income (loss) before income
taxes...................... 4,040 (3,668) (3,502) (3,130)
Income tax expense
(benefit).................. 2,640 (102) (1,501) (f) 1,037
-------- ------- ------- --------
Net income (loss)............ $ 1,400 $(3,566) $(2,001) $ (4,167)
======== ======= ======= ========
Basic earnings (loss) per
share...................... $ 0.13 $ (1.34) $ (0.34)
======== ======= ========
Diluted earnings (loss) per
share...................... $ 0.12 $ (1.34) $ (0.34)
======== ======= ========
Weighted average number of
common shares
outstanding................ 11,115 2,668 (g) 12,335
======== ======= ========
Weighted average common and
common equivalent shares
outstanding................ 11,900 2,668 (g) 12,335
======== ======= ========
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements
75
<PAGE> 82
ARIS CORPORATION
UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
ARIS FINE.COM
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, APRIL 30, PRO FORMA COMBINED
1999 1999 ADJUSTMENTS NOTES PRO FORMA
---------- ----------- ----------- ----- ---------
<S> <C> <C> <C> <C> <C>
Revenues, net:
Consulting................. $36,626 $3,391 $ -- $40,017
Training................... 18,869 -- -- 18,869
Software................... 4,562 -- -- 4,562
------- ------ ------- -------
Total revenues.......... 60,057 3,391 -- 63,448
Cost of sales:
Consulting................. 20,268 2,014 -- 22,282
Training................... 8,809 -- -- 8,809
Software................... 859 -- -- 859
------- ------ ------- -------
Total costs of sales.... 29,936 2,014 -- 31,950
------- ------ ------- -------
Gross profit............ 30,121 1,377 -- 31,498
Selling, general and
administrative............. 26,305 2,153 131 (c) 28,589
Amortization of intangible
assets..................... 430 -- 1,583 (b) 2,013
------- ------ ------- -------
Total operating
expenses.............. 26,735 2,153 1,714 30,602
------- ------ ------- -------
Income (loss) from
operations................. 3,386 (776) (1,714) 896
Other income (expense),
net........................ 357 (16) (87) (e) 254
------- ------ ------- -------
Income (loss) before income
taxes...................... 3,743 (792) (1,801) 1,150
Income tax expense
(benefit).................. 1,498 18 (85) (f) 1,431
------- ------ ------- -------
Net income (loss)............ $ 2,245 $ (810) $(1,716) $ (281)
======= ====== ======= =======
Basic earnings (loss) per
share...................... $ 0.20 $(0.30) $ (0.02)
======= ====== =======
Diluted earnings (loss) per
share...................... $ 0.20 $(0.30) $ (0.02)
======= ====== =======
Weighted average number of
common shares
outstanding................ 11,076 2,678 (g) 12,296
======= ====== =======
Weighted average number of
common and common
equivalent shares
outstanding................ 11,420 2,678 (g) 12,296
======= ====== =======
</TABLE>
See Notes to Unaudited Pro Forma Combined Financial Statements
76
<PAGE> 83
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE A: A pro forma balance sheet adjustment has been recorded to reflect
the reduction in ARIS cash related to payments of cash to the shareholders of
fine.com in the amount of approximately $3,000,000 and payments of $570,000 for
merger transaction costs including legal, accounting, printing, fairness
opinion, SEC registration fees, asset valuation, NASDAQ fees, and miscellaneous
costs.
NOTE B: A pro forma balance sheet adjustment of $10,318,000 has been
recorded to reflect the intangible assets arising from the purchase of fine.com
by ARIS Corporation. A pro forma adjustment to the Combined Statement of
Operations of $3,165,000 has been made to record amortization of intangible
assets of the combined companies for the fiscal year ended December 31, 1998 and
January 31, 1999. A similar pro forma adjustment of $1,583,000 has been made to
the Combined Statement of Operations of the six months ended June 30, 1999 and
April 30, 1999.
A summary of estimated transaction costs is as follows (in thousands):
<TABLE>
<S> <C>
Consideration:
Cash................................................ $ 3,000
Value of common stock............................... 9,250
-------
12,250
Transaction costs................................... 570
Exchange of stock options........................... 479
-------
$13,299
=======
</TABLE>
The cost allocated to the assets and liabilities at the date of the
acquisition is as follows (in thousands):
<TABLE>
<CAPTION>
PERIOD OF INTANGIBLE
AMORTIZATION
--------------------
<S> <C> <C>
Cash................................................. $ 705
Accounts receivable.................................. 1,218
Other current assets................................. 388
Intangible assets:
Goodwill........................................... 4,868 5 years
Non-compete agreement.............................. 1,900 2 years
Customers' list.................................... 1,800 3 years
Trained work force................................. 1,100 3 years
Leasehold valuation................................ 450 6 years
Trade name......................................... 200 1 year
-------
Total intangibles............................... 10,318
Property and equipment, net.......................... 1,368
Accounts payable and accrued liabilities............. (698)
-------
$13,299
=======
</TABLE>
NOTE C: Pro forma adjustments have been recorded to the pro forma
statements to record the cost of stay and signing bonuses payable to employees
of fine.com.
NOTE D: Reflects elimination of fine.com shareholders' equity.
77
<PAGE> 84
NOTE E: A pro forma adjustment to the Combined Statements of Operations of
the combined companies has been made for the fiscal year ended December 31, 1998
for ARIS (and January 31, 1999 for fine.com) to record a reduction of investment
income in the amount of $174,000 arising from utilization of cash given to
shareholders of fine.com. A similar reduction of investment income for the first
six months of 1999 for ARIS (and six months ended April 30, 1999 for fine.com)
has been recorded as a pro forma adjustment in the amount of $87,000. A 5% yield
was used to calculate the impact of the cash for both periods. See Note a.
NOTE F: A pro forma tax benefit has been recorded as an adjustment to the
Combined Statements of Operations of the companies for the fiscal year ended
December 31, 1998 for ARIS (and January 31, 1999 for fine.com) and for the first
six months of 1999 for ARIS (and six months ended April 30, 1999 for fine.com).
The benefit arises primarily from a reduction of taxes at the company's
effective tax rate of 39% and is attributable to the pro forma reduction of
interest income (see note e above), bonuses paid in accordance with an
employment agreement (see note c above) and certain deductible transaction
costs. The amortization of intangible assets associated with the merger (see
note b above) are not tax deductible by the company and therefore provide no tax
benefit.
A second adjustment reflects the combined entity's benefit that would have
been realized from fine.com's loss before income taxes of $3,668,000 for the
year ended January 31, 1999 at an effective tax rate of 38%, less the $102,000
tax benefit already recognized.
NOTE G: The pro forma Combined Statement of Operations of the combined
companies has been prepared assuming that all shares of fine.com common stock
are acquired by ARIS in exchange for approximately 1,220,000 shares of ARIS
common stock and cash. The conversion of fine.com common stock, stock options
and warrants to ARIS common stock, stock options and warrants was done in
accordance with the merger agreement as described beginning on page 63.
The pro forma combined basic and diluted earnings per share have been
determined assuming that the common stock and share equivalent conversion was
made at the beginning of the period for which a pro forma combined statement of
operations is presented.
78
<PAGE> 85
MANAGEMENT OF ARIS AFTER THE MERGER
DIRECTORS AND EXECUTIVE OFFICERS AFTER THE MERGER
The directors and executive officers of ARIS and their ages as of July 30,
1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Paul Y. Song................. 36 Chairman of the Board, Chief Executive
Officer and President
Kendall W. Kunz.............. 35 Senior Vice President of North America and
Director
Thomas W. Averill............ 54 Vice President of Finance and Chief
Financial Officer
Tina J. Song................. 35 Vice President of Administration
David W. Melin............... 43 President of ARIS Software, Inc.
Hugh Simpson-Wells........... 42 Managing Director of ARIS UK Limited and
President of ARIS Information Technology
Training, Inc.
Bruce R. Kennedy(1)(2)....... 60 Director
Kenneth A. Williams(1)(2).... 44 Director
Barry L. Rowan(1)(2)......... 42 Director
</TABLE>
- -------------------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Each officer named above will serve until his or her successor is appointed
or until death, resignation or removal.
PAUL Y. SONG, founder of ARIS, has been ARIS' President, Chief Executive
Officer and Chairman since its incorporation in October 1990. 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' consulting operations throughout North America.
Mr. Kunz served as ARIS' Senior Vice President of Western Operations from March
1997 until December 1997, and as the 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
ARIS' 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.
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. 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
79
<PAGE> 86
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.
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.
HUGH SIMPSON-WELLS is Managing Director and Secretary of ARIS UK Limited,
ARIS' subsidiary in the United Kingdom, and is responsible for all operations of
ARIS UK. On July 13, 1999, Mr. Simpson-Wells became the President of ARIS
Information Technology Training, Inc., a wholly owned subsidiary of ARIS, and
assumed responsibility for the United States training operations. Mr.
Simpson-Wells founded Oxford Computer Group Limited 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.
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 WorldStream Communications,
Inc., 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.
BARRY L. ROWAN was appointed as a Director of ARIS in April 1999. From 1996
through December 1998, Mr. Rowan was Senior Vice President and General Manager
of the Networks Division of Fluke Corporation, located in Everett, Washington.
From 1995
80
<PAGE> 87
through 1996, Mr. Rowan served as Vice President and General Manager of the
Verification Tools Division of Fluke Corporation. He was Vice President and
Chief Financial Officer of Fluke Corporation from 1992 through 1995. Prior to
joining Fluke, Mr. Rowan was President of Comlinear Corporation, located in Fort
Collins, Colorado, from 1989 through 1992, after serving as its Vice President
of Finance and Administration since 1983. Mr. Rowan earned his MBA from the
Harvard Business School in 1983 and holds a B.S., summa cum laude, in Chemical
Biology and Business Administration from The College of Idaho.
EXECUTIVE COMPENSATION
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 of ARIS who earned
in excess of $100,000 in salary and bonus during 1998, 1997 and 1996 (the "Named
Executive Officers"). ARIS did not make any restricted stock awards, grant any
stock appreciation rights or make any long-term incentive plan payouts during
1998, 1997 or 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL ------------
COMPENSATION(1) SECURITIES
----------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) OPTION(#) COMPENSATION($)
--------------------------- ---- --------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Paul Y. Song.................. 1998 180,000 70,100 0 4,143(2)
President and 1997 150,000 92,897 0 4,214(2)
Chief Executive Officer 1996 120,000 90,553 0 3,655(2)
Kendall W. Kunz............... 1998 156,000 53,007 14,000 --
Senior Vice President 1997 126,000 51,440 80,000 --
of North America 1996 108,000 81,644 0 1,190(2)
John Y. Song.................. 1998 150,000 28,893 12,000 --
Vice President of North 1997 120,000 29,893 60,000 --
America Education 1996 76,000 53,660 0 3,046(2)
David W. Melin................ 1998 110,000 116,067 8,000 --
President of ARIS 1997 80,000 39,917 5,000 --
Software, Inc. 1996 20,000 2,000 20,000 --
Hugh Simpson-Wells(3)......... 1998 119,116 18,669 8,000 --
Managing Director of 1997 90,245 8,871 40,000 --
ARIS UK Limited 1996 N/A N/A N/A N/A
</TABLE>
- -------------------------
(1) Represents payments under ARIS' Executive Profit Bonus Plan.
(2) Represents amount paid by ARIS for automobile expenses.
(3) Mr. Simpson-Wells is paid in British Pounds Sterling. All dollar amounts
shown are converted to United States currency. The conversion ratio is based
on the average daily noon buying rates for cable transfers in New York City
certified for customs purposes by the Federal Reserve Bank of New York for
each year reported above. (In 1998 -- US$1.6573/L1.00 and in
1997 -- US$1.6376/L1.00)
81
<PAGE> 88
ARIS OPTION GRANTS IN LAST FISCAL YEAR
The following table shows information regarding grants of stock options to
the Named Executive Officers during the year ended December 31, 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------ VALUE AT ASSUMED
PERCENT OF ANNUAL RATES
NUMBER OF TOTAL OPTIONS OF STOCK PRICE
SHARES GRANTED TO APPRECIATION FOR
UNDERLYING EMPLOYEES IN EXERCISE OPTION TERM(3)
OPTIONS FISCAL PRICE EXPIRATION ---------------------
NAME GRANTED(#)(1) YEAR(%)(1)(2) ($/SHARE) DATE 5%($) 10%($)
---- ------------- ------------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Paul Y. Song......... 0 0.00% N/A N/A N/A N/A
Kendall W. Kunz...... 14,000 0.76% $21.00 1/2/08 $184,895 $468,560
John Y. Song......... 12,000 0.65% $21.00 1/2/08 $158,481 $401,623
David W. Melin....... 8,000 0.44% $21.00 1/2/08 $105,654 $267,748
Hugh Simpson-Wells... 8,000 0.44% $21.00 1/2/05 $ 68,392 $159,384
</TABLE>
- -------------------------
(1) The exercise price per share of each option is equal to the fair market
value per share of the underlying ARIS common stock on the date of grant.
(2) Options to purchase 1,822,109 shares of ARIS common stock were granted by
ARIS to its employees during 1998.
(3) Amounts represent hypothetical gains that could be achieved for the
respective options exercised at the end of the option term. These gains are
based on assumed rates of appreciation of 5% and 10% compounded annually
from the date the respective options were granted to their expiration date.
The gains shown are net of the option exercise price, but do not include
deductions for taxes or other expenses associated with the exercise of the
options or sale of the underlying shares. The actual gains, if any, on the
stock option exercises will depend on the future performance of the common
stock, the optionholder's continued employment through the option period,
and the date on which the options are exercised.
AGGREGATE ARIS OPTION EXERCISES DURING 1998 AND ARIS OPTION VALUES AT DECEMBER
31, 1998
The following table provides information on stock option exercises by the
Named Executive Officers and the number and value of the Named Executive
Officers' unexercised options at December 31, 1998.
<TABLE>
<CAPTION>
TOTAL NUMBER OF VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN THE MONEY OPTIONS
ACQUIRED VALUE FISCAL YEAR-END(#) AT FISCAL YEAR-END($)(1)
ON REALIZED --------------------------- ---------------------------
NAME 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 20,000 74,000 $112,500 $337,500
John Y. Song......... 0 0 12,000 60,000 $ 67,500 $270,000
David W. Melin....... 2,000 $ 57,585 9,000 22,000 $ 61,665 $ 92,550
Hugh Simpson-Wells... 8,000 $176,800 0 40,000 0 $ 39,200
</TABLE>
- -------------------------
(1) This amount is the aggregate number of the outstanding options multiplied by
the difference between $10.625 (the closing price of the common stock as
reported on the Nasdaq National Market on December 31, 1998) and the
exercise price of such options.
82
<PAGE> 89
REPRICING OF ARIS' OPTIONS DURING 1998
In December 1998, the ARIS board of directors approved a voluntary stock
option exchange for the employees of ARIS, except senior management. Employees
who elected to participate surrendered their outstanding stock options in
exchange for options to purchase eighty percent (80%) of the number of shares
issuable upon exercise of the options surrendered at an exercise price equal to
$9.75, the closing price of the ARIS common stock as quoted on the Nasdaq
National Market on December 15, 1998. The newly exchanged stock options included
a modified vesting schedule, whereby December 15, 1999 became the first day on
which any exchanged options become vested and exercisable. After December 15,
1999, each optionee's vesting schedule will return to the original vesting
schedule for the remainder term of the option. None of the executive officers
who are reporting persons pursuant to Section 16 of the Securities Exchange Act
of 1934 were allowed to participate in the voluntary stock option exchange
offer. Other than in December 1998, ARIS has not repriced any options since
inception.
REPURCHASE OF ARIS COMMON STOCK
On January 11, 1999, the ARIS board of directors authorized the repurchase
of up to 500,000 shares of ARIS common stock for the purpose of making
additional shares available to ARIS' 1997 Stock Option Plan and its 1998 Stock
Purchase Plan. An aggregate of 355,600 shares were purchased for $3,073,000 at
an average purchase price of $8.64 per share. On April 15, 1999, the ARIS board
of directors formally terminated any further purchases of ARIS common stock
pursuant to the January 1999 share repurchase authorization.
DESCRIPTION OF THE ARIS 1997 STOCK OPTION PLAN
On March 13, 1997, the ARIS board of directors approved the ARIS 1997 Stock
Option Plan. On April 25, 1997, the ARIS shareholders adopted the 1997 Stock
Option Plan at the 1997 annual meeting of shareholders. On April 28, 1998, the
ARIS shareholders authorized an increase in the number of shares authorized for
issuance under the 1997 Stock Option Plan to 2,000,000 shares of ARIS common
stock, subject to certain adjustments and on May 24, 1999, the ARIS shareholders
authorized an increase in the number of shares authorized for issuance under the
1997 Stock Option Plan to 2,225,000 shares of ARIS common stock, subject to
certain adjustments. At July 30, 1999, options to purchase 2,014,303 shares of
ARIS common stock were outstanding under the 1995 Stock Option Plan and 1997
Stock Option Plan with a weighted average per share price of $9.86.
The 1997 Stock Option Plan, as amended, provides for the grant of incentive
and non-qualified options to employees, directors, officers and non-employee
directors of ARIS by the plan administrator. 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 incentive
stock options is based on the fair market value of the ARIS common stock on the
date of grant. Options granted under the 1997 Stock Option Plan vest over
periods of up to four years. 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.
The 1997 Plan also provides for automatic, non-discretionary grants to
non-employee directors (as defined under Rule 16b-3 of the Securities Exchange
Act) of options to purchase 5,000 shares of ARIS common stock for each year of
service (or pro-rata for any
83
<PAGE> 90
portion thereof). 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 the ARIS common stock on the date the option is granted. 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 or employee of ARIS or within 90 days after the optionee ceases to
serve as a director or employee of ARIS (except that if a director dies or
becomes disabled while serving as a director or employee of ARIS, the option is
exercisable until the scheduled expiration date of the option).
On April 7, 1999, Barry L. Rowan was elected to fill a vacancy on the board
of directors. Upon the election to fill the vacancy, Mr. Rowan was granted a
non-discretionary option to purchase 417 shares of common stock as a
non-employee director. The option will be fully vested on the first anniversary
of the date of grant. The option expires on the tenth anniversary of the date of
the option grant.
On May 24, 1999, Mr. Rowan and Kenneth A. Williams were elected as
directors at the annual meeting of shareholders, each for a term expiring in
2002. Each of Messrs. Rowan and Williams were granted an option to purchase
15,000 shares of ARIS' common stock immediately following the annual meeting of
shareholders as non-employee directors as provided under the 1997 Stock Option
Plan. The grant of those options vest 5,000 shares each for three years on the
anniversary of the date of grant, and will expire on the tenth anniversary of
the date of the option grant.
DESCRIPTION OF THE ARIS 1998 EMPLOYEE STOCK PURCHASE PLAN
On November 17, 1997, the ARIS board of directors adopted the ARIS 1998
Employee Stock Purchase Plan. On April 28, 1998, the ARIS shareholders approved
the 1998 Employee Stock Purchase Plan at the 1998 annual meeting of
shareholders. On May 24, 1999, the ARIS shareholders authorized an increase in
the number of shares authorized for issuance under the 1998 Employee Stock
Purchase Plan from 300,000 shares to 500,000 shares of ARIS common stock subject
to adjustment in some circumstances.
The 1998 Employee Stock 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 1998 Employee
Stock Purchase Plan authorizes 500,000 shares of common stock to be sold to
employees electing to participate in the 1998 Employee Stock Purchase Plan.
The 1998 Employee Stock Purchase Plan is administered by an ARIS executive
officer designated by the board or the Compensation Committee, except for those
items expressly reserved to the board or the Compensation Committee under the
1998 Employee Stock Purchase Plan. Any discretionary decisions will be
applicable equally to all eligible employees. Employees of subsidiaries will be
eligible to participate in the 1998 Employee Stock Purchase Plan only if the
board or the Compensation Committee has designated the subsidiary as eligible
for participation.
To be eligible to participate in the 1998 Employee Stock Purchase Plan,
employees must have been with ARIS for at least ninety days, work more than 20
hours each week and own less than 5% of ARIS common stock. The Plan
Administrator has the ability to reduce the minimum hourly requirement for
future offering periods. The 1998 Employee
84
<PAGE> 91
Stock Purchase Plan could also include a provision limiting participation to
employees who work more than five months a year.
The 1998 Employee Stock Purchase Plan is divided into two six-month
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 ARIS common stock at a price equal to 85% of the lesser of (a) the
fair market value of ARIS common stock on the first business day of the offering
period or (b) the fair market value of ARIS' common stock on the last business
day of the purchase period. The board or the 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 board or the Compensation Committee.
The board or the 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 re-enrolled in the next offering
period unless they have withdrawn from the 1998 Employee Stock 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 1998 Employee
Stock Purchase Plan. Any accumulated payroll deductions will be refunded to the
employee, without interest.
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION,
DATED JANUARY 7, 1999
General. The purpose of the Compensation Committee is to review and make
recommendations to the board of directors regarding all forms of compensation to
be provided to the executive officers and directors of ARIS and its
subsidiaries, including stock compensation and loans, and all bonus and stock
compensation to all employees. The Committee members consist of ARIS'
non-employee directors, Bruce R. Kennedy and Kenneth A. Williams, who are
appointed by and serve at the discretion of the board of directors.
Statement of Philosophy. The philosophy of the Compensation Committee is to
provide compensation to ARIS' officers and directors in such a manner as to
attract and retain the best available personnel for positions of substantial
responsibility with ARIS, to provide incentives for such persons to perform to
the best of their abilities for ARIS, and to promote the success of ARIS'
business.
The current executive compensation program includes three components: base
salary; a cash bonus based on ARIS achieving its financial targets under ARIS'
Executive Profit Bonus Plan; and grants of stock options under ARIS' 1997 Stock
Option Plan, as amended. The Compensation Committee based its determination for
1999 executive compensation in part upon the recommendations of the Chief
Executive Officer.
Annual Base Salary. Base salaries for executive officers are targeted at
competitive market levels for their respective position, level of responsibility
and experience and the recommendation of the Chief Executive Officer.
Executive Profit Bonus Plan. In January 1999, the Compensation Committee
set the terms for the 1999 Executive Profit Bonus Plan. This plan established a
cash bonus pool
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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 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.
1997 Stock Option Plan. The Compensation Committee believes that equity
compensation aligns employees' long-term objectives with those of shareholders
in striving to maximize ARIS' value. The ARIS 1997 Stock Option Plan, as
amended, provides all employees with the opportunity to receive stock options.
These options vest over a four-year period upon the following schedule: 20%,
20%, 30%, 30%. Each executive officer (other than the Chief Executive Officer)
was granted stock options at the time of hiring and periodically thereafter.
Voluntary Exchange of Stock Options under 1997 Stock Option Plan. In
December 1998, the Compensation Committee recommended to the board of directors
that it approve a voluntary stock option exchange for the employees of ARIS,
except senior management.
1998 Employee Stock Purchase Plan. ARIS initiated on January 1, 1998, the
1998 Employee Stock Purchase Plan (the "ESPP"). Under the ESPP, employees may
elect to set aside up to 10% of their gross compensation to purchase shares of
common stock annually at a 15% discount to market price. The ESPP is a two year
plan expiring on January 1, 2000, and is divided into six-month coextensive
offering and purchase periods beginning on January 1 and July 1 of each year.
Executive officers (other than the Chief Executive Officer) may participate in
the ESPP on the same terms as eligible, non-executive employees. The ESPP was
adopted by ARIS' board of directors on November 17, 1997 and approved by the
shareholders of ARIS on April 28, 1998.
Other Compensation Plans. ARIS also has various broad-based employee
benefit plans, including pension, insurance and other benefit plans for its
employees. Executive officers participate in these plans on the same terms as
eligible, non-executive employees.
Compensation of the Chief Executive Officer. The 1998 base salary for Mr.
Song, ARIS' Chief Executive Officer and President, was set by the Compensation
Committee in January 1998. Mr. Song did not receive any option grants in 1998.
Mr. Song's base salary for 1998 was $180,000. A car allowance in the amount of
$4,143 was paid by ARIS on behalf of Mr. Song. Mr. Song's portion of the 1998
Executive Bonus Plan was $70,100 and was the second largest share in the Plan
allocated to any executive officer.
The Compensation Committee believes that, under Mr. Song's direction, ARIS
continues to effectively execute upon its business plan and goals and to
capitalize upon the rapidly changing global demand for information technology
services and products.
THE COMPENSATION COMMITTEE
Bruce R. Kennedy, Chair Signed: January 7, 1999
Kenneth A. Williams Signed: January 7, 1999
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STOCK PERFORMANCE GRAPH
The performance graph below is required by the Securities and Exchange
Commission and shall not be deemed to be incorporated by reference by any
general statement incorporating by reference the registration statement
containing this proxy statement/prospectus into any filing under the Securities
Act or under the Securities Exchange Act except to the extent that ARIS
specifically incorporates this information by reference, and shall not otherwise
be deemed soliciting material or filed under such acts.
The following graph compares the yearly percentage change in the cumulative
total shareholder return on ARIS common stock for the period beginning on the
date of ARIS' initial public offering on June 18, 1997 and ending on December
31, 1998, together with the cumulative total return for the Standard & Poor's
SmallCap 600 and an appropriate "peer group" index. The comparison assumes $100
was invested on June 18, 1997 in ARIS common stock and in each of the foregoing
indices and assumes reinvestment of dividends, if any. The stock performance
shown in the Performance Graph for ARIS common stock is historical and not
necessarily indicative of future price performance.
<TABLE>
<CAPTION>
ARIS CORPORATION S&P SMALLCAP 600 PEER GROUP INDEX
---------------- ---------------- ----------------
<S> <C> <C> <C>
18-Jun-97 100.00 100.00 100.00
31-Dec-97 140.00 117.55 122.17
31-Dec-98 79.59 120.76 132.72
</TABLE>
- -------------------------
(1) Peer Group Index includes twenty-four entities selected in good faith on the
same industry basis as ARIS. The Peer Group Index consists of the following
entities: American Management Systems, Incorporated, Analysts International
Corporation, Cambridge Technology Partners (Massachusetts), Inc., Carnegie
Group Inc., CIBER, Inc., Claremont Technology Group, Inc., Computer Horizons
Corp., Computer Management Sciences, Inc., Computer Task Group,
Incorporated, ECSoft Group plc, Electronic Data Systems Corporation,
Information Management Resources, Inc., Intelligroup, Inc., Keane, Inc.,
Learning Tree International, Inc., Mastech Corporation, Nova Corporation/GA,
Premiere Technologies, Inc., Sapient Corporation, SunGard Data Systems Inc.,
TechForce Corporation, Technology Solutions Company, Whittman-Hart, Inc.,
XLConnect Solutions, Inc. The returns for each issuer within the Peer Group
Index have been weighted according to such issuer's respective stock market
capitalization at the beginning of the period presented.
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DEDUCTIBILITY OF EXECUTIVE COMPENSATION EXPENSES
In general, under Section 162(m) of the Code, ARIS cannot deduct, for
federal income tax purposes, compensation in excess of $1,000,000 paid to any
Named Executive Officer, except to the extent such excess constitutes
performance-based compensation. The policy of ARIS is to qualify future
compensation arrangements to ensure deductibility, except in those limited cases
where shareholder value is maximized by an alternate approach.
VOTING SECURITIES AND PRINCIPAL HOLDERS
ARIS
The following table sets forth as of July 30, 1999 information regarding
the beneficial ownership of ARIS common stock by, (i) each person who, to the
knowledge of management, owned beneficially more than 5% of the ARIS common
stock, (ii) each director and director nominee of ARIS, (iii) each of the ARIS
Named Executive Officers for whom compensation is reported in this proxy
statement/prospectus, and (iv) all directors and executive officers of ARIS as a
group. As of July 30, 1999, there were 11,076,518 shares outstanding held by 138
holders of record. 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>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS
------------------- ----------------------- --------
<S> <C> <C>
OWNERS:
Paul Y. Song.................................... 4,321,200(2)(3) 39.01%
2229 - 112th Street NE
Bellevue, Washington 98004
Tina J. Song.................................... 4,321,200(2)(3) 39.01%
2229 - 112th Street NE.
Bellevue, Washington 98004
Pilgrim Baxter & Associates, Ltd................ 657,900 5.94%
825 Duportail Road
Wayne, Pennsylvania 19087-5525
Song Family Limited Partnership................. 650,000(3) 5.87%
3700 First Interstate Center
999 Third Avenue
Seattle, Washington 98104
Kendall W. Kunz................................. 326,394(4) 2.94%
John Y. Song.................................... 219,025(5) 1.96%
David W. Melin.................................. 22,563(6) *
Hugh Simpson-Wells.............................. 68,196(7) *
Bruce R. Kennedy................................ 10,417(8) *
Kenneth A. Williams............................. 10,417(8) *
Barry L. Rowan.................................. 5,000 *
All directors and executive officers as a group
(11 persons).................................. 4,886,182(9) 45.38%
</TABLE>
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- -------------------------
* owns less than 1% of the outstanding ARIS Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. ARIS common stock subject to
options currently exercisable or exercisable within sixty (60) days of July
30, 1999 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. Includes 472,000 shares
owned by Tina Song, the spouse of Mr. Song and 3,198,000 shares owned by
Paul Song, the spouse of Ms. Song. Also includes 1,200 shares of ARIS common
stock subject to options that are exercisable within 60 days of July 30,
1999.
(3) Mr. Song and Ms. Song have shared voting power of ARIS common stock owned by
Song Family Limited Partnership.
(4) Includes 42,800 shares of ARIS common stock subject to options that are
exercisable within 60 days of July 30, 1999.
(5) Includes 44,400 shares of ARIS common stock subject to options that are
exercisable within 60 days of July 30, 1999.
(6) Includes 6,600 shares of ARIS common stock subject to options that are
exercisable within 60 days of July 30, 1999.
(7) Includes 9,600 shares of ARIS common stock subject to options that are
exercisable within 60 days of July 30, 1999.
(8) Represents shares of ARIS common stock subject to options that are
exercisable within 60 days of July 30, 1999.
(9) Includes 143,034 shares of ARIS common stock subject to options that are
exercisable within 60 days of July 30, 1999.
FINE.COM
The following table sets forth certain information regarding the ownership
of fine.com common stock as of July 30, 1999 by: (i) each director of fine.com;
(ii) fine.com's Chief Executive Officer; (iii) each person who is known by
fine.com to beneficially own 5% or more of the outstanding shares of fine.com
common stock; and (iv) all directors and executive officers of fine.com as a
group.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS
------------------- ----------------------- --------
<S> <C> <C>
ARIS Corporation................................ 1,075,291(2) 39.7%
2229 - 112th Avenue N.E.
Bellevue, WA 98004
Daniel M. Fine.................................. 633,323(3) 23.7%
1525 Fourth Avenue Suite 800
Seattle, Washington 981014
Frank Hadam..................................... 219,859(4) 8.1%
1525 Fourth Avenue Suite 800
Seattle, Washington 98101
</TABLE>
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<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS
------------------- ----------------------- --------
<S> <C> <C>
Herbert L. Fine................................. 217,859(5) 8.1%
1525 Fourth Avenue Suite 800
Seattle, Washington 98101
Anthony C. Naughtin............................. 5,250(6) *
All directors and executive officers as a group
(seven persons)............................... 1,218,986(7) 45.0%
</TABLE>
- -------------------------
* Owns less than 1% of the outstanding fine.com common stock
(1) This table is based upon information supplied by directors, executive
officers and principal shareholders. Unless otherwise indicated in the
footnotes to this table and subject to community property laws where
applicable, each of the shareholders named in this table has sole voting and
investment power with respect to the shares shown as beneficially owned by
him.
(2) Each of fine.com's directors and certain executive officers have entered
into a voting agreement with ARIS, granting to ARIS voting rights over their
shares in connection with the merger. Includes an aggregate of 18,750 shares
of fine.com common stock subject to stock options held by these persons that
are exercisable within 60 days of July 30, 1999.
(3) Includes 47,499 shares are subject to an option granted by Daniel M. Fine to
principals of Cairncross & Hempelmann, P.S., counsel to fine.com, and an
aggregate of 100,000 shares subject to stock purchase warrants granted by
Mr. Fine to a fine.com executive officer and to a consultant for fine.com.
All of these shares are subject to a voting agreement between Daniel M. Fine
and ARIS.
(4) Of this amount, 15,834 shares are subject to an option granted by Mr. Hadam
to Cairncross & Hempelmann, P.S., counsel to fine.com. Also includes 6,750
shares of fine.com common stock subject to stock options that are
exercisable within 60 days of July 30, 1999. All of these shares are subject
to a voting agreement between Mr. Hadam and ARIS.
(5) Of this amount, 15,834 shares are subject to an option granted by Herbert L.
Fine to Cairncross & Hempelmann, P.S., counsel to fine.com. Also includes
6,750 shares of fine.com common stock subject to stock options that are
exercisable within 60 days of July 30, 1999. All of these shares are subject
to a voting agreement between Herbert L. Fine and ARIS.
(6) Consists of 5,250 shares of fine.com common stock subject to stock options
that are exercisable within 60 days of July 30, 1999. All of these shares
are subject to a voting agreement between Mr. Naughtin and ARIS.
(7) Includes 10,843 shares held by an executive officer through a limited
liability company. Also includes an aggregate of 18,900 shares of fine.com
common stock subject to stock options held by persons in the group that are
exercisable within 60 days of July 30, 1999.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 1999, ARIS invested $300,000 in WorldStream Communications, Inc.
in exchange for 300,000 shares of the Series A Preferred Stock of WorldStream.
Paul Song invested $50,000 in WorldStream on the same terms. Kenneth A.
Williams, a current director of ARIS, is a founder, officer and director of
WorldStream. ARIS and WorldStream have also entered into a services agreement
whereby ARIS will use WorldStream's netcasting technology to deliver training
over the Internet. Other than the foregoing, ARIS has not had any transactions
with management in which the amount involved exceeded $60,000 since December 31,
1997. In addition, ARIS has not had any other business relationship with any
director during the last fiscal year that consisted of property or services in
excess of five percent of: (i) ARIS' consolidated gross revenues for its last
full fiscal year, or (ii) any other entity's consolidated gross revenues for its
last full fiscal year.
John Y. Song resigned his position as ARIS' Vice President of North America
Training and terminated his employment as of July 23, 1999. As of that date, the
Compensation Committee of ARIS' board of directors accelerated the vesting and
extended the exercise period of some of Mr. Song's options to purchase ARIS
common Stock. On January 15, 1997, Mr. Song was granted incentive stock options
under the ARIS 1997 Stock Option Plan to purchase a total of 60,000 shares of
ARIS common stock at an exercise price of $5 per share. Prior to Mr. Song's
resignation, these options were vested and exercisable with respect to 24,000
shares of ARIS common stock. As a result of the Compensation Committee's action:
- Options covering 18,000 shares of ARIS common stock, which were to have
vested and become exercisable on January 1, 2000, became fully vested and
immediately exercisable as of July 23, 1999;
- All 42,000 of the options which vested prior to July 23, 1999 or as of
that date because of the Compensation Committee's action will be
exercisable for a period of two years beginning July 23, 1999 and
expiring at the close of business on July 23, 2001; and
- All of Mr. Song's 60,000 options converted from incentive stock options
to non-qualified stock options.
All other terms and conditions of the 1997 Stock Option Plan remain in full
force and effect with respect to the stock options. John Y. Song is the brother
of Paul Y. Song, ARIS' President and Chief Executive Officer.
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INFORMATION ABOUT ARIS
BUSINESS
ARIS incorporated in Washington in 1990. ARIS provides an integrated
information technology solution consisting of consulting and training services
primarily focused on Oracle, Microsoft, PeopleSoft, Sun and Lotus technologies.
ARIS also develops, markets and supports proprietary software products that
enhance Oracle database management and Oracle packaged applications and ARIS'
human resource management systems consulting practice. ARIS markets its service
and product offerings directly through its consulting division, and through the
following subsidiary companies:
- ARIS Software, Inc., develops, markets, distributes and sells certain of
ARIS' software product offerings (other than TAMS and TAMS/O, which are
distributed and sold through ARIS' human resource management systems
division). ASI is a Washington corporation headquartered in Bellevue,
Washington. ASI also has a registered branch office in Oxford, England.
- ARIS Information Technology Training, Inc., a Washington corporation
headquartered in Bellevue, Washington, provides training services at its
training centers and client sites in North America. Prior to July 1,
1999, these services were provided by ARIS' United States training
division.
- ARIS (UK) Limited provides training and consulting services primarily in
the United Kingdom and Europe. ARIS (UK) is a limited company organized
under the laws of England and Wales with its principal offices in Oxford,
England.
- ARIS Computer Services GmbH provides training services in Germany. ARIS
GmbH is a German company with limited liability ("Gesellschaft mit
beschrankter Haftung") with its primary place of business in Heidelberg,
Germany.
- ARIS (International), L.L.C., provides consulting services outside of the
United States and the United Kingdom. ARIS (International) is a
Washington limited liability company with its principal place of business
in Bellevue, Washington. ARIS (International) has a registered branch
office in Tel Aviv, Israel.
- ARIS Interactive, Inc., was formed to effect the transactions
contemplated by the proposed merger with fine.com. Upon completion of the
merger, ARIS intends that ARIS Interactive will offer integrated
consulting services that couple ARIS' experience with enterprise
information systems applications with the Web site design, development
and consulting services of fine.com. ARIS Interactive is a Washington
corporation with its headquarters in Bellevue, Washington.
ARIS' consulting business has principally focused on integrating and
implementing packaged software applications such as enterprise resource planning
systems, and developing custom business applications using client-server and
Internet technologies. ARIS recently announced its intention to focus on
offering solutions that extend a client's information systems so that the client
can communicate and collaborate with customers, suppliers and business partners
over the Internet and engage in electronic commerce. ARIS intends to evaluate
each of its service and product offerings, including the continued role of its
training and software businesses, its orientation toward particular software
vendors and its vendor-specific consulting services, to determine whether and
how each can
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contribute to providing an integrated enterprise information and electronic
commerce solution for clients.
INDUSTRY BACKGROUND
Business 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. An enterprise's ability to evaluate, integrate
and deploy information technology systems is a critical competitive issue.
International Data Corporation estimates that the worldwide market for
information technology consulting is projected to grow to $53.5 billion by the
year 2002.
The complex task of developing and implementing enterprise-wide, mission
critical information technology solutions is a costly and time consuming
undertaking. For example, enterprise resource planning projects, which generally
include planning and integration of manufacturing, distribution, financial and
other business systems, require cooperation and coordination of virtually every
department within an enterprise. Enterprises must also ensure that their
information technology employees possess the skills to operate, maintain and
maximize performance of their increasingly complex information systems.
Additional employee training is also required each time an enterprise implements
a new technology or updates its existing technology. In many large enterprises,
information technology training is virtually continuous. International Data
Corporation estimates that the worldwide market for information technology
education and training is projected to grow to $28.3 billion by 2002.
Many enterprises do not have adequate personnel with the necessary
technology skills or are reluctant to expand or retool their existing
information technology departments for particular implementation projects. Most
do not have the infrastructure to provide the necessary information technology
training internally. Confronted with these challenges, many enterprises turn to
and rely upon independent information technology service providers, such as
ARIS, for their information technology consulting and training requirements.
Many enterprises are now seeking to exploit the capabilities of the
Internet to allow online sharing of information and collaboration with
customers, suppliers and business partners and electronic commerce. Thus, many
enterprises are seeking to establish Web sites that allow customers to place
orders for goods and services, to access customer service information, and to
use other Internet-based applications for functions such as sales force
automation, customer relationship management and supply chain management.
International Data Corporation estimates that the Internet commerce software
applications market will grow at a compound rate of 97% in the five-year period
from 1998 to 2003 to approximately $13.2 billion in 2003. ARIS has observed that
prospective clients are increasingly seeking solutions that combine and
integrate electronic commerce and other Internet-based applications with
internal information and database management systems.
ARIS believes that its experience in successfully implementing enterprise
information technology systems and its growing capability to integrate them with
Internet applications and electronic commerce features, coupled with fine.com's
creative, marketing and consulting expertise in designing, developing and
implementing Web sites and electronic commerce, will enable ARIS to offer
clients integrated enterprise information and electronic commerce solutions.
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STRATEGY
ARIS' objective is to be a leading provider of integrated information
technology and electronic commerce solutions by pursuing the following
strategies:
Provide Solutions to Clients that Add to Their Internal Enterprise
Information Systems the Ability to Collaborate and Share Information With
Customers and Other Businesses and to Engage in Internet Commerce. ARIS believes
it can offer its clients high value, integrated solutions that begin with the
implementation of clients' enterprise information technology and relational
database systems and extend those management tools through the use of Internet
applications and electronic commerce solutions.
Focus on Leading-Edge Technologies and Technology Trends. ARIS intends to
maintain its alignment with leading-edge technology vendors such as Oracle,
Microsoft, Lotus, PeopleSoft and Sun, and to aggressively pursue relationships
with leading vendors of Internet-based and electronic commerce solutions. ARIS
may change or expand the range of vendors on which it focuses over time in order
to maintain alignment with leading-edge, emerging technologies. ARIS also
continually evaluates technology trends, such as new products and product
releases, new training delivery mechanisms, and the evolving technology needs of
clients.
Attract and Retain Highly Skilled Information Technology
Professionals. ARIS' success depends on its ability to attract, train, motivate
and retain highly skilled information technology professionals. ARIS believes it
offers its employees:
- multiple professional opportunities and challenges to work in one or more
of ARIS' consulting, training and software divisions;
- the opportunity to work with leading-edge technologies;
- attractive compensation plans that align employees' interests and goals
with those of the company; and
- a stimulating, flexible, entrepreneurial work environment.
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 uses a standard
methodology and quality assurance program to provide for a consistant high level
of client satisfaction. ARIS views its ability to use a client as a reference
for other potential clients as a critical measure of the success of any project.
Strategic Growth. ARIS has expanded its business by opening or acquiring
consulting offices and training centers in additional geographic areas or having
expertise with additional technologies. During 1998, ARIS increased its activity
internationally through the establishment of ARIS GmbH in Heidelberg, Germany
and the formation of ARIS (International) to better service ARIS' multinational
clients. In addition to internal growth, ARIS made several strategic
acquisitions of complementary businesses during 1998:
- In February 1998, ARIS acquired all of the outstanding capital of
Barefoot Computer Training Limited, an information technology training
company based in London, England, in exchange for 278,611 shares of ARIS
common stock. The transaction was accounted for as a
pooling-of-interests. In April 1998, ARIS
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exchanged its shares of Barefoot for shares of ARIS (UK), which resulted in
Barefoot becoming a wholly owned subsidiary of ARIS (UK). In May 1998, the
assets and operations of Barefoot were merged into ARIS (UK).
- In April 1998, ARIS (UK) acquired all of the outstanding share capital of
MMT Computing (Reading) Limited, a consulting company focused primarily
on Lotus technologies, for L1,500,000 million cash (US$2,499,000). In May
1998, the assets and operations of MMT were merged into ARIS (UK).
- In June 1998, InTime Systems International, Inc. merged with and into
ARIS in exchange for 786,710 shares of ARIS common stock and warrants to
purchase 718,997 shares of ARIS common stock. The transaction was
accounted for as a pooling-of-interests. InTime provided systems
integration services and software products relating to the selection,
implementation and use of human resources, payroll and selected software
systems.
- In August 1998, ARIS Software acquired substantially all of the assets of
db-Centric, Inc. a software development company located in San Francisco,
California, in exchange for $1,000,000 cash. Db-Centric's primary
business involved the development of a distributed data warehouse query
and resource management system.
ARIS may continue to pursue additional strategic acquisitions and
relationships in order to acquire expertise in new technologies, expand its
client base, gain access to qualified information technology professionals and
enter new geographic markets.
ARIS CONSULTING
ARIS provides information technology consulting services primarily to
clients that require assistance planning, designing, developing, testing and
deploying their specific technology requirements and infrastructure. ARIS has
focused on three core consulting competencies:
- implementing packaged software applications;
- developing custom software applications (including Internet-based
systems); and
- systems architecture planning and deployment.
Each of these competencies increasingly requires the ability to integrate
internal information systems with Internet-based and electronic commerce
solutions.
Packaged Application Implementation. Traditionally, ARIS has focused on the
packaged enterprise resource planning market, particularly the implementation of
Oracle database management and Oracle packaged applications. Through the human
resource management systems division, ARIS has significant experience in the
human resource management systems market, using primarily Oracle and PeopleSoft
technologies.
Custom Application Development. ARIS provides custom application
development services, particularly client/server and Internet/intranet projects,
primarily involving Oracle and Microsoft technologies.
Systems Architecture Planning and Deployment. ARIS provides systems
architecture planning and deployment for information technology architectures
including Microsoft
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BackOffice, Oracle databases, UNIX and general 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.
Integrated Enterprise Information and Internet-Based and Electronic
Commerce Solutions. Through the acquisition of fine.com and ARIS' own growing
experience in implementing Internet-based and electronic commerce applications,
ARIS believes that it is well positioned to offer clients solutions that
integrate enterprise information and database management systems with
Internet-based and electronic commerce applications.
ARIS expects these services to include:
- consulting services to help clients identify successful Internet and
electronic commerce strategies;
- designing Web sites and electronic commerce applications;
- implementing Internet-based applications such as sales force automation,
customer relationship management and supply chain management systems; and
- integrating Internet-based applications and electronic commerce
applications with internal management information systems and databases,
so that information about interactions over the Internet is automatically
reflected in internal systems and databases and authorized users of
Internet-based systems may access, use and update information in the
enterprise's internal information systems and databases.
ARIS has organized its consulting operations into the following practice
groups:
- Oracle Consulting Services. The Oracle practice group implements all of
Oracle's suite of enterprise resource planning software application
modules, including Oracle Financials, Manufacturing, Distribution,
Projects and Human Resources. The Oracle practice group also provides
custom application development services to clients using Oracle's
Designer/Developer 2000 and other developer tools.
- Microsoft Consulting Services. The Microsoft practice group provides
consulting and implementation services including systems architecture,
planning and deployment using the Microsoft Back Office suite of
applications, which include NT, Exchange Server, SQL Server, Internet
Information Server, SiteServer, Commercial Internet Server and Systems
Management Server.
- Human Resource Management Systems Consulting Services. The human resource
management systems practice group provides consulting and implementation
services for human resource management systems developed by PeopleSoft,
Oracle, Ultimate Software, Cyborg and ADP. The human resource management
systems practice group also develops and markets a proprietary software
product called TAMS/O (Time & Attendance Management System for Oracle)
that integrates with Oracle Human Resources, Oracle Payroll and Oracle
Projects applications. The TAMS/O product is also marketed by Oracle as
Oracle Time Management pursuant to a licensing arrangement with ARIS.
- Lotus Technologies. The Lotus consulting practice group provides
consulting and implementation services on Lotus technologies, including
Lotus Notes and Domino.
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- The eTeam. ARIS recently assembled a multidisciplinary team of high-level
employees and others representing consulting, marketing, Oracle and
Microsoft technologies and Web site design and other functions. This
"eTeam" will coordinate the development of project methodologies, quality
assurance standards, project management and implementation standards and
other best practices to provide for customer satisfaction for ARIS'
strategy of offering its clients worldwide management information systems
applications integrated with Internet-based and electronic commerce
applications. Upon the completion of the merger with fine.com, ARIS
intends to offer these solutions through ARIS Interactive.
ARIS' consulting clients are generally medium to large businesses and
governmental agencies. Consultant utilization, billing rates and headcount are
reviewed regularly by management to monitor whether projects are being completed
in accordance with client expectations and contractual obligations. Most
projects are staffed by ARIS employees although independent contractors may also
be used depending on project requirements. As projects are completed or as new
consultants are hired, there may be periods when individual consultants or
project managers are not assigned to active client projects. During these
periods of non-assignment, consultants and project managers may receive training
on new technologies, help develop proprietary consulting methodologies and
tools, or assist in developing internal data systems.
ARIS TRAINING
ARIS is a leading provider of vendor-certified and custom training to
information technology 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 Internet- and Intranet-based training. ARIS also
provides other training related services such as information technology skills
assessment, curriculum development and education consulting services.
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' vendor authorized
training designations.
ARIS uses both vendor-authorized 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 course titles and
instructors meet the needs of the market and maintain quality standards, each
class participant is asked to complete an evaluation of the course materials and
of the instructor at the end of his or her training. ARIS uses these evaluations
to modify course offerings and training techniques in order to improve
instructor performance.
In July 1998, ARIS entered into a strategic alliance with GeoTrain
Corporation to offer certified Cisco Systems training in ARIS training centers
throughout the United States and the United Kingdom.
ARIS' training operations were not profitable in the first, second and
fourth quarters of 1998 and the first and second quarters of 1999. In the fourth
quarter of 1998, ARIS
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restructured its training division, significantly reducing fixed costs and
overhead expenses, in response to decreased demand for information technology
training services and lower profitability as a result of the commoditization of
open-enrollment information technology training, increased competition, lack of
new product releases by software vendors and other market factors. As of July 1,
1999, ARIS transferred the assets of its United States training operations into
ARIS Information Technology, Inc., a wholly-owned subsidiary, and aligned its
training divisions worldwide under common management. In August 1999, ARIS
announced the closing of training centers in New York, Minneapolis and Chicago.
These centers represented approximately 13% of worldwide and 24% of United
States training revenues, respectively, for the six months ended June 30, 1999.
ARIS believes that the training centers closed were those contributing most
significantly to training operating losses.
ARIS is exploring strategic alternatives for its training business
including one or more of the following:
- the possible sale and divestment of some or all of its training
operations;
- additional restructuring, including the possible closure of additional
training offices; or
- the closure of ARIS' training center operations in their entirety.
If ARIS' training operations are sold, restructured or discontinued, in
whole or in part, ARIS may be required to take a significant charge to its
earnings for the quarter in which the action occurs.
ARIS SOFTWARE
ARIS Software develops, distributes, markets and sells ARIS' proprietary
software products (other than TAMS and TAMS/O, which are developed and
distributed through the human resource management systems practice group).
Currently, ARIS Software markets and sells the following software products:
- 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. Currently, there are NoetixViews products for each of the
following Oracle Applications:
- NoetixViews Accounts Payable
- NoetixViews General Ledger
- NoetixViews Inventory
- NoetixViews Purchasing
- NoetixViews Costing
- NoetixViews Scheduling
- NoetixViews Human Resources
- NoetixViews Project Billing
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- - NoetixViews Accounts Receivable
- - NoetixViews Fixed Assets
- - NoetixViews Order Entry
- - NoetixViews Bills of Material
- - NoetixViews Work in Progress
- - NoetixViews Project Costing
- - NoetixDW for Financials
- - NoetixViews Application Object
Library
- 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.
- TAMS and TAMS/O, which are developed, marketed and sold through the human
resource management systems division, are systems which collect and
organize each employee's "time-worked" in order to produce an accurate
paycheck, while providing management with information to better utilize
human resources.
- As a result of the acquisition of db-Centric, ARIS Software is currently
developing a proprietary distributed data warehouse query and resource
management system software application. ARIS Software expects to release
this new product during the fourth quarter of 1999.
Oracle has recently released a product having some of the same features and
functionality of NoetixViews, and has announced that it intends to bundle this
product, without additional charge, with its release of Oracle 11i. Sales of
NoetixViews account for substantially all of ARIS' software revenues. Oracle's
release of this competing product and its marketing and bundling strategy could
have a material adverse effect on sales of NoetixViews and the results of
operations of ARIS.
RELATIONSHIPS WITH KEY VENDORS
ARIS has developed strategic relationships with key vendors of software.
These strategic relationships may allow ARIS to gain access to pre-release
versions of software and the software vendor's marketing channels, as well as to
receive discounts on software. Certain of these software vendors also compete
with ARIS in providing information technology consulting and training services
and software products. 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 that might adversely affect ARIS' ability to
compete successfully with its competitors.
SALES AND MARKETING
ARIS' consulting and training divisions have separate sales forces. The
training sales force includes account executives and account managers focused on
selling larger, private training engagements and a telemarketing group to direct
market ARIS' public class offerings. ARIS Software 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 information technology vendors. ARIS
compensates its sales personnel through a combination of a base salary and
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commissions. ARIS pays commissions when services are performed or products are
shipped rather than when a contract is signed.
ARIS significantly increased its marketing budget and activities during
1998 to increase awareness of the ARIS brand. The ARIS marketing plan includes
direct mail solicitations, advertising in information technology trade journals,
trade show participation and seminars. ARIS' course catalogue and Web site are
also integral parts of its marketing effort.
COMPETITION
The information technology consulting industry and the information
technology 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' principal competitors in the delivery of consulting services are the
consulting divisions of the large multinational accounting firms, the consulting
divisions of software vendors such as Oracle, Microsoft, Lotus and PeopleSoft,
and numerous international, national and regional information technology
consulting firms. ARIS faces competition in the delivery of information
technology training services from the in-house information technology
departments of prospective clients, the training divisions and authorized
training channels of software vendors such as Oracle, Sun, and Microsoft, and
independent international, national and regional companies with information
technology training operations. ARIS' decision to focus on consulting solutions
that integrate enterprise information systems with Internet-based and electronic
commerce applications may result in competition with companies that specialize
in Internet and electronic commerce solutions as well as many of its existing
competitors. The market for these solutions is intensely competitive, and
characterized by rapid advances in technology and changing client requirements.
ARIS DFRAG, TAMS and TAMS/O compete with software products distributed by
other companies. New competitive products may be developed by Oracle, by third
party software vendors or by in-house information technology departments of
ARIS' current or potential clients. Oracle has recently released a product
having some of the same features and functionality of NoetixViews, and has
announced that it intends to bundle this product, without additional charge,
with its release of Oracle 11i. Sales of NoetixViews account for substantially
all of ARIS' software revenues. As a result of Oracle's release of this
competing product and its marketing and bundling strategy could have a material
adverse effect on sales of NoetixViews.
INTELLECTUAL PROPERTY
ARIS uses proprietary consulting and training methodologies, courseware,
software applications and products, trademarks and service marks, and other
proprietary 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 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.
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ARIS develops custom software applications and methodologies, and training
courses and training and consulting 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 limited
use licenses retained by ARIS. 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 July 30, 1999, ARIS had 798 full-time employees, 572 of whom were
based in the United States and 226 of whom were based in the United Kingdom. Of
this total, 250 employees were involved in the sale, delivery and support of
training services, 407 employees were involved in the sale, delivery and support
of consulting services, 51 employees were involved in the sale, marketing,
development and support of software products, and 90 employees were involved in
corporate level management and administration. In addition, from time to time
ARIS retains the services of subcontractors for certain consulting and training
engagements. In August 1999, ARIS announced the closing of training centers in
New York, Minneapolis and Chicago and estimates that approximately 25 employees
associated with these offices will be terminated.
ARIS places significant emphasis on the recruitment, training and
professional development of its employees, and believes that it offers a
competitive compensation package.
ARIS devotes considerable resources to its recruiting efforts. It
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 eight full-time
recruiters.
ARIS believes that its consultants and project managers benefit from their
ability to receive ongoing training in the latest technologies through ARIS'
training division. ARIS' ability 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 providers, including ARIS, to keep their
information technology professionals current in the latest technologies.
ARIS' compensation package consists of salary, 401(k) matching,
equity-based compensation plans and other benefits-related plans. In addition,
ARIS awards performance-based bonuses to certain employees, including nearly all
of its consultants, project managers and instructors.
ARIS' future success will depend in large part on its ability to attract,
develop, motivate and retain highly skilled information technology
professionals, particularly project managers, consultants and instructors.
Information technology professionals are in high demand and are likely to remain
a limited resource for the forseeable future. Competition for these employees is
intense. See "Risk Factors -- ARIS' success depends on its ability to recruit
and retain information technology professionals."
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PROPERTIES
On March 30, 1998, ARIS relocated its corporate headquarters to Bellevue,
Washington. These premises, which ARIS purchased in January 1998, consist of
approximately 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 information technology departments. ARIS
also leases facilities in various locations listed in the table below (as of
July 30, 1999):
<TABLE>
<CAPTION>
APPROXIMATE NO. OF CLASSROOMS/
LOCATION SQUARE FOOTAGE SEATS FUNCTION
-------- -------------- ------------------ --------
<S> <C> <C> <C>
Bellevue, WA......... 23,500 11/144 seats Training, Consulting
Beaverton, OR........ 7,800 5/72 Training, Consulting, Software
Bloomington, MN*..... 15,500 9/108 Training
Columbia, SC......... 2,000 -- Consulting
Dallas, TX........... 3,600 -- Consulting
Denver, CO........... 7,200 5/50 Training, Consulting
Fairfax, VA.......... 17,000 5/90 Training, Consulting
New York, NY*........ 17,800 11/134 Training, Consulting
Oak Brook, IL *...... 7,400 4/61 Training
Plano, TX............ 12,334 5/80 Training, Consulting
Renton, WA........... 6,700 -- Telemarketing
Tampa, FL............ 4,500 -- Consulting
West Palm Beach, FL.. 10,529 -- Consulting
Birmingham, UK....... 7,800 6/66 Training
London, UK........... 14,400 18/180 Training
Oxford, UK........... 5,000 -- UK HQ, Consulting
Oxford, UK........... 8,000 6/80 Training
Reading, UK.......... 3,000 -- Consulting
Heidelberg, Germany.. 900 2/26 Training
</TABLE>
- -------------------------
* ARIS announced the closure of these training centers in August 1999.
LEGAL PROCEEDINGS
ARIS is involved from time to time in legal proceedings that arise out of
the normal course of its business. As of July 30, 1999, ARIS was not involved in
any material legal proceedings.
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ARIS SELECTED FINANCIAL DATA
A summary of selected financial data as of and for the years ended December
31, 1994, 1995, 1996, 1997 and 1998 is set forth below. The information as of
June 30, 1998 and 1999 and for the six-month period ended June 30, 1998 and 1999
is unaudited and reflects all adjustments that are, in the opinion of ARIS
management, necessary for a fair statement of the results as of the dates and
for the periods presented and is not necessarily indicative of the operating
results for the entire year.
The following financial information reflects the acquisition in February
1998 of Barefoot Computer Training Limited and in June 1998 of InTime Systems
International Inc. These acquisitions were accounted for as poolings of
interests. In addition to Barefoot and InTime, ARIS acquired two companies in
1998, four companies in 1997 and three companies in 1996. More information about
ARIS' acquisitions can be found in Notes 2 and 4 to ARIS' consolidated financial
statements.
Also in 1998, ARIS restructured its training operations, and incurred
expenses of an aggregate of $2,185,000 including employee severance, equipment
and asset abandonment and the closing of facilities.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- ------------------
1994 1995 1996 1997 1998 1998 1999
------- ------- ------- ------- -------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues...................... $15,079 $25,530 $43,896 $76,286 $115,894 $54,396 $60,058
Expenses...................... 14,028 24,825 41,662 70,387 114,494 54,050 57,813
Net income.................... 1,051 705 2,234 5,899 1,400 346 2,245
Basic earnings per share...... 0.22 0.09 0.27 0.60 0.13 0.03 0.20
Diluted earnings per share.... 0.19 0.09 0.26 0.56 0.12 0.03 0.20
</TABLE>
FINANCIAL CONDITION
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30,
-------------------------------------------------- ------------------
1994 1995 1996 1997 1998 1998 1999
------ ------- ------- ------- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash, cash equivalents and
securities available for
sale.......................... $1,444 $ 4,562 $ 3,516 $26,859 $11,738 $14,867 $ 8,903
Total assets.................... 7,390 12,306 20,675 60,551 69,481 66,891 67,155
Long-term debt, less current
portion....................... -- -- -- -- -- -- --
Shareholders' equity............ 2,781 9,358 13,190 50,482 55,314 52,169 55,141
</TABLE>
ARIS' MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
ARIS' revenue is derived from the sale and delivery of consulting and
training services and sales of licenses and maintenance and support agreements
for software products. Consulting revenue is derived primarily from fees billed
to clients for consulting services. 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
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percentage-of-completion method, measured by the cost incurred to date and cost
to complete compared to estimated total costs for the contract. ARIS bills
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, clients request that ARIS provide hardware and software
in conjunction with 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, fees charged to individual students for open
enrollment classes, fees from curriculum and custom courseware development for
corporate clients and vendors such as Microsoft, fees derived from the licensing
of proprietary courseware to third parties, and fees from performance
improvement consulting and other consulting-based education services. ARIS
provides training at client facilities, at ARIS' training centers, and over the
Internet or corporate intranets. In 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 under-enrolled.
ARIS derives software revenue from the sale of its proprietary software
products, ARIS DFRAG, TAMS, TAMS/O, and the NoetixViews suite of products, and
from maintenance and support contracts with clients who purchase the software
products. ARIS recognizes revenue when the software product has been shipped,
collection is probable and ARIS has no significant obligations remaining to be
performed. ARIS bills clients for software maintenance and support at the
beginning of the contract period and recognizes the related revenue ratably
throughout the term of the contract.
SIGNIFICANT EVENTS
ARIS' training operations were not profitable in the first, second and
fourth quarters of 1998. In December of 1998, ARIS announced a plan to
restructure the training operations in order to improve their efficiency and
profitability. The restructuring included reorganizing the management of the
training division from eight to three regions and consolidating training centers
in cities having multiple centers to improve classroom utilization and reduce
costs. Incident to the restructuring, ARIS incurred expenses aggregating
$2,185,000 in the fourth quarter of 1998. The expenses included $873,000 for
employee severance, $559,000 for equipment and asset abandonment, $593,000 for
anticipated lease disposition and costs and $160,000 associated with other
aspects of restructuring of the training operations. At June 30, 1999,
substantially all of the amount accrued for estimated future payments had been
paid. In addition to the training restructuring, ARIS settled a litigation claim
and expensed $759,000. ARIS recovered $450,000 of the litigation settlement cost
from insurance proceeds.
ARIS' training division continued to be unprofitable for the first six
months of 1999, with an operating loss of $1,683,000. In August 1999, ARIS
announced the closing of training centers in New York, Minneapolis and Chicago.
These centers had not been profitable during the six months ended June 30, 1999.
ARIS estimates that the costs of closing these centers will be approximately
$5,500,000, including estimated future payments of $1,000,000 for employee
severance and relocation, lease terminations, termination of contract
obligations, a bad debt writeoff of approximately $500,000, and reductions in
carrying value of assets of $4,000,000, comprised of a write off of $3,000,000
in goodwill and $1,000,000 in leasehold improvements. The estimated cost of
closure will
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be charged to expense in the quarter ending September 30, 1999, and the amount
of the charge may vary from ARIS' current estimate. Actual costs of closure also
may vary from ARIS' estimates.
The Chicago center was opened in April 1998 and the New York and
Minneapolis centers were acquired in October 1997 and November 1997,
respectively. Revenue from these centers was $7,438,000 or 18% of total training
revenue for the year ended December 31, 1998, and $2,400,000 or 13% of total
training revenue for the six months ended June 30, 1999.
As of July 1, 1999, ARIS transferred the assets of its United States
training operations into a wholly-owned subsidiary, and aligned its training
divisions worldwide under common management. ARIS is exploring strategic
alternatives for its training business including one or more of the following:
- the possible sale and divestment of some or all of its training
operations;
- additional restructuring, including the possible closure of additional
offices; or
- the closure of ARIS' training center operations in their entirety.
If ARIS' training operations are sold, restructured or discontinued, in
whole or in part, ARIS may be required to take a significant charge to its
earnings for the quarter in which the action occurs.
ARIS recently announced its intention to focus on offering solutions that
extend a client's information systems so that the client can communicate and
collaborate with customers, suppliers and business partners over the Internet
and engage in electronic commerce. In connection with this initiative, ARIS
intends to evaluate the continuing role of its training and software businesses,
its orientation toward particular software vendors, and its vendor-specific
consulting services to determine whether and how each could be integrated to
provide integrated information systems and electronic commerce solutions for
clients.
ARIS plans to devote significant personnel and financial resources and
management attention to this initiative. It is likely that the initiative will
not result in immediate increases in revenue that offset expenses incurred. ARIS
may allocate resources away from revenue-producing activities to manage and plan
the initiative and to participate in developing additional capacity to offer
Internet-based and electronic commerce solutions. The focus on the initiative
also may lead to the de-emphasis of other existing services and software
offerings, or even in ARIS ceasing to offer some existing services or products,
resulting in reduced revenue and the possibility of restructuring or other
charges to income. Accordingly, ARIS' revenues and profits in the short run may
be adversely affected, and its ability to effectively complete existing
consulting assignments within planned budgets may be reduced.
The degree to which this initiative succeeds will depend in part on the
completion of the acquisition of fine.com. Whether or not the acquisition of
fine.com is completed, it is uncertain whether this strategy will increase ARIS'
revenue or profits from consulting services. If the acquisition of fine.com is
completed, ARIS may incur significant expenses integrating the business of
fine.com with its own, which could adversely affect ARIS' profitability during
the remainder of 1999 and thereafter.
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In the year ended December 31, 1998 and the six months ended June 30, 1999,
ARIS' software operations had revenue of $11,460,000 and $4,563,000,
respectively, and operating profits of $6,545,000 and $1,315,000, respectively.
Oracle has recently released a product having some of the features of
NoetixViews, and has announced that it intends to bundle this product, without
additional charge, with its release of Oracle 11i. Sales of NoetixViews account
for substantially all of ARIS' software revenues. Oracle's release of this
competing product and its marketing and bundling strategy could have a material
adverse effect on sales of NoetixViews and the results of operations of ARIS.
RECENT ACQUISITIONS
In addition to internal growth, ARIS has grown through strategic
acquisitions of complementary businesses. In February 1998, ARIS acquired
Barefoot Computer Training Limited and in June 1998, ARIS acquired InTime
Systems International Inc. These acquisitions were accounted for as poolings of
interests, and ARIS's financial results have been restated as if it had owned
Barefoot and InTime during all periods presented. In addition to Barefoot and
InTime, ARIS acquired two companies in 1998, four companies in 1997 an three
companies in 1996. More information about ARIS' acquisitions can be found in
Notes 2 and 4 to ARIS' consolidated financial statements. See pages F-12 through
F-18.
ARIS STOCK REPURCHASE
On January 11, 1999, the ARIS board of directors authorized the repurchase
of up to 500,000 shares of ARIS common stock for the purpose of making
additional shares available to ARIS' 1997 Stock Option Plan and its 1998 Stock
Purchase Plan. An aggregate of 355,600 shares were purchased for $3,073,000 at
an average purchase price of $8.64 per share. On April 15, 1999, the ARIS board
of directors formally terminated any further purchases of ARIS' common stock
pursuant to the repurchase authorization.
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
Total Revenue. Total revenue increased $5,662,000 to $60,058,000 for the
six months ended June 30, 1999 from $54,396,000 for the six months ended June
30, 1998, representing a 10% increase. The increase in total revenue is a result
of an increase in revenue for ARIS' consulting business, which offset decreases
in revenue in the training and software businesses.
Consulting Revenue. Consulting revenue increased $7,521,000 to $36,626,000
for the six months ended June 30, 1999 from $29,105,000 for the six months ended
June 30, 1998, representing a 26% increase. Consulting revenue increased as a
result of an overall increase in the level of consulting activity and the
acquisition of MMT Company (Reading) Limited in April 1998. ARIS employed or
contracted for the services of an average of 391 full-time consultants and
project managers during the six months ended June 30, 1999 compared to 312
during the six months ended June 30, 1998.
Training Revenue. Training revenue decreased $986,000 to $18,869,000 for
the six months ended June 30, 1999 from $19,855,000 for the six months ended
June 30, 1998, representing a 5% decrease. The decrease was entirely
attributable to lower training revenues in the quarter ended June 30, 1999 than
in the quarter ended June 30, 1998. ARIS offered 4,423 classes and 9,840
training days in the six months ended June 30, 1999
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as compared to 2,978 classes and 8,314 training days in the six months ended
June 30, 1998. Although ARIS held more classes during the first six months for
1999 compared to 1998, a large number of the classes were attributable to a
single contract in the UK for end user training at low rates. The number of
classes and training days in the US decreased approximately 15% during the first
six months of 1999 compared to the same period in 1998.
Software Revenue. Software revenue decreased $813,000 to $4,563,000 for the
six months ended March 31, 1999 from $5,436,000 in the six months ended June 30,
1998, representing a decrease of 16%. The decrease in revenue is primarily
attributable to reduced sales of the NoetixViews suite of products. Sales of the
TAMS/O software product were also lower. ARIS believes the decrease in software
sales is due to a general slowdown in enterprise resource planning system sales,
which may be due in part to some customers' desire not to purchase these systems
while dealing with the Y2K issue or to other customers' desire to focus on
Internet-based and electronic commerce applications. Partial saturation of the
potential market due to NoetixViews' successful penetration of the Oracle
customer base also may be a factor.
Cost of Sales. Cost of sales consists primarily of salaries and employee
benefits for consultants, project managers and instructors; subcontractor fees;
non-reimbursable travel expenses related to consulting and training activities,
and the cost of production of software modules and amortization of capitalized
software costs. Cost of sales increased $4,241,000 to $29,936,000 in the six
months ended June 30, 1999 from $25,695,000 in the six months ended June 30,
1998. The increase in cost of sales is primarily a reflection of the increase in
sales and the activities associated with sales. Cost of sales as a percentage of
sales increased from 47% for the six months ended June 30, 1998 to 50% for the
six months ended June 30, 1999. The increase is primarily attributable to a
relative decrease in sales of software products which have a lower percentage
cost of sales than do training and consulting. A portion of the increase is also
attributable to a relative increase in the proportion of consulting sales and
costs. Consulting cost of sales include more labor and benefits costs as a
percentage of revenue than do either training or software operations.
Selling, General and Administrative Expense. Selling, general and
administrative expense consists of salaries and employee benefits for executive,
managerial, administrative and sales personnel; facility leases; amortization of
capitalized computer hardware and equipment costs; software license fees; legal,
accounting and other professional fees, and travel and business development
costs. Selling general and administrative expenses increased 18% from
$21,568,000 in the six months ended June 30, 1998, to $26,305,000 in the six
months ended June 30, 1999, and increased as a percentage of revenue from 40% to
44%
Selling, general and administrative expenses increased due to the
acquisition of MMT and the opening of an Oracle Consulting practice in the
United Kingdom, the opening of a telesales office and two training offices,
increases in selling commissions for the consulting sales staff and increases in
ARIS' internal information technology staff and software to support personnel
growth and new offices and functions.
Amortization of Intangible Assets. Amortization of intangibles was $271,000
during the six months ended June 30, 1998 and $430,000 during the six months
ended June 30, 1999. The increase in amortization of intangibles arises as a
result of an increase in goodwill attributable to companies acquired during
1998.
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Charges Related to Acquisitions. Acquisition-related costs include
professional fees to attorneys, accountants, and advisors, compensation charges
for non-qualified stock option exercises, employee severance and retention
payments, and costs related to the integration of an acquired business. During
the six months ended June 30, 1998, acquisition-related costs were $5,655,000.
ARIS incurred no acquisition-related costs in the six months ended June 30,
1999.
Other Income, Net. Other income, net, consists primarily of interest income
on cash and cash equivalents and finance charges due on accounts receivable.
Other income decreased from $695,000 for the six months ended June 30, 1998 to
$357,000 for the six months ended June 30, 1999. The decrease is primarily
attributable to a decrease in investment yield on proceeds from the initial
public offering completed on June 19, 1997.
Income Tax Expense. Income tax expense decreased from $1,553,000 in the six
months ended June 30, 1998 to $1,498,000 in the six months ended June 30, 1999.
As discussed above, ARIS incurred acquisition-related expenses in the six months
ended June 30, 1998 and did not incur any such expenses in the comparable period
in 1999. A significant portion of these acquisition-related expenses are not
deductible in the determination of taxable income and accordingly, the resulting
tax expense for the six months ended June 30, 1998 is higher. ARIS estimates
that exclusive of the effect of acquisition-related charges, the effective tax
rate would have been 40% in the six months ended June 30, 1998 and 1999.
Net Income. Net income increased $1,899,000 to $2,245,000 for the six
months ended June 30, 1999, from $346,000 for the six months ended June 30,
1998. Exclusive of acquisition-related expenses and related taxes, net income
decreased from $2,327,000 and 8% of revenue during the six months ended June 30,
1998 to $2,245,000 and 4% of revenue for the six months ended June 30, 1999.
1998 COMPARED TO 1997
Total Revenue. Total revenue increased $39,608,000 to $115,894,000 for 1998
from $76,286,000 for 1997, representing a 52% increase. As discussed below,
increases in revenue were reflected in all three lines of business.
Consulting revenue increased $21,305,000 to $64,036,000 for 1998 from
$42,731,000 for 1997, representing a 50% increase. Consulting revenue increased
as a result of an overall increase in the level of consulting activity as well
as the acquisition of MMT Computing (Reading) Limited in April 1998 which
contributed revenue of $3,420,231.
Training revenue increased $11,502,000 to $40,398,000 for 1998 from
$28,896,000 for 1997, representing a 40% increase. A significant portion of the
increase in training revenue for 1998 is attributable to businesses acquired
subsequent to September 30, 1997. Revenue increased in the comparison period as
a result of a significant increase in the number of classes and class training
days offered. ARIS offered 7,572 classes and 20,135 training days during 1998 as
compared to 5,870 classes and 15,059 training days during 1997.
Software revenue increased $6,801,000 to $11,460,000 for 1998 from
$4,659,000 for 1997, representing an increase of 146%. The increase in revenue
is primarily attributable to sales of the NoetixViews suite of products by ARIS
Software.
Cost of Sales. Cost of sales increased $17,797,000 to $55,263,000 in 1998
from $37,466,000 in 1997, representing an increase of 48%. The increase in cost
of sales is
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primarily a reflection of the increase in sales and the activities associated
with such sales and restructuring costs included in 1998. Cost of sales as a
percentage of sales decreased from 49% for 1997 to 48% for 1998. Exclusive of
reorganization expenses, cost of sales were 47% of sales in 1998. The reduction
in cost of sales as a percentage of sales was caused by the relative increase in
the sale of software products that have a lower percentage of costs of sales
compared to the training and consulting operations. During 1998, consulting and
training cost of sales was $53,250,000 and 46% of total revenue compared
$36,635,000 and 48% of total revenue in 1997. Software cost of sales was
$1,710,000 in 1998, representing 1.5% of total revenue compared to $831,000 and
1.1% of total revenue in 1997.
Selling, General and Administrative Expense. Selling, general and
administrative expense increased $19,906,000 to $48,822,000 and 42% of sales for
1998 from $28,916,000 and 38% of sales for 1997, representing an increase of
69%. The increase in selling, general and administrative expense is primarily
the result of an increased number of management, sales and administrative staff
from 264 at December 31, 1997 to 369 at December 31, 1998 and increased focus on
recruiting and marketing.
Amortization of Intangible Assets. Amortization of intangibles increased
$251,000 to $631,000 during 1998, compared to $380,000 during 1997. Amortization
of intangibles primarily consists of the amortization of goodwill of acquired
companies where the transactions were accounted for under the purchase method of
accounting. The increase arises primarily as a result of goodwill being
amortized throughout 1998 for acquisitions completed in the fourth quarter of
1997.
Charges Related to Acquisitions. ARIS recorded acquisition related charges
totaling $5,655,000 during 1998, compared to $428,000 in 1997. For 1998, these
acquisition related charges include costs such as business brokerage, legal and
accounting fees as well as integration costs primarily associated with the
acquisitions of Barefoot Computer Training Limited and InTime Systems
International, Inc. which were accounted for as poolings of interest during
1998.
Restructuring and Other Expenses. As discussed above, in December 1998,
ARIS recorded a charge amounting to $2,944,000, of which $303,000 is included as
a component of cost of sales associated with restructuring of the training
operations and the settlement of a claim. ARIS believes that the non-recurring
costs expensed in 1998 should be sufficient to provide for the cost of
restructuring the training division. ARIS estimates that the restructuring will
result in annual cost savings of at least $2,000,000 in 1999.
Other Income, Net. Other income, net, increased $17,000 to $1,158,000
during 1998 from $1,141,000 in 1997. Other income, net, consists primarily of
interest income on cash and cash equivalents and partially from finance charges
on accounts receivable. In 1997 other income, net, included $280,000 from the
gain on sale of investments. During 1998 and 1997, average investments were
$14,360,000 and $14,944,000, respectively.
Income Tax Expense. Income tax expense decreased $1,049,000 to $2,640,000
in 1998 from $3,689,000 for 1997. As a percentage of revenue, income tax expense
decreased from 5% in 1997 to 2% in 1998. This decrease is a result of a decrease
in taxable income from $9,588,000 in 1997 to $4,040,000 in 1998. However, ARIS
is not allowed deductions from taxable income for certain acquisition charges
incurred during 1998. Such non-deductible charges have caused the taxable income
as a percentage of income subject to tax to increase from 38% in 1997 to 65% in
1998.
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Net Income. Net income decreased $4,499,000 to $1,400,000 (1% of revenue)
for 1998 from net income of $5,899,000 (8% of revenue) for 1997. The decrease is
primarily a result of reorganization charges incurred in connection with the
restructuring of the training division, and acquisition related charges. The
decrease in net income as a percentage of sales is primarily a result of lower
gross profit from the training division. Exclusive of acquisition and
reorganization expenses, net income would have been $7,702,000 or approximately
7% of revenue and $5,987,000 or approximately 8% of revenue for 1998 and 1997,
respectively.
1997 COMPARED TO 1996
Total Revenue. Total revenue increased $32,390,000 to $76,286,000 for 1997
from $43,896,000 for 1996, representing a 74% increase. Increases in revenue
were reflected in all three lines of business.
Consulting Revenue. Consulting revenue increased $15,226,000 to $42,731,000
for 1997 from $27,505,000 for 1996, representing a 55% increase. Consulting
revenue increased as a result of an overall increase in the level of consulting
activity.
Training Revenue. Training revenue increased $14,185,000 to $28,896,000 for
1997 from $14,711,000 for 1996, representing a 96% increase. A significant
portion of the increase in training revenue for 1997 is attributable to
businesses acquired subsequent to December 31, 1996. Revenue increased in the
comparison period as a result of a significant increase in the number of classes
and class training days offered. ARIS offered 5,870 classes and 15,059 training
days during 1997 as compared to 2,200 classes and 6,811 training days during
1996.
Software Revenue. Software revenue increased $2,979,000 to $4,659,000 for
1997 from $1,680,000 for 1996, representing an increase of 177%. The increase in
revenue is primarily attributable to sales of the NoetixViews suite of products
by ARIS Software.
Cost of Sales. Cost of sales increased $15,246,000 to $37,466,000 in 1997
from $22,220,000 in 1996, representing an increase of 69%. The increase in cost
of sales is primarily a reflection of the increase in sales and the activities
associated with such sales. Cost of sales as a percentage of sales decreased
from 51% for 1996 to 49% for 1997. The reduction in cost of sales as a
percentage of sales was caused by the relative increase in the sale of software
products. Software sales have a lower percentage of costs of sales compared to
training and consulting operations.
Selling, General and Administrative Expense. Selling, general and
administrative expense increased $12,296,000 to $28,917,000 for 1997 from
$16,621,000 for 1996, representing an increase of 74%. The increase in selling,
general and administrative expense is primarily the result of an increased
number of management, sales and administrative staff and the increased focus on
recruiting and marketing.
Amortization of Intangible Assets. Amortization of intangibles increased
$262,000 to $380,000 during 1997, compared to $118,000 during 1996. Amortization
of intangibles consists primarily of amortization of goodwill of acquired
companies and amortization of software development costs.
Research and Development Expenses. Software research and development
expenses decreased $468,000 from $1,117,000 in 1996 to $649,000 in 1997.
Software development costs were incurred in the development of the NoetixViews
suite of products and its
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TAMS and TAMS/O software products. Product development was substantially
completed during 1997 for these products.
Charges Related to Acquisitions. ARIS recorded acquisition-related charges
totaling $428,000 during 1997, compared to $347,000 in 1996. These
acquisition-related charges include costs such as business brokerage, legal and
accounting fees, as well as integration costs primarily associated with the
acquisitions of Oxford Computer Group Limited, Enterprise Computing, Inc.,
Agiliti, Inc. and Absolute!, Inc. during 1997, and SofTeach Corporation,
SQLSoft, Inc. and Noetix Corporation during 1996.
Other Income, Net. Other income, net, increased $945,000 from $196,000 for
1996 to $1,141,000 for 1997. Other income, net, consists primarily of investment
income, interest income on cash and cash equivalents and partially from finance
charges on accounts receivable. These are offset by interest expense associated
with short-term borrowings. The increase in other income, net, for 1997 is
primarily a result of interest and investment of proceeds from the initial
public offering in June 1997, as well as a gain on the sale of investments in
1997.
Income Tax Expense. Income tax expense increased $2,254,000 to $3,689,000
in 1997 from $1,435,000 for 1996. As a percentage of revenue, income tax expense
increased to 5% in 1997 from 3% in 1996 while the effective tax rate decreased
from 39% in 1996 to 38% in 1997.
Net Income. Net income increased $3,665,000 to $5,899,000 (8% of revenue)
for 1997 from net income of $2,234,000 (5% of revenue) for 1996, primarily as a
result of the increase in ARIS' sales, a reduction in cost of sales as a
percentage of sales and a reduction in cost of software development expenses as
a percentage of sales.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999 the Company had working capital of $29,365,000
including cash and cash equivalents and marketable debt securities of
$8,903,000. As of December 31, 1998, ARIS had working capital of $28,700,000
including cash and cash equivalents and marketable debt securities of
$11,738,000. ARIS intends to finance its working capital needs, as well as
purchases of additional property and equipment for its operations, from cash
generated by operations and available cash.
Net cash in the amount of $1,676,000 was provided by all activities in the
six months ended June 30, 1999. Operating activities provided cash in the amount
of $823,000. Investing activities provided $3,272,000 of cash, primarily from
the sale of marketable securities in the amount of $4,512,000, a portion of
which was used to purchase $1,240,000 of plant and equipment. Financing
activities used a total of $2,115,000 in the six months ended June 30, 1999.
ARIS paid $3,073,000 to purchase its own stock and received $926,000 from the
exercise of stock options.
Net cash in the amount of $969,000 was used by all activities in the six
months ended June 30, 1998. Operating activities used $512,000. Investing
activities used $917,000. Investing activities included the sale of marketable
securities for $11,094,000, and the use of cash for business acquisitions in the
amount of $2,498,000 and for purchase of property and equipment for $9,513,000
(including ARIS' headquarters office building located in Bellevue, WA).
Financing activities provided $671,000 in cash including $850,000 from the
exercise of options.
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At June 30, 1999, ARIS had accounts receivable of $27,388,000 and 84 days
sales outstanding. At June 30, 1998, accounts receivable were $21,850,000 and 68
days sales outstanding. The increase in days sales outstanding is attributable
to over-age accounts acquired in the Company's merger with InTime on June 30,
1998 as well as an increase in accounts receivable from government contracts
which typically pay more slowly than commercial accounts.
Net cash in the amount of $1,742,000 was used during 1998. Operating
activities used cash in the amount of $1,395,000, including an increase of
accounts receivable of $10,875,000 arising as a result of revenue growth of
$39,608,000 during the year. Investing activities included the net sales of
investments of $13,213,000, purchase of property and equipment amounting to
$11,700,000 and the purchases of businesses amounting to $3,650,000. Property
and equipment purchases include $5,220,000 for ARIS' headquarters building in
Bellevue, Washington.
During 1997, ARIS' cash increased in the amount of $5,076,000. Operating
activities provided $3,362,000 including the use of $4,712,000 for increase of
accounts receivable. The growth in accounts receivable was as a result of an
increase in revenue of $32,390,000 over the prior year. ARIS' primary financing
and investment activity during 1997 was the completion of its initial public
offering in June 1997, which provided cash proceeds of $31,200,000 net of costs
of the offering. In February 1997, ARIS used $4,027,000 cash to repurchase
415,000 shares of ARIS common stock. ARIS used $10,161,000 of the proceeds from
its initial public offering to repay its line of credit with US Bank, including
$8,575,000 which had been borrowed during 1997. As a result, financing
activities provided cash of $24,527,000 during 1997. Net investing activities in
1997 decreased cash by $22,813,000, including $1,726,000 used for acquisitions
and net increases of investments of $18,431,000.
ARIS has a $10 million line of credit with US Bank. 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 all requirements of the credit line. At June
30, 1999 and December 31, 1998 there were no borrowings against the credit line.
The credit line expires if not earlier renewed on June 1, 2000.
ARIS has financed its acquisitions of businesses through cash generated by
operating activities and its initial public offering, promissory notes and the
issuance of warrants and common stock. ARIS believes that it should be able to
satisfy the cash requirements of its existing business and the business of
fine.com from its existing cash resources, its bank credit facilities and cash
flow from operations as well as cash acquired in the merger with fine.com.
However, if results of operations after the merger are less favorable than ARIS
now anticipates or if unanticipated costs or expenses are incurred, ARIS may
require additional financing. ARIS also may encounter opportunities for
acquisitions of businesses or products, joint ventures or other business
initiatives that may require the commitment of cash in excess of ARIS' available
resources. If ARIS requires cash in addition to its available resources, ARIS
may have to obtain additional equity or debt financing. Financing may not be
available on a timely basis, on favorable terms or at all. If ARIS obtains
financing through the sale of equity securities, holders of ARIS common stock
may experience significant dilution. Failure to obtain financing if and when
needed could require ARIS to restrict its operations or forego available
opportunities.
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YEAR 2000 READINESS DISCLOSURE
The following disclosure shall be considered ARIS' Y2K Readiness Disclosure
to the maximum extent allowed under the Year 2000 Information and Readiness
Disclosure Act. ARIS has developed a phased Y2K readiness plan to help identify
and resolve Y2K issues associated with the its internal systems and the services
it provides. The plan includes development of corporate awareness, assessment,
implementation, validation testing and contingency planning.
Even if ARIS' systems are fully Y2K compliant, if any of its material
suppliers or vendors are not fully Y2K compliant, it is possible that a system
failure or miscalculations could cause disruptions to ARIS' operations or
potential problems with its product and service offerings. Although assessment
and testing is ongoing, ARIS believes that its software products, ARIS DFRAG,
TAMS, and the NoetixViews suite of products are Y2K compliant.
ARIS' consulting engagements often involve the implementation of software
applications that replace existing systems of the client that are not Y2K
compliant. In the event that ARIS is not able for any reason to meet its
contractual obligations with a client, ARIS could be found liable for damages as
a result of that client's Y2K exposure. Such damages could include costs
associated with remediating the client's existing systems to make them Y2K
compliant, and any other direct, indirect, consequential or incidental damages.
ARIS endeavors to negotiate appropriate limitations of liability and disclaimers
regarding its Y2K and other liability in its agreements with clients. Although
ARIS does not carry any endorsement or policy specifically written for Y2K
liability, ARIS believes that its insurance includes adequate coverage for
damages that may result from any Y2K-related claim. However, ARIS might be found
liable for Y2K-related damages as a result of services performed on behalf of
clients, and ARIS' insurers might deny coverage of liabilities based on
Y2K-related claims.
ARIS has begun an assessment of its information technology and
non-information technology systems, material client and other third party
relationships, and service and product offerings to determine whether ARIS faces
any business or financial risk from the Y2K issue. ARIS' reliance on key
suppliers, and therefore on the proper function of their information technology
and non-information technology systems, means that their failure to address Y2K
issues could have a material impact on ARIS' operations and financial results.
Through its assessment, ARIS has begun to identify areas where it faces any
business or financial risk, to identify potential solutions to address those
risks, and to implement the solutions or develop a comprehensive contingency
plan in a timely manner in an effort to minimize its Y2K exposure. In addition
to its internal systems, ARIS relies on third party relationships in the conduct
of its business. For example, ARIS relies on the services of the landlords of
its facilities, telecommunication companies, banks, utilities, and commercial
airlines. ARIS intends to devise contingency plans to ameliorate the negative
effects on it in the event the Y2K issue results in the unavailability of
services. Any contingency plans ARIS develops may not prevent service
interruption on the part of one or more of ARIS' third party vendors or
suppliers from having a material adverse effect on ARIS' business, results of
operations or financial condition. The failure on the part of the accounting
systems of ARIS' clients due to Y2K issues could result in a delay in the
payment of invoices issued by ARIS for services and expenses. A failure of the
accounting systems of a significant number of its clients would have a material
adverse effect on ARIS' business, results of operations and financial condition.
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ARIS has completed its risk assessment of its information technology
systems and expects to complete its assessment of ARIS' other Y2K business and
financial risks during the third quarter of 1999, including an assessment of the
Y2K exposure and readiness of material suppliers and vendors with whom ARIS does
business. ARIS has completed its upgrade to a Y2K compliant version of both its
proprietary internal accounting software and its proprietary time and billing,
class registration and operational software. If further tests of the information
technology and non-information technology systems, material third party
relationships, and service and product offerings reveal other Y2K compliance
problems, or any of ARIS' material third party suppliers or vendors do not
successfully and in a timely manner achieve Y2K compliance, ARIS' business or
operations could be adversely affected.
ARIS estimates that costs incurred through March 31, 1999 on the Y2K issue
are approximately $138,000, and that the remaining cost of its Y2K preparedness
program after July 30, 1999 should not exceed $75,000.
The foregoing discussion of ARIS' Y2K readiness contains forward-looking
statements including estimates of the timeframes and costs for addressing the
known Y2K issues confronting ARIS and is based on management's current
estimates, which were derived using numerous assumptions. There can be no
assurance that these estimates will be achieved and actual events and results
could differ materially from those anticipated. Specific factors that might
cause such material differences include, but are not limited to, ARIS' ability
to identify and correct all Y2K problems and the success of third parties with
whom ARIS does business in addressing their Y2K issues.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The primary market risks to ARIS is the effect of changes in foreign
currency exchange rates. Income from the foreign operations is frequently
denominated in foreign currencies, thereby creating exposures to changes in
exchange rates. This foreign currency exposure is monitored by ARIS as an
integral part of the overall risk management program, which recognizes the
unpredictability of financial markets and seeks to reduce the potentially
adverse effect on ARIS' results. The effect of changes in exchange rates on
earnings has been immaterial relative to other factors that also affect
earnings, such as sales and operating margins.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement establishes accounting and reporting
standards for derivative instruments for hedging activities. When effective,
ARIS expects that this statement will have no material impact on its financial
statements.
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INFORMATION ABOUT FINE.COM
BUSINESS
fine.com provides strategic consulting, technical development and graphic
design services and solutions to allow its clients to utilize Internet-based
interactive technologies. fine.com's Internet application development process
combines marketing expertise with state-of-the-art interactive database
compilation and dissemination techniques and technologies.
fine.com develops marketing-driven, interactive, database-oriented Internet
applications for business clients who seek to establish a commercial presence
on, or conduct commerce over, the Internet. Corporate clients for whom fine.com
has built and implemented such Internet, Extranet and Intranet sites include
Amway Corporation, Fuji Photo Film Co. Ltd., General Electric Company, Immunex
Corporation, Intel Corporation, Japan Airlines Company, Ltd., Marriott
International, Inc., Microsoft Corporation, Mitsui & Co., Ltd. of Japan, the
Nasdaq-Amex Stock Market, Optiva Corporation, Penford Corporation, Windermere
Services Company and WOWFactor.
fine.com is a Microsoft Solution Provider Partner (the highest attainable
service level currently offered by Microsoft) and it was the first Web
development company to achieve this designation. fine.com also believes it was
the first Web developer featured in a direct mail campaign conducted by
Microsoft. fine.com has developed several significant client relationships from
this association.
BUSINESS STRATEGY
fine.com specializes in producing complex, database driven and customer
relationship marketing-oriented Internet applications. fine.com believes that
such state-of-the-art Internet applications, as compared to traditional, one-way
broadcast media (such as television) or many first-generation Internet sites,
will become an essential means of conducting business for many commercial
organizations.
fine.com believes that a successful Internet presence requires the
effective utilization of database integration technologies or interactive
database marketing techniques. fine.com consults with each of its commercial
clients, first to establish specific database driven relationship marketing
strategies, and then to develop unique features designed to entice visitors to
provide information useful to the client regarding the visitor's identity,
interests and position in the customer lifecycle. Through such Internet
applications, fine.com's clients obtain information-rich databases for use in
the clients' overall sales and marketing efforts. fine.com's Internet
application developers, layout artists and graphic designers use third-party
software (primarily Microsoft and UNIX), third-party hardware and internally
developed and customized software to plan, develop and maintain Internet
applications for clients.
THE INTERNET AND THE WEB
The Internet is a worldwide electronic communications system,
interconnecting millions of personal computers and network servers. The
structure of the Internet allows for open communication between two or more
parties at a low cost. As a result, it is dramatically changing the way
businesses conduct commerce and people communicate.
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The Internet uses the standard of inter-networking protocol software TCP/IP
to transmit information. Using TCP/IP as a foundation, hardware and software
developers have continuously invented new products and functions to enhance the
end-user experience. The result is an expansion of applications for the
Internet, which is drawing more people and businesses to use it as their primary
commerce and communications tool. Introduced in 1992, the World Wide Web
operates on the Internet and connects servers using Hypertext Transfer Protocol.
This computer network makes it possible for users to see text and images instead
of computer code and for geographically dispersed users to simultaneously view
information stored at a single location.
fine.com believes that the Internet and the Web offer new and powerful
mediums for commercial organizations to communicate and conduct commerce with
their customers, vendors and internal associates. There are three primary types
of sites that are currently being developed: Internet, Extranet and Intranet.
Internet sites can be viewed by anyone on the Internet and may contain
informational pages or conduct e-commerce. Extranet sites are secured and
viewable only by selected individuals, through a password or personal
identification number. These sites are typically used as commerce and
communication tools between businesses and their suppliers or businesses and
their customers, if a membership is required. Intranet sites are also secured,
but are typically characterized as a communication tool between a business and
its internal associates. These sites are often used to provide the latest
company information, such as employee and benefit handbooks as well as operating
data. fine.com believes that each of these types of sites provide efficient and
low-cost alternatives to current publishing and broadcasting models.
WEB SITES
A Web site is a compilation of computer documents at a specific address or
Universal Resource Locator (URL). Each document within a Web site is called a
page. A Web site may be static and contain only a few pages or it may be dynamic
with hundreds of pages and constantly changing information. fine.com believes
that technological advances have increased the acceptance of the Internet,
including faster and more efficient personal computers and modems, the
introduction of easy-to-use Web browsers, the availability of informational,
entertainment and commercial software applications and improved security
features. As a result, many business and individual consumers are choosing to
use the Internet as a principal commerce and communications tool.
CLIENTS AND SERVICES
fine.com designs, develops and implements customized software applications
that allow its clients to gather and communicate business information through
the Internet. fine.com believes that an online presence should function as an
integrated piece of an organization's overall marketing, commerce and business
strategy. fine.com's services with respect to a particular client's interactive
Web site may fall within any combination of up to three major areas: Web site
planning, Web site development and Web site maintenance.
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Web Site Planning. fine.com's process of developing a Web site begins with
planning. Web site planning generally consists of high-level marketing and
business process consultation, called the Scope Analysis, and detailed
specifications of a site's feature set and functionality, called the Blueprint.
- Scope Analysis. The Scope Analysis is the first step in the Planning
Phase and an integral part of the overall development process. In the
Scope Analysis, fine.com documents the client's business case; outlines
goals, objectives and priorities; identifies the development team; agrees
upon roles within the team; and presents an initial architectural plan.
An essential component of the Scope Analysis is the review or creation of
the client's strategic plan for its online endeavor. fine.com engages in
two principal forms of strategic consultation.
- Internet Marketing Consultation. fine.com believes that one of its
strengths is its knowledge and use of online marketing principles. Web
sites created by fine.com are designed with the idea that the end
product should be an integrated part of the client's overall marketing
plan. fine.com believes that its use of marketing principles during
development differentiates fine.com from its competitors.
- Intranet Business Process Consultation. fine.com also applies many of
the marketing principles used in designing an Internet Web site are
applied in designing Intranet Web sites for its clients. Using online
marketing principles, fine.com and the client identify the target
audience and match applicable information with the appropriate
recipient. In addition, fine.com consults with its clients as to
utilization of the Internet for extensions of the client's internal
information systems and enterprise applications to geographically
dispersed facilities, remote offices and mobile employees. fine.com
seeks to design Web sites in a manner that will enable its clients to
achieve operational efficiencies and cost reductions.
- Blueprint. The technical plan, or Blueprint, prepared by fine.com for
each client describes in detail the Web site objectives, design strategy
and tactics, reporting requirements, technical specifications, review and
testing processes, program management and communication protocols, site
promotion, future site enhancements and project timeline. In particular,
fine.com focuses its resources to design Web sites that will provide
measurements of actual performance relative to each client's desired
measurable results.
Web Site Development. fine.com's process of developing interactive Web
sites combines six elements: graphic design; multimedia production; custom
programming; database development; legacy systems integration; and quality
assurance.
- Graphic Design. The visual nature of the Web allows fine.com to produce
for its clients a Web site that communicates with the site visitor using
both text and graphic design. fine.com employs personnel skilled in
presenting text which is consistent with the client's overall marketing
strategy and in providing sophisticated art direction that is visually
stimulating and capable of capturing the target audience's attention.
- Multimedia Production. fine.com develops Web sites utilizing still
photographs, full motion video, dynamically generated charts and graphs
and animation. Any or all of these features may be used to appeal to a
client's target audience on a Web site.
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Although these features are used routinely for marketing to parties
external to the client, such features may also be used as part of a
client's internal communications strategy.
- Custom Programming. Developing Web sites that permit real-time,
one-to-one interaction with site visitors requires specialized computer
programming beyond simple HTML development skills. To address these
programming needs, fine.com employs a team of highly trained developers
and information designers with specific expertise in developing
customized Internet applications, creating and testing the usability of
Internet applications and providing information design evaluation and
implementation services. In addition to HTML development skills, fine.com
personnel have expertise in and regularly use such tools and technologies
as Microsoft Visual Basic programming language, Microsoft Visual Basic
Scripting Edition, Microsoft Internet Information Server Active Server
Pages, Microsoft Component Object Model (COM) Middleware platform, W3C
Document Object Model (DOM) client scripting platform, Microsoft Visual
J++, Microsoft Visual C++, Microsoft FrontPage, Microsoft Visual
SourceSafe, Microsoft Visual InterDev, Microsoft Certificate Server,
Allaire ColdFusion, JavaScript, VBScript, ActiveX components, Secure
Sockets Layer (SSL) encryption, Virtual Private Networks (VPNs), Sun's
Java programming language, UNIX, PERL and CGI Scripting.
- Database Development. Sophisticated Internet application development
requires the collection and manipulation of online database information.
To meet this need, fine.com employs highly skilled personnel with
specific expertise in analyzing business information needs, creating
complex data models, mining databases for information that support
business objectives and implementing complex relational database designs
using the Microsoft SQL Server Database Product. These database systems
are designed to function in conjunction with other server products
including Microsoft Internet Information Server integrated with Microsoft
Windows NT, Apache Web Server on Linux and Solaris, Microsoft Exchange
Server, Microsoft Transaction Server, Microsoft Site Server, Enterprise
Edition (including Microsoft Commerce Server and the Microsoft
Personalization Server) and UNIX.
- Legacy Systems Integration. A key component of a Web site is its ability
to be integrated into a client's internal legacy information systems,
both as those systems exist currently and as they change over time.
fine.com employs technical personnel with expertise in analyzing and
documenting clients' existing internal systems, defining and developing
data feeds as both output from, and input to, legacy systems and creating
Web site designs that are versatile enough to facilitate a changing
information landscape.
- Quality Assurance. Large and complicated Internet applications require a
significant effort to test. To this end, fine.com employs highly skilled
test and quality assurance personnel to develop test plans; perform
integration, systems and performance testing; and document system defects
in internally developed test management systems.
Web Site Maintenance. Maintaining and updating a Web site helps protect a
client's investment in its site. Such maintenance may include supporting,
augmenting and enhancing the information collection and analysis efforts
provided for in the Web site's Blueprint. In some cases, certain maintenance
activities may be performed directly by the
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client due to features designed and implemented by fine.com when creating the
Web site. Pursuant to written agreements with clients in addition to the
original Web site development agreement, fine.com will frequently provide
ongoing marketing and business process consultation, Web site content updates,
refreshment of graphic and multimedia content and database management.
- Content Updates and Graphic Refreshes. Both content updates and graphic
refreshment are driven by the interactive nature of a Web site. As an
interactive medium a Web site provides a virtually instantaneous gauge of
its communications effectiveness. This feedback allows the client to
continuously modify the form and content of a Web site message to improve
its effectiveness.
- Database Management. Databases experiencing large volumes of original
input normally require periodic maintenance to ensure the integrity and
usefulness of the data. fine.com performs maintenance functions for some
of its clients.
COMPETITION
The Internet-related interactive marketing industry is highly competitive.
fine.com expects competition for its services to continue to increase. Due to
the rapidly evolving nature of the Internet, competition also is characterized
by pressures to adopt and utilize new capabilities and technologies to respond
rapidly to evolving client requirements.
fine.com faces competition from a number of competitors, some or all of
which may provide Internet application development or Web site planning,
creation or maintenance services. Direct competitors include:
- prospective clients that perform Internet or Web site development
services in-house;
- Web site service firms, such as K2 Design Inc., iXL Corporation, Free
Range Media, Razorfish Inc., Red Sky Interactive, Inc., and USWeb/CKS
Corp.;
- Internet-oriented advertising agencies such as The Leap Group and THINK
New Ideas, Inc.; and
- established online service companies, advertising agencies, direct
Internet access providers as well as specialized and integrated marketing
communication firms, all of which are entering the Web site planning,
creation, or maintenance markets in varying degrees and are competing
with fine.com, and many of which have announced plans to offer expanded
Web site planning, development and/or maintenance services.
Many of fine.com's competitors or potential competitors have longer
operating histories, longer customer relationships and significantly greater
financial, management, technological, development, sales, marketing and other
resources than fine.com does. fine.com also competes on the basis of creative
and technical talent, price, customer service and responsiveness. There can be
no assurance that fine.com will be able to compete effectively and its inability
to do so would have a material adverse impact on fine.com.
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EMPLOYEES
As of July 30, 1999, fine.com had 52 full-time employees. fine.com has no
labor contracts or collective bargaining agreements. fine.com considers its
relations with its employees to be good.
PROPERTIES
fine.com's headquarters currently occupy approximately 15,650 square feet
of an office building at 1525 Fourth Avenue, Seattle, Washington at a monthly
rent of approximately $22,105. Such payments include the allocable share of
certain real property taxes and building operating expenses. The remaining lease
term expires on April 30, 2005. fine.com leases approximately 7,100 square feet
of office space in Livingston, New Jersey for its NorthEast operations. The
Livingston lease has an expiration of March 2002 and has a monthly rent expense
of approximately $11,538.
fine.com continues to lease approximately 8,000 square feet at its prior
headquarters at 1118 Post Avenue, Seattle, Washington at a monthly rent of
approximately $8,608. The remaining lease term expires in April 2001; however
fine.com has sublet all of this space to a third party for the remainder of the
term of the lease. In addition, following fine.com's acquisition of Pacific
Analysis and Computing Corporation in February 1998, fine.com assumed Pacific
Analysis' office lease for approximately 3,355 square feet in Bellevue,
Washington at a monthly rent of approximately $5,462. The term of such lease
expires on October 31, 2002. fine.com has sublet all of this office space to a
third party for the remainder of the term of the lease. Sublease income from the
above two leases approximates $13,500 per month.
LEGAL PROCEEDINGS
fine.com filed a collection action on June 22, 1999 against Cinema
Enterprises Group, LLC in the Superior Court of Washington for King County
alleging breach of a website development contract and resulting damages of
approximately $75,000 plus fine.com's costs and attorney fees. Cinema
Enterprises Group filed its answer and counterclaims on July 21, 1999, alleging
breach of contract and misrepresentation and claims that it has incurred actual
and consequential damages of nearly $311,000. fine.com believes that it
fulfilled all obligations to Cinema Enterprises Group under the website
development contract and that Cinema Enterprises Group's counterclaims are
without merit. fine.com intends to vigorously pursue this matter.
FINE.COM SELECTED FINANCIAL DATA
fine.com provides the following financial information to help you in your
analysis of the financial aspects of the merger. You should read the following
financial information in conjunction with the Consolidated Financial Statements
of fine.com and related notes and fine.com's Management's Discussion and
Analysis of Financial Condition and Results of Operations included in this proxy
statement/prospectus. The information as of April 30, 1998 and 1999 and for the
three-month periods ended April 30, 1998 and 1999 is unaudited and reflects all
adjustments that are, in the opinion of fine.com management, necessary for a
fair statement of the results, as of the dates and for the periods presented and
is not necessarily indicative of the operating results for the entire year.
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The following financial information reflects the merger in July 1998 with
Meta4 Digital Design, Inc., which was accounted for as a pooling of interests.
In addition, fine.com acquired another company in February 1998 which was
accounted for under the purchase method of accounting. More information about
fine.com's business combinations can be found in Note 2 to fine.com's
consolidated financial statements. See page F-40.
In the third and fourth quarters of fiscal 1999, fine.com implemented an
operational realignment and incurred expenses of an aggregate of $986,000
including employee severance, increases to accounts receivable reserves,
write-offs of assets and work-in-process and closure costs of the London (U.K.)
office.
<TABLE>
<CAPTION>
FINE.COM
(IN THOUSANDS EXCEPT PER SHARE DATA)
----------------------------------------------------
YEAR ENDED JANUARY 31, QUARTER ENDED APRIL 30,
---------------------- --------------------------
1998 1999 1998 1999
--------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
HISTORICAL STATEMENT OF
OPERATIONS DATA:
Revenues...................... $6,023 $6,133 $1,332 $1,875
Income (loss) from
operations................. (122) (3,807) (583) 16
Net income (loss)............. (55) (3,566) (368) 16
Basic and diluted earnings
(loss) per share........... (0.03) (1.34) (0.14) 0.01
Shares used in basic earnings
(loss) per share
calculation................ 1,922 2,668 2,665 2,687
Shares used in diluted
earnings (loss) per share
calculation................ 1,922 2,668 2,665 2,693
</TABLE>
<TABLE>
<CAPTION>
AS OF JANUARY 31, AS OF APRIL 30,
------------------ --------------------------
1998 1999 1998 1999
------- ------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
HISTORICAL BALANCE SHEET DATA:
Total assets............. $7,965 $5,070 $7,648 $3,702
Shareholders' equity............. 6,565 3,123 6,298 3,178
</TABLE>
FINE.COM'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
fine.com develops marketing-driven, interactive, database-oriented Internet
applications for major national and international corporate clients who seek to
establish a commercial presence on, or conduct commerce over, the Internet
fine.com's Internet application development process combines marketing expertise
with state-of-the-art interactive database compilation and dissemination
techniques and technologies.
fine.com generates the majority of its revenues from fees associated with
the planning and development of commercial Web sites for clients. These fees are
generally earned pursuant to fixed-fee, time and materials or cost reimbursement
contracts (with terms typically ranging from two to seven months). Revenues
generated from these contracts are recognized under the percentage-of-completion
method (based on the ratio of costs incurred to total estimated project costs).
All other revenue is recorded on the basis of performance of services. fine.com
assumes greater financial risk on fixed-fee contracts than
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on either time and material or cost-reimbursable contracts. The failure to
anticipate technical problems, estimate costs accurately or control costs during
performance of a fixed-fee contract may reduce the profit or cause a loss on a
particular project.
fine.com's Web site development process utilizes marketing expertise and
state-of-the-art interactive database compilation and dissemination techniques
and technologies. Through the planning, development and maintenance of
interactive Web presentations, fine.com enhances clients' marketing campaigns
and foster the collection of demographic data that is utilized by clients.
Through fiscal year 1998, fine.com conducted all of its operations from the
corporate headquarters in Seattle, Washington. In fiscal 1999, fine.com began a
process of opening domestic and international offices, for the purposes of both
better serving existing clients as well as expanding the business in new
markets. During the 1999 fiscal year, fine.com opened and subsequently closed
regional offices in Santa Monica, California and London, England, due to their
inability to generate expected levels of revenues and earnings. In connection
with the closure of these offices, fine.com recorded closure costs and operating
losses in fiscal 1999 of approximately $755,000.
On July 31, 1998, fine.com acquired Meta4, a company that provides
Internet-based business solutions in the Northeast. fine.com has maintained
operations at the Meta4 offices in New Jersey. Major clients serviced through
the New Jersey office include General Electric Company, Fuji Photo Film U.S.A.,
Inc., and WOWFactor. The Meta4 acquisition better enabled fine.com to provide
service to the New York and New Jersey areas, provide expertise in UNIX to
complement the historical Microsoft NT expertise and provide additional
resources to execute large operating system projects. The merger was treated for
accounting purposes as a pooling-of-interests.
As of July 30, 1999, fine.com had regional offices located in Livingston,
New Jersey. In July 1999, fine.com closed its Bethesda, Maryland office and
consolidated operations with its New Jersey office. fine.com operates most of
its business and derives most of its revenue from the corporate headquarters in
Seattle, Washington.
In November 1998, fine.com began implementation of an operational
realignment focused on strategically growing sales, increasing its internal
productivity, decreasing its overhead cost structure, analyzing existing
contracts and examining the receivable and asset base. As a result, fine.com has
sales initiatives on the high-end, interactive Web development market to
leverage the skills and scale of the Internet development teams. fine.com has
taken steps to improve internal productivity and staff utilization levels and
implemented a revised organizational structure.
In connection with the realignment, fine.com recorded certain charges to
earnings in the third and fourth quarters of fiscal 1999 of approximately
$628,000 and $358,000, respectively, consisting primarily of:
- severance payments and salary adjustments of $120,000;
- an increase of $220,000 to the accounts receivable reserves for accounts
considered by management to be uncollectable or unrealizable;
- write-offs in the amount of $308,000 for certain assets and
work-in-progress considered by management to be uncollectable or
unbillable; and
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- $338,000 attributable to incremental office overhead and closure costs of
the London office.
All amounts related to this operational realignment have been incurred and
paid as of April 30, 1999.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED APRIL 30, 1999 AND 1998
Gross Revenue. Consolidated gross revenue for the three months ended April
30, 1999 and 1998 was $1,875,000 and $1,332,000 respectively. During each of
these three-month periods, substantially all of fine.com's revenue was generated
by its Web site planning and development services. The 41% increase in the first
quarter of fiscal 2000 revenue over revenue for the same period in fiscal 1999
is attributable to the addition of new clients, an increase in service billing
rates and higher staff utilization levels.
Direct Salaries and Costs. Direct salaries and costs include all internal
labor costs and other direct costs related to project performance, such as
project specific independent contractor fees, supplies and specific
project-related expenditures. fine.com's consolidated direct salaries and costs
were $855,000 and $952,000 for the three months ended April 30, 1999 and 1998
respectively, representing a 10% decrease from the prior period. Gross operating
margins were 54% for the three months ended April 30, 1999, as compared to 28%
for the prior period. The lower levels of direct salaries and costs and higher
gross operating margins are attributable to higher utilization and productivity
levels and a decreased reliance on higher cost contract labor.
Selling, General and Administrative Expenses. Consolidated selling, general
and administrative expenses were $1,004,000 and $962,000 for the three months
ended April 30, 1999 and 1998, respectively, representing a 4% increase. In each
period, these expenses primarily consisted of sales and administrative salaries,
professional fees, occupancy costs, telephone and related Internet connectivity
fees, computer network costs, office expenses and supplies, marketing,
advertising and new business development costs. As a percentage of gross
revenues, selling, general and administrative expenses were 54% for the three
months ended April 30, 1999, as compared to 72% for the same period in fiscal
year 1999. The decrease in expenses as a percentage of gross revenues is
primarily due to the cost containment initiatives implemented as part of
fine.com's operational restructuring announced in the third quarter of fiscal
year 1999.
Taxes. During the first quarter of fiscal 1999, fine.com recorded a tax
benefit of $120,000, which represented the tax benefit associated with the
carryback of operating losses to previous years. At January 31, 1999, fine.com
had provided a full valuation allowance against its deferred tax assets, which
primarily related to $3,856,000 of net operating loss carryforwards. No tax
expense was recorded during the first quarter of fiscal 2000 due to the tax
effects of the utilization of the above mentioned net operating loss
carryforwards.
Net Income. fine.com recognized net income for the first quarter of fiscal
2000 of $16,000 compared to a net loss of $368,000 for the same period in fiscal
1999.
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RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED JANUARY 31, 1999 AND 1998
Gross Revenue. Consolidated gross revenue for the fiscal year ended January
31, 1999 and 1998 was $6,133,000 and $6,023,000, respectively. The 2% increase
was due to a slight increase in the complexity of the projects undertaken.
Direct Salaries and Costs. Direct salaries and costs include all internal
labor costs and other direct costs related to project performance, such as
project specific independent contractor fees, supplies and specific
project-related expenditures. fine.com's consolidated direct salaries and costs
were $4,164,000 and $3,902,000 for the fiscal year ended January 31, 1999 and
1998, respectively, representing a 7% increase from the prior period. As a
percentage of gross revenues, direct salaries and costs were 68% for the fiscal
year ended January 31, 1999, as compared to 65% for the prior period. This
increase in direct salaries and costs to fiscal 1999 from fiscal 1998 consisted
primarily of an increase in amounts paid as direct salaries, payroll taxes and
benefits to $3,638,000 from $2,272,000 for the fiscal years ended January 31,
1999 and 1998, respectively, due to an increase in the number of employees and
new offices opened by fine.com during fiscal 1999. In addition, direct salaries
and costs included costs paid to independent contractors of $120,000 and
$890,000 respectively for fiscal year 1999 and 1998. This 87% decrease reflects
reduced dependence on outside contractors as internal staffing resources
increased in fiscal year 1999.
Selling General and Administrative Expenses. Consolidated selling, general
and administrative expenses were $5,776,000 and $2,243,000 for the fiscal year
ended January 31, 1999 and 1998, respectively. These expenses consisted of sales
and administrative salaries, office rent and related occupancy costs, marketing
and new business development costs, depreciation of fixed assets, professional
fees, telephone and related Internet connectivity fees, computer network costs,
office expenses and supplies. The amounts for the fiscal year ended January 31,
1999, include (a) $450,000 of merger and acquisition costs associated with the
acquisition of Meta4 on July 31, 1998, (b) additional charges of approximately
$648,000 incurred in the third and fourth quarters of fiscal 1999 relating to an
operational realignment which included severance payments, an increase to the
accounts receivable reserve and write-offs of certain assets and uncollectable
or unbillable work-in-progress and (c) charges of approximately $338,000
incurred in fiscal 1999 in connection with the incremental office overhead and
closure costs of the London office. As a percentage of gross revenues, the
selling, general and administrative expenses increased from 37% to 94% from
fiscal 1998 to fiscal 1999. The increase in selling, general and administrative
expenses was primarily a result of the charges in connection with the
operational realignment and office closures. fine.com believes that the
operational realignment and office closures should result in lower levels of
selling, general and administrative costs in future periods. The increase in
expense in fiscal 1999 from 1998 was also attributable to increased sales and
administrative salaries, marketing and new business development costs,
depreciation of fixed assets, professional fees and office rent and related
occupancy costs.
Taxes. During fiscal 1999, fine.com recorded a tax benefit of $102,000,
which represented the tax benefit associated with the carryback of the operating
losses to previous years. No future income tax benefit has been recorded for
remaining deferred tax assets due to the uncertainties of realization of these
net operating loss carryforwards.
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Net Loss. fine.com recognized a consolidated net loss of $3,566,000 for the
fiscal year ended January 31, 1999 as compared to a net loss of $55,000 for the
same period in fiscal 1998. The decrease in profitability is due to the factors
discussed above.
LIQUIDITY AND CAPITAL RESOURCES
Historically, fine.com has funded its capital requirements through
earnings, borrowings from affiliates and commercial lenders and equity financing
and private placements of its capital stock. fine.com had cash and cash
equivalents of $705,000 and $1,521,000 at April 30, 1999 and January 31, 1999,
respectively.
fine.com's working capital increased $96,000, from $1,684,000 at January
31, 1999 to $1,780,000 at April 30, 1999. From January 31, 1998 to January 31,
1999, fine.com's working capital decreased $1,625,000, from $3,309,000 to
$1,684,000. Operating activities for the three months ended April 30, 1999
required net cash in the amount of $232,000, primarily due to decreases in
billings in excess of costs and profits and accounts payable and increases in
costs and profits in excess of billings. Accounts receivable decreased $735,000,
from $1,953,000 at January 31, 1999 to $1,218,000 at April 30, 1999. Through
June 1, 1999, fine.com has collected approximately $500,000 of the April 30,
1999 accounts receivable balance. Operating activities for the fiscal year ended
January 31, 1999 required net cash in the amount of $3,430,000, primarily due to
the net loss incurred and increases in accounts receivable. Accounts receivable
increased $856,000, from $1,097,000 at January 31, 1998 to $1,953,000 at January
31, 1999.
The purchase of equipment and furniture required cash in the amount of
$52,000 during the three months ended April 30, 1999. These expenditures were
made primarily for computer hardware and software, furniture, fixtures and
leasehold improvements necessary to accommodate the day-to-day business of
fine.com. Net cash provided by investing activities of $2,962,000 during the
fiscal year ended January 31, 1999 was primarily due to the proceeds from the
sale of $3,948,000 of marketable securities offset by the purchase of certain
equipment and furniture, requiring cash expenditures in the amount of
$1,037,000. These equipment purchases were primarily for computer hardware and
software, furniture, fixtures and leasehold improvements to accommodate an
increase in the number of fine.com personnel.
Net cash used in financing activities during the quarter ended April 30,
1999 was $532,000, mainly due to the repayment of borrowings outstanding at
January 31, 1999 under fine.com's line of credit. For the fiscal year ended
January 31, 1999, net cash provided from financing activities was $417,000,
which was primarily due to a short-term borrowing of $500,000 from fine.com's
line of credit.
fine.com has a revolving line of credit with a commercial bank for
$750,000, which expires on September 1, 1999, and is secured by all accounts
receivable and such other property and assets of fine.com as the bank may
require. Amounts outstanding under the revolving line of credit bear interest at
the bank's prime interest rate plus 0.25% (an effective rate of 8% at April 30,
1999). At July 30 1999, no amounts were outstanding under the revolving line of
credit. The revolving line of credit contains modified financial covenants and
restrictions including a restriction on the payment of dividends. fine.com met
all revolving line of credit covenants at April 30, 1999.
fine.com believes that its cash and cash equivalents will be sufficient to
fund its operations through the current fiscal year. fine.com believes that it
has taken appropriate
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action to realign and strengthen fine.com's operations, including a plan to
strategically grow sales, increase internal productivity and decrease its
overhead cost structure. However, there can be no assurance that fine.com will
be able to achieve profitable operations. Further development and establishment
of fine.com's business may require additional financing. fine.com believes that
additional financing could be obtained from various sources, including certain
existing shareholders and other investors and financial institutions not yet
identified. In the event that additional financing is delayed or not able to be
obtained on satisfactory terms, if at all, fine.com may need to reduce its
expenditures. There can be no assurance that additional capital on a debt or
equity basis will be obtained, or if obtained that it will be on economically
viable terms.
SEASONALITY AND INFLATION
fine.com does not believe that inflation or seasonality has had a
significant effect on its operations to date.
YEAR 2000 READINESS DISCLOSURE
The Y2K issue could result in system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in similar ordinary business
activities. The Y2K problem is not limited to information technology systems,
but may also impact embedded systems, such as those that control elevators,
alarm systems and many other devices.
fine.com has examined all of its internal systems, both hardware and
software, that constitute core components of operations, including both computer
systems and elements of the office environment. fine.com believes that its
internal hardware and software systems will function properly with respect to
dates in the year 2000 and thereafter. However, fine.com cannot be sure that
these systems will process these dates correctly until the systems are
operational in the year 2000. In the judgement of management, the exposure from
internal systems is minimal, the cost of recovery will be insignificant, and
fine.com's business will not be materially adversely impacted.
As a general matter, fine.com builds its software on third-party products,
such as Microsoft's Windows NT and UNIX, which have been represented as Y2K
compliant. Despite testing and other assurances, if any, fine.com may receive
from third-party providers of software or technology incorporated into its
products, the products may contain undetected errors or defects associated with
year 2000 date functions, which may result in material costs to fine.com.
fine.com does not specifically warrant to clients that its work will be Y2K
compliant, although certain clients have requested and received such warranties.
In those cases, fine.com does not warrant the compliance of third-party
software; rather, fine.com warrants only that software created by fine.com will
be Y2K compliant. fine.com generally provides clients with a limited 90-day
warranty on its services and products, and believes that many clients provide
further updates or additions to their Web sites after delivery by fine.com.
fine.com cannot assess the Y2K compliance of any of these additions. However,
even absent a specific Y2K warranty or other warranty, there is a risk that
clients for whom fine.com has created or implemented software will attempt to
hold fine.com liable for any damages that result in connection with Y2K
problems. fine.com is also examining Y2K issues as they relate to third-party
vendors, suppliers and service providers with which it has a material
relationship. In the judgement of management, internally used third-party tools,
such as operating systems, databases and
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other design and development applications, are materially Y2K compliant.
Management believes that any failures of these systems would have negligible
impact on operations.
Historical and estimated future costs of Y2K remediation are not
significant. fine.com is in the process of establishing a contingency plan and
expects it to be in place prior to December 31, 1999.
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COMPARISON OF RIGHTS OF HOLDERS OF ARIS COMMON STOCK AND HOLDERS OF FINE.COM
COMMON STOCK
After consummation of the merger, the holders of fine.com common stock who
receive ARIS common stock under the terms of the merger agreement will become
shareholders of ARIS. Because fine.com and ARIS are both Washington
corporations, fine.com shareholders' rights will continue to be governed by
Washington law. Prior to the merger, the rights of shareholders of fine.com are
governed by the fine.com amended and restated articles of incorporation and the
fine.com bylaws. As shareholders of ARIS, their rights following the
consummation of the merger will be governed by the ARIS amended and restated
articles of incorporation and the ARIS bylaws. The following discussion
summarizes only the material differences between the rights of holders of ARIS
common stock and holders of fine.com common stock under the articles of
incorporation and bylaws of ARIS and fine.com. This summary does not purport to
be complete and is qualified in its entirety by reference to the ARIS articles
of incorporation and bylaws, the fine.com articles of incorporation and bylaws
and the relevant provisions of Washington law.
COMPARISON OF PREFERENCES AND RIGHTS OF ARIS COMMON STOCK AND FINE.COM COMMON
STOCK
The holders of ARIS common stock are entitled to receive dividends out of
assets legally available at such times and in such amounts as the ARIS board may
from time to time determine, subject to preferences that may apply to shares of
preferred stock outstanding at the time. There are no shares of ARIS preferred
stock outstanding. Each ARIS shareholder is entitled to one vote for each share
of common stock held on all matters submitted to a vote of shareholders.
Cumulative voting for the election of directors is not permitted by the ARIS
articles of incorporation, which means that the holders of a majority of the
shares voted can elect all of the directors then standing for election. The ARIS
common stock is not entitled to preemptive rights and is not subject to
conversion or redemption. Upon the liquidation, dissolution or winding-up of
ARIS, the assets legally available for distribution to shareholders would be
distributed ratably among the holders of fine.com common stock outstanding at
that time after payment of claims of creditors.
The holders of fine.com common stock are entitled to receive dividends out
of assets legally available at such times and in such amounts as the fine.com
board may from time to time determine. Each fine.com shareholder is entitled to
one vote for each share of common stock held on all matters submitted to a vote
of shareholders. Cumulative voting for the election of directors is not
permitted by the fine.com articles of incorporation, which means that the
holders of a majority of the shares voted can elect all of the directors then
standing for election. The fine.com common stock is not entitled to preemptive
rights and is not subject to conversion or redemption. Upon the liquidation,
dissolution or winding-up of fine.com, the assets legally available for
distribution to shareholders would be distributed ratably among the holders of
fine.com common stock outstanding at that time after payment of claims of
creditors.
UNDESIGNATED PREFERRED STOCK
Under the ARIS articles of incorporation, the ARIS board of directors,
subject to limitations prescribed by law and the ARIS articles of incorporation,
is authorized to provide for the issuance of ARIS undesignated preferred stock
in one or more series. The authorized undesignated preferred stock is available
for issuance without further action by ARIS
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shareholders, unless this action is required by applicable law or the rules of
any stock exchange or automated quotation system on which ARIS securities may be
listed or traded.
The fine.com articles of incorporation do not authorize any preferred
stock.
ELECTION AND NUMBER OF DIRECTORS; FILLING VACANCIES; REMOVAL
The ARIS articles of incorporation provide that the board of directors
shall be divided into three classes as nearly equal in number as possible.
Directors serve for three-year staggered terms, with the terms of one of the
three classes of directors expiring at each annual meeting of shareholders. The
ARIS bylaws provide for a board of directors consisting of seven persons, but
permit the board of directors or shareholders to change the number of directors.
The size of the ARIS board of directors is currently five persons. The fine.com
bylaws provide that the number of directors shall be two but permit the board of
directors or shareholders to change the number of directors. The size of the
fine.com board of directors is currently four persons.
The ARIS bylaws provide that the entire board of directors, or any member
of the board, may be removed, at a special meeting called expressly for that
purpose by the holders of at least two-thirds ( 2/3) of shares then present and
entitled to vote at an election of directors. Any vacancies, including newly
created directorships, may be filled by the affirmative vote of a majority of
the remaining directors. The fine.com bylaws contain comparable provisions,
except that directors may be removed by a vote of the holders entitled to vote
at an election of such directors and that vacancies may also be filled by the
shareholders.
POWER TO CALL SPECIAL MEETING OF SHAREHOLDERS
The ARIS bylaws and the fine.com bylaws each provide that a special meeting
of shareholders may be called at any time by the holders of ten percent (10%) of
the voting shares, by the president or by the board of directors.
DIRECTORS' COMMITTEES
Under the ARIS bylaws, ARIS' board may, by resolution passed by a majority
of the whole board, delegate limited powers normally held only by the board in
its entirety to a committee comprised of two or more members of the board. These
committees may exercise any power normally held by the entire board subject to
limitations imposed by the Washington Business Corporation Act.
SHAREHOLDER RIGHTS PLAN
Neither ARIS nor fine.com has a shareholder rights plan in place.
PERCENTAGE OF VOTING STOCK; INFLUENCE OVER AFFAIRS
Upon completion of the merger, the percentage ownership by each former
fine.com shareholder will be substantially less than the shareholder's current
percentage ownership of fine.com. Accordingly, former fine.com shareholders will
have a significantly smaller voting influence over the affairs of ARIS than they
currently enjoy over the affairs of fine.com.
129
<PAGE> 136
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 following
summary description of ARIS' capital stock is qualified in its entirety by
reference to the ARIS articles of incorporation and the ARIS bylaws, copies of
which are exhibits to the registration statement of which this proxy
statement/prospectus forms a part.
COMMON STOCK
As of July 30, 1999, there were 11,076,815 of ARIS common stock
outstanding, held of record by 132 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 common stock are entitled to share ratably in
all assets remaining after payment of liabilities and the liquidation preference
of any outstanding preferred stock. Holders of common stock have no preemptive,
subscription, redemption or conversion rights. All outstanding shares of common
stock are, and all shares of common stock to be outstanding upon completion of
the merger will be, fully paid and nonassessable.
PREFERRED STOCK
Pursuant to the ARIS articles of incorporation, ARIS' board of directors
has the authority, without further action by the shareholders, to issue up to
5,000,000 shares of 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 preferred stock which may be redeemed, purchased or
acquired by ARIS may be reissued except as otherwise provided by law. The
issuance of preferred stock in certain circumstances may delay, deter or prevent
a change in control of the company, may discourage bids for 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, ARIS common stock. ARIS
currently has no plans to issue any preferred stock.
WARRANTS
In connection with the acquisition of Enterprise Computing, Inc. in
November 1997, ARIS issued warrants to purchase 20,844 shares of ARIS common
stock with an exercise price of $23.988 per share. Additionally, in February
1997, ARIS issued a warrant to purchase 4,000 shares of ARIS common stock at an
exercise price of $10 per share.
ARIS has warrants listed on the Nasdaq National Market (symbol "ARSCW").
The warrants were issued as consideration to the former holders of warrants of
InTime Systems International, Inc. in connection with the InTime merger. The
warrants commenced trading on the Nasdaq National Market on July 16, 1998. Each
of these warrants entitle the holder to purchase one share of ARIS common stock
at an exercise price of $22.98. The warrants expire on February 15, 2000. ARIS
may redeem the warrants on 30 days notice for $0.16 per share if the average
last reported sales price for the common stock
130
<PAGE> 137
equals or exceeds $32.17 per share for 30 consecutive business days. The number
of warrants listed for quotation on the Nasdaq National Market at July 30, 1999
was 718,997 and were held by 12 holders of record.
High and low prices for ARIS warrants to purchase ARIS common stock for
each quarter in 1998 and the first and second quarters of 1999 are as follows:
WARRANTS TO PURCHASE COMMON STOCK
<TABLE>
<CAPTION>
WARRANT PRICE
----------------
YEAR HIGH LOW
---- ------ ------
<S> <C> <C>
1998
First Quarter.............................. N/A N/A
Second Quarter............................. N/A N/A
Third Quarter.............................. $7.875 $4.188
Fourth Quarter............................. $5.063 $0.938
1999
First Quarter.............................. $1.938 $0.688
Second Quarter............................. $0.844 $0.313
Third Quarter (through July 30, 1999)...... $0.500 $0.250
</TABLE>
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 Washington Business Corporation Act 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. The per share minimum criteria referenced above apply only to
significant business transactions involving either:
- a merger, share exchange, or consolidation of a target corporation with
an Acquiring Person or an affiliate or associate of the Acquiring Person;
or
- 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.
131
<PAGE> 138
CERTAIN PROVISIONS IN THE ARIS ARTICLES OF INCORPORATION AND THE ARIS BYLAWS
Pursuant to the ARIS articles of incorporation, the board of directors 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 bylaws provide that:
- 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;
- 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;
- the entire board of directors, or any member thereof, may be removed only
by the affirmative vote of holders of at least two-thirds ( 2/3) 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
- The Chairman of the Board may disregard director nominations not made in
accordance with certain notice provisions.
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 of incorporation 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 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 ARIS common stock is ChaseMellon
Shareholder Services LLC, 520 Pike Street, Suite 1220, Seattle, Washington
98101.
EXPERTS
The financial statements of ARIS as of December 31, 1998 and 1997 and for
each of the three years in the period ended December 31, 1998 included in this
proxy statement/prospectus, except as they relate to the pooling of interests
with Barefoot Computer Training Limited, have been audited by
PricewaterhouseCoopers LLP, independent accountants and, insofar as they relate
to Barefoot Computer Training
132
<PAGE> 139
Limited, have been audited by BDO Stoy Hawyard as successor-in-interest to
Moores Rowland, independent accountants, whose reports appear herein. Such
financial statements have been so included given on the authority of these
firms as experts in auditing and accounting.
The consolidated financial statements of fine.com as of January 31, 1998
and 1999 and for the years then ended included in this proxy
statement/prospectus and registration statement have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of that firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the shares of ARIS common stock offered hereby will be
passed upon for ARIS by Dorsey & Whitney LLP, Seattle, Washington.
Certain legal matters in connection with the merger will be passed upon for
fine.com by Cairncross & Hempelmann, P.S., Seattle, Washington. As of July 30,
1999, individual members of Cairncross & Hempelmann, P.S. beneficially owned an
aggregate of 88,091 shares of fine.com common stock.
OTHER MATTERS
As of the date of this proxy statement/prospectus, the fine.com board of
directors knows of no matters to be brought before the special meeting other
than those specifically listed in the Notice of Special Meeting of fine.com
shareholders. However, if any other matters should properly come before the
special meeting, the proxy holders will vote the proxies on such matters in
accordance with the determination of the fine.com board of directors. The
fine.com board of directors urges each fine.com shareholder, whether or not you
intend to personally attend the special meeting, to complete, sign and return
the enclosed proxy as promptly as possible.
WHERE YOU CAN FIND MORE INFORMATION
ARIS and fine.com file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information that ARIS and
fine.com file with the Securities and Exchange Commission at the Commission's
public reference rooms at the following locations:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, NW 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, DC 20549 New York, NY 10048 Suite 1400
Chicago, IL 60661-2511
</TABLE>
Please call the Commission at 1-(800)SEC-0330 for further information on
the public reference rooms. These Commission filings are also available to the
public from commercial document retrieval services and at the Internet world
wide Web site maintained by the Commission at "http//www.sec.gov."
133
<PAGE> 140
ARIS filed a registration statement on Form S-4 on August 5, 1999 to
register with the Commission the ARIS common stock to be issued to fine.com
shareholders in the merger. This proxy statement/prospectus is a part of that
registration statement and constitutes a prospectus of ARIS in addition to being
a proxy statement of fine.com. As allowed by the Commission rules, this proxy
statement/prospectus does not contain all of the information you can find in
ARIS' registration statement or the exhibits to the registration statement.
You should rely only on the information contained in this proxy
statement/prospectus to vote on the merger agreement and the merger. We have not
authorized anyone to provide you with information that is different from what is
contained in this proxy statement/prospectus. This proxy statement/prospectus is
dated August 6, 1999. You should not assume that the information contained in
the proxy statement/prospectus is accurate as of any date other than that date,
and neither the mailing of the proxy statement/prospectus to shareholders nor
the issuance of ARIS common stock in the merger shall create any implication to
the contrary.
BY ORDER OF THE BOARD OF DIRECTORS OF
fine.com International Corp.
Daniel M. Fine
Chairman and Chief Executive Officer
Seattle, Washington
August 6, 1999
134
<PAGE> 141
INDEX TO ARIS CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of PricewaterhouseCoopers, LLP, Independent
Auditors.................................................. F-2
Report of BDO Stoy Hayward, Certified Accountants........... F-3
Consolidated Balance Sheets................................. F-4
Consolidated Statements of Income........................... F-5
Consolidated Statement of Changes in Shareholders' Equity... F-6
Consolidated Statement of Cash Flows........................ F-7
Notes to Consolidated Financial Statements.................. F-8
</TABLE>
F-1
<PAGE> 142
ARIS CORPORATION
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
ARIS Corporation
In our opinion, based on our audits and the report of other auditors, 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, 1997 and 1998 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998 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 two years ended November 30, 1997 which statements
reflect total assets of $3,018,000 at November 30, 1997, and total revenues of
$5,326,000 and $7,419,000 for the years ended November 30, 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 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/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
Seattle, Washington
January 28, 1999
F-2
<PAGE> 143
ARIS CORPORATION
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 shareholders' equity of Barefoot Computer Training
Limited (not presented separately herein) present fairly, in all material
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 and the report of other auditors provide a reasonable basis for the
opinion expressed above.
Your faithfully,
/s/ BDO STOY HAYWARD
BDO Stoy Hayward
Chartered Accountants
London, England
May 5, 1998
F-3
<PAGE> 144
ARIS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- JUNE 30,
1997 1998 1999
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............... $ 7,196,000 $ 5,225,000 $ 6,901,000
Investments in marketable securities.... 19,663,000 6,513,000 2,002,000
Accounts receivable, net of allowance
for doubtful accounts of $917,000,
$1,263,000 and $1,215,000............ 15,314,000 26,734,000 27,388,000
Consulting contracts in progress........ 618,000 983,000 1,896,000
Income tax receivable................... -- 293,000 255,000
Deferred income taxes................... 263,000 448,000 489,000
Prepaid expenses and other assets....... 2,089,000 2,359,000 2,161,000
----------- ----------- -----------
Total current assets............... 45,143,000 42,555,000 41,092,000
----------- ----------- -----------
Property and equipment, net............... 7,156,000 16,075,000 15,623,000
Intangible and other assets, net.......... 8,252,000 10,851,000 10,440,000
----------- ----------- -----------
Total assets....................... $60,551,000 $69,481,000 $67,155,000
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................ $ 3,270,000 $ 3,345,000 $ 1,926,000
Accrued payroll......................... 2,147,000 3,385,000 4,562,000
Other accrued expenses.................. 1,371,000 4,792,000 3,108,000
Deferred revenue........................ 2,468,000 2,333,000 1,625,000
Income tax payable...................... 228,000 -- 506,000
----------- ----------- -----------
Total current liabilities.......... 9,484,000 13,855,000 11,727,000
----------- ----------- -----------
Deferred income taxes..................... 585,000 312,000 287,000
----------- ----------- -----------
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.............. 43,749,000 47,347,000 45,230,000
Retained earnings....................... 6,769,000 7,956,000 10,201,000
Other comprehensive income.............. (36,000) 11,000 (292,000)
----------- ----------- -----------
Total shareholders' equity......... 50,482,000 55,314,000 55,141,000
----------- ----------- -----------
Total liabilities and shareholders'
equity.......................... $60,551,000 $69,481,000 $67,155,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 145
ARIS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues, net:
Consulting.................... $27,505,000 $42,731,000 $64,036,000 $29,105,000 $36,626,000
Training...................... 14,711,000 28,896,000 40,398,000 19,855,000 18,869,000
Software...................... 1,680,000 4,659,000 11,460,000 5,436,000 4,563,000
----------- ----------- ----------- ----------- -----------
Total revenues........... 43,896,000 76,286,000 115,894,000 54,396,000 60,058,000
----------- ----------- ----------- ----------- -----------
Cost of sales:
Consulting and training....... 21,774,000 36,635,000 53,250,000 16,317,000 20,268,000
Software...................... 446,000 831,000 1,710,000 8,961,000 8,809,000
Restructuring expenses........ -- -- 303,000 417,000 859,000
----------- ----------- ----------- ----------- -----------
Total cost of sales...... 22,220,000 37,466,000 55,263,000 25,695,000 29,936,000
----------- ----------- ----------- ----------- -----------
Gross profit................ 21,676,000 38,820,000 60,631,000 28,701,000 30,122,000
Selling, general and
administrative expense........ 16,621,000 28,916,000 48,822,000 21,568,000 26,305,000
Amortization of intangible
assets........................ 118,000 380,000 631,000 271,000 430,000
Research and development
expense....................... 1,117,000 649,000 -- -- --
Charges related to
acquisitions.................. 347,000 428,000 5,655,000 5,655,000 --
Restructuring and other
expenses...................... -- -- 2,641,000 -- --
----------- ----------- ----------- ----------- -----------
Income from operations...... 3,473,000 8,447,000 2,882,000 1,207,000 3,387,000
----------- ----------- ----------- ----------- -----------
Other income (expense):
Investment income (expense)... 89,000 280,000 (5,000) -- --
Interest income, net.......... 93,000 800,000 1,148,000 692,000 317,000
Other income, net............. 14,000 61,000 15,000 -- 39,000
----------- ----------- ----------- ----------- -----------
196,000 1,141,000 1,158,000 692,000 356,000
----------- ----------- ----------- ----------- -----------
Income before income tax........ 3,669,000 9,588,000 4,040,000 1,899,000 3,743,000
Income tax expense.............. 1,435,000 3,689,000 2,640,000 1,553,000 1,498,000
----------- ----------- ----------- ----------- -----------
Net income...................... $ 2,234,000 $ 5,899,000 $ 1,400,000 $ 346,000 $ 2,245,000
=========== =========== =========== =========== ===========
Basic earnings per share........ $ 0.27 $ 0.60 $ 0.13 $ 0.03 $ 0.20
=========== =========== =========== =========== ===========
Weighted average number of
common shares outstanding..... 8,337,000 9,803,000 11,115,000 11,062,000 11,076,000
=========== =========== =========== =========== ===========
Diluted earnings per share...... $ 0.26 $ 0.56 $ 0.12 $ 0.03 $ 0.20
=========== =========== =========== =========== ===========
Weighted average number of
common and common equivalent
shares outstanding............ 8,497,000 10,532,000 11,900,000 12,069,000 11,420,000
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 146
ARIS CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATED
-------------------- ADDITIONAL OTHER TOTAL
SHARES PAID-IN- RETAINED COMPREHENSIVE SHAREHOLDERS'
ISSUED AMOUNT CAPITAL EARNINGS INCOME EQUITY
----------- ------ ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995................... 7,849,000 -- $ 6,625,000 $ 2,542,000 $ 191,000 $ 9,358,000
Shares issued in acquisition.................. 791,000 -- 1,614,000 -- -- 1,614,000
Stock redemption.............................. (40,000) -- (100,000) -- -- (100,000)
Stock options exercised....................... 18,000 -- 22,000 -- -- 22,000
Tax benefit related to stock options
exercised................................... -- -- 8,000 -- -- 8,000
Net income.................................... -- -- -- 2,234,000 -- --
Other comprehensive income, net of tax:
Foreign currency translation adjustments.... -- -- -- -- 24,000 --
Unrealized gains on securities, net of
reclassification adjustment............... -- -- -- -- 30,000 --
Comprehensive income.......................... -- -- -- -- -- 2,288,000
----------- -- ----------- ----------- --------- -----------
BALANCE AT DECEMBER 31, 1996................... 8,618,000 -- 8,169,000 4,776,000 245,000 13,190,000
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.... 434,000 -- 4,371,000 -- -- 4,371,000
Stock redemption.............................. (415,000) -- (121,000) (3,906,000) -- (4,027,000)
Stock options exercised....................... 50,000 -- 88,000 -- -- 88,000
Net income.................................... -- -- -- 5,899,000 -- --
Other comprehensive income, net of tax:
Foreign currency translation adjustments.... -- -- -- -- 7,000 --
Unrealized losses on securities, net of
reclassification adjustment............... -- -- -- -- (288,000) --
Comprehensive income.......................... -- -- -- -- -- 5,618,000
----------- -- ----------- ----------- --------- -----------
BALANCE AT DECEMBER 31, 1997................... 10,987,000 -- $43,749,000 $ 6,769,000 $ (36,000) $50,482,000
Adjustment to conform fiscal year of Barefoot
Computer Training Limited................... -- -- -- (213,000) -- (213,000)
Shares issued in acquisition.................. 5,000 -- 150,000 -- -- 150,000
Shares issued under employee stock purchase
plan........................................ 130,000 -- 1,504,000 -- -- 1,504,000
Stock options exercised....................... 147,000 -- 1,449,000 -- -- 1,449,000
Tax benefit related to stock options
exercised................................... -- -- 495,000 -- -- 495,000
Net income.................................... -- -- -- 1,400,000 -- --
Other comprehensive income, net of tax:
Foreign currency translation adjustments.... -- -- -- -- (16,000) --
Unrealized gains on securities, net of
reclassification adjustment............... -- -- -- -- 63,000 --
Comprehensive income.......................... -- -- -- -- -- 1,447,000
----------- -- ----------- ----------- --------- -----------
BALANCE AT DECEMBER 31, 1998................... 11,269,000 -- 47,347,000 7,956,000 11,000 55,314,000
Shares issues 107,000 -- 757,000 -- -- 757,000
Stock options exercised....................... 49,000 -- 169,000 -- -- 169,000
Stock redemption.............................. (356,000) -- (3,073,000) -- -- (3,073,000)
Tax benefit related to dispositions of
stock....................................... -- -- 32,000 -- -- 32,000
Net income.................................... -- -- -- 2,245,000 -- --
Other comprehensive income, net of tax:
Foreign currency translation adjustments.... -- -- -- -- (304,000) --
Unrealized losses on securities, net of
reclassification adjustment............... -- -- -- -- 1,000 --
Comprehensive income.......................... -- -- -- -- -- 1,942,000
----------- -- ----------- ----------- --------- -----------
BALANCE AT MARCH 31, 1999...................... $11,070,000 $-- $45,232,000 $10,201,000 $(292,000) $55,141,000
=========== == =========== =========== ========= ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------- JUNE 30,
1996 1997 1998 1999
------- --------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
DISCLOSURE OF RECLASSIFICATION AMOUNT:
Unrealized holding gain (loss) arising during the period... $30,000 $ (8,000) $59,000 $ 1,000
Less: reclassification adjustment for losses (gains)
including in net income.................................. -- (280,000) 4,000 --
------- --------- ------- -------
Net unrealized gains (losses) on securities.............. $30,000 $(288,000) $63,000 $ 1,000
======= ========= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 147
ARIS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------- --------------------------
1996 1997 1998 1998 1999
----------- ------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................... $ 2,234,000 $ 5,899,000 $ 1,400,000 $ 346,000 $ 2,245,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization..................... 1,251,000 2,454,000 3,888,000 1,583,000 2,122,000
Provision for doubtful accounts receivable........ 30,000 166,000 346,000 480,000 (48,000)
Loss on sale of property and equipment............ 67,000 -- -- -- 448,000
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................... (2,717,000) (4,712,000) (10,875,000) (5,991,000) (1,054,000)
Increase in consulting contracts in progress...... (408,000) (164,000) (365,000) -- (913,000)
(Increase) decrease in income tax receivable...... (186,000) 186,000 (293,000) -- (451,000)
(Increase) decrease in prepaid expenses and other
assets.......................................... 15,000 (1,069,000) 1,155,000 (871,000) 627,000
Increase (decrease) in accounts payable........... 247,000 58,000 (222,000) 2,001,000 (1,419,000)
Increase in accrued expenses...................... 1,608,000 130,000 4,671,000 1,485,000 (1,130,000)
Increase (decrease) in deferred revenue........... (254,000) 705,000 (224,000) (364,000) (85,000)
Increase (decrease) in income taxes payable....... (372,000) 441,000 (603,000) 1,000,000 506,000
Decrease in deferred taxes........................ (217,000) (452,000) (273,000) (181,000) (25,000)
----------- ------------ ------------ ----------- -----------
Net cash provided by (used in) operating
activities.................................... 1,605,000 3,362,000 (1,395,000) (512,000) 823,000
----------- ------------ ------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments............................ (462,000) (32,436,000) (11,103,000) -- --
Sales of investments................................ 362,000 14,005,000 24,316,000 11,094,000 4,512,000
Purchase of property and equipment.................. (2,454,000) (2,656,000) (11,700,000) (9,513,000) (1,240,000)
Acquisition of businesses, net of cash acquired..... (1,427,000) (1,726,000) (3,650,000) (2,498,000) --
Proceeds from sale of property and equipment........ 307,000 -- -- -- --
----------- ------------ ------------ ----------- -----------
Net cash (used in) provided by investing
activities.................................... (3,674,000) (22,813,000) (2,137,000) (917,000) 3,272,000
----------- ------------ ------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering, net of
offering costs.................................... -- 31,242,000 -- -- --
Issuance of Common Stock............................ -- -- 668,000 -- --
Stock options exercised............................. 22,000 88,000 627,000 550,000 926,000
Repurchase of Common Stock.......................... (100,000) (4,027,000) -- -- (3,073,000)
Tax benefit related to stock options exercised...... 8,000 -- 495,000 121,000 32,000
Payments on borrowings.............................. (500,000) (12,601,000) -- -- --
Proceeds from borrowings............................ 1,500,000 9,825,000 -- -- --
----------- ------------ ------------ ----------- -----------
Net cash (used in) provided by financing
activities.................................... 930,000 24,527,000 1,790,000 671,000 (2,115,000)
----------- ------------ ------------ ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS......................................... (1,139,000) 5,076,000 (1,742,000) (758,000) 1,980,000
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS......................................... -- -- (16,000) 2,000 (304,000)
ADJUSTMENT TO CONFORM FISCAL YEAR OF BAREFOOT
COMPUTER TRAINING LIMITED........................... -- -- (213,000) (213,000) --
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD...... 3,259,000 2,120,000 7,196,000 11,395,000 5,225,000
----------- ------------ ------------ ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD............ $ 2,120,000 $ 7,196,000 $ 5,225,000 $10,426,000 $ 6,901,000
=========== ============ ============ =========== ===========
</TABLE>
See Note 15 for supplemental cash flow information.
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 148
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998
1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATIONS
ARIS provides a range of information technology services including database
management, enterprise resource planning, custom applications development and
packaged applications implementation, and training to clients worldwide, with
offices in Bellevue and Renton, Washington; Beaverton, Oregon; Denver, Colorado;
Dallas and Plano, Texas; Fairfax, Virginia; Tampa and West Palm Beach, Florida;
Bloomington, Minnesota; New York, New York; Oak Brook, Illinois; Columbia, South
Carolina; Oxford, Birmingham, Reading and London, England; and Heidelberg,
Germany. ARIS also develops niche software programs that it has licensed
worldwide. ARIS utilizes the significant accounting policies summarized below in
preparing its financial statements.
CONSOLIDATION
The consolidated financial statements include the accounts of ARIS 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
ARIS' investment securities at December 31, 1997 and 1998 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
F-8
<PAGE> 149
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
method over the estimated useful lives of depreciable assets. Estimated useful
lives of computers, equipment and software range from three to eight years and
lives of building and improvement range 15 to 39 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. 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 ARIS 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, ARIS 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. The Company expensed no
in-process research and development in 1997 and 1998.
REVENUE RECOGNITION
Time and material consulting contracts. ARIS recognizes revenue as services
are rendered.
F-9
<PAGE> 150
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
Fixed-price consulting contracts. Revenues from fixed-price contracts are
recognized on the percentage-of-completion method, measured by the cost incurred
to date and cost to complete compared to estimated total costs for the contract.
This method is used because management considers expended costs together with
estimates of remaining 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 ratably throughout the period that classes
are held.
SOFTWARE
ARIS accounts for software revenues in accordance with the American
Institute of Certified Public Accountants' Statement of Position 97-2, 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.
ARIS 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 $212,000, $600,000 and $495,000 in 1996, 1997 and 1998, respectively.
FOREIGN CURRENCY TRANSLATIONS
The financial statements of ARIS' 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
F-10
<PAGE> 151
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
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
Stock-based compensation is accounted for by following Financial Accounting
Standards Board ("FASB") issued Statement No. 123, "Accounting for Stock-Based
Compensation." 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. ARIS 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 ARIS 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.
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 and was adopted by ARIS during the quarter ended March 31, 1998. SFAS
No. 130 requires reclassification of prior periods financial statements to
reflect application of the provisions of this statement. In addition to net
income, comprehensive income
F-11
<PAGE> 152
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
includes charges or credits to equity that are not the result of transactions
with shareholders.
The following reflects the composition of accumulated other comprehensive
income at December 31, 1995, 1996, 1997 and 1998:
<TABLE>
<CAPTION>
ACCUMULATED
FOREIGN UNREALIZED OTHER
CURRENCY GAINS ON COMPREHENSIVE
ITEMS SECURITIES INCOME
-------- ---------- -------------
<S> <C> <C> <C>
Balance at December 31, 1995............. $ (4,000) $ 195,000 $ 191,000
Current-period change.................... 24,000 30,000 54,000
-------- --------- ---------
Balance at December 31, 1996............. 20,000 225,000 245,000
Current-period change.................... 7,000 (288,000) (281,000)
-------- --------- ---------
Balance at December 31, 1997............. 27,000 (63,000) (36,000)
Current-period change.................... (16,000) 63,000 47,000
-------- --------- ---------
Balance at December 31, 1998............. $ 11,000 $ -- $ 11,000
======== ========= =========
</TABLE>
The unrealized gains on securities is shown net of tax of $115,000 and
($35,000) at December 31, 1996 and 1997, respectively.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
The Company has adopted SFAS No. 131 and has provided the disclosures needed to
conform with its requirements.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards for derivative instrument and for hedging
activities. If adopted by the Company, the Company expects that SFAS 133 will
have no material impact on its financial statements.
2. POOLING OF INTEREST WITH BAREFOOT COMPUTER TRAINING LIMITED AND INTIME
SYSTEMS INTERNATIONAL, INC.
On February 28, 1998, ARIS 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, ARIS issued
278,611 shares of 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.
F-12
<PAGE> 153
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
Barefoot had a November 30 year end and, accordingly, the Barefoot balance
sheet at November 30, 1997 has been combined with the balance sheet of ARIS at
December 31, 1997, and Barefoot's statements of income for the years ended
November 30, 1996 and 1997 have been combined with ARIS' statements of income
for the years ended December 31, 1996 and 1997, respectively. In order to
conform Barefoot's year end to ARIS' 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 loss for December 1997 will decrease
retained earnings as of January 1, 1998.
On June 30, 1998, the Company completed a merger with InTime Systems
International, Inc. ("InTime"), a Delaware corporation having its principal
offices in West Palm Beach, Florida. InTime, now a division of the Company,
provides information technology and human resource management systems consulting
services focusing primarily on Oracle and PeopleSoft technologies. The
acquisition was accounted for as a pooling-of-interests, in which the Company
issued 786,710 shares of Common Stock in exchange for all of the outstanding
shares of InTime Common Stock and warrants (the "Warrants") to purchase 718,997
shares of Common Stock in exchange for all of the outstanding warrants to
purchase shares of InTime Common Stock. Accordingly, all periods included in the
financial information furnished herein have been restated to give effect to the
merger.
A reconciliation of amounts of revenue and earnings for the years ended
December 31, 1996 and 1997 and the three months ended March 31, 1998, previously
reported by ARIS to the combined amounts presented herein follows:
<TABLE>
<CAPTION>
ARIS AS ADJUSTMENT ADJUSTMENT
REPORTED BAREFOOT INTIME COMBINED
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996:
Revenue........................ $26,898,000 $5,326,000 $11,672,000 $43,896,000
=========== ========== =========== ===========
Net income..................... $ 2,014,000 $ 152,000 $ 60,000 $ 2,226,000
Adjustment (1)............... -- -- -- 8,000
-----------
Consolidated net income... $ 2,234,000
===========
YEAR ENDED DECEMBER 31, 1997:
Revenue........................ $55,131,000 $7,419,000 $13,736,000 $76,286,000
=========== ========== =========== ===========
Net income..................... $ 5,345,000 $ 410,000 $ 564,000 $ 6,319,000
Adjustment(1)................ -- -- -- (420,000)
-----------
Consolidated net income... $ 5,899,000
===========
FOR THE THREE MONTHS ENDED
MARCH 31, 1998:
Revenue........................ $20,737,000 $ 4,497,000 $25,234,000
=========== =========== ===========
Net income..................... $ 1,045,000 $ 355,000 $ 1,440,000
</TABLE>
- -------------------------
(1) The adjustment to previously reported income in 1996 and 1997 are to record
deferred tax assets of InTime in the total amount of $412,000 which could be
offset with future reversals of deferred tax liabilities of ARIS upon the
merger of InTime into ARIS effective June 30, 1998.
F-13
<PAGE> 154
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
3. RESTRUCTURING AND OTHER EXPENSE
In December 1998, the Company restructured its training operations to gain
efficiency and profitability. Incident to the restructuring, the Company
incurred expenses aggregating $2,185,000, including $873,000 for employee
severance, $559,000 for equipment and asset abandonment, $593,000 for
anticipated lease disposition costs and $160,000 associated with other aspects
of the restructuring. At December 31, 1998, $1,280,000 of the amount accrued was
paid. The Company fully expects to complete the restructuring and utilize all
accrued costs by June 30, 1999.
In addition to the restructuring, the Company settled a litigation claim
and expensed $759,000. Management believes that a portion of the litigation
settlement cost may be recovered from insurance proceeds.
4. ACQUISITIONS
ARIS has embarked upon an acquisition program that included the acquisition
of three companies during 1996, four companies during 1997 and two companies
during 1998, which 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 ARIS from the date of the acquisitions. The following is a
description of the terms of the various acquisitions:
1996
On May 1, 1996, ARIS acquired the stock of SQLSoft, Inc., a training
company based in Bellevue, Washington in exchange for 707,900 shares of
unregistered Common Stock.
On October 1, 1996, ARIS acquired the assets and liabilities of SofTeach
Corporation, a training company based in Denver, Colorado in exchange for 42,000
shares of unregistered Common Stock and a combination of notes payable and cash.
On October 1, 1996, ARIS 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
unregistered Common Stock and cash.
F-14
<PAGE> 155
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (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
========== ========== ==========
</TABLE>
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
process....................... -- -- 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, ARIS acquired the stock of Oxford Computer Group
Limited, now ARIS (UK) Limited ("ARIS (UK)"), 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, ARIS 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, warrants to purchase 20,844 shares
of unregistered Common Stock and $1,560,000 cash. In connection with the
acquisition of Enterprise, ARIS entered into a $500,000 earn-out agreement with
the former shareholders based on attainment of certain future financial goals.
During 1998, ARIS paid an aggregate of $255,000 pursuant to the earn-out
agreement.
F-15
<PAGE> 156
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
On November 1, 1997, ARIS 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, ARIS acquired the stock of Absolute!, Inc.
("Absolute!"), an information technology training company located in Dallas,
Texas, in exchange for 40,909 shares of unregistered Common Stock and $100,000
cash. In connection with the acquisition of Absolute!, ARIS entered into a
$500,000 earn-out agreement with the former shareholder based on attainment of
certain future financial goals. During 1998, ARIS paid an aggregate of $250,000
pursuant to the earn-out agreement, of which $150,000 was exchanged for
approximately 5,000 unregistered shares of Common Stock.
A summary of assets acquired, liabilities assumed and purchase price paid
for the 1997 acquisitions is as follows:
<TABLE>
<CAPTION>
ARIS (UK) 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>
The cost allocated to the assets and liabilities at the date of the
acquisition is as follows:
<TABLE>
<CAPTION>
ARIS (UK) 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>
1998
On April 30, 1998, ARIS, through ARIS (UK), acquired all of the outstanding
stock of MMT Computer (Reading) Limited ("MMT"), an information technology
consulting company located in Reading, England, in exchange for $2,499,000 cash
(L1,500,000).
On August 10, 1998, ARIS, through ARIS Software, Inc. ("ASI"), a
wholly-owned subsidiary, acquired all of the assets of db-Centric, Inc.
("db-Centric"), a decision support systems administrative software company
focusing on distributed data warehouse management in exchange for $1,000,000
cash.
F-16
<PAGE> 157
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
A summary of the purchase price paid for the 1998 acquisitions is as
follows:
<TABLE>
<CAPTION>
MMT DB-CENTRIC
---------- ----------
<S> <C> <C>
Consideration:
Cash.................................................. $2,499,000 $1,000,000
Acquisition costs..................................... 152,000 --
---------- ----------
$2,651,000 $1,000,000
========== ==========
</TABLE>
The cost allocated to the assets and liabilities at the date of the
acquisition is as follows:
<TABLE>
<CAPTION>
MMT DB-CENTRIC
---------- ----------
<S> <C> <C>
Cash.................................................. $ 1,000 --
Accounts receivable................................... 622,000 --
Prepaid and other current assets...................... 1,077,000 --
Goodwill.............................................. 1,498,000 $1,000,000
Property and equipment................................ 200,000 --
Notes payable.........................................
Notes payable, accounts payable and accrued
liabilities......................................... (747,000) --
---------- ----------
$2,651,000 $1,000,000
========== ==========
</TABLE>
The following unaudited pro forma summary presents the consolidated results
of operations of ARIS as if the entities (described in Note 4) acquired in 1996,
1997 and 1998 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 ARIS' effective tax rate.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996(1) 1997(2) 1998(3)
----------- ----------- ------------
<S> <C> <C> <C>
Net sales............................ $60,233,000 $88,532,000 $117,496,000
Net income........................... $ 2,299,000 $ 5,428,000 $ 1,008,000
Basic earnings per share............. $ 0.28 $ 0.55 $ 0.09
Diluted earnings per share........... $ 0.27 $ 0.52 $ 0.08
</TABLE>
- -------------------------
(1) Adjusted to include the results of operations of SQLSoft, Inc., SofTeach
Corporation and Noetix Corporation prior to acquisition and the results of
operations of ARIS (UK), Enterprise, Agiliti and Absolute! for the year
ended December 31, 1996, including the impact of certain adjustments.
(2) Adjusted to include the results of operations of ARIS (UK), Enterprise,
Agiliti and Absolute! prior to acquisition and the results of operations of
MMT and db-Centric for the year ended December 31, 1997, including the
impact of certain adjustments.
(3) Adjusted to include the results of operations of MMT and db-Centric 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
F-17
<PAGE> 158
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
not intended to be a projection of future results and do not reflect any
synergies that might be achieved from combined operations.
ARIS recorded expenses associated with acquisition of businesses during
1996, 1997 and 1998 [including mergers with Barefoot and InTime (see Note 2)
during 1998] of $347,000, $428,000 and $5,655,000 respectively. In 1996 and 1997
such costs were primarily incurred in connection with the integration of
business systems of acquired companies. In 1998, costs were primarily for
investment banking and professional fees and expenditures to facilitate
integration of business systems of acquired businesses with ARIS following the
mergers.
During 1996 ARIS expensed $307,000 of in-process research and development
costs following the acquisition of Noetix Corporation.
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1998
---------- -----------
<S> <C> <C>
Land and building.................................... -- $ 5,220,000
Computer equipment................................... $6,752,000 9,817,000
Furniture and fixtures............................... 1,630,000 2,869,000
Software............................................. 250,000 582,000
Leasehold improvements............................... 921,000 2,857,000
Other................................................ 906,000 410,000
---------- -----------
10,459,000 21,755,000
Less: Accumulated depreciation....................... (3,303,000) (5,680,000)
---------- -----------
$7,156,000 $16,075,000
========== ===========
</TABLE>
6. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
----------- -----------
<S> <C> <C>
Goodwill............................................ $ 7,957,000 $11,205,000
Capitalized software costs.......................... 1,025,000 1,025,000
Non-compete agreements.............................. 150,000 150,000
Prepaids and other.................................. 2,269,000 2,770,000
----------- -----------
11,401,000 15,150,000
Less: Accumulated amortization...................... (1,060,000) (1,940,000)
----------- -----------
10,341,000 13,210,000
Less: Current portion............................... (2,089,000) (2,359,000)
----------- -----------
Total noncurrent intangibles and other
assets................................. $ 8,252,000 $10,851,000
=========== ===========
</TABLE>
F-18
<PAGE> 159
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
7. INVESTMENTS
Investments in marketable securities at December 31, 1997 and 1998 consist
of investments in debt securities totaling $19,663,000 and $6,513,000,
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, 1997 and 1998.
The debt securities held at December 31, 1998 have maturities ranging from
January 1999 to August 1999.
8. INCOME TAXES
Income tax expense consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Current: Federal......................... $1,429,000 $3,023,000 $2,532,000
State.................................. 110,000 328,000 354,000
Foreign................................ 65,000 370,000 98,000
---------- ---------- ----------
1,604,000 3,721,000 2,984,000
---------- ---------- ----------
Deferred: Federal........................ (212,000) 32,000 (372,000)
State.................................. 12,000 (52,000) (55,000)
Foreign................................ 31,000 (12,000) 83,000
---------- ---------- ----------
(169,000) (32,000) (344,000)
---------- ---------- ----------
Total tax expense.............. $1,435,000 $3,689,000 $2,640,000
========== ========== ==========
</TABLE>
Pretax operating results of ARIS' foreign subsidiaries are income of
$232,000, $1,082,000 and $472,000 in 1996, 1997 and 1998, 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,
--------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Statutory federal income tax rate........ $1,248,000 $3,260,000 $1,374,000
Goodwill................................. 17,000 66,000 178,000
Nondeductible acquisition costs.......... -- -- 794,000
State income taxes, net of federal income
tax benefit............................ 82,000 224,000 179,000
Purchased research and development....... 104,000 -- --
Nondeductible meals and entertainment.... 32,000 53,000 88,000
Other.................................... (48,000) 86,000 27,000
---------- ---------- ----------
$1,435,000 $3,689,000 $2,640,000
========== ========== ==========
</TABLE>
F-19
<PAGE> 160
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
Temporary differences that give rise to a significant portion of deferred
tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1997 1998
----------- ---------
<S> <C> <C>
Adjustments to cash basis accounting for tax
purposes............................................ $ (641,000) $(281,000)
Depreciation and amortization......................... (365,000) (374,000)
Intangible assets..................................... (166,000) (46,000)
----------- ---------
Gross deferred tax liabilities...................... (1,172,000) (701,000)
----------- ---------
Bad debt allowance.................................... 240,000 585,000
Accrued vacation and bonuses.......................... 76,000 68,000
Unrealized loss on marketable securities.............. 40,000 --
NOL carry-forward..................................... 432,000 86,000
Other................................................. 62,000 98,000
----------- ---------
Gross deferred tax assets........................... 850,000 837,000
----------- ---------
$ (322,000) $ 136,000
=========== =========
</TABLE>
9. DEBT
At December 31, 1998, ARIS had a $10,000,000 line of credit that was
collateralized by substantially all of ARIS' assets. All of this line was
available at December 31, 1998. Borrowings against the line of credit bear
interest at the lender's prime rate.
10. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
ARIS rents 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>
1999...................................... $ 2,899,000
2000...................................... 3,094,000
2001...................................... 3,074,000
2002...................................... 2,709,000
2003...................................... 1,841,000
Thereafter................................ 8,714,000
-----------
$22,331,000
===========
</TABLE>
Rent expense for 1996, 1997 and 1998 was $995,000, $2,159,000 and
$3,907,000, respectively.
LEGAL PROCEEDINGS
ARIS 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
F-20
<PAGE> 161
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
matters will have a material effect on ARIS' 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.
The Company initiated on January 1, 1998, the 1998 Employee Stock Purchase
Plan (the "ESPP"). Under the ESPP, employees may elect to set aside up to 10% of
their gross compensation to purchase shares of Common Stock annually at a 15%
discount to market price. The ESPP is a five-year plan expiring on January 1,
2003. Executive officers (other than the Chief Executive Officer) may
participate in the ESPP on the same terms as eligible, non-executive employees.
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,
-------------------------------------
1996 1997 1998
--------- ---------- ----------
<S> <C> <C> <C>
Weighted-average number of common shares
outstanding............................. 8,337,000 9,803,000 11,115,000
Effect of dilutive securities:
Warrants................................ -- 3,000 68,000
Options................................. 160,000 726,000 717,000
--------- ---------- ----------
160,000 729,000 785,000
--------- ---------- ----------
Weighted-average number of common and
common equivalent shares outstanding.... 8,497,000 10,532,000 11,900,000
========= ========== ==========
</TABLE>
Options to purchase shares of Common Stock were outstanding in 1997 and
1998, but were not included in the computation of diluted earnings per share
because the options' exercise price was greater than the average market price of
the common shares.
13. STOCK OPTIONS AND WARRANTS
Prior to January 1995, ARIS from time to time granted non-qualified stock
options to key employees. These grants were not part of any formal plan.
In January 1995, ARIS 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
ARIS as determined by the Plan Administrator. ARIS authorized 1,600,000 shares
of its Common Stock for issuance
F-21
<PAGE> 162
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
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 Administrator. The option price for stock options granted is based on
the fair market value of ARIS' 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. ARIS ended grants under the 1995 Plan in March 1997.
In March 1997, ARIS 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
ARIS as determined by the Plan Administrator. ARIS 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 ARIS' 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. On April 28, 1998, the shareholders of ARIS approved an
increase in the number of shares of Common Stock available for issuance under
the 1997 Plan to 2,000,000 shares.
In connection with the acquisition of Enterprise (as discussed in Note 4),
ARIS issued warrants to purchase 20,844 shares of Common Stock with an exercise
price of $23.988 and a fair value of $8.95 during 1997. Additionally, during
1997 ARIS issued warrants to purchase 4,000 shares of Common Stock with an
exercise price of $10.00 to certain consultants of ARIS.
In connection with the acquisition of InTime (as discussed in Note 2), ARIS
issued warrants to purchase 718,997 shares of Common Stock as consideration to
the former holders of warrants of InTime. The warrants commenced trading on the
Nasdaq National Market on July 16, 1998. Each of these warrants entitle the
holder to purchase one share of the Company's Common Stock at an exercise price
of $22.98. The warrants expire on February 15, 2000.
On December 15, 1998, the Company completed its voluntary stock option
exchange with existing employees holding options granted under the Company's
1997 Stock Option Plan. Senior management was precluded from participating in
that exchange. Eligible employees electing to participate in the exchange
surrendered their existing options and received new options to purchase 20%
fewer shares of the Company's Common Stock at an exercise price of $9.75 per
share, upon a modified vesting schedule.
F-22
<PAGE> 163
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
A summary of the activity for non-qualified stock options granted prior
to1995, the 1995 Plan, and the 1997 Plan is presented below:
<TABLE>
<CAPTION>
1996 1997 1998
-------------------- ---------------------- ----------------------
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........................... 134,000 $0.30 354,000 $ 2.12 1,452,000 $ 9.63
Granted.......................... 262,000 2.79 1,259,000 11.34 1,822,000 18.91
Exercised........................ (14,000) 0.09 (47,000) 1.47 (147,000) 4.42
Forfeited........................ (28,000) 0.78 (114,000) 8.22 (1,209,000) 23.79
-------- ---------- ----------
Outstanding at end of year....... 354,000 2.12 1,452,000 9.65 1,918,000 9.94
======== ===== ========== ====== ========== ======
Options exercisable at
year-end....................... 69,775 $0.89 162,000 1.10 394,000 $ 8.72
======== ========== ==========
Weighted-average fair value of
options granted during the
year........................... $ 2.20 $ 11.34 $ 19.65
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- ------------------------
RANGE AVERAGE WEIGHTED- WEIGHTED-
OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
-------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$0.19 - $ 3.62.. 201,000 4.24 $ 1.81 148,000 $ 1.35
$5.00 - $ 9.40.. 670,000 5.43 $ 6.55 108,000 $ 6.28
$9.75 - $32.35.. 1,047,000 8.99 $13.68 138,000 $18.52
</TABLE>
ARIS 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 1995 Plan and the
1997 Plan 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, ARIS' net income and
net income per share would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Net income as reported................... $2,234,000 $5,899,000 $1,400,000
Net (loss) income pro forma.............. $1,947,000 $5,615,000 $ (694,000)
Basic earning per share as reported...... $ 0.27 $ 0.60 $ 0.13
Diluted earning per share as reported.... $ 0.26 $ 0.56 $ 0.12
Basic earnings (loss) per share pro
forma.................................. $ 0.26 $ 0.57 $ (0.06)
Diluted earnings (loss) per share pro
forma.................................. $ 0.25 $ 0.53 $ (0.06)
</TABLE>
F-23
<PAGE> 164
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
The fair value of each stock option granted in 1996, 1997 and 1998 was
estimated on the date of grant using the Black-Scholes single option method. The
following weighted-average assumptions were used for grants in 1996, 1997 and
1998:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Assumptions:
Risk free interest rate................ 6.0% 6.75% 4.54%
Expected holding period................ 4.75 years 4.75 years 4.75 years
Dividend yield......................... 0% 0% 0%
Expected volatility.................... 0% 59.0% 94.0%
</TABLE>
14. PROFIT SHARING PLAN
ARIS maintains a qualified defined contribution profit sharing 401(k) plan
which covers full time employees with at least one month of service. There were
no employer contributions to the plan for 1995, 1996 or 1997. In 1998, the
Company instituted a 401(k) matching contribution program whereby the Company
matched each employees' contribution on a dollar-for-dollar basis up to $800 per
participating employee. During 1998, the Company contributed $256,000 to the
401(k) plan.
15. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION AND NON-CASH INVESTING AND
FINANCING ACTIVITIES
ARIS paid interest of $66,000, $194,000 and $49,000 during 1996, 1997 and
1998, respectively. ARIS paid $2,208,000, $3,375,000 and $3,045,000 in income
taxes during 1996, 1997 and 1998, respectively.
As more fully described in Note 2, ARIS merged with Barefoot and InTime in
transactions accounted for as poolings of interest. As more fully described in
Note 4, ARIS has acquired nine companies in transactions accounted for as
purchases in exchange for Common Stock, cash, warrants and/or notes payable.
16. OPERATING BUSINESS GROUPS
ARIS 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-24
<PAGE> 165
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
Summarized financial information by business group for 1996, 1997 and 1998
is as follows:
<TABLE>
<CAPTION>
CONSULTING TRAINING SOFTWARE
GROUP GROUP GROUP CORPORATE TOTAL
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
1996:
Revenue............... $27,505,000 $14,711,000 $ 1,680,000 -- $ 43,896,000
Operating profit...... 9,074,000 1,613,000 (1,009,000) $(6,205,000) 3,473,000
Identifiable assets... 7,773,000 6,520,000 2,113,000 4,269,000 20,675,000
Depreciation and
Amortization........ 42,000 635,000 250,000 324,000 1,251,000
Capital
expenditures........ 34,000 2,171,000 41,000 208,000 2,454,000
1997:
Revenue............... $42,731,000 $28,896,000 $ 4,659,000 -- $ 76,286,000
Operating profit...... 12,824,000 3,607,000 836,000 $(8,820,000) 8,447,000
Identifiable assets... 10,453,000 18,584,000 2,581,000 28,933,000 60,551,000
Depreciation and
Amortization........ 173,000 1,401,000 435,000 445,000 2,454,000
Capital
expenditures........ 401,000 1,600,000 137,000 518,000 2,656,000
1998:
Revenue............... $64,036,000 $40,398,000 $11,460,000 -- $115,894,000
Operating profit...... 2,712,000 (5,641,000) 6,545,000 $ (734,000) 2,882,000
Identifiable assets... 20,701,000 21,087,000 4,093,000 23,600,000 69,481,000
Depreciation and
Amortization........ 702,000 2,402,000 432,000 352,000 3,888,000
Capital
expenditures........ 2,564,000 3,352,000 131,000 5,653,000 11,700,000
</TABLE>
17. GEOGRAPHIC SEGMENT INFORMATION
Major operations outside the United States include ARIS (UK) which was
purchased by ARIS in 1997. Substantially all of ARIS (UK)'s business relates to
sales in the United Kingdom and Europe. Certain information regarding operations
in this geographic segment is presented in the table below. Intercompany sales
between ARIS (UK) and ARIS are not material.
<TABLE>
<CAPTION>
AS OF AND FOR THE
YEAR ENDED DECEMBER 31,
------------------------------------------
1996 1997 1998
----------- ----------- ------------
<S> <C> <C> <C>
Net sales:
United States...................... $38,570,000 $59,604,000 $ 90,479,000
Europe............................. 5,326,000 16,682,000 25,415,000
----------- ----------- ------------
$43,896,000 $76,286,000 $115,894,000
=========== =========== ============
Operating profit:
United States...................... $ 3,241,000 $ 7,319,000 $ 2,354,000
Europe............................. 232,000 1,128,000 528,000
=========== =========== ============
$ 3,473,000 $ 8,447,000 $ 2,882,000
=========== =========== ============
Identifiable assets:
United States...................... $18,035,000 $53,076,000 $ 58,711,000
Europe............................. 2,640,000 7,475,000 10,770,000
----------- ----------- ------------
$20,675,000 $60,551,000 $ 69,481,000
=========== =========== ============
</TABLE>
F-25
<PAGE> 166
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1997 AND 1998 (CONTINUED)
18. QUARTERLY INFORMATION (UNAUDITED)
The previously reported quarterly information has been adjusted to reflect
the poolings-of-interest with Barefoot and InTime (Note 2).
<TABLE>
<CAPTION>
1997
-----------------------------------------------------
Q1 Q2 Q3 Q4
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
As previously reported:
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................. $ 0.14 $ 0.17 $ 0.16 $ 0.14
Diluted earnings per
share................. $ 0.13 $ 0.16 $ 0.15 $ 0.13
Adjustment:
Net sales................ $ 4,855,000 $ 5,225,000 $ 5,264,000 $ 5,811,000
Gross profit............. 2,027,000 2,382,000 2,344,000 2,718,000
Net income............... 179,000 515,000 (240,000) 100,000
As adjusted:
Net sales................ $15,264,000 $18,732,000 $19,846,000 $22,444,000
Gross profit............. 7,487,000 9,630,000 10,187,000 11,516,000
Net income............... 1,223,000 1,818,000 1,347,000 1,511,000
Basic earnings per
share................. $ 0.14 $ 0.21 $ 0.12 $ 0.13
Diluted earnings per
share................. $ .013 $ 0.19 $ 0.11 $ 0.13
</TABLE>
<TABLE>
<CAPTION>
1998
-----------------------------------------------------
Q1 Q2 Q3 Q4
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
As previously reported:
Net sales................ $20,737,000 $29,162,000 $31,488,000 $29,894,000
Gross profit............. 11,704,000 15,078,000 16,982,000 14,011,000
Net income (loss)........ 1,045,000 (1,053,000) 2,457,000 (1,404,000)
Basic earnings (loss) per
share................. $ 0.10 $ (0.09) $ 0.22 $ (0.13)
Diluted earnings (loss)
per share............. $ 0.09 $ (0.09) $ 0.21 $ (0.13)
Adjustment:
Net sales................ $ 4,486,000 $ 127,000 -- --
Gross profit............. 2,008,000 848,000 -- --
Net income............... 401,000 (46,000) -- --
As adjusted:
Net sales................ $25,223,000 $29,289,000 $31,488,000 $29,894,000
Gross profit............. 13,712,000 15,926,000 16,982,000 14,011,000
Net income............... 1,446,000 (1,099,000) 2,457,000 (1,404,000)
Basic earnings per
share................. $ 0.14 $ (0.10) $ 0.22 $ (0.13)
Diluted earnings per
share................. $ 0.13 $ (0.10) $ 0.21 $ (0.13)
</TABLE>
F-26
<PAGE> 167
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
1. The unaudited financial information furnished herein, in the opinion of
management, reflects all adjustments consisting only of normal, recurring
adjustments which are necessary to state fairly the condensed consolidated
balance sheets, and condensed consolidated statements of income, statements
of cash flows and statement of changes in shareholders' equity of ARIS
Corporation ("ARIS" or the "Company") as of and for the periods indicated.
ARIS presumes that users of the interim financial information herein have
read or have access to the Company's audited consolidated financial
statements and Management's Discussion and Analysis of Financial Condition
and Results of Operations for the preceding fiscal year and that the adequacy
of additional disclosure needed for a fair presentation, except in regard to
material contingencies or recent significant events, may be determined in
that context. Accordingly, footnote and other disclosures which would
substantially duplicate the disclosures contained in the Company's Annual
Report on Form 10-K filed on March 31, 1999, have been omitted.
2. On February 28, 1998, the Company completed its acquisition of Barefoot
Computer Training Limited ("Barefoot"), a company that provides information
technology training services in London, England. The acquisition was
accounted for as a pooling-of-interests, in which the Company issued 278,611
shares of common stock in exchange for all of the outstanding share capital
of Barefoot. Accordingly, all periods included in the financial information
furnished herein have been restated to give effect to the acquisition.
On June 30, 1998, the Company completed a merger with InTime Systems
International, Inc. ("InTime"), a Delaware corporation having its principal
offices in West Palm Beach, Florida. InTime, now a division of the Company,
provides information technology and human resource management systems
consulting services focusing primarily on Oracle and PeopleSoft technologies.
The acquisition was accounted for as a pooling-of-interests, in which the
Company issued 786,710 shares of Common Stock in exchange for all of the
outstanding shares of InTime common stock and warrants (the "Warrants") to
purchase 718,997 shares of the Company's Common Stock in exchange for all of
the outstanding warrants to purchase shares of InTime common stock.
Accordingly, all periods included in the financial information furnished
herein have been restated to give effect to the merger.
On April 30, 1998, ARIS, through ARIS (UK) Limited, a wholly-owned
subsidiary, acquired all of the outstanding share capital of MMT Computer
(Reading) Limited, an information technology consulting company located in
Reading, England, in exchange for $2,499,000 cash (pound sterling 1,500,000).
The acquisition was accounted for under the purchase method of accounting.
Goodwill resulting from this acquisition is amortized over fifteen years.
On August 10, 1998, ARIS, through ARIS Software, Inc., a wholly-owned
subsidiary, acquired all of the assets of db-Centric, Inc., a decision
support systems administrative software company focusing on distributed data
warehouse management, in exchange for $1,000,000 cash. The acquisition was
accounted for under the purchase method of accounting. Goodwill resulting
from this acquisition is amortized over fifteen years.
F-27
<PAGE> 168
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
3. Basic earnings per share is calculated as income available to common
shareholders 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 conform with the current period
presentation.
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>
FOR THE SIX MONTHS
ENDED JUNE 30,
------------------
1999 1998
---------- ----------
<S> <C> <C>
Weighted average number of common
shares outstanding.............. 11,076,000 11,062,000
---------- ----------
Effect of dilutive securities:
Warrants........................ -- 187,000
Options......................... 344,000 820,000
---------- ----------
344,000 1,007,000
---------- ----------
Weighted average number of common
and common equivalent shares
outstanding..................... 11,420,000 12,069,000
========== ==========
</TABLE>
4. ARIS is engaged in three distinct businesses consisting of information
technology consulting services, information technology training and software
sales. Total revenue by segment represents sales to unaffiliated customers.
Inter-segment sales have been eliminated. Operating profit represents total
revenue less operating expenses. Summarized financial information by business
group for the six-months ended June 30, 1998 and 1999 follows:
<TABLE>
<CAPTION>
CONSULTING TRAINING SOFTWARE
GROUP GROUP GROUP CORPORATE TOTAL
----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Six months ended June 30, 1999:
Revenue.......................... $36,626,000 $18,869,000 $4,563,000 $60,058,000
Operating profit................. $ 4,463,000 $(1,683,000) $1,315,000 $ (708,000) $ 3,387,000
Six months ended June 30, 1998:
Revenue.......................... $29,105,000 $19,855,000 $5,436,000 $54,396,000
Operating profit................. $ 1,550,000 $ (797,000) $3,490,000 $(3,036,000) $ 1,207,000
</TABLE>
5. In August 1999, ARIS announced the closing of training centers in New York,
Minneapolis and Chicago. These centers had not been profitable during the six
months
F-28
<PAGE> 169
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
ended June 30, 1999. ARIS estimates that the costs of closing these centers
will be approximately $5,500,000, including estimated future payments of
$1,000,000 for employee severance and relocation, lease terminations,
termination of contract obligations, a bad debt writeoff of approximately
$500,000, and reductions in carrying value of assets of $4,000,000, comprised
of a write off of $3,000,000 in goodwill and $1,000,000 in leasehold
improvements. The estimated cost of closure will be charged to expense in the
quarter ending September 30, 1999, and the amount of the charge may vary from
ARIS' current estimate. Actual costs of closure also may vary from ARIS'
estimates.
6. The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards ("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. The Company has
adopted SFAS No. 130.
In June 1997, the Financial Accounting Standards Board 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
effective for fiscal years beginning after December 15, 1997. The Company has
adopted SFAS No. 131.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 establishes accounting and
reporting standards for derivative instruments for hedging activities. If
adopted by the Company, the Company expects that SFAS 133 will have no
material impact on its financial statements.
F-29
<PAGE> 170
FINE.COM INTERNATIONAL CORP.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-31
Consolidated Balance Sheets................................. F-32
Consolidated Statements of Operations....................... F-33
Consolidated Statements of Shareholders' Equity............. F-34
Consolidated Statements of Cash Flow........................ F-35
Notes to Consolidated Financial Statements.................. F-36
</TABLE>
F-30
<PAGE> 171
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
fine.com International Corp.
We have audited the accompanying consolidated balance sheets of fine.com
International Corp. as of January 31, 1998 and 1999, and the related
consolidated statements of operations, shareholders' equity and cash flows for
the years then ended. 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 in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of fine.com
International Corp. at January 31, 1998 and 1999, and the consolidated results
of its operations and its cash flows for the years then ended, in conformity
with generally accepted accounting principles.
ERNST & YOUNG LLP
Seattle, Washington
April 2, 1999, except for Note 5 as to
which the date is April 22, 1999
F-31
<PAGE> 172
FINE.COM INTERNATIONAL CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
------------------------ -----------
1998 1999 1999
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $1,571,861 $ 1,521,301 $ 704,708
Marketable securities............................. 1,593,032 -- --
Accounts receivable, less allowances for doubtful
accounts of $55,000, $108,000 and $88,000....... 1,097,354 1,952,694 1,218,078
Costs and profits in excess of billings on
uncompleted projects............................ 191,841 14,292 226,802
Prepaid expenses and other assets................. 157,780 68,830 87,085
Notes receivable from officer..................... 26,686 21,794 21,678
---------- ----------- -----------
Total current assets......................... 4,638,554 3,578,911 2,258,351
Marketable securities............................... 2,325,236 -- --
Equipment and furniture, net........................ 677,560 1,414,338 1,367,844
Other long-term assets.............................. 103,561 76,850 75,350
Deferred income tax assets.......................... 220,318 -- --
---------- ----------- -----------
Total assets................................. $7,965,229 $ 5,070,099 $ 3,701,545
========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank.............................. $ -- $ 500,000 $ --
Accounts payable.................................. 395,267 427,420 149,495
Accrued expenses.................................. 48,581 332,963 160,026
Advance payments.................................. 70,500 -- --
Billings on uncompleted contracts in excess of
costs and profits............................... 422,101 536,860 136,087
Contract loss reserve............................. -- 40,218 --
Deferred income tax liabilities................... 322,337 -- --
Current portion of capital lease obligations...... 71,166 57,602 32,341
---------- ----------- -----------
Total current liabilities.................... 1,329,952 1,895,063 477,949
Capital lease obligations, less current portion..... 70,436 52,228 45,264
---------- ----------- -----------
Total liabilities............................ 1,400,388 1,947,291 523,213
Shareholders' equity:
Common stock, no par value:
10,000,000 shares authorized, 2,633,720 shares
issued and outstanding at January 31, 1998,
2,669,590 shares issued and outstanding at
January 31, 1999 and 2,697,805 shares issued
and outstanding at April 30, 1999............ 6,737,929 6,906,409 6,946,409
Accumulated deficit............................... (143,592) (3,783,601) (3,768,077)
Accumulated other comprehensive loss.............. (29,496) -- --
---------- ----------- -----------
Total shareholders' equity................... 6,564,841 3,122,808 3,178,332
---------- ----------- -----------
Total liabilities and shareholders' equity... $7,965,229 $ 5,070,099 $ 3,701,545
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-32
<PAGE> 173
FINE.COM INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31, QUARTER ENDED APRIL 30,
----------------------------- --------------------------
1998 1999 1998 1999
------------ ------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Gross revenue.............. $6,023,402 $ 6,133,275 $1,331,793 $1,875,011
Direct salaries and
costs.................... 3,901,570 4,163,513 952,478 855,006
---------- ----------- ---------- ----------
Gross profit............. 2,121,832 1,969,762 379,315 1,020,005
Selling, general and
administrative expense... 2,243,480 5,776,428 962,345 1,004,246
---------- ----------- ---------- ----------
Operating income (loss).... (121,648) (3,806,666) (583,030) 15,759
Other income (expense):
Interest income.......... 176,535 168,125 94,602 --
Interest expense......... (63,725) (29,301) -- (235)
---------- ----------- ---------- ----------
Income (loss) before income
taxes.................... (8,838) (3,667,842) (488,428) 15,524
Provision (benefit) for
income taxes............. 46,567 (102,019) (120,000) --
---------- ----------- ---------- ----------
Net income (loss).......... $ (55,405) $(3,565,823) $ (368,428) $ 15,524
========== =========== ========== ==========
Basic and diluted net
income (loss) per
share.................... $ (0.03) $ (1.34) $ (0.14) $ 0.01
========== =========== ========== ==========
Shares used in computation
of net income (loss) per
share:
Basic.................... 1,921,577 2,668,411 2,664,754 2,687,103
Diluted.................. 1,921,577 2,668,411 2,664,754 2,692,843
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-33
<PAGE> 174
FINE.COM INTERNATIONAL CORP.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED OTHER
STOCK -- SERIES A COMMON STOCK ACCUMULATED TOTAL
------------------- ---------------------- ACCUMULATED INCOME SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT DEFICIT (LOSS) EQUITY
------- --------- --------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT FEBRUARY 1,
1997....................... 59,524 $ 239,918 1,309,196 $ 269,969 $ (88,187) $ -- $ 421,700
Conversion of Series A
convertible preferred
stock into common
stock.................... (59,524) (239,918) 59,524 239,918 -- -- --
Issuance of shares in
initial public offering,
net of offering costs of
$1,994,458............... -- -- 1,265,000 6,228,042 -- -- 6,228,042
Unrealized loss on
marketable securities.... -- -- -- -- -- (29,496) (29,496)
Net loss................... -- -- -- -- (55,405) -- (55,405)
-----------
Comprehensive loss......... -- -- -- -- -- -- (84,901)
------- --------- --------- ---------- ----------- -------- -----------
BALANCE AT JANUARY 31,
1998....................... -- -- 2,633,720 6,737,929 (143,592) (29,496) 6,564,841
Acquisition of Pacific
Analysis and Computing... -- -- 35,870 143,480 -- -- 143,480
Adjustment for Meta4 net
loss for the one month
ended July 31, 1998...... -- -- -- -- (74,186) -- (74,186)
Stock-based compensation
expense.................. -- -- -- 25,000 -- -- 25,000
Unrealized gain on
marketable securities.... -- -- -- -- -- 29,496 29,496
Net loss................... -- -- -- -- (3,565,823) -- (3,565,823)
-----------
Comprehensive loss......... -- -- -- -- -- -- (3,536,327)
------- --------- --------- ---------- ----------- -------- -----------
BALANCE AT JANUARY 31,
1999....................... -- -- 2,669,590 6,906,409 (3,783,601) -- 3,122,808
Stock-based compensation
expense (unaudited)...... -- -- 28,215 40,000 -- -- 40,000
Net income and
comprehensive income
(unaudited).............. -- -- -- -- 15,424 -- 15,524
------- --------- --------- ---------- ----------- -------- -----------
BALANCE AT APRIL 30, 1999
(UNAUDITED)................ -- $ -- 2,697,805 $6,946,409 $(3,768,077) $ -- $ 3,178,332
======= ========= ========= ========== =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-34
<PAGE> 175
FINE.COM INTERNATIONAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31, QUARTER ENDED APRIL 30,
----------------------------- -------------------------
1998 1999 1998 1999
------------- ------------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................... $ (55,405) $(3,565,823) $ (368,428) $ 15,524
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization........... 181,332 345,476 79,440 100,394
Deferred income taxes................... 46,567 (102,019) (120,000) --
Loss on disposal of property and
equipment............................. -- 101,075 -- --
Non cash stock-based compensation
expense............................... -- 25,000 -- 40,000
Net changes in operating assets and
liabilities:
Accounts receivable................... (321,130) (855,340) (33,604) 734,616
Costs and profits in excess of
billings........................... (174,021) 177,549 (103,158) (212,510)
Prepaid expenses and other assets..... (163,193) 43,244 (145,515) (18,255)
Deferred offering costs............... 25,114 -- -- --
Accounts payable...................... (3,181) 32,153 (16,703) (277,925)
Accrued expenses...................... 20,311 284,382 15,643 (172,937)
Advance payments...................... 70,500 (70,500) (70,500) --
Billings in excess of costs and
profits............................ 232,640 114,759 (31,452) (440,991)
Contract loss reserve................. -- 40,218 -- --
----------- ----------- ----------- ----------
Net cash used in operating activities..... (140,466) (3,429,826) (794,277) (232,084)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities........ (3,962,198) -- -- --
Sales of marketable securities............ -- 3,947,764 -- --
Purchases of equipment and furniture...... (529,574) (1,036,611) (494,020) (52,400)
Other assets.............................. (60,724) 50,711 (20,010) --
----------- ----------- ----------- ----------
Net cash provided by (used in) investing
activities.............................. (4,552,496) 2,961,864 (514,030) (52,400)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock,
net of issuance costs................... 6,228,042 -- -- --
Increase (decrease) in notes payable to
bank.................................... (140,286) 500,000 -- (500,000)
Increase (decrease) on capital lease
obligations............................. (70,887) (87,490) 13,067 (32,225)
Decrease in note receivable from
officer................................. 3,749 4,892 2,585 116
Repayment of note payable to director..... (15,000) -- -- --
----------- ----------- ----------- ----------
Net cash provided by (used in) financing
activities.............................. 6,005,618 417,402 15,652 (532,109)
----------- ----------- ----------- ----------
Net increase (decrease) in cash and cash
equivalents............................... 1,312,656 (50,560) (1,292,655) (816,593)
Cash and cash equivalents at beginning of
period.................................... 259,205 1,571,861 1,571,861 1,521,301
----------- ----------- ----------- ----------
Cash and cash equivalents at end of
period.................................... $ 1,571,861 $ 1,521,301 $ 279,206 $ 704,708
=========== =========== =========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................. $ 63,725 $ 29,301 $ 9,047 $ 9,106
Equipment acquired through capitalized
lease obligations....................... 59,206 55,718 -- --
Acquisition of Pacific Analysis and
Computing in February 1998, in exchange
for 35,870 shares of common stock....... -- 143,480 143,480 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-35
<PAGE> 176
FINE.COM INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1998 AND 1999
(INFORMATION AS OF APRIL 30, 1999 AND FOR THE THREE MONTHS
ENDED APRIL 30, 1998 AND 1999 IS UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
fine.com International Corp. (the "Company") was incorporated in the State
of Washington on October 15, 1994. The Company develops, maintains and hosts
World Wide Web ("Web") sites for major national and international corporate
clients and others, utilizing marketing expertise and state-of-the-art
interactive database compilation and dissemination techniques and technologies.
UNAUDITED INTERIM FINANCIAL STATEMENTS
The financial information as of April 30, 1999 and for the three months
ended April 30, 1998 and 1999 is unaudited, but includes all adjustments that
the Company considers necessary for a fair presentation of the financial
position at such dates and the operations and cash flows for the periods then
ended. Operating results for the three months ended April 30, 1999 are not
necessarily indicative of results that may be expected for the entire year.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
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 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.
REVENUE RECOGNITION
The Company accounts for long-term contracts under the
percentage-of-completion method. Estimated contract earnings are reviewed
periodically as work progresses. If such estimates indicate a loss would be
incurred on the contract, the estimated amount of such loss is recognized in the
period the estimated loss is determined. All other revenue is recorded on the
basis of time and material for the performance of services.
F-36
<PAGE> 177
FINE.COM INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998 AND 1999
(INFORMATION AS OF APRIL 30, 1999 AND FOR THE THREE MONTHS
ENDED APRIL 30, 1998 AND 1999 IS UNAUDITED)
RISKS AND UNCERTAINTIES
Financial instruments which potentially subject the Company to a
concentration of credit risk consist principally of accounts receivable. The
Company's customer base is dispersed across many different geographic areas
throughout the United States in a variety of industries. The Company does not
require collateral or other security to support credit sales, but provides an
allowance for bad debts based on historical experience and specific
identification. The following is a detail of customers which accounted for
greater than 10% of gross revenue in the respective fiscal years:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JANUARY 31,
------------------
1998 1999
----- -----
<S> <C> <C>
Customer A................................... 29% 19%
Customer B................................... 8 19
Customer C................................... 10 6
</TABLE>
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments with an original maturity
of three months or less to be cash equivalents. Excess cash is primarily
invested in treasury bills, securities of government agencies, and commercial
paper. Cash equivalents are carried at amortized cost, which approximates fair
market value.
MARKETABLE SECURITIES
Marketable securities, which consist primarily of U.S. Government agency
securities, are carried at market value. Market values are determined based on
quoted prices. Marketable securities are classified in the balance sheet as
current and non-current based on maturity dates and the Company's expectation of
sales and redemptions in the following year.
EQUIPMENT AND FURNITURE
Equipment and furniture are recorded at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of three to seven years. Leasehold improvements are amortized over
the lesser of the lease term or estimated useful life. Repairs and maintenance
that do not improve or extend the lives of the respective assets are expensed in
the period incurred.
INCOME TAXES
The Company accounts for income taxes under the liability method. Under the
liability method, deferred tax assets and liabilities are determined based on
differences
F-37
<PAGE> 178
FINE.COM INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998 AND 1999
(INFORMATION AS OF APRIL 30, 1999 AND FOR THE THREE MONTHS
ENDED APRIL 30, 1998 AND 1999 IS UNAUDITED)
between financial reporting and tax bases of assets and liabilities, and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts expected to be realized.
STOCK-BASED COMPENSATION
The Company has elected to apply the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123). Accordingly, the Company accounts for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. Compensation cost for stock options is measured as the
excess, if any, of the fair value of the Company's common stock at the date of
grant over the stock option exercise price. The FASB has proposed certain
amendments to APB No. 25 which would require, among other things, (a) variable
plan accounting for stock options which have been repriced, and (b) that stock
options granted to outside directors would be treated similar to those granted
to an outside consultant.
ADVERTISING
Advertising costs are expensed as incurred. Advertising expense was $37,474
and $171,158 in the fiscal years ended January 31, 1998 and 1999, respectively.
EARNINGS (LOSS) PER SHARE
Basic earnings per share is computed by dividing net income (loss)
available to common shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflects the potential
dilution of securities by including other common stock equivalents, including
stock options, warrants, and convertible preferred stock, in the weighted
average number of common shares outstanding for a period, if dilutive. For
fiscal years ended January 31, 1998 and 1999, all such potentially dilutive
securities were not included in earnings per share since they were antidilutive.
F-38
<PAGE> 179
FINE.COM INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998 AND 1999
(INFORMATION AS OF APRIL 30, 1999 AND FOR THE THREE MONTHS
ENDED APRIL 30, 1998 AND 1999 IS UNAUDITED)
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31, QUARTER ENDED APRIL 30,
----------------------------- -----------------------
1998 1999 1998 1999
------------ ------------- --------- ----------
<S> <C> <C> <C> <C>
Numerator:
Net income (loss)........... $ (55,405) $(3,565,823) $(368,428) $ 15,524
========== =========== ========= ==========
Denominator for basic
earnings (loss) per
share -- weighted average
common stock.............. 1,921,577 2,668,411 2,664,754 2,687,103
Effect of dilutive
securities -- employee
stock options............. -- -- -- 5,740
Denominator for diluted
earnings (loss) per
share..................... 1,921,577 2,668,411 2,664,754 2,692,843
Basic and diluted earnings
(loss) per share.......... $ (0.03) $ (1.34) $ (0.14) $ 0.01
</TABLE>
OTHER COMPREHENSIVE INCOME (LOSS)
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
which establishes standards for reporting and display of comprehensive income
and its components in the financial statements. The only item of other
comprehensive income (loss) which the Company currently reports is unrealized
gain (loss) on marketable securities.
BUSINESS SEGMENTS
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information, which establishes standards for reporting
information about operating segments in annual financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. Information related to segment disclosures
is contained in Note 11.
DERIVATIVES
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivatives and
Hedging Activities, which establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. Because the Company has never used nor currently intends to use
derivatives, management does not anticipate the adoption of this new standard
will have a significant effect on earnings or the financial position of
fine.com.
F-39
<PAGE> 180
FINE.COM INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998 AND 1999
(INFORMATION AS OF APRIL 30, 1999 AND FOR THE THREE MONTHS
ENDED APRIL 30, 1998 AND 1999 IS UNAUDITED)
LIQUIDITY
For the fiscal year ended January 31, 1999, the Company incurred a net loss
of $3,566,000. At January 31, 1999, the Company had cash and cash equivalents of
$1,521,000 and working capital of $1,684,000. The Company believes that its cash
and cash equivalents will be sufficient to fund its operations through January
31, 2000. The Company believes that it has taken appropriate action to realign
and strengthen the Company's operations, including a plan to strategically grow
sales, increase internal productivity and decrease its overhead cost structure.
However, there can be no assurances that the Company will be able to achieve
profitable operations. Further development and establishment of the Company's
business may require additional financing. The Company believes that additional
financing could be obtained from various sources, including certain existing
shareholders and other investors and financial institutions not yet identified.
In the event that additional financing is delayed or not able to be obtained on
satisfactory terms, if at all, the Company may need to reduce its expenditures.
There can be no assurance that additional capital on a debt or equity basis will
be obtained, or if obtained that it will be on economically viable terms.
2. BUSINESS COMBINATIONS
ACQUISITION OF PACIFIC ANALYSIS AND COMPUTING CORPORATION
On February 13, 1998, Pacific Analysis and Computing Corporation ("Pacific
Analysis") merged with and into the Company. The Company issued 35,870 shares of
its common stock valued at $143,480 in exchange for all outstanding Pacific
Analysis shares. The transaction was a tax-free reorganization and was accounted
for under the purchase method of accounting. The purchase price was allocated to
assets acquired and liabilities assumed based on their fair value at the date of
acquisition as follows: (a) net current assets $27,850, (b) property and
equipment $85,630, and (c) goodwill $30,000. The goodwill is being amortized
over five years. Pro forma revenue and results of operations for the fiscal year
ended January 31, 1998 do not significantly vary from the amounts reported in
the historical financial statements.
MERGER WITH META4 DIGITAL DESIGN, INC.
On July 31, 1998, Meta4 Digital Design, Inc. ("Meta4") was merged with and
into a wholly-owned subsidiary of the Company through the issuance of 253,655
shares of Company common stock, which were exchanged for all of the outstanding
shares of Meta4. The merger qualified as a tax-free reorganization and was
accounted for as a pooling-of-interests. Accordingly, the Company's financial
statements have been restated to include the results of Meta4 for all periods
presented.
Meta4 reported results on a calendar year basis. Accordingly, the restated
financial statements combine the December 31, 1997 financial statements of Meta4
with the January 31, 1998 financial statements of the Company. In addition, the
below table for
F-40
<PAGE> 181
FINE.COM INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998 AND 1999
(INFORMATION AS OF APRIL 30, 1999 AND FOR THE THREE MONTHS
ENDED APRIL 30, 1998 AND 1999 IS UNAUDITED)
fiscal 1999, combines Meta4 through June 30, 1998 with fine.com through July 31,
1998. Net sales and the net loss of Meta4 for the one-month period ended July
31, 1998 were $98,632 and ($74,186), respectively, with the net loss reflected
as an adjustment to retained earnings as of July 31, 1998. Beginning August 1,
1999, results of operations for the merged entities are combined for the same
quarterly periods.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31, 1998
-----------------------------------------------------------
ADJUSTMENTS
FINE.COM META4 (1) TOTAL
----------- ---------- --------------- -----------
<S> <C> <C> <C> <C>
Revenue................ $ 3,448,084 $2,575,318 $ -- $ 6,023,402
Net income (loss)...... $ 80,682 $ (165,955) $29,868 $ (55,405)
</TABLE>
<TABLE>
<CAPTION>
FOR YEAR ENDED JANUARY 31, 1999
-----------------------------------------------------------
ADJUSTMENTS
FINE.COM META4 (1) TOTAL
----------- ---------- --------------- -----------
<S> <C> <C> <C> <C>
Revenue
February 1, 1998 to
July 31, 1998........ $ 1,925,470 $ 802,939 $ -- $ 2,728,409
August 1, 1998 to
January 31, 1999..... 2,376,272 1,028,594 -- 3,404,866
----------- ---------- ------- -----------
$ 4,301,742 $1,831,533 $ -- $ 6,133,275
=========== ========== ======= ===========
Net income (loss)
February 1, 1998 to
July 31, 1998........ $(1,460,653) $ (193,524) $11,221 $(1,642,956)
August 1, 1998 to
January 31, 1999..... (1,545,051) (377,816) -- (1,922,867)
----------- ---------- ------- -----------
$(3,005,704) $ (571,340) $11,221 $(3,565,823)
=========== ========== ======= ===========
</TABLE>
- -------------------------
(1) There were no transactions between fine.com and Meta4 during any period
prior to the merger. Pro forma adjustments have been made to the historical
statements of operations to reflect the reversal of certain fees earned and
interest expense incurred by Meta4 related to transactions with one of its
shareholders. In addition, the impact of conforming accounting policies is
not material.
3. MARKETABLE SECURITIES
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. Management has classified the Company's marketable securities as
available-for-sale, in accordance with the provisions of SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities. Accordingly
the securities are carried at fair value, with unrealized holding gains and
losses, net income taxes, excluded from net income and recorded as an adjustment
to
F-41
<PAGE> 182
FINE.COM INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998 AND 1999
(INFORMATION AS OF APRIL 30, 1999 AND FOR THE THREE MONTHS
ENDED APRIL 30, 1998 AND 1999 IS UNAUDITED)
shareholder's equity. Interest, dividends and realized gains and losses are
included in net income.
The following is a summary of marketable securities at January 31, 1998,
all of which were classified as available-for-sale:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less....... $1,621,144 $ -- $(28,112) $1,593,032
Due after one year............ 2,341,815 5,147 (21,726) 2,325,236
---------- ------ -------- ----------
$3,962,959 $5,147 $(49,838) $3,918,268
========== ====== ======== ==========
</TABLE>
4. EQUIPMENT AND FURNITURE
Equipment and furniture consists of the following:
<TABLE>
<CAPTION>
JANUARY 31,
------------------------
1998 1999
---------- ----------
<S> <C> <C>
Computer equipment............................ $ 758,027 $1,137,418
Office furniture and equipment................ 176,923 305,629
Leasehold improvements........................ 84,273 664,405
---------- ----------
1,019,223 2,107,452
Accumulated depreciation and amortization..... (341,663) (693,114)
---------- ----------
$ 677,560 $1,414,338
========== ==========
</TABLE>
5. NOTE PAYABLE TO BANK
At January 31, 1999, the Company had in place a Revolving Line of Credit
with its bank in the amount of $750,000, of which $500,000 had been drawn upon.
Amounts outstanding under the credit facility at year-end bore interest at the
bank's prime rate plus 0.25% per annum (an effective rate of 8% at January 31,
1999). At fiscal 1999 year-end the Company was out of compliance with certain
covenants contained in its Revolving Line of Credit with its bank, including
requirements for minimum working capital, minimum tangible net worth and excess
losses in the fourth quarter. On April 2, 1999 the Company received a waiver on
its non-compliance with the bank covenants. The Company has renegotiated terms
with its bank and has received a commitment letter from the bank to enter into a
revised credit facility. The terms of the revised credit facility provide for a
line of credit in the amount of $750,000, to expire on September 1, 1999.
Amounts outstanding under the revised credit facility will continue to bear
interest at the bank's prime rate plus 0.25% per annum (an effective rate of 8%
at April 22, 1999). The facility is secured by all accounts receivable of the
Company and such other property and assets of
F-42
<PAGE> 183
FINE.COM INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998 AND 1999
(INFORMATION AS OF APRIL 30, 1999 AND FOR THE THREE MONTHS
ENDED APRIL 30, 1998 AND 1999 IS UNAUDITED)
the Company as the bank may require, and contains modified financial covenants
and restrictions, including a restriction on payment of dividends.
6. LEASE COMMITMENTS
The Company leases certain equipment and facilities under capital and
operating leases. The operating leases contain annual escalation clauses based
on inflation. The Company sublets a portion of its office space and offsets rent
expense through sublease billings. Net rent expense under the operating leases
amounted to $255,466 and $506,152 in fiscal 1998 and 1999, respectively.
Future minimum lease payments for operating and capital leases at January
31, 1999 are as follows:
<TABLE>
<CAPTION>
OPERATING LEASES
------------------------------------- CAPITAL
LEASES SUBLEASE NET LEASES
---------- --------- ---------- -------
<S> <C> <C> <C> <C>
2000........................... $ 598,095 $(162,661) $ 435,434 $73,092
2001........................... 584,143 (171,703) 412,440 31,103
2002........................... 489,588 (73,467) 416,121 23,257
2003........................... 297,542 -- 297,542 9,590
2004........................... 283,439 -- 283,439 --
Thereafter..................... 402,116 -- 402,160
---------- --------- ---------- -------
$2,654,923 $(407,831) $2,247,092 137,042
========== ========= ==========
</TABLE>
<TABLE>
<S> <C>
Less amount representing interest........................... (27,212)
--------
Present value of minimum capital lease obligations.......... 109,830
Less current portion........................................ (57,602)
--------
Capital lease obligations, less current portion............. $ 52,228
========
</TABLE>
7. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JANUARY 31,
--------------------
1998 1999
------- ---------
<S> <C> <C>
Current.......................................... $ -- $ --
Deferred......................................... 46,567 (102,019)
------- ---------
$46,567 $(102,019)
======= =========
</TABLE>
F-43
<PAGE> 184
FINE.COM INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998 AND 1999
(INFORMATION AS OF APRIL 30, 1999 AND FOR THE THREE MONTHS
ENDED APRIL 30, 1998 AND 1999 IS UNAUDITED)
The provision (benefit) for income taxes differs from the amount computed
by applying the federal statutory income tax rate to income before taxes as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JANUARY 31,
----------------------
1998 1999
------- -----------
<S> <C> <C>
Computed tax at federal statutory rate of 34%... $(3,005) $(1,247,066)
Increase in valuation allowance................. -- 1,106,020
Subchapter S losses not benefited............... 46,270 61,983
Other items, net................................ 3,302 (22,956)
------- -----------
$46,567 $ (102,019)
======= ===========
</TABLE>
The Company has elected to use the cash method of accounting for income tax
purposes because it currently qualifies for the small business exception. This
exception allows corporate taxpayers to use the cash method of accounting if
their gross receipts over the three immediately preceding tax table years do not
exceed $5,000,000 and they meet certain other requirements. The Company will
convert to the accrual method for income tax purposes when they no longer
satisfy the criteria for this exception. Deferred taxes reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes.
Meta4 elected to be taxed as a subchapter S corporation prior to the
business combination with fine.com. Accordingly, Meta4 did not record any income
tax benefit because the individual shareholders received the benefit for Meta4's
taxable losses.
Significant components of fine.com's net deferred income tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
JANUARY 31,
-----------------------
1998 1999
--------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward...................... $ 224,720 $1,311,030
Other................................................ 14,434 34,640
--------- ----------
239,154 1,345,670
Deferred tax liabilities:
Accrual to cash basis adjustments.................... (336,771) (239,650)
Other................................................ (4,402) --
--------- ----------
(341,173) (239,650)
Valuation allowance.................................... -- (1,106,020)
--------- ----------
Net deferred tax assets (liabilities).................. $(102,019) $ --
========= ==========
</TABLE>
F-44
<PAGE> 185
FINE.COM INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998 AND 1999
(INFORMATION AS OF APRIL 30, 1999 AND FOR THE THREE MONTHS
ENDED APRIL 30, 1998 AND 1999 IS UNAUDITED)
At January 31, 1999, the Company had net operating loss carryforwards of
approximately $3,856,000 which begin to expire in 2011. Utilization of these
carryforwards depends on the recognition of future taxable income. The Company's
ability to utilize net operating loss carryforwards may be limited in the event
that a change in ownership, as defined in the Internal Revenue Code, occurs in
the future. To the extent that any single-year loss is not utilized to the full
amount of the limitation, such unused loss is carried forward to subsequent
years until the earlier of its utilization or the expiration of the relevant
carryforward period.
8. SHAREHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
On January 31, 1997, the Company completed a private placement for the
issuance and sale of 59,524 shares of Series A Preferred Stock of the Company
for $250,000 less offering costs of $10,082. Upon the effectiveness of the
Company's Registration Statement relating to the Company's initial public
offering of the common stock, all outstanding shares of the Series A Preferred
Stock automatically converted into shares of common stock, at a one-to-one
conversion ratio. In addition, upon the effective date of the Registration
Statement, the authority of the Company to issue preferred stock terminated and
the number of authorized shares of preferred stock were converted into
additional authorized shares of common stock.
INITIAL PUBLIC OFFERING
On August 11, 1997, the Company's Registration Statement on Form SB-2
(Registration No. 333-26855) for its initial public offering was declared
effective by the Securities and Exchange Commission and the Company issued
1,100,000 shares of common stock to the public at the initial public offering
price of $6.50 per share. On August 25, 1997, pursuant to the exercise of an
over-allotment option granted to the underwriters in the Company's public
offering, the Company issued an additional 165,000 shares of common stock at a
price of $6.50 per share. Proceeds to the Company, net of offering expenses of
$1,994,458, amounted to $6,228,042.
In connection with the initial public offering, the Company agreed to sell
warrants to the underwriters for $110. The underwriters' warrants entitle them
to purchase 110,000 shares at $8.775 per share. The warrants are limited to a
term of five years beginning August 11, 1997, and are exercisable for a four
year period commencing August 11, 1998.
STOCK OPTION PLANS
In February 1996, the Board of Directors approved the 1996 Incentive Stock
Option Plan (the "1996 Plan") and reserved 227,258 shares of common stock for
issuance thereunder. In April 1997, the Company adopted the 1997 Option Plan
(the "1997 Plan")
F-45
<PAGE> 186
FINE.COM INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998 AND 1999
(INFORMATION AS OF APRIL 30, 1999 AND FOR THE THREE MONTHS
ENDED APRIL 30, 1998 AND 1999 IS UNAUDITED)
and reserved 200,000 shares of common stock for issuance thereunder. The Plans
provide for the grant of both incentive stock options and nonqualified stock
options to officers, employees, and consultants. A committee of the Board of
Directors determines the terms and conditions of options granted under the
Plans, including the exercise price. The exercise price for incentive stock
options shall not be less than the fair market value of common stock at the date
of grant unless the incentive stock option is granted to a person who owns
greater than 10% of the Company for which the exercise price shall not be less
than 110% of the fair market value at the date of grant. The exercise price of
nonqualified stock options shall not be less than 85% of the fair market value
of the common stock at the date of grant. Pursuant to the terms of the
Underwriting Agreement with the Company's underwriters in the initial public
offering, the Company agreed to grant options under the stock option plans at
not less than the IPO price per share of $6.50 for a period of 18 months
following the effective date of the Registration Statement. In addition,
pursuant to the terms of the Underwriting Agreement, the Company was restricted
for a period of 18 months from the effective date of the Registration Statement
from granting options under the 1996 Plan in excess of 124,707. Options expire
between five and ten years from the date of grant. Options under the 1996 and
1997 Plans, excluding options to directors which vest upon grant, and subject to
the maintenance of a continuous relationship from the date of grant, vest
according to a schedule which provides that 5% of the total number of shares
granted will vest after one year, 15% will vest after two years, 30% after three
years, 50% is vested after four years, and the option grant is fully vested
after five years from the date of grant. Options which are granted under the
Plans and are subsequently cancelled, revert back to the option pool.
Effective February 26, 1999, the Company implemented a number of changes to
its stock option plans. These changes included: (a) the repricing of all stock
options granted after the IPO under either the 1996 Plan or 1997 Plan 1hich were
held by current employees (but not officers and directors) of the Company to an
exercise price of $2.50, the fair market price at the date of the repricing, (b)
amendments to the existing stock option vesting schedules to provide for vesting
at a rate of 25% per year over four years relating back to the date of original
grant for all employees (excluding directors and officers) and all future option
grants, and (c) the implementation of a new Employee Bonus Plan which provides
for the issuance of up to 126,435 nonqualified stock options to employees or
consultants (but not officers and directors). In connection with the above stock
option plan changes: (a) 7,216 pre-IPO stock options were not repriced and
remained exercisable at $1.76 per share, (b) 99,000 employee options outstanding
were repriced to an exercise price of $2.50 per share, (c) 126,435 employee
options were granted at $2.50 per share under the new Employee Bonus Plan in
order to more equitably allocate options among employees based on their
respective positions with fine.com and (d) 106,311 currently outstanding stock
options to officers and directors were not repriced and remained at $6.50 per
share.
F-46
<PAGE> 187
FINE.COM INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998 AND 1999
(INFORMATION AS OF APRIL 30, 1999 AND FOR THE THREE MONTHS
ENDED APRIL 30, 1998 AND 1999 IS UNAUDITED)
A summary of stock option activity follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
SHARES ----------------------------
AVAILABLE WEIGHTED-AVERAGE EXERCISE
FOR GRANT NUMBER OF SHARES PRICES
--------- ---------------- --------
<S> <C> <C> <C>
BALANCE AT FEBRUARY 1, 1997.............. 102,551 124,707 $1.76
1997 Plan introduction................... 200,000 -- --
Granted in fiscal 1998................... (90,793) 90,793 $6.50
Cancelled in fiscal 1998................. 31,642 (31,642) $4.11
-------- --------
BALANCE AT JANUARY 31, 1998.............. 243,400 183,858 $3.89
Granted in fiscal 1999................... (186,250) 186,250 $6.50
Cancelled in fiscal 1999................. 116,595 (116,595) $4.47
-------- --------
BALANCE AT JANUARY 31, 1999.............. 173,745 253,513 $5.55
======== ========
</TABLE>
The following table summarizes information concerning currently outstanding
and exercisable options at January 31, 1999:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
----------------------------- ----------------------------
WEIGHTED-AVERAGE WEIGHTED-
WEIGHTED-AVERAGE NUMBER REMAINING NUMBER AVERAGE
EXERCISE PRICES OF OPTIONS CONTRACTUAL LIFE OF OPTIONS EXERCISE PRICES
---------------- ---------- ---------------- ---------- ---------------
<S> <C> <C> <C> <C>
$1.76 50,977 7.33 years 47,456 $1.76
$6.50 202,536 9.34 years 46,861 $6.50
------- ------
253,513 8.94 years 94,317
======= ======
</TABLE>
COMMON STOCK RESERVED FOR FUTURE ISSUANCE
The Company has reserved shares of common stock as of January 31, 1999 as
follows:
<TABLE>
<S> <C>
Stock options................................. 427,258
Common stock warrants......................... 110,000
-------
537,258
=======
</TABLE>
The above table excludes an additional 126,435 shares of common stock which
were reserved for future issuance pursuant to the new Employee Bonus Plan, of
which stock options for all 126,435 shares were granted on February 26, 1999.
PRO FORMA DISCLOSURE UNDER SFAS NO. 123
Pro forma information regarding earnings per share is required by SFAS No.
123, and has been determined as if the Company had accounted for its employee
stock options under the fair value method of that Statement. The value for these
options was estimated
F-47
<PAGE> 188
FINE.COM INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998 AND 1999
(INFORMATION AS OF APRIL 30, 1999 AND FOR THE THREE MONTHS
ENDED APRIL 30, 1998 AND 1999 IS UNAUDITED)
at the date of grant using a Black-Scholes option pricing model with the
following weighted average assumptions:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,1999
---------------------------------
1998 1999
------------- --------------
<S> <C> <C>
Expected dividend yield............... 0% 0%
Expected stock price volatility....... 0.437 - 0.676 0.878 - 01.401
Risk-free interest rate............... 5.7% - 6.5% 4.5% - 5.7%
Expected life of options.............. 5 years 5 years
</TABLE>
For purposes of pro forma disclosures, the estimated weighted average value
of the options granted of $2.32 and $3.12 per share during 1998 and 1999,
respectively, is amortized to expense over the options' vesting period. The
effects of applying the Statement for providing pro forma disclosure are not
indicative of future amounts until the new rules are applied to all outstanding
nonvested awards. The Company's pro forma information is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-----------------------------
1998 1999
--------- ------------
<S> <C> <C>
Net loss -- as reported.................. $(55,405) $(3,565,823)
Net loss -- pro forma.................... $(84,405) $(3,713,149)
Diluted loss per share -- as reported.... $ (0.03) $ (1.34)
Diluted loss per share -- pro forma...... $ (0.04) $ (1.39)
</TABLE>
During fiscal 1999, the Company recorded a noncash stock-based compensation
charge of $25,000 related to the modification of stock options in connection
with the termination benefits to an employee.
9. TRANSACTIONS WITH OFFICERS AND DIRECTORS
At January 31, 1998 and 1999, the Company had a note receivable from an
officer which was non-interest bearing.
10. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) savings plan covering substantially all of its
employees. Eligible employees may contribute through payroll deductions. The
Company matches employees' contributions at the discretion of the Company's
Board of Directors. To date, the Company has not matched employee contributions
to the 401(k) savings plan.
F-48
<PAGE> 189
FINE.COM INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998 AND 1999
(INFORMATION AS OF APRIL 30, 1999 AND FOR THE THREE MONTHS
ENDED APRIL 30, 1998 AND 1999 IS UNAUDITED)
11. BUSINESS SEGMENTS
The Company markets its services through direct and indirect channels
throughout the world. Information regarding revenues in different geographic
regions is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31, QUARTER ENDED APRIL 30,
------------------------------ ------------------------
1998 1999 1998 1999
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
North America............. $6,023,402 $5,892,129 $1,291,793 $1,561,448
Rest of world............. -- 241,146 40,000 313,563
---------- ---------- ---------- ----------
Total revenue........... $6,023,402 $6,133,275 $1,331,793 $1,875,011
========== ========== ========== ==========
</TABLE>
The Company reports operating results based on geographic areas which are
primarily its PacWest (headquarters) and NorthEast (Meta4) office locations. The
"Other" segment below includes the operations of its MidAtlantic office as well
as offices that were closed during fiscal 1999. A summary of key financial data
by segment is as follows:
<TABLE>
<CAPTION>
PACWEST NORTHEAST OTHER TOTAL
----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
FISCAL YEAR ENDED JANUARY 31,
1998:
Revenue......................... $ 3,448,084 $ 2,575,318 $ -- $ 6,023,402
Operating loss.................. (12,898) (108,750) -- (121,648)
Interest, net................... 140,147 (27,337) -- 112,810
Depreciation and amortization... 88,286 93,046 -- 181,332
Purchases of property and
equipment..................... 443,180 86,394 -- 529,574
Long-lived assets............... 496,145 284,976 -- 781,121
Total Assets.................. 7,351,508 613,721 -- 7,965,229
FISCAL YEAR ENDED JANUARY 31,
1999
Revenue......................... $ 3,655,798 $ 1,831,533 $ 645,944 $ 6,133,275
Operating loss.................. (2,432,644) (544,312) (829,690) (3,806,666)
Interest, net................... 164,766 (27,028) 1,086 138,824
Depreciation and amortization... 225,088 105,541 14,847 345,476
Purchases of property and
equipment..................... 878,735 91,963 65,913 1,036,611
Long-lived assets............... 1,228,981 262,207 -- 1,491,188
Total Assets.................. 4,454,846 548,178 67,075 5,070,099
</TABLE>
F-49
<PAGE> 190
FINE.COM INTERNATIONAL CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1998 AND 1999
(INFORMATION AS OF APRIL 30, 1999 AND FOR THE THREE MONTHS
ENDED APRIL 30, 1998 AND 1999 IS UNAUDITED)
A summary of key financial data by segment for the quarters is as follows:
<TABLE>
<CAPTION>
PACWEST NORTHEAST OTHER TOTAL
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
QUARTER ENDED APRIL 30, 1998:
Revenue...................... $ 925,955 $ 390,478 $ 15,360 $1,331,793
Operating loss............... (56,828) (136,125) (175,475) (368,428)
QUARTER ENDED APRIL 30, 1999:
Revenue...................... 1,274,226 485,117 115,668 1,875,011
Operating income (loss)...... (17,068) 23,175 9,417 15,524
</TABLE>
12. SUBSEQUENT EVENT (UNAUDITED)
On May 17, 1999, the Company entered into a definitive agreement with ARIS
Corporation, a leading provider of international IT consulting, training and
software, for the acquisition of the Company by ARIS, for up to $12.25 million.
Under the terms of the agreement, the purchase price is to be paid in exchange
for up to one million shares of ARIS common stock, or a combination of 1 million
ARIS shares plus up to $5.25 million cash, depending upon the average closing
price of ARIS common stock prior to closing of the acquisition. The transaction
is subject to approval of the Company's shareholders as well as other customary
closing conditions, including favorable tax treatment of the acquisition. The
Company expects to call a special meeting of shareholders in the third quarter
of the 1999 calendar year to vote on the transaction. Assuming shareholder
approval and satisfaction of other closing conditions, the transaction is
expected to close in the third calendar quarter of 1999.
F-50
<PAGE> 191
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
AMONG
ARIS CORPORATION,
FINE.COM INTERNATIONAL CORP.,
ARIS INTERACTIVE, INC.,
DANIEL M. FINE,
FRANK HADAM,
AND
HERBERT L. FINE
AUGUST 5, 1999
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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
Agreement entered into on as of August 5, 1999 by and among ARIS
Corporation, a Washington corporation (the "Acquiror"), ARIS Interactive, Inc.,
a Washington corporation ("Acquiror Sub"), fine.com International Corp., a
Washington corporation (the "Target"), Daniel M. Fine, Frank Hadam and Herbert
L. Fine (collectively, the "Major Shareholders"). The Acquiror, Acquiror Sub and
the Target are referred to collectively herein as the "Parties." This Agreement
amends and restates in its entirety that certain Agreement and Plan of Merger,
dated as of May 17, 1999, among the Parties and the Major Shareholders.
References herein to "the date of this Agreement" and "the date hereof" refer to
May 17, 1999.
This Agreement contemplates a tax-deferred merger of the Target with and
into the Acquiror Sub in a reorganization pursuant to Internal Revenue Code
Sections 368(a)(1)(A) and 368(a)(2)(D). The Target Shareholders will receive
capital stock in the Acquiror or a combination of cash and stock in exchange for
their capital stock in the Target.
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 and the Major Shareholders agree as
follows.
1. Definitions.
"Acquisition Proposal" has the meaning set forth in Section 5(h) below.
"Affiliate" has the meaning set forth in Rule 145 of the regulations
promulgated under the Securities Act.
"Alternative Transaction" has the meaning set forth in Section 7(c)(iii)
below.
"Articles of Merger" has the meaning set forth in Section 2(c) below.
"Average Price" means the average of the per share daily closing prices of
Acquiror Shares as reported by Nasdaq for each trading day during the
Measurement Period.
"Acquiror" has the meaning set forth in the preface above.
"Acquiror-owned Share" means any Target Share that the Acquiror owns
beneficially (except by virtue of having a proxy to vote such Target Share).
"Acquiror Share" means any share of the Common Stock, without par value, of
the Acquiror.
"Acquiror Sub" has the meaning set forth in the preface above.
"Base Consideration" has the meaning set forth in Section 2(d)(v) below.
"Base Share Consideration" has the meaning set forth in Section 2(d)(v)
below.
"Cash Consideration" has the meaning set forth in Section 2(d)(v) below.
"Closing" has the meaning set forth in Section 2(b) below.
"Closing Date" has the meaning set forth in Section 2(b) below.
"Code" has the meaning set forth in Section 3(m) below.
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"Compensation or Benefit Plans" has the meaning set forth in Section
3(m)(i) 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.
"Damages" has the meaning set forth in Section 9(a)(iii) below.
"Definitive Target Materials" means the definitive prospectus/proxy
statement relating to the Special Target Meeting.
"Disclosure Document" means the disclosure document combining the
Prospectus and the Definitive Target Materials.
"Disclosure Schedule" has the meaning set forth in Section 3 below.
"Dissenting Share" means any Target Share as to which any shareholder has
exercised his or its appraisal rights under Section 23B.13.010, et. seq. of the
Washington Business Corporation Act.
"Effective Time" has the meaning set forth in Section 2(d)(i) below.
"ERISA" has the meaning set forth in Section 3(m)(i) below.
"Employees" has the meaning set forth in Section 3(m)(i) below.
"Exchange Agent" has the meaning set forth in Section 2(e)(i) below.
"Fairness Opinion" has the meaning set forth in Section 2(a) below.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"IRS" means the Internal Revenue Service.
"Knowledge" means actual knowledge of any of the Major Shareholders,
Timothy J. Carroll, Kathy Berni or Bill Poole after reasonable investigation.
"Major Shareholders" means Daniel M. Fine, Frank Hadam and Herbert L. Fine.
"Measurement Period" means the period of ten trading days ending on the
second trading day prior to the Special Target Meeting.
"Merger" has the meaning set forth in Section 2(a) below.
"Merger Consideration" has the meaning set forth in Section 2(d)(v) below.
"Most Recent Fiscal Year End" has the meaning set forth in Section 3(g)
below.
"Option Conversion Ratio" means (i) the Share Consideration plus (ii) the
Cash Consideration divided by the Average Price.
"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.
"Pension Plan" has the meaning set forth in Section 3(m)(ii) below.
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"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).
"Plans" has the meaning set forth in Section 3(m)(i) below.
"Products" means any products offered or furnished by the Target or its
Subsidiaries, or any predecessor in interest of the Target or its Subsidiaries,
or any predecessor in interest of the Target or any of its Subsidiaries,
currently or at any time in the past, including, without limitation, each item
of hardware, software, or firmware; any system, equipment, or products
consisting of or containing one or more thereof; and any and all enhancements,
upgrades, customizations, modifications, and maintenance thereto.
"Prospectus" means the final prospectus relating to the registration of the
Acquiror Shares under the Securities Act.
"Public Report" has the meaning set forth in Section 3(e) below.
"Registration Statement" has the meaning set forth in Section 5(c)(i)
below.
"Requisite Target Shareholder Approval" means the affirmative vote of the
holders of a two-thirds majority of the Target Shares in favor of this Agreement
and the Merger.
"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.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen'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.
"Services" means any services offered or furnished by the Target or its
Subsidiaries, or any predecessor in interest of the Target, currently or at any
time in the past.
"Share Consideration" has the meaning set forth in Section 2(d)(v) below.
"Special Target Meeting" has the meaning set forth in Section 5(c)(ii)
below, including any postponement or adjournment thereof.
"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 Intellectual Property Rights" has the meaning set forth in Section
3(j)(ii) below.
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"Target Option" means options to purchase Target Shares outstanding
immediately prior to the Effective Time under the Target's 1996 Incentive Stock
Option Plan, 1997 Stock Option Plan and 1998 Employee Bonus Plan.
"Target Share" means any share of the Common Stock, par value $.01 per
share, of the Target.
"Target Shareholder" means any Person who or which holds any Target Shares.
"Target Warrant" means warrants granted by Target to purchase Target Shares
outstanding immediately prior to the Effective Time, as described on the
attached Schedule 3(b).
"Third-Party Intellectual Property Rights" has the meaning set forth in
Section 3(j)(ii) below.
"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 Acquiror Sub (the "Merger") at
the Effective Time. Acquiror Sub shall be the corporation surviving the Merger
(the "Surviving Corporation"). The Target hereby represents and warrants to the
Acquiror and Acquiror Sub that its Board of Directors, at a meeting duly called
and held, has (i) unanimously reconfirmed its determination that this Agreement,
as amended and restated as of August 3, 1999, and the transactions contemplated
hereby, including the Merger, are fair to and in the best interest of the
Target's shareholders, (ii) unanimously adopted and approved this Agreement as
so amended and restated and the transactions contemplated hereby, including the
Merger, which approval satisfies in full the requirements of the Washington
Business Corporation Act, including without limitation, the requirements of
Section 23B.08.720 thereof and (iii) unanimously reconfirmed its resolution to
recommend approval of this Agreement as so amended and restated and the Merger
by the Target Shareholders. The Target further represents that (i) the Target's
financial advisor has delivered to the Target's Board of Directors its written
or oral opinion (the "Fairness Opinion") that the consideration to be paid in
the Merger is fair to the holders of Target Shares from a financial point of
view; and (ii) the Target has been advised by each of the Major Shareholders and
each of its directors and executive officers intend to vote his or her Target
Shares to approve the Merger.
(b) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of the Acquiror in
Bellevue, Washington, commencing at 9:00 a.m. local time on the 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"); provided, however, that the Closing Date shall be no earlier
than August 15, 1999.
(c) Actions at the Closing. At the Closing, (i) the Target will deliver to
the Acquiror the various certificates, instruments, and documents referred to in
Section 6(a) below, (ii) the Acquiror will deliver to the Target the various
certificates, instruments, and documents referred to in Section 6(b) below,
(iii) Acquiror Sub and the Target will file
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with the Secretary of State of the State of Washington Articles of Merger
substantially in the form attached hereto as Exhibit A (the "Articles of
Merger"), and (iv) the Acquiror will deliver to the Exchange Agent in the manner
provided below in this Section 2 the certificate evidencing the Acquiror Shares
issued in the Merger.
(d) Effect of Merger.
(i) General. The Merger shall become effective at the time (the
"Effective Time") the Acquiror Sub and the Target file the Articles of
Merger with the Secretary of State of the State of Washington. The Merger
shall have the effect set forth in the Washington Business Corporation Act.
The Surviving Corporation may, at any time after the Effective Time, take
any action (including executing and delivering any document) in the name
and on behalf of either Acquiror Sub 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
Acquiror Sub 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 Acquiror Sub 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 Acquiror
Sub 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
Acquiror-owned Share) shall be converted into the right to receive the
following consideration (the "Merger Consideration"):
(1) that number of Acquiror Shares equal to the lesser of (x)
.3717 or (y) $4.5531 divided by the Average Price (such lesser
number of Acquiror Shares being hereinafter referred to as the
"Base Share Consideration"), plus
(2) an amount in cash equal to the lesser of (x) $1.1150 or
(y) the amount (if any) by which $4.5531 exceeds the Base Share
Consideration multiplied by the Average Price (such lesser amount
being hereinafter referred to as the "Cash Consideration"), plus
(3) an additional number of Acquiror Shares (if a positive
number) equal to (x) $4.5531 minus the Base Consideration (as
defined below), divided by (y) the Average Price (such additional
number of Acquiror Shares (if any) plus the Base Share
Consideration being hereinafter referred to as the "Share
Consideration"). "Base Consideration" means an amount equal to (x)
the Base Share Consideration multiplied by the Average Price, plus
(y) the Cash Consideration.
At the Effective Time and without any action on the part of the holder, Target
Shares held by such holder shall cease to be outstanding and shall constitute
only the right to
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receive without interest, the Merger Consideration multiplied by the number of
Target Shares held by such holder and cash in lieu of a fractional share.
(B) 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 Washington Business Corporation
Act, and
(C) each Acquiror-owned Share shall be canceled; provided, however,
that the Merger Consideration shall be subject to equitable adjustment
in the event of any stock split, stock dividend, reverse stock split, or
other change in the number of Target Shares outstanding. 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.
(vi) Replacement of Target Options. At the Effective Time and without
any action on the part of the holder, all Target Options shall terminate
and cease to be exercisable, no Target Option shall be accelerated in
vesting (other than Target Options held by employees that Acquiror notifies
Target will not be continued as employees of the Surviving Corporation, and
Target Options held by Timothy J. Carroll that vest automatically pursuant
to his employment agreement), and the Target's Board of Directors shall
take or cause to be taken such actions as may be required to cause such
result. The Acquiror shall cause to be granted under the Acquiror's Stock
Option Plan to each holder of Target Options, options to purchase a number
of Acquiror Shares equal to that number of Target Shares issuable upon
exercise of such holder's Target Options multiplied by the Option
Conversion Ratio at an exercise price per Acquiror Share equal to the
exercise price per Target Share of such outstanding Target Option divided
by the Option Conversion Ratio, and having the same vesting schedule as the
Target Options replaced.
(vii) Replacement of Target Warrants. At the Effective Time and
without any action on the part of the holder, each outstanding Target
Warrant shall be converted into the right to purchase the Merger
Consideration in lieu of each Target Share issuable upon exercise of such
Target Warrant upon payment of the exercise price per Target Share of such
outstanding Target Warrant.
(viii) Shares of Acquiror Sub. Each issued and outstanding share of
capital stock of Acquiror Sub at and as of the Effective Time will remain
issued and outstanding and held by the Acquiror.
(e) Procedure for Payment.
(i) Immediately after the Effective Time, (A) the Acquiror will
furnish to ChaseMellon Shareholder Services (the "Exchange Agent") a stock
certificate (issued in the name of the Exchange Agent or its nominee)
representing that number of Acquiror Shares equal to the product of (I) the
Share Consideration times (II) the number of outstanding Target Shares
(other than any Dissenting Shares and Acquiror-owned Shares) and cash in
the amount equal to the product of (III) the Cash Consideration (if any)
times (IV) the number of outstanding Target Shares (other than any
Dissenting Shares and Acquiror-owned Shares), and (B) the Acquiror will
cause the Exchange Agent to mail a letter of transmittal (with instructions
for its use) in customary form reflecting the terms of the Merger to each
record holder of outstanding Target Shares for the holder to use in
surrendering the certificates which represented his or its Target Shares in
exchange for a certificate
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representing the number of Acquiror Shares and a check for the amount of
cash (if any) to which he or it is entitled, plus cash in lieu of
fractional shares (if any). Certificates representing securities held by an
Affiliate of the Target shall not be exchanged until the Acquiror has
received an agreement from such Affiliate in the form of Exhibit B hereto.
(ii) The Acquiror will not pay any dividend or make any distribution
on Acquiror 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
Acquiror 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 Acquiror may cause the Exchange Agent to invest any cash the
Exchange Agent receives from the Acquiror as a dividend or distribution in
one or more of the permitted investments designated by the Acquiror;
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 Acquiror may
cause the Exchange Agent to pay over to the Acquiror any net earnings with
respect to the investments, and the Acquiror 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) No fractional shares shall be issuable by the Acquiror pursuant
hereto. In lieu of issuing fractional shares, a cash adjustment will be
paid equal to the fraction of one Acquiror Share that would otherwise be
issuable, multiplied by the Average Price.
(iv) The Acquiror may cause the Exchange Agent to return any Acquiror
Shares and dividends and distributions thereon and any cash remaining
unclaimed 180 days after the Effective Time, and thereafter each remaining
record holder of outstanding Target Shares shall be entitled to look to the
Acquiror (subject to abandoned property, escheat, and other similar laws)
as a general creditor thereof with respect to the Acquiror Shares and
dividends and distributions thereon and any cash to which he or it is
entitled upon surrender of his or its certificates.
(v) Notwithstanding anything in this Agreement to the contrary, Target
Shares that are Dissenting Shares immediately prior to the Effective Time
shall not be converted into Acquiror Shares and cash (if any) pursuant to
the Merger, and the holders of such Dissenting Shares shall be entitled to
receive payment of the fair value of their Dissenting Shares in accordance
with the provisions of the Washington Business Corporation Act; unless and
until such holders shall fail to perfect, lose, or withdraw their rights
thereunder. If, after the Effective Time, any holder of Dissenting Shares
shall fail to perfect, lose or withdraw his or its right to be paid fair
value, then such Dissenting Shares no longer shall be deemed to be
Dissenting Shares, and shall be treated as if they had been converted at
the Effective Time into the right to receive the consideration being paid
for Target Shares in the Merger, without any interest, and the Acquiror
shall take all necessary action to effect the exchange of Acquiror Shares
and cash (if any) for the Target Shares. The Target shall give the Acquiror
prompt written notice of any demands for payment of fair value for any
Target Shares, and the Acquiror shall have the right to participate in all
negotiations or proceedings with respect to such demands. Without the prior
written consent of the
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Acquiror, the Target shall not settle, offer to settle or make any payment
with respect to any such demands.
(vi) The Acquiror shall pay all charges and expenses of the Exchange
Agent.
(f) Closing of Transfer Records. After the close of business on the Closing
Date, transfers of Target Shares outstanding prior to the Effective Time shall
not be made on the stock transfer books of the Surviving Corporation.
3. Representations and Warranties of the Target and the Major
Shareholders. The Target and each of the Major Shareholders, jointly and
severally, represent and warrant to the Acquiror 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) 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
Subsidiary is identified by name and jurisdiction of incorporation in the
Disclosure Schedule. 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 failure to be so qualified
would not have a material adverse effect on the Target and its Subsidiaries
taken as a whole. 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. The Target's Articles of
Incorporation and Bylaws are in the form filed as exhibits to its Public
Reports.
(b) Capitalization. The entire authorized capital stock of the Target
consists of 10,000,000 Target Shares, of which 2,669,590 Target Shares are
issued and outstanding as of the date of this Agreement. All of the issued and
outstanding Target Shares have been duly authorized and are validly issued,
fully paid, and nonassessable. Except as set forth on Disclosure Schedule 3(b),
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 Target to issue, sell, or otherwise cause to
become outstanding any of its capital stock. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or similar
rights with respect to the Target or any of its Subsidiaries. All of the
outstanding shares of capital stock of each of the Target's Subsidiaries have
been duly authorized and are validly issued, fully paid and nonassessable and
are legally and beneficially owned by the Target or another wholly owned
Subsidiary of the Target, free and clear of all Security Interests or any right
or option of any person to purchase or otherwise acquire any such capital stock.
There are no outstanding or authorized options, warrants, purchase rights,
subscriptions rights, conversion rights, exchange rights or other contracts or
commitments that could require any Subsidiary of the Target to issue, sell or
otherwise cause to become outstanding any of its capital stock, or that could
require the Target or any Subsidiary of the Target to transfer any capital stock
of any Subsidiary of the Target.
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(c) Authorization of Transaction. Subject only to Requisite Target
Shareholder Approval, the Target has full power and authority (including full
corporate power and authority) and has taken all corporate actions necessary to
authorize the execution and delivery of this Agreement and the performance of
its obligations hereunder. 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 or
any of their assets is subject or any provision of the charter or bylaws of any
of the Target and its Subsidiaries or (ii) except as set forth on Disclosure
Schedule 3(d), conflict with, result in a breach of, constitute a default under,
result in the acceleration of, result in a change in the rights or obligations
of any parties to, 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 any of them is bound or to which any of
their assets is subject (or result in the imposition of any Security Interest
upon any of their assets) except in each case where there would be no material
adverse effect upon the business, assets, financial condition, operations,
results of operations or future prospects of the Target and its Subsidiaries
taken as a whole. Other than in connection with the provisions of the Washington
Business Corporation Act, the Securities Exchange Act, the Securities Act, and
the state securities laws, none of the Target and its Subsidiaries is required
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 "Public Reports"). Each of the Public Reports has
complied, and all Public Reports to be filed with the SEC after the date hereof
will comply, with the Securities Act and the Securities Exchange Act in all
material respects. None of the Public Reports, as of its respective date,
contained or will contain any untrue statement of a material fact or omitted or
will omit 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.
(f) Financial Statements. Each of the financial statements included in or
incorporated by reference into the Public Reports (including the related notes
and schedules) has been prepared in accordance with GAAP applied on a consistent
basis throughout the periods covered thereby, presents fairly the financial
condition of the Target and its Subsidiaries as of the indicated dates and the
results of operations, retained earnings and changes in financial position of
the Target and its Subsidiaries for the indicated periods, is correct and
complete in all material respects, and is consistent with the books and records
of the Target and its Subsidiaries; provided, however, that the interim
financial statements are subject to normal year-end adjustments which will not
be material in amount or effect.
(g) Subsequent Events. Since January 31, 1999, excepted as disclosed in the
Public Reports filed prior to the date hereof, the Target and its Subsidiaries
have conducted their businesses only in, and have not engaged in any material
transaction other than in, the Ordinary Course of Business or made any change in
accounting principles, practices and
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methods. Since January 31, 1999, (the "Most Recent Fiscal Year End") there has
not been any material adverse change in the business, assets, financial
condition, operations, results of operations, or future prospects of the Target
and its Subsidiaries taken as a whole.
(h) Undisclosed Liabilities. Except as set forth on Schedule 3(h), none of
the Target and its Subsidiaries has any liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due) including any liability for taxes, except for (i) liabilities set forth on
the face of the balance sheet dated as of the Most Recent Fiscal Year End
(including in any notes thereto), (ii) liabilities which have arisen after the
Most Recent Fiscal Year End 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) and (iii) liabilities which in the aggregate are not material to the Target
and its Subsidiaries, taken as a whole.
(i) Litigation. Except as set forth on Schedule 3(i), there is no action,
suit, investigation or proceeding pending against, or to the Knowledge of the
Target threatened against or affecting, the Target or any of its Subsidiaries or
any of their properties (or any basis therefor) before any court or arbitrator
or any governmental body, agency or official which, if determined or resolved
adversely to the Target or any Subsidiary, may have a material adverse effect on
the business, assets, financial condition, operations, results of operations, or
prospects of the Target and its Subsidiaries taken as a whole. Except as set
forth on Schedule 3(i), to the Knowledge of the Target there are no facts or
circumstances that could result in any claims or actions, suits, investigations
or proceedings of the sort described in the preceding sentence.
(j) Intellectual Property.
(i) Except as set forth on Schedule 3(j)(i), the Target and/or each of
its Subsidiaries owns, or is licensed or otherwise possesses legally
enforceable rights to use all patents, trademarks, trade names, service
marks, copyrights, and any applications therefor, trade secrets,
technology, know-how, computer software programs or applications, and
tangible or intangible proprietary information or materials that are used
in the business of the Target and its Subsidiaries as currently conducted
or as proposed to be conducted, except where the failure to own, be
licensed or otherwise have such rights would not have a material adverse
effect upon the business, assets, financial condition, operations, results
of operations or future prospect of the Target and its Subsidiaries, taken
as a whole. All patents, trademarks, trade names, service marks and
copyrights held by the Target or any Subsidiary are valid and subsisting.
(ii) Except as disclosed in the Public Reports filed prior to the date
hereof or as set forth on Schedule 3(j)(ii):
(A) neither the Target nor any of its Subsidiaries is, nor will the
Target or any of its Subsidiaries be as a result of the execution and
delivery of this Agreement or the performance of the Target's
obligations hereunder, in violation of any licenses, sublicenses and
other agreement as to which the Target or any of its Subsidiaries is a
party or pursuant to which the Target or any of its Subsidiaries is
authorized to use any third-party patents, trademarks, trade
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names, service marks, copyrights, trade secrets, technology, know-how or
computer software (collectively, "Third-Party Intellectual Property
Rights");
(B) no claims with respect to (I) the patents, registered and
unregistered trademarks and service marks, registered copyrights, trade
names, and any applications therefor, trade secrets, know-how,
technology or computer software owned by the Target or any of its
Subsidiaries (collectively called the "Target Intellectual Property
Rights"); or (II) Third-Party Intellectual Property Rights are currently
pending or, to the Knowledge of the officers of the Target, are
threatened by any person;
(C) to the Knowledge of the Target, there are no valid grounds for
any bona fide claims (I) to the effect that the manufacture, sale,
licensing or use of any product or provision of any service as now used,
sold, licensed or provided or proposed for use, sale, license or to be
provided by the Target or any of its Subsidiaries, infringes on any
copyright, patent, trademark, trade name, service mark, copyright,
know-how, technology or trade secret of any person; (II) against the use
by the Target or any of its Subsidiaries, of any Target Intellectual
Property Right or Third-Party Intellectual Property Right used in the
business of the Target or any of its Subsidiaries as currently conducted
or as proposed to be conducted; (III) challenging the ownership,
validity or enforceability of any of the Target Intellectual Property
Rights; or (IV) challenging the license or legally enforceable right to
use of the Third-Party Intellectual Rights by the Target or any of its
Subsidiaries; and
(D) each of the employees and consultants of the Target and its
Subsidiaries has executed and delivered to the Target in connection with
employment or engagement a binding agreement conveying to the Target or
such Subsidiary all rights to any invention, trade secret, or other
intellectual property substantially in the form of agreement provided to
the Acquiror, and to the Knowledge of the Target, there is no
unauthorized use, infringement or misappropriation of any of the Target
Intellectual Property Rights by any third party, including any employee
or consultant of the Target or any of its Subsidiaries.
(k) Product and Service Warranties.
Except as set forth on Schedule 3(k), (i) there are no warranties, express
or implied, written or oral, with respect to the Products or Services; (ii)
there are no pending or, to the Knowledge of the Target, threatened claims with
respect to any such warranty, and neither the Target nor any of its Subsidiaries
has any liability with respect to any such warranty, whether known or unknown,
absolute, accrued, contingent or otherwise and whether due or to become due; and
(iii) there are no material product or service liability claims (whether arising
for breach of warranty or contract, or for negligences or other tort, or under
any statute) against or involving the Target or any of its Subsidiaries or any
Product or Service and no such claims have been settled, adjudicated or
otherwise disposed of since January 31, 1996.
(l) Year 2000 Compliance.
(i) Products and Services. All of the Products and Services are Year
2000 Compliant except for any failure to be Year 2000 Compliant which would
not be material to the business, assets, financial condition, operations,
results of operations or
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future prospects of the Target and its Subsidiaries taken as a whole. If
the Target or any of its Subsidiaries is obligated to repair or replace
Products or Services previously provided by the Target or any of its
subsidiaries that are not Year 2000 Compliant in order to meet the Target's
or such Subsidiary's contractual obligations, to avoid personal injury, to
avoid misrepresentation claims, or to satisfy any other contractual or
legal obligations or requirements, to the Target's Knowledge it has
repaired or replaced those Products and Services to make them Year 2000
Compliant. The Target has furnished the Acquiror with true, correct and
complete copies of any customer agreements and other materials and
correspondence in which the Target or any of its Subsidiaries has furnished
(or could be deemed to have furnished) assurances as to the performance
and/or functionally of any Products or Services on or after January 1,
2000, as a result of the occurrence of such date.
(ii) Internal MIS Systems and Facilities. To the Knowledge of the
Target, all Internal MIS Systems and Facilities are Year 2000 Complaint.
(iii) Suppliers. To the Knowledge of the Target, but without any duty
to investigate, all vendors of products or services to the Target and its
Subsidiaries, and their respective products, services and operations, are
Year 2000 Compliant.
(iv) Year 2000 Compliance Investigations and Reports. The Target has
furnished the Acquiror with a true, correct and complete copy of any
written internal investigations, memoranda, budget plans, forecasts, or
reports concerning the Year 2000 Compliance of the products, services,
operations, systems, supplies, and facilities of the Target and its
Subsidiaries and the Target's and its Subsidiaries' vendors.
The terms as used within this Section 3(l) have the following definitions:
"Facilities" means any facilities or equipment used by the Target or
its Subsidiaries in any location, including HVAC systems, mechanical
systems, elevators, security systems, fire suppression systems,
telecommunications systems, fax machines, copy machines, and equipment,
whether or not owned by the Target.
"Internal MIS Systems" means any computer software and systems
(including hardware, firmware, operating systems software, utilities, and
applications software) used in the ordinary course of the Target's or its
Subsidiaries' business by or on behalf of the Target or its Subsidiaries,
including payroll, accounting, billing/receivables, inventory, asset
tracing, customer services, human resources, and e-mail systems.
"Year 2000 Compliant" means that (1) the products, services, or other
items) at issue accurately process, provide and/or receive all date/time
data (including calculating, comparing, sequencing, processing and
outputting) within, from, into, and between centuries (including the
twentieth and twenty-first centuries and the years 1999 and 2000),
including leap year calculations, and (2) neither the performance nor the
functionality nor the Target's provision of the products, services, and
other item(s) at issue will be affected by any dates/times prior to, on,
after, or spanning January 1, 2000. The design of the products, services,
and other item(s) at issue to ensure compliance with the foregoing
warranties and representations includes proper date/time data, century
recognition and recognition of 1999 and 2000, calculations that accommodate
single century and multi-century formulae and date/time values before, on,
after, and spanning January 1, 2000, and date/time data interface values
that reflect the century, 1999, and 2000. In particular, but without
limitation, (i) no value for current date/time will cause any material
error, interruption, or decreased
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performance in or for such product(s), service(s), and other item(s), (ii)
all manipulations of date and time related data (including calculating,
comparing, sequencing, processing, and outputting) will produce correct
results for all valid dates and times when used independently or in
combination with other product, services, and/or items, (iii) date/time
elements in interfaces and data storage will specify the century to
eliminate date ambiguity without human intervention, including leap year
calculations, (iv) where any date/time element is represented without a
century, the correct century will be unambiguous for all manipulations
involving that element, (v) authorization codes, passwords, and zaps (purge
functions) will function normally and in materially the same manner during,
prior to, on and after January 1, 2000, including the manner in which they
function with respect to expiration dates and CPU serial numbers, and (vi)
the Target's or its Subsidiaries' supply of the product(s), service(s), and
other item(s) will not be materially interrupted, delayed, decreased, or
otherwise affected by the advent of the year 2000.
(m) Employee Benefits.
(i) All bonus, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus,
stock purchase, restricted stock and stock option plans, all employment,
termination, severance, welfare, fringe benefit, compensation, medical or
health contract or other plan, contract, policy or arrangement which covers
employees or former employees (the "Employees") and current and former
directors of the Target or its Subsidiaries or their respective
predecessors (the "Compensation and Benefit Plans" or "Plans"), including,
but not limited to, "employee benefit plans" within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") are listed in Schedule 3(m)(i) of the Disclosure Schedule and any
"change in control" or similar provisions therein are specifically
identified in such Schedule. Schedule 3(m)(i) contains a complete and
accurate list of all current Employees of the Target and its Subsidiaries.
True and complete copies of all Compensation and Benefit Plans, including,
but to limited to, any trust instruments and/or insurance contracts, if
any, forming a part of any such plans and agreements, and all amendments
thereto, have been made available to the Acquiror.
(ii) All Compensation and Benefit Plans have been administered in
accordance with their terms and such Plans are in compliance with all
applicable laws, including, without limitation, as applicable, ERISA and
the Internal Revenue Code of 1986, as amended (the "Code"). Each Plan which
is an "employee pension benefit plan" within the meaning of Section 3(2) of
ERISA ("Pension Plan") and which is intended to be qualified under Section
401(a) of the Code, has received a favorable determination letter from the
Internal Revenue Service, and the Target is not aware of any circumstances
likely to result in revocation of any such favorable determination letter.
There is no pending or, to the Knowledge of the Target, threatened
litigation relating to the Compensation and Benefit Plans. Neither the
Target nor any of its Subsidiaries has engaged in a transaction with
respect to any Plan that, assuming the taxable period of such transaction
expired as of the date hereof, could subject the Target or any of its
Subsidiaries to a tax or penalty imposed by either Section 4975 of the Code
or Section 502(i) of ERISA in an amount which would be material.
(iii) None of the Compensation and Benefit Plans or any other employee
benefit plan within the meaning of Section 3(3) of ERISA under which the
Target (or its Subsidiaries) has or could have any liability (a)
constitutes a "multiemployer plan,"
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as defined in Section 3(37) of ERISA; or (b) is subject to Title IV of
ERISA, Section 302 of ERISA, or Section 412 of the Code.
(iv) Neither the Target nor any of its Subsidiaries have any
obligations for retiree health or life benefits under any Plan, except as
set forth on Schedule 3(m)(iv). There are no restrictions on the rights of
the Target or any of its Subsidiaries to amend or terminate any such Plan
without incurring any liability thereunder.
(v) All Compensation and Benefit Plans covering foreign employees
comply with applicable local law. Neither the Target nor any of its
Subsidiaries has any unfunded liabilities with respect to any Pension Plan
which covers foreign Employees.
(vi) Except as set forth in Schedule 3(m)(vi), the consummation of the
transactions contemplated by this Agreement will not (x) entitle any
employees of the Target or any of its Subsidiaries to severance pay, (y)
accelerate the time of payment or vesting or trigger any payment of
compensation or benefits under, increase the amount payable or trigger any
other material obligation pursuant to, any of the Compensation and Benefit
Plans or (z) result in any breach or violation of, or a default under, any
of the Compensation and Benefit Plans.
(vii) No payment (or acceleration of benefits) required to be made to
any Employee as a result of the transactions contemplated by this Agreement
under any Compensation and Benefit Plan or otherwise will, if made,
constitute an "excess parachute payment" within the meaning of Section 280G
of the Code.
(n) Employees. As of the date hereof and except as set forth on Schedule
3(n), no executive or technical employee of the Target or any of its
Subsidiaries has terminated employment with the Target or such Subsidiary since
May 1, 1999. As at the date hereof, except as set forth in Schedule 3(n), to the
Knowledge of the Target no executive or technical employee of the Target or any
of its Subsidiaries has indicated the intention to terminate employment with the
Target or such Subsidiary, materially reduce his or her time commitment to such
employment, or given any indication that he or she may do so.
(o) Customers. Except as set forth on Schedule 3(o), since January 31,
1999, no existing customer of the Target or any Subsidiary has cancelled any
agreement for Products and Services, reduced the quantity of Products and
Services required from the Target or any Subsidiary, advised the Target that it
will not continue to purchase Products or Services, amended its agreements or
business arrangements with the Target or any of its Subsidiaries to the
disadvantage of the Target or such Subsidiary or, to the Knowledge of the
Target, indicated its intention to do any of the foregoing or the possibility
that it will seek to do any of the foregoing.
(p) 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, except
for up to $150,000 plus expenses payable to Ragen MacKenzie, the Target's
financial advisor.
(q) 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).
(r) Affiliate Agreements. Disclosure Schedule 3(r) lists all Affiliates of
the Target who beneficially own Target Shares. The Target has obtained and
delivered to the
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Acquiror agreements in the form of Exhibit B hereto executed by each of its
Affiliates with respect to transactions in Target Shares and Acquiror Shares.
(s) Taxation of the Merger. The representations and warranties set forth in
Exhibit D hereto are true and correct.
(t) Agreement of Executive Officers and Directors. The Target has obtained
from each of the Major Shareholders and from each of its directors and delivered
to the Acquiror an agreement in the form of Exhibit C hereto to the effect that
all Target Shares held by such person will be voted in favor of the Merger and
with respect to certain other matters.
(u) Disclosure. The Definitive Target Materials will comply with the
Securities Act and the Securities Exchange Act in all material respects. The
Definitive Target 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 and the Major Shareholders
make no representation or warranty with respect to any information that the
Acquiror will supply specifically for use in the Definitive Target 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.
4. Representations and Warranties of the Acquiror and Acquiror Sub. The
Acquiror and Acquiror Sub each 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 Acquiror and Acquiror Sub are each corporations duly
organized and validly existing under the laws of the jurisdictions of their
incorporation.
(b) Capitalization. The entire authorized capital stock of the Acquiror
consists of 100,000,000 Acquiror Shares, of which 10,950,617 Acquiror Shares are
issued and outstanding at April 30, 1999, and 5,000,000 shares of preferred
stock, without par value, none of which are issued and outstanding. All of the
Acquiror 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. The entire authorized capital stock of Acquiror Sub consists of
100,000 shares of common stock, without par value, of which 100 shares are
issued and outstanding.
(c) Authorization of Transaction. The Acquiror and Acquiror Sub each has
full power and authority (including full corporate power and authority) and has
taken all corporate action necessary to authorize the execution and delivery of
this Agreement and the performance of their respective obligations hereunder.
This Agreement constitutes the valid and legally binding obligation of the
Acquiror and Acquiror Sub, enforceable in accordance with its terms and
conditions.
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(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 Acquiror or Acquiror Sub is subject
or any provision of the charter or bylaws of the Acquiror or Acquiror Sub 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 Acquiror or Acquiror Sub
is a party or by which it is bound or to which any of its assets is subject.
Other than in connection with the provisions of the Washington Business
Corporation Act, the Securities Exchange Act, the Securities Act, and the state
securities laws, neither the Acquiror nor Acquiror Sub 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) Brokers' Fees. Neither the Acquiror or Acquiror Sub 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 for which any of
the Target and its Subsidiaries could become liable or obligated.
(f) Continuity of Business Enterprise. It is the present intention of the
Acquiror and Acquiror Sub 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).
(g) 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
Acquiror 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 Acquiror will supply
specifically for use in the Definitive Target 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.
(h) Litigation. There is no action, suit, investigation or proceeding
pending against, or to the knowledge of the executive officers of Acquiror
threatened against Acquiror or any of its Subsidiaries or any of their
properties before any court or arbitrator or any governmental body, agency or
official which is required by Instructions 1, 2 and 3 to Item 103 of Regulation
S-K of the SEC to be disclosed in Acquiror's filings with the SEC that it has
been required to make under the Securities Act or the Securities Exchange Act
that is not disclosed in the Acquiror's report on Form 10-Q for the quarter
ended March 31, 1999.
5. Covenants. The Parties agree as follows with respect to the period from
and after the execution 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
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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 Acquiror may 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 in compliance with
Section 14(a) of the Securities Exchange Act, proxy materials including a
proxy statement relating to the Special Target Meeting which will also
serve as a prospectus relating to the Acquiror Shares under the Securities
Act. The Acquiror will prepare and file with the SEC a registration
statement under the Securities Act relating to the offering and issuance of
the Acquiror 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, provided that the Target will not file any materials with the
SEC without the prior consent of the Acquiror, which will not be
unreasonably withheld or delayed. The Acquiror and the Target will
cooperate fully in the preparation of the Disclosure Materials, and the
Acquiror will provide the Target, and the Target will provide the Acquiror,
with whatever information and assistance in connection with the foregoing
filings that the filing Party may request. The Acquiror will take all
actions that may be necessary, proper, or advisable under state securities
laws in connection with the offering and issuance of the Acquiror Shares.
(ii) Washington Business Corporation Act. The Target will call a
special meeting of its shareholders (the "Special Target Meeting") as soon
as practicable in order that the shareholders may consider and vote upon
the approval of the Merger in accordance with the Washington Business
Corporation Act. The Target will mail the Disclosure Document to its
shareholders and as soon as practicable. The Disclosure Document will
contain the affirmative recommendation of the board of directors of the
Target in favor of the approval of the Merger.
(d) Listing of Acquiror Shares. The Acquiror will use its best efforts to
cause the Acquiror 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.
(e) 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, other than
with the prior written consent of the Acquiror. 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;
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(ii) none of the Target and its Subsidiaries will grant (except as set
forth on Schedule 5(e)(ii)) or accelerate or permit the acceleration of the
vesting of any options, warrants, or other rights to purchase or obtain any
of its capital stock or issue, sell, or otherwise dispose of any capital
stock of the Target or any Subsidiary (except upon the conversion or
exercise of options, warrants, and other rights to acquire shares of
capital stock of the Target currently outstanding and disclosed in this
Agreement) except that (i) vesting of Target Options held by Timothy J.
Carroll will be accelerated at the Effective Time pursuant to his
employment agreement and (ii) the Target may accelerate the vesting of
Target Options for employees of the Target that the Acquiror notifies the
Target will not be continued as employees of the Surviving Corporation
after the Effective Time;
(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
obligation of any third party or any indebtedness for borrowed money or
capitalized lease obligation outside the Ordinary Course of Business;
(v) none of the Target and its Subsidiaries will sell or dispose of
material assets or 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, officers, and employees outside
the Ordinary Course of Business;
(viii) none of the Target and its Subsidiaries will take any action
that will preclude the Merger from being treated as a tax-free
reorganization pursuant to Internal Revenue Code Sections 368(a)(1)(A) and
368(a)(2)(D);
(ix) none of the Target and its Subsidiaries will amend any employment
agreement or increase the compensation of directors, officers or employees
outside the Ordinary Course of Business; and
(x) none of the Target and its Subsidiaries will commit to any of the
foregoing.
(f) Full Access. The Target will (and will cause each of its Subsidiaries
to) permit representatives of the Acquiror 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
Acquiror will 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(f), 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.
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(g) Notice of Developments. Each Party will give prompt written notice to
the other Parties and the Major Shareholders, and each of the Major Shareholders
will give prompt written notice to the Parties, of any material development that
would, if not corrected by the Closing Date, result in any of its own
representations and warranties in Section 3 and Section 4 above being incorrect
at the Closing Date. No disclosure by any Party or Major Shareholder pursuant to
this Section 5(g), 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.
(h) Acquisition Proposals. The Target and each Major Shareholder agree that
neither the Target nor any of its Subsidiaries nor any of the respective
officers, directors, agents, employees or representatives of the Target or any
of its Subsidiaries (including, without limitation, any investment banker,
attorney or accountant retained by the Target or any of its Subsidiaries) nor
any of the Major Shareholders (whether or not acting on behalf of the Target)
shall initiate, solicit or encourage, directly or indirectly, any inquiries or
the making of any proposal or offer to the Target or any Subsidiary or any of
the shareholders of the Target with respect to a merger, consolidation or
similar transaction involving, or any purchase of all or any significant portion
of the assets or any equity securities of, the Target or any of its Subsidiaries
(any such proposal or offer being hereinafter referred to as an "Acquisition
Proposal") or, except to the extent legally required for the discharge by the
board of directors of the Target of its fiduciary duties as advised in writing
by counsel, engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any Person relating to an
Acquisition Proposal, or otherwise facilitate any effort or attempt to make or
implement an Acquisition Proposal. The Target shall immediately cease and cause
to be terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing. The Target
shall take the necessary steps to promptly inform the individuals or entities
referred to in the first sentence hereof of the obligations undertaken in this
Section 5(h). The Target will notify the Acquiror immediately if any inquiries
or proposals relating to an actual or potential Acquisition Proposal are
received by, any such information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with the Target or any of
its Subsidiaries. The Target also will promptly request each person which has
heretofore executed a confidentiality agreement in connection with its
consideration of acquiring the Target and/or any of its Subsidiaries to return
all Confidential Information heretofore furnished to such person by or on behalf
of the Target.
(i) Indemnification. The Acquiror will observe any indemnification
provisions now existing in the articles 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. The Acquiror shall obtain
directors' and officers' liability insurance covering each individual who served
as an officer or director of the Target at any time prior to the Effective Time
for a period of 24 months after the Effective Time for an amount and coverage
not less than that in effect for such directors and officers of the Target
immediately prior to the Effective Time.
(j) Continuity of Business Enterprise. The Acquiror will cause the
Surviving Corporation to 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).
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(k) Target's Compensation and Benefit Plans. The Target will take such
actions as the Acquiror reasonably requests with respect to the Target's
Compensation and Benefit Plans, it being understood that the purpose of the
covenant contained in this Section 5(k) is to conform the Target's Compensation
and Benefit Plans to applicable legal requirements and to minimize any future
liabilities of the Acquiror, Acquiror Sub and the Surviving Corporation in
respect of the Target's Compensation and Benefit Plans.
6. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Acquiror. The obligation of the
Acquiror 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 Shareholder Approval and the number of Dissenting Shares shall not
exceed 10% of the number of outstanding Target Shares;
(ii) the Target and its Subsidiaries shall have procured all of the
third party consents specified in Section 5(b) above, unless, in the
opinion of the Acquiror, acting reasonably, the
failure to obtain such consents would not have a material adverse effect on the
operations of the Surviving Corporation;
(iii) 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;
(iv) the Target shall have performed and complied with all of its
covenants and obligations 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
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) since the date of this Agreement, there shall have been no
material adverse change in the business, assets, financial condition,
operations, results of operations or prospects of the Target and its
Subsidiaries taken as a whole, it being understood that a material adverse
change in the employee base of the Target and its Subsidiaries may
constitute such a material adverse change;
(vii) the Target shall have delivered to the Acquiror a certificate of
its Chief Executive Officer and Chief Financial Officer to the effect that
each of the conditions specified above in Section 6(a)(i)-(vi) is satisfied
in all respects;
(viii) the Registration Statement shall have become effective under
the Securities Act prior to the mailing of the Disclosure Document to
Target Shareholders;
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(ix) the Acquiror 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;
(x) the Acquiror shall have received an opinion from Dorsey & Whitney
LLP, dated as of the Effective Time, substantially to the effect that, on
the basis of the facts, representations and assumptions set forth in such
opinions which are consistent with the state of facts existing at the
Effective Time, the Merger will be treated for Federal income tax purposes
as a reorganization within the meaning of Section 368(a) of the Code and
that accordingly:
(A) No gain or loss will be recognized by the Acquiror, Acquiror
Sub or the Target as a result of the Merger.
(B) No gain or loss will be recognized by the shareholders of
Target who exchange Target Shares for Acquiror Shares pursuant to the
Merger, except with respect to any cash received by such Target
shareholders in the Merger.
(C) Gain, if any, but not loss, will be recognized by Target
shareholders upon the exchange of Target Shares for cash pursuant to the
Merger. Such gain will be recognized, but not in excess of the amount of
cash, in an amount equal to the difference, if any, between (a) the fair
market value of the Acquiror Shares and cash received and (b) the Target
shareholder's adjusted tax basis in the Target Shares surrendered in
exchange therefor pursuant to the Merger. If the receipt of cash
payments has the effect of a distribution of a dividend to a Target
Shareholder, some or all of the gain recognized will be treated as a
dividend taxed as ordinary income. If the exchange does not have the
effect of a distribution of a dividend, all of the gain recognized would
be a capital gain, provided the Target Shares are a capital asset in the
hands of the Target shareholder at the time of the Merger.
(D) The aggregate tax basis of the Acquiror Shares received by a
Target Shareholder who exchanges Target Shares in the Merger will be the
same as the aggregate tax basis of the Target Shares surrendered in
exchange therefor, decreased by the amount of any cash received by such
Target Shareholder which is treated as a redemption rather than a
dividend and increased by the amount of any non-dividend gain recognized
by such Target Shareholder in connection with the Merger.
(E) The holding period of the Acquiror Shares received by a Target
Shareholder pursuant to the Merger will include the period during which
the Target Shares surrendered therefor were held, provided the Target
Shares are a capital asset in the hands of the Target shareholder at the
time of the Merger.
In rendering such opinion, such counsel may require and rely upon
representations and covenants including those contained in certificates
of officers of the Acquiror, Acquiror Sub and the Target and others,
including certain Target shareholders who are parties to this Agreement.
(xi) the Acquiror 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 Acquiror shall have specified in
writing at least four business days prior to the Closing;
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<PAGE> 213
(xii) 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 satisfactory in form and substance
to the Acquiror, acting reasonably; and
(xiii) Daniel M. Fine shall have entered into an employment agreement
with the Acquiror in form and substance acceptable to the Acquiror and
Daniel M. Fine.
The Acquiror 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 and no stop order suspending the effectiveness of the
Registration Statement shall have been issued or proceedings therefor
initiated or threatened by the SEC;
(ii) the Acquiror 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) since August 5, 1999, there shall have been no material adverse
change in the business, assets, financial condition, operations, results of
operations or future prospects of the Acquiror and its Subsidiaries, taken
as a whole, which the Disclosure Document does not (i) disclose has
occurred, (ii) disclose may occur (other than in the "Risk Factors"
section) or (iii) disclose may occur under a caption in the "Risk Factors"
section that is referred to in the Disclosure Document other than in the
"Risk Factors" section;
(v) each of the Acquiror and Acquiror Sub shall have performed and
complied with all of its covenants and obligations hereunder in all
material respects through the Closing;
(vi) each of the Acquiror and Acquiror Sub shall have delivered to the
Target a certificate of its Chief Executive Officer and its Chief Financial
Officer or general counsel 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 Shareholder Approval;
(viii) the Target shall have received a favorable opinion from Dorsey
& Whitney LLP, dated as of the Effective Time, as to the matters set forth
in Section 4(a) (other than as to outstanding shares), (b), and (c) hereof
and as to the valid issuance and listing on Nasdaq of the Acquiror Shares
being issued in the Merger and the effectiveness of the Registration
Statement;
(ix) Target shall have received an opinion from Dorsey & Whitney LLP,
dated as of the Effective Time, substantially to the effect that, on the
basis of the facts, representations and assumptions set forth in such
opinions which are consistent with
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the state of facts existing at the Effective Time, the Merger will be
treated for Federal income tax purposes as a reorganization within the
meaning of Section 368(a) of the Code and that accordingly:
(A) No gain or loss will be recognized by the Acquiror, Acquiror
Sub or Target as a result of the Merger.
(B) No gain or loss will be recognized by the shareholders of
Target who exchange Target Shares for Acquiror Shares pursuant to the
Merger, except with respect to any cash received by such Target
shareholders in the Merger.
(C) Gain, if any, but not loss, will be recognized by Target
Shareholders upon the exchange of Target Shares for cash pursuant to the
Merger. Such gain will be recognized, but not in excess of the amount of
cash, in an amount equal to the difference, if any, between (a) the fair
market value of the Acquiror Shares and cash received and (b) the Target
Shareholder's adjusted tax basis in the Target Shares surrendered in
exchange therefor pursuant to the Merger. If the receipt of cash
payments has the effect of a distribution of a dividend to a Target
Shareholder, some or all of the gain recognized will be treated as a
dividend taxed as ordinary income. If the exchange does not have the
effect of a distribution of a dividend, all of the gain recognized would
be a capital gain, provided the Target Shares are a capital asset in the
hands of the Target Shareholder at the time of the Merger.
(D) The aggregate tax basis of the Acquiror Shares received by a
Target Shareholder who exchanges Target Shares in the Merger will be the
same as the aggregate tax basis of the Target Shares surrendered in
exchange therefor, decreased by the amount of any cash received by such
Target Shareholder which is treated as a redemption rather than a
dividend and increased by the amount of any non-dividend gain recognized
by such Target Shareholder in connection with the Merger.
(E) The holding period of the Acquiror Shares received by a Target
Shareholder pursuant to the Merger will include the period during which
the Target Shares surrendered therefor were held, provided the Target
Shares are a capital asset in the hands of the Target Shareholder at the
time of the Merger.
In rendering such opinion, such counsel may require and rely upon
representations and covenants including those contained in certificates
of officers of the Acquiror, Acquiror Sub and the Target and others,
including certain Target shareholders who are parties to this Agreement.
Failure of the Target or Majority Shareholders to provide such
certificates shall constitute a waiver by the Target of the requirement
for this opinion.
(x) all actions to be taken by the Acquiror or Acquiror Sub 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 satisfactory in form
and substance to the Target, acting reasonably.
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.
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7. Termination of Agreement. This Agreement may be terminated with the
prior authorization of the board of directors of the Party terminating the
Agreement (whether before or after shareholder approval) as provided below:
(a) the Acquiror and the Target may terminate this Agreement by mutual
written consent at any time prior to the Effective Time;
(b) the Acquiror may terminate this Agreement by giving written notice
to the Target at any time prior to the Effective Time if:
(i) the Target or any Major Shareholder shall have breached any
material representation, warranty, covenant or obligation contained in
this Agreement in any material respect, the Acquiror has notified the
Target of the breach, and the breach has continued without cure for a
period of 20 days after the notice of breach;
(ii) the Closing shall not have occurred on or before December 31,
1999, by reason of the failure of any condition precedent under Section
6(a) hereof (unless the Target has breached any material representation,
warranty, covenant or failure results primarily from the Acquiror
breaching any representation, warranty, covenant or obligation contained
in this Agreement);
(iii) the Target or any person described in Section 5(h) shall have
taken any action proscribed by Section 5(h), or any action that would
have been proscribed by Section 5(h) but for the exception thereto
allowing certain activity to be taken if required by fiduciary
obligations as advised in writing by counsel;
(iv) the board of directors of Target shall have withdrawn or
modified in a manner adverse to the Acquiror or Acquiror Sub its
approval or recommendation of the Merger or this Agreement, or fails to
reaffirm such approval or recommendation when requested by the Acquiror
(c) the Target may terminate this Agreement by giving written notice
to the Acquiror at any time prior to the Effective Time if:
(i) the Acquiror has breached any material representation,
warranty, covenant or obligation contained in this Agreement in any
material respect, the Target has notified the Acquiror of the breach,
and the breach has continued without cure for a period of 20 days after
the notice of breach;
(ii) the Closing shall not have occurred on or before December 31,
1999, 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, covenant or obligation contained
in this Agreement);
(iii) the Target is not in material breach of its representations,
warranties, covenants or obligations under the Agreement and the board
of directors of the Target receives an unsolicited written offer with
respect to an Acquisition Proposal, or an unsolicited tender offer for
Target Shares is commenced, and the board of directors of the Target
determines that such transaction (the "Alternative Transaction") is more
favorable to the shareholders of the Target than the Merger, provided
the Target has given the Acquiror five business days prior notice of its
intention to terminate this Agreement to accept the Alternative
Transaction and the Acquiror shall have failed to offer to amend this
Agreement
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so that it is at least as favorable to the shareholders of the Target as
the Alternative Transaction.
(d) The Acquiror or the Target may terminate this Agreement by giving
written notice to the other Parties at any time after the Special Target
Meeting in the event this Agreement and the Merger fail to receive the
Requisite Target Shareholder Approval, and the Acquiror may terminate this
Agreement if the number of Dissenting Shares exceeds 10% of the outstanding
Target Shares.
8. Effect of Termination.
(a) Liabilities Upon Termination. If this Agreement is terminated
pursuant to Section 7, none of the Acquiror, Acquiror Sub or the Target
(nor any of their officers or directors) shall have any liability or
further obligation to any other Party or its shareholders except as
provided in Sections 8(b) and 8(c) below, as liquidated damages and in lieu
of all other liabilities to any person for breach of this Agreement,
provided that the confidentiality provisions of Section 9(b) and 5(f) shall
survive termination of this Agreement.
(b) Acquiror's Break-up fee. If:
(i) this Agreement shall have been terminated by the Acquiror
pursuant to Section 7(b)(i), 7(b)(iii) or 7(b)(iv) hereof;
(ii) this Agreement is terminated by the Target pursuant to Section
7(c)(iii); or
(iii) this Agreement is terminated pursuant to Section 7(d) hereof;
then, in any such event, the Target shall promptly, but in no event
later than five business days after a request from the Acquiror for
payment (other than a termination pursuant to Section 7(c)(iii), in
which case payment shall be made upon giving notice of termination), pay
to the Acquiror (A) a fee equal to $500,000, which amount shall be
payable in same day funds; plus, (B) upon receipt of an invoice or
invoices therefor an amount equal to out-of-pocket expenses, including
fees and expenses paid to investment bankers, lawyers, accountants and
other service providers, incurred in connection with the transactions
contemplated by this Agreement. If not paid when due, amounts payable
pursuant to this Section 8(b) shall bear interest at the rate of ten
percent (10%) per annum. The Target acknowledges that the agreements
contained in this Section 8(b) (i) reflect reasonable compensation to
the Acquiror for undertaking the Merger and risking the loss of the
benefits of the Merger under the circumstances contemplated by this
Section 8(b), (ii) were agreed to by the Target for the purpose of
inducing the Acquiror and Acquiror Sub to execute this Agreement and
undertake their obligations hereunder, and (iii) are an integral part of
the transactions contemplated by the Parties in this Agreement, and that
without these agreements, the Acquiror and Acquiror Sub would not have
entered into this Agreement.
(c) Target's Breakup Fee. If the Acquiror shall terminate this
Agreement under circumstances other than those permitted in Section 7(a),
(b) or (d) hereof, or if the Target terminates pursuant to Section 7(c)(i)
(other than for breaches of the representations and warranties set forth in
Section 4(g) or 4(h)), the Acquiror shall promptly pay to the Target (A) a
fee equal to $500,000, which amount shall be
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payable in same day funds; plus (B) upon receipt of an invoice or invoices
therefor an amount equal to out-of-pocket expenses, including fees and
expenses paid to investment bankers, lawyers, accountants, and other
service providers, incurred in connection with the transactions
contemplated by the Agreement. If not paid when due, amounts payable
pursuant to this Section 8(c) shall bear interest at the rate of 10% per
annum. The Acquiror acknowledges that the agreements contained in this
Section 8(c) (i) reflect reasonable compensation to the Target for
undertaking the Merger and risking the loss of benefits of the Merger under
the circumstances contemplated by this Section 8(c), (ii) were agreed for
the purpose of inducing the Target to execute this Agreement and undertake
its obligations hereunder, and (iii) are an integral part of the
transactions contemplated by the Parties in this Agreement, and without
these agreements, the Target would not have entered into this Agreement.
9. Miscellaneous.
(a) Survival and Indemnity.
(i) Except as set forth in Section 9(a)(ii), none of the
representations, warranties, and covenants of the Parties (other than
the provisions in Section 2 above concerning issuance of the Acquiror
Shares and the provisions in Section 5(i) above concerning
indemnification) will survive the Effective Time;
(ii) The representations and warranties of the Major Shareholders
in Section 3 hereof shall survive the Effective Time for a period of one
year, provided that (i) the representations and warranties set forth in
Sections 3(b), (i), (j) and (l) hereof and any representation and
warranty as to which any of Major Shareholders had actual knowledge of
the facts which a reasonable person in such Major Shareholder's
circumstances should have concluded would constitute an inaccuracy or
breach shall survive for two years; and (ii) the representations and
warranties set forth in Section 3(s) hereof shall survive until all
applicable statutes of limitations, including waivers and extensions,
have expired with respect to each matter addressed therein.
Notwithstanding the preceding sentence, any representation or warranty
for which indemnity may be sought pursuant to this Section 9(a) shall
survive the time it would otherwise terminate pursuant to the preceding
sentence, if notice of the inaccuracy or breach thereof shall have been
given to the Major Shareholder against whom indemnity may be sought.
(iii) The Major Shareholders agree, jointly and severally, to
indemnify the Acquiror, Acquiror Sub and the Surviving Corporation
against, and agrees to hold each of them harmless from, any and all
damage, loss, liability and expense (including, without limitation,
costs of investigation and reasonable attorneys' fees in connection with
any claim, action, suit or proceeding) (collectively, "Damages")
incurred or suffered by the Acquiror, the Acquiror Sub or the Surviving
Corporation arising out of:
(A) any misrepresentation or breach of any warranty made by
Major Shareholders in Section 3 hereof; or
(B) any claim by any holder or former holder of Target Shares
against Target or its officers, directors, or controlling persons
alleging violations of Sections 5, 11, or 12 of the Securities Act
or Section 10(b) or 14(a) (other
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than with respect to the Definitive Target Materials) of the
Exchange Act, intentional or negligent misrepresentation, breach of
fiduciary duty, or any misstatement of material fact or omission to
state a fact that is required to be stated or necessary to make the
statements made, in the light of the circumstances under which they
were made, not misleading.
Provided, however, that the Major Shareholders shall be not liable
for indemnity under this Section 9(a)(iii) unless the aggregate
Damages exceed $50,000, in which event the Major Shareholders shall
be liable for all Damages, subject to Section 9(a)(iv).
(iv) The aggregate indemnification obligations of the Majority
Shareholders under Section 9(a) shall not exceed:
(A) With respect to Damages arising out of misrepresentations
and breaches of warranties set forth in Section 3 hereof which
shall survive for one year pursuant to Section 9(a)(ii) hereof, an
amount equal to ten percent (10%) of (i) the aggregate number of
Acquiror Shares multiplied by the Average Price plus (ii) the
aggregate amount of cash, received by the Major Shareholders (and
any transferees of any Target Shares held by the Major Shareholders
on the date hereof) pursuant to the Merger; provided that Damages
claimed under Section 9(a)(iv)(B) shall count toward the foregoing
limitation;
(B) With respect to Damages arising out of misrepresentations
and breaches of warranties set forth in Section 3 hereof which
shall survive for two years pursuant to Section 9(a)(ii) hereof and
Damages recoverable under Section 9(a)(iv)(B) hereof, an amount
equal to $1,000,000; provided that Damages claimed under Section
9(a)(iv)(A) shall count toward the $1,000,000 limitation.
Provided further, that if and to the extent any Damages are paid by
insurance, the Major Shareholders shall not have any
indemnification obligations hereunder (and the insurance provider
shall not have any rights of subrogation hereunder), it being
understood that the Acquiror, Acquiror Sub and the Surviving
Corporation shall use commercially reasonable efforts to pursue
recovery against an insurer under insurance coverage, but none of
them shall be required to commence litigation or otherwise expend
significant resources pursuing collection in the event of a dispute
with the insurer.
(v) No investigation or knowledge by or on behalf of the Acquiror
or Acquiror Sub or the Surviving Corporation (whether before or after
the Effective Time) shall in any way limit the representations and
warranties set forth in Section 3 or the right of indemnity set forth in
this Section 9(a).
(b) Press Releases and Public Announcements. Neither the Acquiror nor
the Target 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; provided, however, that the Acquiror or the Target
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
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the disclosure). No Party other then the Acquiror or the Target shall issue
any press release or make any public disclosure concerning the subject
matter of this Agreement, or otherwise disclose any information concerning
the subject matter of this Agreement to any person that has not previously
been made public by the Acquiror or the Target.
(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 Acquiror
Shares are intended for the benefit of the Target Shareholders and (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.
(d) Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or
among the Parties, written or oral, to the extent they related in any way
to the subject matter hereof, except that the prior confidentiality
agreement executed by the Acquiror and the Target shall remain in effect
until the Effective Time or termination of this Agreement.
(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 Acquiror and the Target.
(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 or Major Shareholders:
Dan Fine
1425 Fourth Avenue South, Suite 800
Seattle, Washington 98101-2915
Copy to:
Robert Seidel, Esq.
Cairncross & Hempelmann, P.S.
70th Floor Columbia Center
701 Fifth Avenue
Seattle, Washington 98104-7016
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If to the Acquiror or Acquiror Sub:
ARIS Corporation
Attn: General Counsel
2229 112th Avenue NE
Bellevue, Washington 98004-2936
Copy to:
Chris Barry
Dorsey & Whitney LLP
1420 Fifth Avenue, Suite 400
Seattle, Washington 98101
Any Party or Major Shareholder 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 or Major
Shareholder may change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by giving
the other Parties and the Major Shareholders notice in the manner herein
set forth.
(i) Governing Law. This Agreement shall be governed by and construed
in accordance with the domestic laws of the State of Washington without
giving effect to any choice or conflict of law provision or rule (whether
of the State of Washington or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of
Washington.
(j) Amendments and Waivers. The Acquiror, Acquiror Sub and the Target
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
shareholder approval will be subject to the restrictions contained in the
Washington Business Corporation Act, and provided further that no amendment
may increase the obligations of any Major Shareholder with respect to any
representation or warranty without such Major Shareholder's written
consent. No amendment of any provision of this Agreement shall be valid
unless the same shall be in writing and signed by the Acquiror, Acquiror
Sub, the Target and any Major Shareholder required to be a party thereto by
the previous sentence. 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.
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(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 and Major Shareholders 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 Major
Shareholders and no presumption or burden of proof shall arise favoring or
disfavoring any Party or Major Shareholder 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.
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IN WITNESS WHEREOF, the Parties and the Major Shareholders have executed
this Agreement as of the date first above written.
ARIS CORPORATION
By: /s/ THOMAS W. AVERILL
-----------------------------------
Name: Thomas W. Averill
Title: V.P. Finance and CFO
ARIS INTERACTIVE, INC.
By: /s/ THOMAS W. AVERILL
-----------------------------------
Name: Thomas W. Averill
Title: V.P. Finance and CFO
FINE.COM INTERNATIONAL CORP.
By: /s/ DANIEL M. FINE
-----------------------------------
Name: Daniel M. Fine
Title: President
Major Shareholders:
/s/ DANIEL M. FINE
--------------------------------------
Daniel M. Fine
/s/ FRANK HADAM
--------------------------------------
Frank Hadam
/s/ HERBERT L. FINE
--------------------------------------
Herbert L. Fine
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EXHIBIT A
ARTICLES OF MERGER
FINE.COM INTERNATIONAL CORP.,
A WASHINGTON CORPORATION
WITH AND INTO
ARIS INTERACTIVE, INC.,
A WASHINGTON CORPORATION
In accordance with RCW 23B.11.050
The undersigned, , being the of fine.com
International Corp., a Washington corporation ("Target") and ,
being the of ARIS Interactive, Inc., a Washington
corporation ("Acquiror Sub") DO HEREBY CERTIFY as follows:
(1) the constituent corporations in the merger (the "Merger") are
fine.com International Corp., a Washington corporation, and ARIS
Interactive, Inc., a Washington corporation; the name of the surviving
corporation is ARIS Interactive, Inc., a Washington corporation.
(2) an Agreement and Plan of Merger dated as of (the
"Merger Agreement") has been approved, adopted, and executed by each of the
constituent corporations in accordance with RCW 23B.11.010. The Merger
Agreement is attached hereto as Exhibit A and incorporated herein by
reference.
(3) The Merger Agreement was duly approved by the shareholders of each
of the constituent corporations in accordance with Section 23B.011.030 of
the Washington Business Corporation Act.
The Merger shall become effective on the date on which these Articles of
Merger are filed with the Secretary of State of the State of Washington.
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IN WITNESS WHEREOF, the parties hereto have caused these Articles of Merger
to be duly executed as of this day of , 1999.
FINE.COM INTERNATIONAL CORP.,
a Washington corporation
By:
-----------------------------------
Name:
Title:
ARIS INTERACTIVE, INC.,
a Washington corporation
By:
-----------------------------------
Name:
Title:
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EXHIBIT A
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement") is made as of the day
of , 1999 by and between fine.com International Corp., a Washington
corporation ("Target"), and ARIS Interactive, Inc., a Washington corporation
("Acquiror Sub") (collectively, the "Constituent Corporations"), with reference
to the following facts:
A. Each of the Constituent Corporations has, subject to approval by
their respective shareholders, adopted the plan of merger embodied in this
Agreement, and the Constituent Corporations and their respective boards of
directors deem it advisable and in the best interest of each of the
Constituent Corporations that Target be merged with and into Acquiror Sub
pursuant to the applicable laws of Washington and Section 368 of the
Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, the Constituent Corporations do hereby agree to merge, on
the terms and conditions herein provided, as follows:
1. The Merger.
1.1 Governing Law. Target shall be merged into Acquiror Sub in
accordance with the applicable laws of the State of Washington (the
"Merger"). Acquiror Sub shall be the surviving corporation and shall be
governed by the laws of the State of Washington.
1.2 Effective Time. The "Effective Time" of the Merger shall be, and
such term as used herein shall mean, the time at which Acquiror Sub and
Target file Articles of Merger in substantially the form attached hereto as
Exhibit A in the office of the Secretary of State of the State of
Washington after satisfaction of the requirements of applicable laws
prerequisite to such filing.
2. Share Conversion. On the Effective Date, by virtue of the Merger and
without any action on the part of the holders thereof:
2.1 each share of common stock, par value $.01 per share, of Target
(a "Target Share") (other than any Target Share as to which any shareholder
has exercised his or its appraisal rights under Section 23B.13.010, et.
seq. of the Washington Business Corporation Act (a "Dissenting Share") or
any Target Share that ARIS Corporation (the "Acquiror") owns beneficially
(an "Acquiror-owned Share")) shall be converted into the right to receive
the following consideration (the "Merger Consideration"):
(1) that number of shares of common stock, without par value, of
the Acquiror ("Acquiror Shares") equal to the lesser of (x) .3717 or (y)
$4.5531, divided by the average of the per share daily closing prices of
Acquiror Shares as reported by Nasdaq for each trading day during the
period of ten trading days ending [date that is the second trading day
prior to the Target Special Meeting] (the "Average Price") (such lesser
number of Acquiror Shares being hereinafter referred to as the "Base
Share Consideration"), plus
(2) an amount in cash equal to the lesser of (x) $1.1150 or (y) the
amount (if any) by which $4.5531 exceeds the Share Consideration
multiplied by the
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Average Price (such lesser amount being hereinafter referred to as the
"Cash Consideration"); plus
(3) an additional number of Acquiror Shares (if a positive number)
equal to (x) $4.5531 minus the Base Consideration (as defined below),
divided by (y) the Average Price (such additional number of Acquiror
Shares (if any) plus the Base Share Consideration being hereinafter
referred to as the "Share Consideration"). "Base Consideration" means an
amount equal to (x) the Base Share Consideration multiplied by the
Average Price, plus (y) the Cash Consideration.
At the Effective Time and without any action on the part of the holder,
Target Shares held by such holder shall cease to be outstanding and
shall constitute only the right to receive without interest, the Merger
Consideration multiplied by the number of Target Shares held by such
holder and cash in lieu of a fractional share.
2.2 each Dissenting Share shall be converted into the right to
receive payment from Acquiror Sub with respect thereto in accordance with
the provisions of the Washington Business Corporation Act, and
2.3 each Acquiror-owned Share shall be canceled; provided, however,
that the Merger Consideration shall be subject to equitable adjustment in
the event of any stock split, stock dividend, reverse stock split, or other
change in the number of Target Shares outstanding. No Target Share shall be
deemed to be outstanding or to have any rights other than those set forth
above in this Section 2 after the Effective Time.
2.4 Shares of Acquiror Sub. Each issued and outstanding share of
capital stock of Acquiror Sub at and as of the Effective Time will remain
issued and outstanding and held by the Acquiror.
3. Effect of the Merger.
3.1 Rights, Privileges, Etc. At the Effective Time, Acquiror Sub,
without further act, deed or other transfer, shall retain or succeed to, as
the case may be, and possess and be vested with all the rights, privileges,
immunities, powers, franchises and authority, of a public as well as of a
private nature, of the Constituent Corporations; all property of every
description and every interest therein and all debts and other obligations
of or belonging to or due to the Constituent Corporations on whatever
account shall thereafter be taken and deemed to be held by or transferred
to, as the case may be, or vested in Acquiror Sub without further act or
deed; title to any real estate, or any interest therein, vested in the
Constituent Corporations shall not revert or in any way be impaired by
reason of the Merger; and all of the rights of creditors of the Constituent
Corporations shall be preserved unimpaired, and all liens upon the property
of the Constituent Corporations shall be preserved unimpaired, and such
debts, liabilities, obligations and duties of the Constituent Corporations
shall thenceforth remain with or attach to, as the case may be, Acquiror
Sub and may be enforced against it to the same extent as if all of such
debts, liabilities, obligations and duties had been incurred or contracted
by it.
3.2 Replacement of Target Options. At the Effective Time and without
any action on the part of the holder, all outstanding options ("Target
Options") to
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purchase Target Shares shall terminate and cease to be exercisable, no
Target Option shall be accelerated in vesting (other than Target Options
held by employees that Acquiror notifies Target will not be continued as
employees of Acquiror Sub, and Target Options held by Timothy J. Carroll
that vest automatically pursuant to his employment agreement), and the
Target's Board of Directors shall take or cause to be taken such actions as
may be required to cause such result. The Acquiror shall cause to be
granted under the Acquiror's Stock Option Plan to each holder of Target
Options, options to purchase a number of Acquiror Shares equal to that
number of Target Shares issuable upon exercise of such holder's Target
Options multiplied by the Option Conversion Ratio at an exercise price per
Acquiror Share equal to the exercise price per Target Share of such
outstanding Target Option divided by the sum of (i) the Share Consideration
plus (ii) the Cash Consideration divided by the Average Price, and having
the same vesting schedule as the Target Options replaced.
3.3 Replacement of Target Warrants. At the Effective Time and without
any action on the part of the holder, each outstanding warrant (a "Target
Warrant") granted by Target to purchase Target Shares shall be converted
into the right to purchase the Merger Consideration in lieu of each Target
Share issuable upon exercise of such Target Warrant upon payment of the
exercise price per Target Share of such outstanding Target Warrant.
3.4 Articles of Incorporation and Bylaws. The Articles of
Incorporation of Acquiror Sub as in effect at the Effective Time shall,
from and after the Effective Time, be and continue to be the Articles of
Incorporation of Acquiror Sub without change or amendment until thereafter
amended in accordance with the provisions thereof and applicable laws. The
Bylaws of Acquiror Sub as in effect at the Effective Time shall, from and
after the Effective Time, be and continue to be the Bylaws of Acquiror Sub
without change or amendment until thereafter amended in accordance with the
provisions thereof, the Articles of Incorporation of Acquiror Sub and
applicable laws.
3.5 Directors and Officers. The directors and officers of Acquiror
Sub shall be the directors and officers of Acquiror Sub at the Effective
Time, and such directors and officers shall serve until they are removed or
replaced in accordance with the Articles of Incorporation and Bylaws of
Acquiror Sub.
3.6 Further Action. From time to time, as and when requested by
Acquiror Sub, or by its successors or assigns, any party hereto shall
execute and deliver or cause to be executed and delivered all such deeds
and other instruments, and shall take or cause to be taken all such further
or other actions, as Acquiror Sub, or its successors or assigns, may deem
necessary or desirable in order to vest in and confirm to Acquiror Sub, and
its successors or assigns, title to and possession of all the property,
rights, privileges, powers and franchises referred to herein and otherwise
to carry out the intent and purposes of this Agreement.
4. Dissenting Shares. Notwithstanding anything in this Agreement to the
contrary, Target Shares that are Dissenting Shares immediately prior to the
Effective Time shall not be converted into Acquiror Shares pursuant to the
Merger, and the holders of such Dissenting Shares shall be entitled to receive
payment of the fair value of their Dissenting Shares in accordance with the
provisions of the Washington Business Corporation Act; unless and until such
holders shall fail to perfect, lose, or withdraw their rights thereunder. If,
after the Effective Time, any holder of Dissenting Shares shall fail to perfect,
lose or
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withdraw his or its right to be paid fair value, then such Dissenting Shares no
longer shall be deemed to be Dissenting Shares, and shall be treated as if they
had been converted at the Effective Time into the right to receive the
consideration being paid for Target Shares in the Merger, without any interest,
and Acquiror shall take all necessary action to effect the exchange of Acquiror
Shares for the Target Shares. Target shall give Acquiror prompt written notice
of any demands for payment of fair value for any Target Shares, and Acquiror
shall have the right to participate in all negotiations or proceedings with
respect to such demands. Without the prior written consent of the Acquiror, the
Target shall not settle, offer to settle or make any payment with respect to any
such demands.
5. Termination; Amendment.
5.1 Termination Provision. Anything contained in this Agreement to
the contrary notwithstanding, this Agreement may be terminated and the
merger abandoned:
(a) Upon written notice at any time prior to the Effective Time by
mutual consent of the Constituent Corporations; or
(b) If holders of at least two-thirds of the outstanding Target
Shares shall not vote in favor of the Merger; or
(c) If there exists a suit, action, or other proceeding commenced,
pending or threatened, before any court or other governmental agency of
the federal or state government, in which it is sought to restrain,
prohibit or otherwise adversely affect the consummation of the Merger
contemplated hereby.
5.2 Amendment Provisions. Anything contained in this Agreement
notwithstanding, this Agreement may be amended or modified in writing at
any time prior to the Effective Time; provided that, an amendment made
subsequent to the adoption of this Agreement by the shareholders of the
Constituent Corporations shall not (1) alter or change the amount or kind
of shares, securities, cash, property and/or rights to be received in
exchange for or on conversion of all or any of the shares of any class or
series thereof of the Constituent Corporations, (2) alter or change any
terms of the Articles of Incorporation of Acquiror Sub or (3) alter or
change any of the terms and conditions of this Agreement if such alteration
or change would adversely affect the holders of shares of any class or
series thereof of the Constituent Corporations; provided, however, the
Constituent Corporations may by agreement in writing extend the time for
performance of, or waive compliance with, the conditions or agreements set
forth herein.
5.3 Board Action. In exercising their rights under this Section 5,
each of the Constituent Corporations may act by its Board of Directors, and
such rights may be so exercised, notwithstanding the prior approval of this
Agreement by the shareholders of the Constituent Corporations.
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IN WITNESS WHEREOF, this Agreement, having first been duly approved by
resolutions of the Board of Directors of each of the Constituent Corporations,
is hereby executed on behalf of each of the Constituent Corporations by their
respective officers thereunto duly authorized.
FINE.COM INTERNATIONAL CORP.
By:
-----------------------------------
Name:
Title:
ARIS INTERACTIVE, INC.
By:
-----------------------------------
Name:
Title:
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EXHIBIT B
AFFILIATE'S LETTER
ARIS Corporation
2229 112th Avenue N.E.
Bellevue, Washington 98004
Ladies and Gentlemen:
The undersigned shareholder, officer and/or director of fine.com
International Corp. (the "Target") has been advised that the undersigned may be
deemed by the Target to be an "affiliate" of the Target, as that term is used in
paragraphs (c) and (d) of Rule 145 under the Securities Act of 1933, as amended
(the "Securities Act") (such rule, as amended or replaced by any successor rule,
referred to herein as "Rule 145").
Pursuant to the terms of the Agreement and Plan of Merger dated as of May
17, 1999 (the "Merger Agreement"), among ARIS Corporation ("Acquiror"), ARIS
Interactive, Inc. ("Acquiror Sub"), the Target and certain shareholders of the
Target, the Target will be merged with and into Acquiror Sub (the "Merger"). As
a result of the Merger, outstanding shares of common stock, par value $.01 per
share, of the Target ("Target Common Stock") will be converted into the right to
receive shares of common stock, without par value, of the Acquiror ("Acquiror
Common Stock") or a combination of Acquiror Common Stock and cash, as determined
pursuant to the Merger Agreement.
In order to induce the Acquiror and the Target to enter into the Merger
Agreement and to consummate the Merger, the undersigned (referred to herein as
"Affiliate") represents, warrants and agrees as follows:
1. Affiliate has been advised that the issuance of the Acquiror Common
Stock, if any, to Affiliate pursuant to the Merger is being registered with
the Securities and Exchange Commission (the "SEC") under the Securities Act
and the rules and regulations promulgated thereunder on a Registration
Statement on Form S-4. However, Affiliate has also been advised that,
because Affiliate may be deemed to be an "affiliate" of the Target (as that
term is used in paragraphs (c) and (d) of Rule 145), any sale, transfer or
other disposition by Affiliate of any Acquiror Common Stock issued pursuant
to the Merger will, under current law, require either (a) further
registration under the Securities Act of the Acquiror Common Stock to be
sold, transferred, or otherwise disposed of, or (b) compliance with Rule
145, or (c) the availability of another exemption from such registration.
2. Affiliate will not offer to sell, sell, or otherwise dispose of any
Acquiror Common Stock issued pursuant to the Merger except pursuant to an
effective registration statement or in compliance with Rule 145 or another
exemption from the registration requirements of the Securities Act (the
compliance with Rule 145 or the availability of such other exemption to be
established by Affiliate to the reasonable satisfaction of Acquiror's
counsel).
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3. Affiliate consents to the placement of a stop transfer order with
the Target's and Acquiror's stock transfer agent and registrar, and to the
placement of the following legend on certificates representing the Acquiror
Common Stock issued or to be issued to Affiliate:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED EXCEPT IN COMPLIANCE WITH AN AFFILIATE'S
LETTER FROM THE UNDERSIGNED TO ARIS CORPORATION, AND PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT OR IN COMPLIANCE WITH RULE 145
UNDER THE SECURITIES ACT OF 1933 OR ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933."
4. Affiliate has carefully read this letter and has discussed with
counsel for Affiliate or counsel for the Target, to the extent Affiliate
felt necessary, the requirements of this letter and other applicable
limitations on the ability of Affiliate to sell, transfer, or otherwise
dispose of Target Common Stock and Acquiror Common Stock. Affiliate
understands that if Affiliate should become an "affiliate" of Acquiror,
there will be additional restrictions on Affiliate's ability to sell,
transfer or otherwise dispose of Acquiror Common Stock.
5. The Target agrees to take all reasonable actions up to the date of
the Merger, including but not limited to the placement of a stop transfer
order with the Target's stock transfer agent and registrar, to ensure
compliance by Affiliate with the provisions of this letter.
6. Execution of this letter should not be considered an admission on
the part of Affiliate that Affiliate is an "affiliate" of the Target as
described in the first paragraph of this letter, nor as a waiver of any
rights that Affiliate may have to object to any claim that Affiliate is
such an affiliate on or after the date of this letter.
7. By Acquiror's acceptance of this letter, Acquiror hereby agrees
with Affiliate as follows:
A) For so long as and to the extent necessary to permit Affiliate
to sell Acquiror Common Stock pursuant to Rule 145 and, to the extent
applicable, Rule 144 under the Securities Act, Acquiror shall (a) use
its reasonable efforts to (i) file, on a timely basis, all reports and
data required to be filed with the SEC by it pursuant to Section 13 of
the Securities Exchange Act of 1934, as amended (the "1934 Act"), and
(ii) furnish to Affiliate upon request a written statement as to whether
Acquiror has complied with such reporting requirements during the 12
months preceding any proposed sale of Acquiror Common Stock by Affiliate
under Rule 145, and (b) otherwise use its reasonable efforts in permit
such sales pursuant to Rule 145 and Rule 144. Acquiror hereby represents
to Affiliate that it has filed all reports required to be filed with the
SEC under Section 13 of the 1934 Act during the preceding 12 months.
(B) It is understood and agreed that certificates with the legends
set forth in paragraph 3 above will be substituted by delivery of
certificates without such legends if (i) one year shall have elapsed
from the date the undersigned acquired the Acquiror Common Stock
received in the Merger and the provisions of Rule 145(d)(2) are then
available to the undersigned, (ii) two years shall have
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elapsed from the date the undersigned acquired the Acquiror Common Stock
received in the Merger and the provisions of Rule 145(d)(3) are then
applicable to the undersigned, or (iii) Acquiror has received either an
opinion of counsel, which opinion and counsel shall be reasonably
satisfactory to Acquiror, or a "no action" letter obtained by the
undersigned from the staff of the SEC, to the effect that the
restrictions imposed by Rule 145 under the Act no longer apply to the
undersigned.
8. Notwithstanding any other provision contained herein, this
Affiliate's Letter and all obligations of and restrictions imposed on
Affiliate hereunder, and all obligations imposed on the Target hereunder,
shall terminate upon the termination of the Merger Agreement in accordance
with its terms; provided that such termination shall not relieve Affiliate
of liability for any prior breach of Affiliate's obligations hereunder.
Very truly yours,
May 17, 1999 --------------------------------------
--------------------------------------
(Print Name)
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EXHIBIT C
VOTING AGREEMENT
VOTING AGREEMENT, dated as of May 17, 1999 (this "Agreement"), between
[SHAREHOLDER] (the "Shareholder") and ARIS Corporation, a Washington corporation
("Acquiror").
WHEREAS, fine.com International Corp., a Washington corporation ("Target"),
Acquiror and ARIS Interactive, Inc., a Washington corporation and a wholly owned
subsidiary of Acquiror ("Acquiror Sub"), are contemporaneously entering into an
Agreement and Plan of Merger, dated as of this date (the "Merger Agreement"),
which provides, among other things, for the merger of Target with and into
Acquiror Sub (the "Merger");
WHEREAS, as a condition to their willingness to enter into the Merger
Agreement, Acquiror and Acquiror Sub have requested that the Shareholder make
certain agreements with respect to certain shares of Common Stock, par value
$.01 per share ("Shares"), of Target beneficially owned by him, upon the terms
and subject to the conditions of this Agreement; and
WHEREAS, in order to induce Acquiror and Acquiror Sub to enter into the
Merger Agreement, the Shareholder is willing to make certain agreements with
respect to the Subject Shares (as defined);
NOW, THEREFORE, in consideration of the promises and the mutual covenants
and agreements set forth in this Agreement, the parties agree as follows:
1. Voting Agreements; Proxy.
(a) For so long as this Agreement is in effect, in any meeting of
shareholders of Target, and in any action by consent of the shareholders of
Target, the Shareholder shall vote, or, if applicable, give consents with
respect to, all of the Subject Shares that are held by the Shareholder on
the record date applicable to the meeting or consent (i) in favor of the
Merger Agreement and the Merger contemplated by the Merger Agreement, as
the Merger Agreement may be modified or amended from time to time in a
manner not adverse to the Shareholder and (ii) against any competing
Acquisition Proposal (as defined in the Merger Agreement) or other proposal
inconsistent with the Merger Agreement or which may delay the likelihood of
the completion of the Merger. The Shareholder shall use his best efforts to
cast that Shareholder's vote or give that Shareholder's consent in
accordance with the procedures communicated to that Shareholder by Target
relating thereto so that the vote or consent shall be duly counted for
purposes of determining that a quorum is present and for purposes of
recording the results of that vote or consent.
(b) Upon the reasonable written request of Acquiror, in furtherance of
the transactions contemplated in this Agreement and by the Merger Agreement
and in order to secure the performance of the Shareholder's duties under
Section 1(a) of this Agreement, the Shareholder shall promptly execute, in
accordance with the provisions of RCW 23B.07.220, and deliver to Acquiror
an irrevocable proxy, substantially in the form attached as Exhibit A, and
irrevocably appoint Acquiror or its designees, with full power of
substitution, its attorney and proxy to vote or, if applicable, to give
consent with respect to, all Shares constituting Subject Shares at the time
of the
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relevant record date with regard to any of the matters referred to in
paragraph (a) above at any meeting of the shareholders of Target, or in
connection with any action by written consent by the shareholders of
Target. The Shareholder acknowledges and agrees that this proxy, if and
when given, shall be coupled with an interest, shall constitute, among
other things, an inducement for Acquiror to enter into the Merger
Agreement, shall be irrevocable and shall not be terminated by operation of
law or otherwise upon the occurrence of any event and that no subsequent
proxies with respect to such Subject Shares shall be given (and if given
shall not be effective); provided, however, that any such proxy shall
terminate automatically and without further action on behalf of the
Shareholder upon the termination of this Agreement.
2. Covenants. For so long as this Agreement is in effect, the Shareholder
agrees not to (i) sell, transfer, pledge, assign, hypothecate, encumber, tender
or otherwise dispose of, or enter into any contract with respect to the sale,
transfer, pledge, assignment, hypothecation, encumbrance, tender or other
disposition of (each such disposition or contract, a "Transfer"), any Subject
Shares or Shares the Shareholder then has the right to acquire, or will have the
right to acquire within 60 days, pursuant to options to purchase Shares granted
to the Shareholder by Target; (ii) grant any proxies with respect to any shares
that then constitute Subject Shares, deposit any of the Subject Shares into a
voting trust or enter into a voting or option agreement with respect to any of
the Subject Shares; (iii) subject to Section 7, directly or indirectly, solicit,
initiate, encourage or otherwise facilitate any inquiries or the making of any
proposal or offer with respect to an Acquisition Proposal or engage in any
negotiation concerning, or provide any confidential information or data to, or
have any discussions with any person relating to, an Acquisition Proposal; or
(iv) take any action which would make any representation or warranty of the
Shareholder in this Agreement untrue or incorrect or prevent, burden or
materially delay the consummation of the transactions contemplated by this
Agreement; provided, however, that nothing in the foregoing provisions of this
Section 3 shall prohibit the Shareholder from effecting (i) any Transfer of
Subject Shares pursuant to any bona fide charitable gift or by will or
applicable laws of descent and distribution, or for estate planning purposes or
(ii) the Transfer of up to Subject Shares to Blue Note Partners,
a Washington general partnership, [Daniel M. Fine's Voting Agreement to include
the following additional language] [of up to 50,000 Subject Shares to Timothy J.
Carroll and of up to 50,000 Subject Shares to Tor Taylor d/b/a IntLex,] in each
case if the transferee agrees in writing to be bound by the provisions of this
Agreement. As used in this Agreement, "person" shall have the meaning specified
in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as
amended.
3. Representations and Warranties of the Shareholder. The Shareholder
represents and warrants to Acquiror that:
(a) Capacity; No Violations. The Shareholder has the legal capacity to
enter into this Agreement and to consummate the transactions contemplated
by this Agreement. This Agreement has been duly executed and delivered by
the Shareholder and constitutes a valid and binding agreement of the
Shareholder enforceable against the Shareholder in accordance with its
terms except as such enforceability may be limited by applicable
bankruptcy, insolvency and similar laws affecting creditors' rights
generally and general principles of equity (whether considered in a
proceeding in equity or at law). The execution, delivery and performance by
the Shareholder of this Agreement will not (i) conflict with, require a
consent, waiver or approval under, or
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result in a breach or default under, any of the terms of any contract,
commitment or other obligation to which the Shareholder is a party or by
which the Shareholder is bound; (ii) violate any order, writ, injunction,
decree or statute, or any law, rule or regulation applicable to the
Shareholder or the Subject Shares; or (iii) result in the creation of, or
impose any obligation on the Shareholder to create, any Lien upon the
Subject Shares that would prevent the Shareholder from voting the Subject
Shares. In this Agreement, "Lien" shall mean any lien, pledge, security
interest, claim, third party right or other encumbrance.
(b) Subject Shares. As of the date of this Agreement, the Shareholder
is the beneficial owner of and has the power to vote or direct the voting
of the Subject Shares free and clear of any Liens that would prevent the
Shareholder from voting such Subject Shares. As of the date of this
Agreement, the Subject Shares are the only shares of any class of capital
stock of Target which the Shareholder has the right, power or authority
(sole or shared) to sell or vote, and, other than options or warrants to
purchase Shares held by the Shareholder as of this date, the Shareholder
does not have any right to acquire, nor is it the beneficial owner of, any
other shares of any class of capital stock of Target or any securities
convertible into or exchangeable or exercisable for any shares of any class
of capital stock of Target. The Shareholder is not a party to any contracts
(including proxies, voting trusts or voting agreements) that would prevent
the Shareholder from voting the Subject Shares.
4. Expenses. Each party to this Agreement shall pay its own expenses
incurred in connection with this Agreement.
5. Specific Performance. The Shareholder acknowledges and agrees that if he
fails to perform any of its obligations under this Agreement, immediate and
irreparable harm or injury would be caused to Acquiror for which money damages
would not be an adequate remedy. In that event, the Shareholder agrees that
Acquiror shall have the right, in addition to any other rights it may have, to
specific performance of this Agreement. Accordingly, if Acquiror should
institute an action or proceeding seeking specific enforcement of the provisions
of this Agreement, the Shareholder hereby waives the claim or defense that
Acquiror has an adequate remedy at law and hereby agrees not to assert in that
action or proceeding the claim or defense that a remedy at law exists. The
Shareholder further agrees to waive any requirements for the securing or posting
of any bond in connection with obtaining any equitable relief.
6. Shareholder Capacity. No person bound by this Agreement who is or
becomes during the term hereof a director or officer of the Company makes any
agreement or understanding herein in his capacity as such director or officer.
The Shareholder signs solely in his capacity as the beneficial owner of [, or
the general partner of a partnership which is the beneficial owner of,] the
Shareholder's Subject Shares and nothing herein shall limit or affect any
actions taken by the Shareholder in his capacity as an officer or director of
Target to the extent specifically permitted by the Merger Agreement. Nothing in
this Agreement shall be deemed to constitute a transfer of the beneficial
ownership of the Subject Shares by the Shareholder.
7. Notices. All notices and other communications given or made pursuant to
this Agreement shall be in writing and shall be deemed to have been duly given
or made as of the date of receipt and shall be delivered personally or mailed by
registered or certified mail (postage prepaid, return receipt requested), sent
by overnight courier or sent by
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<PAGE> 236
telecopy, to the applicable party at the following addresses or telecopy numbers
(or at any other address or telecopy number for a party as shall be specified by
like notice):
If to Acquiror:
ARIS Corporation
2229 112th Ave. N.E.
Bellevue, Washington 98004
Attention: Bert Sugayan, Esq.
Telecopy: (425) 372-2798
With a copy to:
Dorsey & Whitney LLP
U.S. Bank Centre
1420 Fifth Avenue
Seattle, Washington 98101
Attention: Christopher J. Barry, Esq.
Telecopy: (206) 903-8820
If to the Shareholder:
[SHAREHOLDER ADDRESS]
With a copy to:
Robert Seidel, Esq.
Cairncross & Hempelmann, P.S.
70th Floor Columbia Center
701 Fifth Avenue
Seattle, Washington 98104-7016
8. Parties in Interest. This Agreement shall inure to the benefit of and be
binding upon the parties and their respective successors and assigns; provided,
however, that any successor in interest or assignee shall agree to be bound by
the provisions of this Agreement. Nothing in this Agreement, express or implied,
is intended to confer upon any Person other than Acquiror, the Shareholder or
their successors or assigns, any rights or remedies under, or by reason, of this
Agreement.
9. Entire Agreement; Amendments. This Agreement contains the entire
agreement between the Shareholder and Acquiror with respect to the subject
matter of this Agreement and supersedes all prior and contemporaneous agreements
and understandings, oral or written, with respect to these transactions. This
Agreement may not be changed, amended or modified orally, but may be changed
only by an agreement in writing signed by the party against whom any waiver,
change, amendment, modification or discharge may be sought.
10. Assignment. No party to this Agreement may assign any of its rights or
obligations under this Agreement without the prior written consent of the other
party to this Agreement, except that (a) Acquiror may assign its rights and
obligations under this Agreement to any of its direct or indirect wholly owned
subsidiaries (including Acquiror Sub), but no transfer shall relieve Acquiror of
its obligations under this Agreement if the transferee does not perform its
obligations, and (b) the Shareholder may transfer Subject Shares to the extent
permitted by Section 3 of this Agreement.
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<PAGE> 237
11. Headings. The section headings in this Agreement are for convenience
only and shall not affect the construction of this Agreement.
12. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same document.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington without giving effect to any
choice or conflict of law provision or rule (whether of the State of Washington
or any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Washington.
14. Termination. This Agreement shall terminate automatically and without
further action on behalf of any party at the earlier of (i) the Effective Time
(as defined in the Merger Agreement) and (ii) the date the Merger Agreement is
terminated pursuant to its terms.
15. Subject Shares. The term "Subject Shares" shall mean the Shares set
forth opposite the Shareholder's name on Schedule A hereto, together with any
Shares of capital stock of Target acquired by the Shareholder after the date
hereof over which the Shareholder has the power to vote or power to direct the
voting.
C-5
<PAGE> 238
IN WITNESS WHEREOF, Acquiror and the Shareholder have caused this Agreement
to be duly executed and delivered on the day and year first above written.
ARIS CORPORATION
By:
-----------------------------------
Name:
Title:
Shareholder:
--------------------------------------
(Print Name)
C-6
<PAGE> 239
SCHEDULE A
SHAREHOLDER SHARES OWNED
C-7
<PAGE> 240
EXHIBIT A
IRREVOCABLE PROXY
In order to secure the performance of the duties of the undersigned
pursuant to the Voting Agreement, dated as of May , 1999 (the "Voting
Agreement") between the undersigned and ARIS Corporation, a Washington
corporation ("Acquiror"), a copy of such agreement being attached hereto and
incorporated by reference herein, the undersigned hereby irrevocably appoints
, and , and each of them, the
attorneys, agents and proxies, with full power of substitution in each of them,
for the undersigned and in the name, place and stead of the undersigned, to vote
or, if applicable, to give written consent, in such manner as each such
attorney, agent and proxy or his substitute shall in his sole discretion deem
proper to record such vote (or consent) in the manner set forth in Section 1 of
the Voting Agreement with respect to all shares of Common Stock, par value $.01
per share (the "Shares"), of fine.com International Corporation., a Washington
corporation (the "Company"), which the undersigned is or may be entitled to vote
at any meeting of the Company held after the date hereof, whether annual or
special and whether or to an adjourned meeting, or, if applicable, to give
written consent with respect thereto. This Proxy is coupled with an interest,
shall be irrevocable and binding on any successor in interest of the undersigned
and shall not be terminated by operation of law or otherwise upon the occurrence
of any event (other than as provided in Section 1 of the Voting Agreement),
including, without limitation, the death or incapacity of the undersigned. This
Proxy shall operate to revoke any prior proxy as to the Shares heretofore
granted by the undersigned. This Proxy shall terminate upon the termination of
the Voting Agreement. This Proxy has been executed in accordance with RCW
23B.07.220.
Dated: May , 1999
- ---------------------------------------------------
[Name]
C-8
<PAGE> 241
EXHIBIT D
1. The Merger is the result of arm's-length bargaining between Target and
Acquiror. Target is entering into the Merger for business reasons and not for
the principal purpose of avoiding federal income tax. Accordingly, to the
Knowledge of the undersigned, the fair market value of the Acquiror Shares and
cash payments received pursuant to the Merger Agreement will be approximately
equal to the fair market value of the Target Shares surrendered in exchange
therefor.
2. There is no plan or intention by the undersigned shareholders of Target
and to the Knowledge of the undersigned, there is no plan or intention by any
other shareholders of Target, to enter into any transaction or arrangement with
any person that would result, directly or indirectly, in the sale to, exchange
with or delivery to (each of the foregoing a "disposition") Acquiror or any
person related to Acquiror, within the meaning of Treasury Regulation Section
1.368-1(e)(3) ("Acquiror Related Person"), of any interest in the Acquiror
Shares to be received in the Merger such that the Target shareholders' ownership
in the aggregate of Acquiror Shares would be reduced to a number of Acquiror
Shares having a value, as of the Effective Time, of less than 50 percent of the
total value of all of the formerly outstanding Target Shares as of such date.
For purposes of this representation, (i) any transaction or arrangement
resulting in a reduction of a Target shareholder's benefits or burdens of
ownership (by short sale or otherwise) with respect to the holding of Acquiror
Shares will be treated as a disposition by such shareholder of such stock; (ii)
any transaction or arrangement resulting in the disposition by a Target
shareholder of Acquiror Shares to a person other than Acquiror or a Acquiror
Related Person (other than a disposition described in the preceding sentence)
will be disregarded and will not be treated as a reduction in such shareholder's
ownership of Acquiror Shares; and (iii) Target Shares exchanged for cash in lieu
of fractional Acquiror Shares will be treated as outstanding immediately prior
to the Effective Time. Moreover, Target Shares that are sold to, exchanged with
or otherwise delivered to Acquiror, a Acquiror Related Person, or a person
related to Target within the meaning of Treasury Regulation Section
1.368-1(e)(3) ("Target Related Person") prior to (and in connection with) the
Merger will be taken into account in making this representation and,
accordingly, Acquiror Shares received in the Merger with respect to such Target
Shares will not be included among the shares of Acquiror Shares treated as owned
by Target shareholders following the Merger.
3. Prior to and in connection with the Merger, (i) Target has not redeemed
(and will not redeem) any shares of Target stock and has not made (and will not
make) any distributions (except for regular, normal dividends) with respect
thereto, and (ii) the persons related to Target, within the meaning of Temp.
Treas. Reg. Section 1.368-1T(e)(2)(ii) (referring to Treas. Reg. Section
1.368-1(e)(3)), have not acquired (and will not acquire) shares of Target stock
from any holder thereof.
4. Pursuant to the Merger, Acquiror Sub will acquire at least 90% of the
fair market value of the net assets of Target and at least 70% of the fair
market value of the gross assets of Target held immediately prior to the Merger.
For purposes of this representation, amounts paid by Target to dissenters,
amounts paid by Target to Target shareholders who receive cash or other
property, amounts used by Target to pay reorganization expenses, and all
redemptions and distributions (except for regular, normal dividends) made by
Target in connection with the Merger will be included as assets of Target
immediately prior to the Merger.
D-1
<PAGE> 242
5. Since December 31, 1996, Target has not disposed of any assets other
than in the ordinary course of business and has not redeemed any stock,
warrants, options or similar instruments, and Target will not undertake any such
disposition or redemption prior to the Merger.
6. To the Knowledge of the undersigned, Acquiror and its affiliated
entities have not owned any shares of Target stock or possessed any right to
acquire Target stock (regardless of when exercisable) at any time during the
five year period preceding the Merger. For purposes of this representation,
"affiliated entities" are entities in which the Acquiror directly or indirectly
holds 50% or more of the vote or value.
7. Target has no plan or intention to issue additional shares of its stock
that would result in Acquiror losing control of Target within the meaning of
Section 368(c) of the Code.
8. The liabilities of Target assumed by Acquiror Sub and the liabilities to
which the transferred assets of Target are subject were incurred by Target in
the ordinary course of its business.
9. Target and Target Shareholders will pay their respective expenses, if
any, incurred in connection with the Merger.
10. There is no intercorporate indebtedness existing between Acquiror and
Target or between Acquiror Sub and Target that was issued, acquired, or will be
settled at a discount.
11. Target is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code. For purposes of this representation, an
"investment company" within the meaning of Section 368(a)(2)(F)(iii) and (iv) of
the Code means a regulated investment company, a real estate investment trust,
or a corporation (i) 50 percent or more of the value of whose total assets are
stock and securities (whether or not held for investment) (the "50 Percent Asset
Test") and (ii) 80 percent or more of the value of whose total assets are held
for investment (the "80 Percent Asset Test"). In general, in applying the 50
Percent Asset Test and the 80 Percent Asset Test, (i) the stock and securities
of any subsidiary corporation whose outstanding stock is at least 50 percent
owned (by vote or value), directly or indirectly, by the corporation; any
interest in at least 50 percent of the profits or capital of a partnership
owned, directly or indirectly, by the corporation; and any active general
partnership interests owned by the corporation are disregarded and the
corporation is instead considered to own its ratable share of each of the
subsidiary corporation's or partnership's assets and (ii) any limited
partnership interests or passive general partnership interests not described in
clause (i) are considered securities. For purposes of the preceding sentence,
indirect ownership is determined (i) in the case of the stock of a lower-tier
subsidiary corporation, by multiplying the percentages of stock owned in each
corporation in the chain of ownership and (ii) in the case of an interest in the
profits or capital of a lower-tier partnership, by multiplying the percentage
interests in the profits or capital (as the case may be) of each partnership in
the chain of ownership; provided, however, that such lower-tier partnership
interest and all upper-tier partnership interests in the chain of ownership must
constitute limited partnership interests or passive general partnership
interests. In general, for purposes of the 80 Percent Asset Test, assets are
considered held for investment if (i) they are held primarily for (a) gain from
appreciation in value, (b) production of passive income (including royalties,
rents, dividends, interest, and annuities), or (c) both of these and (ii) they
are not held
D-2
<PAGE> 243
primarily for sale to customers in the ordinary course of a trade or business.
Further, (i) in applying the 50 Percent Asset Test, "securities" include
obligations of State and local governments, commodity futures contracts, shares
of regulated investment companies and real estate investment trusts, and other
investments constituting "securities" within the meaning of the Investment
Company Act of 1940 (15 U.S.C. 80a-2(36)) (other than treasury stock), and (ii)
in applying the 50 Percent Asset Test and the 80 Percent Asset Test, assets
acquired with a purpose of terminating the corporation's status as an investment
company or qualifying a corporation as a diversified investment company and all
cash, cash items (including receivables and other cash equivalents other than
securities), and U.S. Government securities are excluded from the numerator and
the denominator.
12. On the date of the Merger, to the Knowledge of the undersigned, the
fair market value of the assets of Target transferred to Acquiror Sub will
exceed the sum of the liabilities assumed by Acquiror Sub, plus the amount of
liabilities, if any, to which such assets are subject.
13. On the date of Merger, to the Knowledge of the undersigned, the fair
market value of the assets of Target will exceed the sum of its liabilities,
plus the amount of liabilities, if any, to which the assets are subject.
14. Target is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
15. None of the compensation received by any shareholder-employees of
Target will be separate consideration for, or allocable to, any of their Target
Shares; none of the Acquiror Shares received by any Target shareholder-employees
pursuant to the Merger will be separate consideration for, or allocable to, any
employment agreement; and the compensation paid to any Target
shareholder-employees will be for services actually rendered and to the
Knowledge of the undersigned, will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services under similar
circumstances.
16. The payment of cash in lieu of fractional shares of Acquiror Shares is
solely for the purpose of avoiding the expense and inconvenience to Acquiror of
issuing fractional shares and does not represent separately bargained for
consideration. To the Knowledge of the undersigned, the total cash consideration
that will be paid in the Merger to the shareholders of Target in lieu of
fractional shares of Acquiror will not exceed one percent of the total
consideration to be issued in the Merger to the shareholders of Target in
exchange for their Target Shares. The fractional share interests of each Target
shareholder will be aggregated, and no Target shareholder will receive cash in
an amount greater than the value of one full share of Target Shares.
17. Target will satisfy the information reporting requirements of Treasury
Regulation Section 1.368-3 with respect to the Merger.
18. Except for an initial public offering by Target of Target Shares in
August 1997 and for transactions involving an aggregate ownership interest of
20% or less of Target, there have been no significant changes in the
shareholders of Target since December 31, 1996.
19. Target is not a "collapsible" corporation as defined in Section 341 of
the Code.
D-3
<PAGE> 244
20. At the Effective Time of the Merger, Target will not have outstanding
any warrants, options, convertible securities or any other type of right
pursuant to which any person could acquire stock in Target that, if exercised or
converted, would affect Acquiror's acquisition or retention of control of Target
as defined in Section 368(c) of the Code.
D-4
<PAGE> 245
ANNEX B
[Ragen MacKenzie Logo/Letterhead]
August 5, 1999
The Board of Directors
fine.com International Corp.
1525 Fourth Avenue, Suite 800
Seattle, WA 98101
To the Board of Directors:
We understand that fine.com ("fine.com" or the "Company") entered into a
Merger Agreement, dated as of May 17, 1999 and as amended and restated August 5,
1999, (the "Merger Agreement") which provides, among other things, for the
merger of fine.com, a Washington company, into ARIS Interactive, Inc. ("ARIS
Interactive"), a wholly owned subsidiary of ARIS corporation ("ARIS") with ARIS
Interactive as the surviving company ("Merger"). Pursuant to the Merger
Agreement, at the effective time of the Merger ARIS will pay $4.5531 of value
for each share of fine.com common stock, consisting of 1) shares of its common
stock ("Base Share Consideration"), and, if necessary, 2) cash ("Cash
Consideration"), and, if necessary, 3) an additional number of shares of ARIS
common stock (1, 2, & 3 together referred to herein as the "Merger
Consideration") in exchange for the outstanding shares of fine.com common stock
(referred to herein as the "Transaction"). The Base Share Consideration is
defined as that number of shares equal to the lesser of .3717, or $4.5531
divided by the "Average Price". The "Average Price" is defined as the average of
the per share daily closing prices of ARIS common stock as reported by Nasdaq
for each trading day for the ten trading days ending on the second trading day
prior to the meeting of fine.com shareholders to consider and vote on the
approval of the Merger. The Cash Consideration will be the lesser of $1.1150, or
the amount (if any) by which $4.5531 exceeds the Base Share Consideration
multiplied by the Average Price. ARIS will also issue an additional number of
shares (if a positive number) equal to $4.5531 minus the Base Consideration,
divided by the Average Price. "Base Consideration" means the Base Share
Consideration multiplied by the Average Price, plus the Cash Consideration. The
terms of the Transaction are set forth more fully in the Merger Agreement. You
have requested our opinion on behalf of fine.com and the shareholders (the
"Fairness Opinion") as to whether the Merger Consideration to be paid by ARIS
pursuant to the Merger Agreement is fair, from a financial point of view, to the
shareholders of fine.com.
In connection with rendering this Fairness Opinion, Ragen MacKenzie, among
other things: (i) reviewed the Merger Agreement; (ii) reviewed and analyzed
consolidated historic and projected financial and operating data of fine.com,
including audited and unaudited financial statements for fine.com and unaudited
estimates prepared by management for the Company; (iii) reviewed and analyzed
other internal information concerning the business and operations of fine.com
furnished to it by management; (iv) reviewed and analyzed publicly available
information concerning the terms of selected merger and acquisition transactions
that Ragen MacKenzie deemed relevant to its inquiry; (v) reviewed share price
and trading volume for fine.com's and ARIS' shares from 1997 to 1999, (vi)
compared certain publicly available financial data of companies whose securities
are publicly traded, which Ragen MacKenzie deemed generally comparable to the
business of fine.com, to similar data for fine.com; and (vii) conducted such
other financial studies,
<PAGE> 246
analyses and investigations, and considered such other information as Ragen
MacKenzie deemed appropriate.
In preparing its Fairness Opinion, Ragen MacKenzie relied, without
independent verification, on the accuracy and completeness of all information
that was publicly available, supplied or otherwise communicated to Ragen
MacKenzie by fine.com. Ragen MacKenzie assumed that the financial estimates
(including the underlying assumptions and bases thereof) examined by it were
reasonably prepared and reflected the best currently available estimates and
good faith judgments of fine.com as to its future performance. Ragen MacKenzie
did not make an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of fine.com. This Fairness Opinion necessarily is
based upon financial, economic, market and other conditions and circumstances
existing and disclosed to it as of the date of this Fairness Opinion.
Our Fairness Opinion is directed only to the fairness, from a financial
point of view, of the Merger Consideration to be paid by ARIS to the
shareholders of fine.com and does not constitute a recommendation concerning how
shareholders should vote with respect to the Merger or a statement as to the tax
consequences of the transaction to the shareholders or as to the effect of the
representations and warranties of the major shareholders.
Ragen MacKenzie, as part of its investment banking business, is engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of securities,
private placements and valuations. We have acted as a financial advisor to
fine.com in the preparation of this opinion and will receive a fee for our
services but we were not requested to solicit, and did not solicit, interest
from other parties with respect to an acquisition of or other business
combination involving fine.com. In addition, ARIS Interactive, the surviving
company pursuant to the terms of the Merger Agreement, will assume fine.com's
agreement to indemnify us as to certain liabilities arising out of the rendering
of this Fairness Opinion.
This letter and the opinion expressed herein are provided at the request of
the Board of Directors of fine.com and for the information of fine.com and the
shareholders and may not be referred to, quoted or used for any other purpose
without our prior written consent, except that this letter may be disclosed in
connection with a proxy statement used in connection with the Transaction.
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the aggregate Merger Consideration being paid by ARIS to the
fine.com shareholders pursuant to the Merger Agreement is fair, from a financial
point of view, to the shareholders of fine.com.
Very truly yours,
Ragen MacKenzie Incorporated
/s/ Ragen Mackenzie Incorporated
<PAGE> 247
ANNEX C
CHAPTER 23B.13 RCW
DISSENTERS' RIGHTS
<TABLE>
<CAPTION>
SECTIONS
--------
<S> <C>
23B.13.010 Definitions.
23B.13.020 Right to dissent.
23B.13.030 Dissent by nominees and beneficial owners.
23B.13.200 Notice of dissenters' rights.
23B.13.210 Notice of intent to demand payment.
23B.13.220 Dissenters' notice.
23B.13.230 Duty to demand payment.
23B.13.240 Share restrictions.
23B.13.250 Payment.
23B.13.260 Failure to take action.
23B.13.270 After-acquired shares.
23B.13.280 Procedure if shareholder dissatisfied with payment or offer.
23B.13.300 Court action.
23B.13.310 Court costs and counsel fees.
</TABLE>
* * * * * * * * * *
RCW 23B.13.010 Definitions. As used in this chapter:
(1) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(2) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under RCW 23B.13.020 and who exercises that right when and in
the manner required by RCW 23B.13.200 through 23B.13.280.
(3) "Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effective date of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(6) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder. [1989 c 165 sec. 140.]
* * * * * * * * * *
<PAGE> 248
RCW 23B.13.020 Right to dissent.
(1) A shareholder is entitled to dissent from, and obtain payment of the
fair value of the shareholder's shares in the event of, any of the following
corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party (i) if shareholder approval is required for the merger by RCW
23B.11.030, 23B.11.080, or the articles of incorporation and the
shareholder is entitled to vote on the merger, or (ii) if the corporation
is a subsidiary that is merged with its parent under RCW 23B.11.040;
(b) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(c) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one year after the date of sale;
(d) An amendment of the articles of incorporation that materially
reduces the number of shares owned by the shareholder to a fraction of a
share if the fractional share so created is to be acquired for cash under
RCW 23B.06.040; or
(e) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(2) A shareholder entitled to dissent and obtain payment for the
shareholder's shares under this chapter may not challenge the corporate action
creating the shareholder's entitlement unless the action fails to comply with
the procedural requirements imposed by this title, RCW 25.10.900 through
25.10.955, the articles of incorporation, or the bylaws, or is fraudulent with
respect to the shareholder or the corporation.
(3) The right of a dissenting shareholder to obtain payment of the fair
value of the shareholder's shares shall terminate upon the occurrence of any one
of the following events:
(a) The proposed corporate action is abandoned or rescinded;
(b) A court having jurisdiction permanently enjoins or sets aside the
corporate action; or
(c) The shareholder's demand for payment is withdrawn with the written
consent of the corporation. [1991 c 269 sec. 37; 1989 c 165 sec. 141.]
* * * * * * * * * *
RCW 23B.13.030 Dissent by nominees and beneficial owners.
(1) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in the shareholder's name only if the shareholder dissents
with respect to all shares beneficially owned by any one person and notifies the
corporation in writing of the
<PAGE> 249
name and address of each person on whose behalf the shareholder asserts
dissenters' rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which the dissenter dissents and the
dissenter's other shares were registered in the names of different shareholders.
(2) A beneficial shareholder may assert dissenters' rights as to shares
held on the beneficial shareholder's behalf only if:
(a) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(b) The beneficial shareholder does so with respect to all shares of
which such shareholder is the beneficial shareholder or over which such
shareholder has power to direct the vote. [1989 c 165 sec. 142.]
* * * * * * * * * *
RCW 23B.13.200 Notice of dissenters' rights.
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, the meeting notice
must state that shareholders are or may be entitled to assert dissenters' rights
under this chapter and be accompanied by a copy of this chapter.
(2) If corporate action creating dissenters' rights under RCW 23B.13.020 is
taken without a vote of shareholders, the corporation, within ten days after
[the] effective date of such corporate action, shall notify in writing all
shareholders entitled to assert dissenters' rights that the action was taken and
send them the dissenters' notice described in RCW 23B.13.220. [1989 c 165
sec. 143.]
* * * * * * * * * *
RCW 23B.13.210 Notice of intent to demand payment.
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights must (a) deliver to the corporation before
the vote is taken written notice of the shareholder's intent to demand payment
for the shareholder's shares if the proposed action is effected, and (b) not
vote such shares in favor of the proposed action.
(2) A shareholder who does not satisfy the requirements of subsection (1)
of this section is not entitled to payment for the shareholder's shares under
this chapter. [1989 c 165 sec. 144.]
* * * * * * * * * *
RCW 23B.13.220 Dissenters' notice.
(1) If proposed corporate action creating dissenters' rights under RCW
23B.13.020 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of RCW 23B.13.210.
<PAGE> 250
(2) The dissenters' notice must be sent within ten days after the effective
date of the corporate action, and must:
(a) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(b) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(c) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not the person acquired beneficial
ownership of the shares before that date;
(d) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty nor more than sixty days
after the date the notice in subsection (1) of this section is delivered;
and
(e) Be accompanied by a copy of this chapter. [1989 c 165 sec. 145.]
* * * * * * * * * *
RCW 23B.13.230 Duty to demand payment.
(1) A shareholder sent a dissenters' notice described in RCW 23B.13.220
must demand payment, certify whether the shareholder acquired beneficial
ownership of the shares before the date required to be set forth in the
dissenters' notice pursuant to RCW 23B.13.220(2)(c), and deposit the
shareholder's certificates in accordance with the terms of the notice.
(2) The shareholder who demands payment and deposits the shareholder's
share certificates under subsection (1) of this section retains all other rights
of a shareholder until the proposed corporate action is effected.
(3) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholder's shares under this
chapter. [1989 c 165 sec. 146.]
* * * * * * * * * *
RCW 23B.13.240 Share restrictions.
(1) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is effected or the restriction is released under RCW 23B.13.260.
(2) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until the
effective date of the proposed corporate action. [1989 c 165 sec. 147.]
* * * * * * * * * *
RCW 23B.13.250 Payment.
(1) Except as provided in RCW 23B.13.270, within thirty days of the later
of the effective date of the proposed corporate action, or the date the payment
demand is
<PAGE> 251
received, the corporation shall pay each dissenter who complied with RCW
23B.13.230 the amount the corporation estimates to be the fair value of the
shareholder's shares, plus accrued interest.
(2) The payment must be accompanied by:
(a) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
(b) An explanation of how the corporation estimated the fair value of
the shares;
(c) An explanation of how the interest was calculated;
(d) A statement of the dissenter's right to demand payment under RCW
23B.13.280; and
(e) A copy of this chapter. [1989 c 165 sec. 148.]
* * * * * * * * * *
RCW 23B.13.260 Failure to take action.
(1) If the corporation does not effect the proposed action within sixty
days after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release any transfer
restrictions imposed on uncertificated shares.
(2) If after returning deposited certificates and releasing transfer
restrictions, the corporation wishes to undertake the proposed action, it must
send a new dissenters' notice under RCW 23B.13.220 and repeat the payment demand
procedure. [1989 c 165 sec. 149.]
* * * * * * * * * *
RCW 23B.13.270 After-acquired shares.
(1) A corporation may elect to withhold payment required by RCW 23B.13.250
from a dissenter unless the dissenter was the beneficial owner of the shares
before the date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of the proposed
corporate action.
(2) To the extent the corporation elects to withhold payment under
subsection (1) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of the dissenter's demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares, an explanation of
how the interest was calculated, and a statement of the dissenter's right to
demand payment under RCW 23B.13.280. [1989 c 165 sec. 150.]
* * * * * * * * * *
RCW 23B.13.280 Procedure if shareholder dissatisfied with payment or offer.
(1) A dissenter may notify the corporation in writing of the dissenter's
own estimate of the fair value of the dissenter's shares and amount of interest
due, and demand payment
<PAGE> 252
of the dissenter's estimate, less any payment under RCW 23B.13.250, or reject
the corporation's offer under RCW 23B.13.270 and demand payment of the
dissenter's estimate of the fair value of the dissenter's shares and interest
due, if:
(a) The dissenter believes that the amount paid under RCW 23B.13.250
or offered under RCW 23B.13.270 is less than the fair value of the
dissenter's shares or that the interest due is incorrectly calculated;
(b) The corporation fails to make payment under RCW 23B.13.250 within
sixty days after the date set for demanding payment; or
(c) The corporation does not effect the proposed action and does not
return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set for
demanding payment.
(2) A dissenter waives the right to demand payment under this section
unless the dissenter notifies the corporation of the dissenter's demand in
writing under subsection (1) of this section within thirty days after the
corporation made or offered payment for the dissenter's shares. [1989 c 165 sec.
151.]
* * * * * * * * * *
RCW 23B.13.300 Court action.
(1) If a demand for payment under RCW 23B.13.280 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the sixty-day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
(2) The corporation shall commence the proceeding in the superior court of
the county where a corporation's principal office, or, if none in this state,
its registered office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation was
located.
(3) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled, parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(4) The corporation may join as a party to the proceeding any shareholder
who claims to be a dissenter but who has not, in the opinion of the corporation,
complied with the provisions of this chapter. If the court determines that such
shareholder has not complied with the provisions of this chapter, the
shareholder shall be dismissed as a party.
(5) The jurisdiction of the court in which the proceeding is commenced
under subsection (2) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to it. The dissenters are
entitled to the same discovery rights as parties in other civil proceedings.
<PAGE> 253
(6) Each dissenter made a party to the proceeding is entitled to judgment
(a) for the amount, if any, by which the court finds the fair value of the
dissenter's shares, plus interest, exceeds the amount paid by the corporation,
or (b) for the fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold payment
under RCW 23B.13.270. [1989 c 165 sec. 152.]
* * * * * * * * * *
RCW 23B.13.310 Court costs and counsel fees.
(1) The court in a proceeding commenced under RCW 23B.13.300 shall
determine all costs of the proceeding, including the reasonable compensation and
expenses of appraisers appointed by the court. The court shall assess the costs
against the corporation, except that the court may assess the costs against all
or some of the dissenters, in amounts the court finds equitable, to the extent
the court finds the dissenters acted arbitrarily, vexatiously, or not in good
faith in demanding payment under RCW 23B.13.280.
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of RCW 23B.13.200 through 23B.13.280; or
(b) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by chapter 23B.13 RCW.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited. [1989 c 165 sec. 153.]
<PAGE> 254
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.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S> <C>
2.1 Agreement and Plan of Merger dated September 13, 1997, among (C)
ARIS Corporation, Enterprise Computing Inc., d/b/a Buller
Owens & Associates and each of the stockholders of
Enterprise Computing Inc. (Exhibit 2.1)
2.2 Agreement and Plan of Merger dated as of April 26, 1998, (D)
between ARIS Corporation and InTime Systems International,
Inc. (Exhibit 2.1)
2.3 Amendment No. 1 to Agreement and Plan of Merger dated as of (D)
May 27, 1998 between ARIS Corporation and InTime Systems
International, Inc. (Exhibit 2.2)
*2.4 Amended and Restated Agreement and Plan of Merger dated as
of August 5, 1999, among ARIS Corporation, fine.com
International Corp, ARIS Interactive, Inc., Daniel M. Fine,
Frank Hadam and Herbert L. Fine
3.1 Amended and Restated Articles of Incorporation. (Exhibit (A)
3.1)
3.2 Amended and Restated Bylaws. (Exhibit 3.2) (A)
4.1 Articles IV and V of the Amended and Restated Articles. (A)
(Exhibit 4.1)
4.2 Articles II, IV, VI, VII, IX, X and XI of the Amended and (A)
Restated Bylaws. (Exhibit 4.2)
*5.1 Legal Opinion of Dorsey & Whitney LLP
*8.1 Form of Tax Opinion of Dorsey & Whitney LLP
10.1 Applied Relational Information Systems, Inc. 1995 Stock (A)
Option Plan. (Exhibit 10.1)+
10.2 ARIS Corporation 1997 Stock Option Plan. (Exhibit 10.2)+ (A)
</TABLE>
II-1
<PAGE> 255
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S> <C>
10.3 ARIS Corporation 1998 Employee Stock Purchase Plan. (Exhibit (B)
99.1)+
10.4 Amendment dated March 24, 1998 to ARIS Corporation 1998 (F)
Employee Stock Purchase Plan. (Exhibit 99.1)+
10.5 Form of Indemnification Agreement for Directors and Officers (E)
10.6 Credit Agreement between ARIS Corporation and U.S. Bank of (A)
Washington, National Association, dated March 14, 1997.
(Exhibit 10.9)
10.7 Registration Rights Agreement dated as of February 28, 1997 (A)
by and between ARIS Corporation and certain holders of ARIS
common stock. (Exhibit 10.10)
10.8 Registration Rights Agreement dated as of February 28, 1997 (A)
by and between ARIS Corporation and Charles Henderson
Cunningham. (Exhibit 10.11)
10.9 Purchase and Sale Agreement dated as of December 19, 1997 (E)
between Vangard Management Company, Jeff Foushee, Lock
Anderson and Richard Barker and ARIS Corporation.
10.10 Sun Microsystems Educational Services U.S. Strategic (A)
Alliance Agreement by and between SunService, a division of
Sun Microsystems Inc. and ARIS Corporation. (Exhibit 10.36)
10.11 Microsoft vendor contracts (Exhibit 10.37) (A)
10.12 Oracle vendor contracts (Exhibit 10.38) (A)
*10.13 Form of Voting Agreement between ARIS Corporation and
certain shareholders of fine.com International Corp.
*10.14 Form of Employment Agreement with Daniel M. Fine+
**11.1 Computation of per share earnings (included in the pro forma
financial section of this Registration Statement)
*21.1 List of ARIS Corporation's Subsidiaries.
*23.1 Consent of PricewaterhouseCoopers LLP, independent certified
public accountants for ARIS Corporation.
*23.2 Consent of BDO Stoy Hayward, chartered accountants.
*23.3 Consent of Ernst & Young LLP, independent certified public
accountants for fine.com International Corp.
*23.4 Consent of Ragen MacKenzie, (included in its fairness
opinion attached as Annex B to the Proxy
Statement/Prospectus).
P24.1 Power of Attorney (included in the signature page to this
Registration Statement).
*27.1 Financial Data Schedule
*99.1 fine.com International Corp. Letter to Shareholders
*99.2 fine.com International Corp. Notice of Special Meeting of
Shareholders
*99.3 Form of proxy card to be mailed to shareholders of fine.com
International Corp.
</TABLE>
- -------------------------
+ Management contract or compensatory plan
* Included herewith
** See pro forma financial information
P See signature page
II-2
<PAGE> 256
(A) Incorporated by reference to designated exhibit included with the Company's
Registration Statement on Form S-1, registration number 333-25409.
(B) Incorporated by reference to designated exhibit included with the Company's
Registration Statement on Form S-8, registration number 333-40923.
(C) Incorporated by reference to designated exhibit included with the Company's
Registration Statement on Form 8-K dated September 24, 1997 (SEC File number
000-22649.)
(D) Incorporated by reference to designated exhibit included with the Company's
Registration Statement on Form S-4 filed with the Securities and Exchange
Commission on May 5, 1998, registration statement number 333-51859.
(E) Incorporated by reference to designated exhibit included with the Company's
Annual Report on Form 10-K for the fiscal year ending December 31, 1997.
(F) Incorporated by reference to designated exhibit included with the Company's
Registration Statement on Form S-8 filed with the SEC on December 1, 1998,
registration statement number 333-68199.
(b) FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENT SCHEDULE II -- VALUATION AND QUALIFYING
ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
BALANCE AT CHARGE TO BALANCE AT
BEGINNING COSTS AND END OF
OF PERIOD EXPENSES DEDUCTIONS PERIOD
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Allowance for doubtful accounts...... $ 61,000 $ 95,000 $ (15,000) $ 141,000
YEAR ENDED DECEMBER 31, 1995
Allowance for doubtful accounts...... $141,000 $271,000 $ (61,000) $ 351,000
YEAR ENDED DECEMBER 31, 1996
Allowance for doubtful accounts...... $351,000 $ 81,000 $ (29,000) $ 403,000
YEAR ENDED DECEMBER 31, 1997
Allowance for doubtful accounts...... $403,000 $676,000 $(162,000) $ 917,000
YEAR ENDED DECEMBER 31, 1998
Allowance for doubtful accounts...... $917,000 $706,000 $(360,000) $1,263,000
</TABLE>
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) 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;
II-3
<PAGE> 257
(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 (4)
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-4
<PAGE> 258
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 August 5, 1999.
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 Christyne M. Mayberry 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 any
registration statement filed pursuant to Rule 462(b) under the Securities Act of
1933 in connection with the registration under the Securities Act of 1933 of
equity securities of ARIS Corporation 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 in and about the premises, as fully to all intents and
purposes as such person might or could do in person, hereby ratifying 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 August 5, 1999
- --------------------------------------------- Chief Executive Officer
Paul Y. Song (Principle Executive
Officer)
/s/ THOMAS W. AVERILL Vice President, Finance and August 5, 1999
- --------------------------------------------- Chief Financial Officer
Thomas W. Averill (Principle Financial and
Accounting Officer)
</TABLE>
II-5
<PAGE> 259
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ KENDALL W. KUNZ Senior Vice President of August 5, 1999
- --------------------------------------------- North America and Director
Kendall W. Kunz
/s/ BRUCE R. KENNEDY Director August 5 1999
- ---------------------------------------------
Bruce R. Kennedy
/s/ BARRY L. ROWAN Director August 5, 1999
- ---------------------------------------------
Barry L. Rowan
/s/ KENNETH A. WILLIAMS Director August 5, 1999
- ---------------------------------------------
Kenneth A. Williams
</TABLE>
II-6
<PAGE> 260
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S> <C>
2.1 Agreement and Plan of Merger dated September 13, 1997, among (C)
ARIS Corporation, Enterprise Computing Inc., d/b/a Buller
Owens & Associates and each of the stockholders of
Enterprise Computing Inc. (Exhibit 2.1)
2.2 Agreement and Plan of Merger dated as of April 26, 1998, (D)
between ARIS Corporation and InTime Systems International,
Inc. (Exhibit 2.1)
2.3 Amendment No. 1 to Agreement and Plan of Merger dated as of (D)
May 27, 1998 between ARIS Corporation and InTime Systems
International, Inc. (Exhibit 2.2)
*2.4 Amended and Restated Agreement and Plan of Merger dated as
of August 5, 1999, among ARIS Corporation, fine.com
International Corp, ARIS Interactive, Inc., Daniel M. Fine,
Frank Hadam and Herbert L. Fine
3.1 Amended and Restated Articles of Incorporation. (Exhibit (A)
3.1)
3.2 Amended and Restated Bylaws. (Exhibit 3.2) (A)
4.1 Articles IV and V of the Amended and Restated Articles. (A)
(Exhibit 4.1)
4.2 Articles II, IV, VI, VII, IX, X and XI of the Amended and (A)
Restated Bylaws. (Exhibit 4.2)
*5.1 Legal Opinion of Dorsey & Whitney LLP
*8.1 Form of Tax Opinion of Dorsey & Whitney LLP
10.1 Applied Relational Information Systems, Inc. 1995 Stock (A)
Option Plan. (Exhibit 10.1)+
10.2 ARIS Corporation 1997 Stock Option Plan. (Exhibit 10.2)+ (A)
10.3 ARIS Corporation 1998 Employee Stock Purchase Plan. (Exhibit (B)
99.1)+
10.4 Amendment dated March 24, 1998 to ARIS Corporation 1998 (F)
Employee Stock Purchase Plan. (Exhibit 99.1)+
10.5 Form of Indemnification Agreement for Directors and Officers (E)
10.6 Credit Agreement between ARIS Corporation and U.S. Bank of (A)
Washington, National Association, dated March 14, 1997.
(Exhibit 10.9)
10.7 Registration Rights Agreement dated as of February 28, 1997 (A)
by and between ARIS Corporation and certain holders of ARIS
common stock. (Exhibit 10.10)
10.8 Registration Rights Agreement dated as of February 28, 1997 (A)
by and between ARIS Corporation and Charles Henderson
Cunningham. (Exhibit 10.11)
10.9 Purchase and Sale Agreement dated as of December 19, 1997 (E)
between Vangard Management Company, Jeff Foushee, Lock
Anderson and Richard Barker and ARIS Corporation.
10.10 Sun Microsystems Educational Services U.S. Strategic (A)
Alliance Agreement by and between SunService, a division of
Sun Microsystems Inc. and ARIS Corporation. (Exhibit 10.36)
10.11 Microsoft vendor contracts (Exhibit 10.37) (A)
10.12 Oracle vendor contracts (Exhibit 10.38) (A)
</TABLE>
<PAGE> 261
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<C> <S> <C>
*10.13 Form of Voting Agreement between ARIS Corporation and
certain shareholders of fine.com International Corp.
*10.14 Form of Employment Agreement with Daniel M. Fine+
**11.1 Computation of per share earnings (included in the pro forma
financial section of this Registration Statement)
*21.1 List of ARIS Corporation's Subsidiaries.
*23.1 Consent of PricewaterhouseCoopers LLP, independent certified
public accountants for ARIS Corporation.
*23.2 Consent of BDO Stoy Hayward, chartered accountants.
*23.3 Consent of Ernst & Young LLP, independent certified public
accountants for fine.com International Corp.
*23.4 Consent of Ragen MacKenzie, (included in its fairness
opinion attached as Annex B to the Proxy
Statement/Prospectus).
P24.1 Power of Attorney (included in the signature page to this
Registration Statement).
*27.1 Financial Data Schedule
*99.1 fine.com International Corp. Letter to Shareholders
*99.2 fine.com International Corp. Notice of Special Meeting of
Shareholders
*99.3 Form of proxy card to be mailed to shareholders of fine.com
International Corp.
</TABLE>
- -------------------------
+ Management contract or compensatory plan
* Included herewith
** See pro forma financial information
P See signature page
(A) Incorporated by reference to designated exhibit included with the Company's
Registration Statement on Form S-1, registration number 333-25409.
(B) Incorporated by reference to designated exhibit included with the Company's
Registration Statement on Form S-8, registration number 333-40923.
(C) Incorporated by reference to designated exhibit included with the Company's
Registration Statement on Form 8-K dated September 24, 1997 (SEC File
number 000-22649.)
(D) Incorporated by reference to designated exhibit included with the Company's
Registration Statement on Form S-4 filed with the Securities and Exchange
Commission on May 5, 1998, registration statement number 333-51859.
(E) Incorporated by reference to designated exhibit included with the Company's
Annual Report on Form 10-K for the fiscal year ending December 31, 1997.
(F) Incorporated by reference to designated exhibit included with the Company's
Registration Statement on Form S-8 filed with the SEC on December 1, 1998,
registration statement number 333-68199.
<PAGE> 1
EXHIBIT 2.4
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.
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
AMONG
ARIS Corporation,
fine.com International Corp.,
ARIS Interactive, Inc.,
Daniel M. Fine,
Frank Hadam,
AND
Herbert L. Fine
August 5, 1999
<PAGE> 2
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
Agreement entered into on as of August 5, 1999 by and among ARIS
Corporation, a Washington corporation (the "Acquiror"), ARIS Interactive, Inc.,
a Washington corporation ("Acquiror Sub"), fine.com International Corp., a
Washington corporation (the "Target"), Daniel M. Fine, Frank Hadam and Herbert
L. Fine (collectively, the "Major Shareholders"). The Acquiror, Acquiror Sub and
the Target are referred to collectively herein as the "Parties." This Agreement
amends and restates in its entirety that certain Agreement and Plan of Merger,
dated as of May 17, 1999, among the Parties and the Major Shareholders.
References herein to "the date of this Agreement" and "the date hereof" refer to
May 17, 1999.
This Agreement contemplates a tax-deferred merger of the Target with and
into the Acquiror Sub in a reorganization pursuant to Internal Revenue Code
Sections 368(a)(1)(A) and 368(a)(2)(D). The Target Shareholders will receive
capital stock in the Acquiror or a combination of cash and stock in exchange for
their capital stock in the Target.
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 and the Major Shareholders agree as
follows.
1. Definitions.
"Acquisition Proposal" has the meaning set forth in Section 5(h) below.
"Affiliate" has the meaning set forth in Rule 145 of the regulations
promulgated under the Securities Act.
"Alternative Transaction" has the meaning set forth in Section
7(c)(iii) below.
"Articles of Merger" has the meaning set forth in Section 2(c) below.
"Average Price" means the average of the per share daily closing prices of
Acquiror Shares as reported by Nasdaq for each trading day during the
Measurement Period.
"Acquiror" has the meaning set forth in the preface above.
"Acquiror-owned Share" means any Target Share that the Acquiror owns
beneficially (except by virtue of having a proxy to vote such Target Share).
"Acquiror Share" means any share of the Common Stock, without par
value, of the Acquiror.
"Acquiror Sub" has the meaning set forth in the preface above.
"Base Consideration" has the meaning set forth in Section 2(d)(v) below.
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"Base Share Consideration" has the meaning set forth in Section 2(d)(v)
below.
"Cash Consideration" has the meaning set forth in Section 2(d)(v) below.
"Closing" has the meaning set forth in Section 2(b) below.
"Closing Date" has the meaning set forth in Section 2(b) below.
"Code" has the meaning set forth in Section 3(m) below.
"Compensation or Benefit Plans" has the meaning set forth in Section
3(m)(i) 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.
"Damages" has the meaning set forth in Section 9(a)(iii) below.
"Definitive Target Materials" means the definitive prospectus/proxy
statement relating to the Special Target Meeting.
"Disclosure Document" means the disclosure document combining the
Prospectus and the Definitive Target Materials.
"Disclosure Schedule" has the meaning set forth in Section 3 below.
"Dissenting Share" means any Target Share as to which any shareholder
has exercised his or its appraisal rights under Section 23B.13.010, et. seq.
of the Washington Business Corporation Act.
"Effective Time" has the meaning set forth in Section 2(d)(i) below.
"ERISA" has the meaning set forth in Section 3(m)(i) below.
"Employees" has the meaning set forth in Section 3(m)(i) below.
"Exchange Agent" has the meaning set forth in Section 2(e)(i) below.
"Fairness Opinion" has the meaning set forth in Section 2(a) below.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"IRS" means the Internal Revenue Service.
"Knowledge" means actual knowledge of any of the Major Shareholders,
Timothy J. Carroll, Kathy Berni or Bill Poole after reasonable investigation.
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"Major Shareholders" means Daniel M. Fine, Frank Hadam and Herbert L.
Fine.
"Measurement Period" means the period of ten trading days ending on the
second trading day prior to the Special Target Meeting.
"Merger" has the meaning set forth in Section 2(a) below.
"Merger Consideration" has the meaning set forth in Section 2(d)(v)
below.
"Most Recent Fiscal Year End" has the meaning set forth in Section 3(g)
below.
"Option Conversion Ratio" means (i) the Share Consideration plus (ii) the
Cash Consideration divided by the Average Price.
"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.
"Pension Plan" has the meaning set forth in Section 3(m)(ii) below.
"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).
"Plans" has the meaning set forth in Section 3(m)(i) below.
"Products" means any products offered or furnished by the Target or its
Subsidiaries, or any predecessor in interest of the Target or its Subsidiaries,
or any predecessor in interest of the Target or any of its Subsidiaries,
currently or at any time in the past, including, without limitation, each item
of hardware, software, or firmware; any system, equipment, or products
consisting of or containing one or more thereof; and any and all enhancements,
upgrades, customizations, modifications, and maintenance thereto.
"Prospectus" means the final prospectus relating to the registration of
the Acquiror Shares under the Securities Act.
"Public Report" has the meaning set forth in Section 3(e) below.
"Registration Statement" has the meaning set forth in Section 5(c)(i)
below.
"Requisite Target Shareholder Approval" means the affirmative vote of the
holders of a two-thirds majority of the Target Shares in favor of this Agreement
and the Merger.
"SEC" means the Securities and Exchange Commission.
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"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen'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.
"Services" means any services offered or furnished by the Target or its
Subsidiaries, or any predecessor in interest of the Target, currently or at any
time in the past.
"Share Consideration" has the meaning set forth in Section 2(d)(v)
below.
"Special Target Meeting" has the meaning set forth in Section 5(c)(ii)
below, including any postponement or adjournment thereof.
"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 Intellectual Property Rights" has the meaning set forth in
Section 3(j)(ii) below.
"Target Option" means options to purchase Target Shares outstanding
immediately prior to the Effective Time under the Target's 1996 Incentive Stock
Option Plan, 1997 Stock Option Plan and 1998 Employee Bonus Plan.
"Target Share" means any share of the Common Stock, par value $.01 per
share, of the Target.
"Target Shareholder" means any Person who or which holds any Target
Shares.
"Target Warrant" means warrants granted by Target to purchase Target
Shares outstanding immediately prior to the Effective Time, as described on the
attached Schedule 3(b).
"Third-Party Intellectual Property Rights" has the meaning set forth in
Section 3(j)(ii) below.
"Washington Business Corporation Act" means the Washington business
corporation act, as amended.
2. Basic Transaction.
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(a) The Merger. On and subject to the terms and conditions of this
Agreement, the Target will merge with and into Acquiror Sub (the "Merger") at
the Effective Time. Acquiror Sub shall be the corporation surviving the Merger
(the "Surviving Corporation"). The Target hereby represents and warrants to the
Acquiror and Acquiror Sub that its Board of Directors, at a meeting duly called
and held, has (i) unanimously reconfirmed its determination that this Agreement,
as amended and restated as of August 5, 1999, and the transactions contemplated
hereby, including the Merger, are fair to and in the best interest of the
Target's shareholders, (ii) unanimously adopted and approved this Agreement as
so amended and restated and the transactions contemplated hereby, including the
Merger, which approval satisfies in full the requirements of the Washington
Business Corporation Act, including without limitation, the requirements of
Section 23B.08.720 thereof and (iii) unanimously reconfirmed its resolution to
recommend approval of this Agreement as so amended and restated and the Merger
by the Target Shareholders. The Target further represents that (i) the Target's
financial advisor has delivered to the Target's Board of Directors its written
or oral opinion (the "Fairness Opinion") that the consideration to be paid in
the Merger is fair to the holders of Target Shares from a financial point of
view; and (ii) the Target has been advised by each of the Major Shareholders and
each of its directors and executive officers intend to vote his or her Target
Shares to approve the Merger.
(b) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of the Acquiror in
Bellevue, Washington, commencing at 9:00 a.m. local time on the 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"); provided, however, that the Closing Date shall be no earlier
than August 15, 1999.
(c) Actions at the Closing. At the Closing, (i) the Target will deliver to
the Acquiror the various certificates, instruments, and documents referred to in
Section 6(a) below, (ii) the Acquiror will deliver to the Target the various
certificates, instruments, and documents referred to in Section 6(b) below,
(iii) Acquiror Sub and the Target will file with the Secretary of State of the
State of Washington Articles of Merger substantially in the form attached hereto
as Exhibit A (the "Articles of Merger"), and (iv) the Acquiror will deliver to
the Exchange Agent in the manner provided below in this Section 2 the
certificate evidencing the Acquiror Shares issued in the Merger.
(d) Effect of Merger.
(i) General. The Merger shall become effective at the time (the
"Effective Time") the Acquiror Sub and the Target file the Articles of
Merger with the Secretary of State of the State of Washington. The Merger
shall have the effect set forth in the Washington Business Corporation
Act. The Surviving Corporation may, at any time after the Effective Time,
take any action (including executing and delivering any document) in the
name and on behalf of either Acquiror Sub or the Target in order to carry
out and effectuate the transactions contemplated by this Agreement.
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(ii) Articles of Incorporation. The Articles of Incorporation of
Acquiror Sub 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 Acquiror Sub 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 Acquiror
Sub 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
Acquiror-owned Share) shall be converted into the right to receive the following
consideration (the "Merger Consideration"):
(1) that number of Acquiror Shares equal to the lesser
of (x) .3717 or (y) $4.5531 divided by the Average Price (such lesser number of
Acquiror Shares being hereinafter referred to as the "Base Share
Consideration"), plus
(2) an amount in cash equal to the lesser of (x) $1.1150
or (y) the amount (if any) by which $4.5531 exceeds the Base Share Consideration
multiplied by the Average Price (such lesser amount being hereinafter referred
to as the "Cash Consideration"), plus
(3) an additional number of Acquiror Shares (if a
positive number) equal to (x) $4.5531 minus the Base Consideration (as defined
below), divided by (y) the Average Price (such additional number of Acquiror
Shares (if any) plus the Base Share Consideration being hereinafter referred to
as the "Share Consideration"). "Base Consideration" means an amount equal to (x)
the Base Share Consideration multiplied by the Average Price, plus (y) the Cash
Consideration.
At the Effective Time and without any action on the part of the holder, Target
Shares held by such holder shall cease to be outstanding and shall constitute
only the right to receive without interest, the Merger Consideration multiplied
by the number of Target Shares held by such holder and cash in lieu of a
fractional share.
(B) 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 Washington Business Corporation Act, and
(C) each Acquiror-owned Share shall be canceled; provided,
however, that the Merger Consideration shall be subject to equitable adjustment
in the event of any stock split, stock dividend, reverse stock split, or other
change in the number of Target Shares outstanding. 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.
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(vi) Replacement of Target Options. At the Effective Time and
without any action on the part of the holder, all Target Options shall terminate
and cease to be exercisable, no Target Option shall be accelerated in vesting
(other than Target Options held by employees that Acquiror notifies Target will
not be continued as employees of the Surviving Corporation, and Target Options
held by Timothy J. Carroll that vest automatically pursuant to his employment
agreement), and the Target's Board of Directors shall take or cause to be taken
such actions as may be required to cause such result. The Acquiror shall cause
to be granted under the Acquiror's Stock Option Plan to each holder of Target
Options, options to purchase a number of Acquiror Shares equal to that number of
Target Shares issuable upon exercise of such holder's Target Options multiplied
by the Option Conversion Ratio at an exercise price per Acquiror Share equal to
the exercise price per Target Share of such outstanding Target Option divided by
the Option Conversion Ratio, and having the same vesting schedule as the Target
Options replaced.
(vii) Replacement of Target Warrants. At the Effective Time and
without any action on the part of the holder, each outstanding Target Warrant
shall be converted into the right to purchase the Merger Consideration in lieu
of each Target Share issuable upon exercise of such Target Warrant upon payment
of the exercise price per Target Share of such outstanding Target Warrant.
(viii) Shares of Acquiror Sub. Each issued and outstanding share of
capital stock of Acquiror Sub at and as of the Effective Time will remain issued
and outstanding and held by the Acquiror.
(e) Procedure for Payment.
(i) Immediately after the Effective Time, (A) the Acquiror will
furnish to ChaseMellon Shareholder Services (the "Exchange Agent") a stock
certificate (issued in the name of the Exchange Agent or its nominee)
representing that number of Acquiror Shares equal to the product of (I)
the Share Consideration times (II) the number of outstanding Target Shares
(other than any Dissenting Shares and Acquiror-owned Shares) and cash in
the amount equal to the product of (III) the Cash Consideration (if any)
times (IV) the number of outstanding Target Shares (other than any
Dissenting Shares and Acquiror-owned Shares), and (B) the Acquiror will
cause the Exchange Agent to mail a letter of transmittal (with
instructions for its use) in customary form reflecting the terms of the
Merger to each record holder of outstanding Target Shares for the holder
to use in surrendering the certificates which represented his or its
Target Shares in exchange for a certificate representing the number of
Acquiror Shares and a check for the amount of cash (if any) to which he or
it is entitled, plus cash in lieu of fractional shares (if any).
Certificates representing securities held by an Affiliate of the Target
shall not be exchanged until the Acquiror has received an agreement from
such Affiliate in the form of Exhibit B hereto.
(ii) The Acquiror will not pay any dividend or make any distribution
on Acquiror 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
Acquiror 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
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Acquiror may cause the Exchange Agent to invest any cash the Exchange
Agent receives from the Acquiror as a dividend or distribution in one or
more of the permitted investments designated by the Acquiror; 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 Acquiror may cause
the Exchange Agent to pay over to the Acquiror any net earnings with
respect to the investments, and the Acquiror 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) No fractional shares shall be issuable by the Acquiror
pursuant hereto. In lieu of issuing fractional shares, a cash adjustment
will be paid equal to the fraction of one Acquiror Share that would
otherwise be issuable, multiplied by the Average Price.
(iv) The Acquiror may cause the Exchange Agent to return any
Acquiror Shares and dividends and distributions thereon and any cash
remaining unclaimed 180 days after the Effective Time, and thereafter each
remaining record holder of outstanding Target Shares shall be entitled to
look to the Acquiror (subject to abandoned property, escheat, and other
similar laws) as a general creditor thereof with respect to the Acquiror
Shares and dividends and distributions thereon and any cash to which he or
it is entitled upon surrender of his or its certificates.
(v) Notwithstanding anything in this Agreement to the contrary,
Target Shares that are Dissenting Shares immediately prior to the
Effective Time shall not be converted into Acquiror Shares and cash (if
any) pursuant to the Merger, and the holders of such Dissenting Shares
shall be entitled to receive payment of the fair value of their Dissenting
Shares in accordance with the provisions of the Washington Business
Corporation Act; unless and until such holders shall fail to perfect,
lose, or withdraw their rights thereunder. If, after the Effective Time,
any holder of Dissenting Shares shall fail to perfect, lose or withdraw
his or its right to be paid fair value, then such Dissenting Shares no
longer shall be deemed to be Dissenting Shares, and shall be treated as if
they had been converted at the Effective Time into the right to receive
the consideration being paid for Target Shares in the Merger, without any
interest, and the Acquiror shall take all necessary action to effect the
exchange of Acquiror Shares and cash (if any) for the Target Shares. The
Target shall give the Acquiror prompt written notice of any demands for
payment of fair value for any Target Shares, and the Acquiror shall have
the right to participate in all negotiations or proceedings with respect
to such demands. Without the prior written consent of the Acquiror, the
Target shall not settle, offer to settle or make any payment with respect
to any such demands.
(vi) The Acquiror shall pay all charges and expenses of the Exchange
Agent.
(f) Closing of Transfer Records. After the close of business on the
Closing Date, transfers of Target Shares outstanding prior to the Effective Time
shall not be made on the stock transfer books of the Surviving Corporation.
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3. Representations and Warranties of the Target and the Major
Shareholders. The Target and each of the Major Shareholders, jointly and
severally, represent and warrant to the Acquiror 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) 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
Subsidiary is identified by name and jurisdiction of incorporation in the
Disclosure Schedule. 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 failure to be so qualified
would not have a material adverse effect on the Target and its Subsidiaries
taken as a whole. 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. The Target's Articles of
Incorporation and Bylaws are in the form filed as exhibits to its Public
Reports.
(b) Capitalization. The entire authorized capital stock of the Target
consists of 10,000,000 Target Shares, of which 2,669,590 Target Shares are
issued and outstanding as of the date of this Agreement. All of the issued and
outstanding Target Shares have been duly authorized and are validly issued,
fully paid, and nonassessable. Except as set forth on Disclosure Schedule 3(b),
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 Target to issue, sell, or otherwise cause to
become outstanding any of its capital stock. There are no outstanding or
authorized stock appreciation, phantom stock, profit participation, or similar
rights with respect to the Target or any of its Subsidiaries. All of the
outstanding shares of capital stock of each of the Target's Subsidiaries have
been duly authorized and are validly issued, fully paid and nonassessable and
are legally and beneficially owned by the Target or another wholly owned
Subsidiary of the Target, free and clear of all Security Interests or any right
or option of any person to purchase or otherwise acquire any such capital stock.
There are no outstanding or authorized options, warrants, purchase rights,
subscriptions rights, conversion rights, exchange rights or other contracts or
commitments that could require any Subsidiary of the Target to issue, sell or
otherwise cause to become outstanding any of its capital stock, or that could
require the Target or any Subsidiary of the Target to transfer any capital stock
of any Subsidiary of the Target.
(c) Authorization of Transaction. Subject only to Requisite Target
Shareholder Approval, the Target has full power and authority (including full
corporate power and authority) and has taken all corporate actions necessary to
authorize the execution and delivery of this Agreement and the performance of
its obligations hereunder. 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,
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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 or any of their assets is subject or any provision
of the charter or bylaws of any of the Target and its Subsidiaries or (ii)
except as set forth on Disclosure Schedule 3(d), conflict with, result in a
breach of, constitute a default under, result in the acceleration of, result in
a change in the rights or obligations of any parties to, 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 any of them
is bound or to which any of their assets is subject (or result in the imposition
of any Security Interest upon any of their assets) except in each case where
there would be no material adverse effect upon the business, assets, financial
condition, operations, results of operations or future prospects of the Target
and its Subsidiaries taken as a whole. Other than in connection with the
provisions of the Washington Business Corporation Act, the Securities Exchange
Act, the Securities Act, and the state securities laws, none of the Target and
its Subsidiaries is required 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 "Public Reports"). Each of the Public Reports has
complied, and all Public Reports to be filed with the SEC after the date hereof
will comply, with the Securities Act and the Securities Exchange Act in all
material respects. None of the Public Reports, as of its respective date,
contained or will contain any untrue statement of a material fact or omitted or
will omit 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.
(f) Financial Statements. Each of the financial statements included in or
incorporated by reference into the Public Reports (including the related notes
and schedules) has been prepared in accordance with GAAP applied on a consistent
basis throughout the periods covered thereby, presents fairly the financial
condition of the Target and its Subsidiaries as of the indicated dates and the
results of operations, retained earnings and changes in financial position of
the Target and its Subsidiaries for the indicated periods, is correct and
complete in all material respects, and is consistent with the books and records
of the Target and its Subsidiaries; provided, however, that the interim
financial statements are subject to normal year-end adjustments which will not
be material in amount or effect.
(g) Subsequent Events. Since January 31, 1999, excepted as disclosed in
the Public Reports filed prior to the date hereof, the Target and its
Subsidiaries have conducted their businesses only in, and have not engaged in
any material transaction other than in, the Ordinary Course of Business or made
any change in accounting principles, practices and methods. Since January 31,
1999, (the "Most Recent Fiscal Year End") there has not been any material
adverse change in the business, assets, financial condition, operations, results
of operations, or future prospects of the Target and its Subsidiaries taken as a
whole.
(h) Undisclosed Liabilities. Except as set forth on Schedule 3(h), none of
the Target and its Subsidiaries has any liability (whether known or unknown,
whether asserted or unasserted, whether absolute or contingent, whether accrued
or unaccrued, whether liquidated or unliquidated, and whether due or to become
due) including any liability for taxes, except for (i) liabilities set forth on
the face of
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the balance sheet dated as of the Most Recent Fiscal Year End (including in any
notes thereto), (ii) liabilities which have arisen after the Most Recent Fiscal
Year End 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) and (iii)
liabilities which in the aggregate are not material to the Target and its
Subsidiaries, taken as a whole.
(i) Litigation. Except as set forth on Schedule 3(i), there is no action,
suit, investigation or proceeding pending against, or to the Knowledge of the
Target threatened against or affecting, the Target or any of its Subsidiaries or
any of their properties (or any basis therefor) before any court or arbitrator
or any governmental body, agency or official which, if determined or resolved
adversely to the Target or any Subsidiary, may have a material adverse effect on
the business, assets, financial condition, operations, results of operations, or
prospects of the Target and its Subsidiaries taken as a whole. Except as set
forth on Schedule 3(i), to the Knowledge of the Target there are no facts or
circumstances that could result in any claims or actions, suits, investigations
or proceedings of the sort described in the preceding sentence.
(j) Intellectual Property.
(i) Except as set forth on Schedule 3(j)(i), the Target and/or each of its
Subsidiaries owns, or is licensed or otherwise possesses legally enforceable
rights to use all patents, trademarks, trade names, service marks, copyrights,
and any applications therefor, trade secrets, technology, know-how, computer
software programs or applications, and tangible or intangible proprietary
information or materials that are used in the business of the Target and its
Subsidiaries as currently conducted or as proposed to be conducted, except where
the failure to own, be licensed or otherwise have such rights would not have a
material adverse effect upon the business, assets, financial condition,
operations, results of operations or future prospect of the Target and its
Subsidiaries, taken as a whole. All patents, trademarks, trade names, service
marks and copyrights held by the Target or any Subsidiary are valid and
subsisting.
(ii) Except as disclosed in the Public Reports filed prior to the
date hereof or as set forth on Schedule 3(j)(ii):
(A) neither the Target nor any of its Subsidiaries is, nor
will the Target or any of its Subsidiaries be as a result of the
execution and delivery of this Agreement or the performance of the
Target's obligations hereunder, in violation of any licenses,
sublicenses and other agreement as to which the Target or any of its
Subsidiaries is a party or pursuant to which the Target or any of
its Subsidiaries is authorized to use any third-party patents,
trademarks, trade names, service marks, copyrights, trade secrets,
technology, know-how or computer software (collectively,
"Third-Party Intellectual Property Rights");
(B) no claims with respect to (I) the patents, registered and
unregistered trademarks and service marks, registered copyrights,
trade names, and any applications therefor, trade secrets, know-how,
technology or computer software owned by the Target or any of its
Subsidiaries (collectively called the "Target
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Intellectual Property Rights"); or (II) Third-Party Intellectual
Property Rights are currently pending or, to the Knowledge of the
officers of the Target, are threatened by any person;
(C) to the Knowledge of the Target, there are no valid grounds
for any bona fide claims (I) to the effect that the manufacture,
sale, licensing or use of any product or provision of any service as
now used, sold, licensed or provided or proposed for use, sale,
license or to be provided by the Target or any of its Subsidiaries,
infringes on any copyright, patent, trademark, trade name, service
mark, copyright, know-how, technology or trade secret of any person;
(II) against the use by the Target or any of its Subsidiaries, of
any Target Intellectual Property Right or Third-Party Intellectual
Property Right used in the business of the Target or any of its
Subsidiaries as currently conducted or as proposed to be conducted;
(III) challenging the ownership, validity or enforceability of any
of the Target Intellectual Property Rights; or (IV) challenging the
license or legally enforceable right to use of the Third-Party
Intellectual Rights by the Target or any of its Subsidiaries; and
(D) each of the employees and consultants of the Target and
its Subsidiaries has executed and delivered to the Target in
connection with employment or engagement a binding agreement
conveying to the Target or such Subsidiary all rights to any
invention, trade secret, or other intellectual property
substantially in the form of agreement provided to the Acquiror, and
to the Knowledge of the Target, there is no unauthorized use,
infringement or misappropriation of any of the Target Intellectual
Property Rights by any third party, including any employee or
consultant of the Target or any of its Subsidiaries.
(k) Product and Service Warranties.
Except as set forth on Schedule 3(k), (i) there are no warranties, express
or implied, written or oral, with respect to the Products or Services; (ii)
there are no pending or, to the Knowledge of the Target, threatened claims with
respect to any such warranty, and neither the Target nor any of its Subsidiaries
has any liability with respect to any such warranty, whether known or unknown,
absolute, accrued, contingent or otherwise and whether due or to become due; and
(iii) there are no material product or service liability claims (whether arising
for breach of warranty or contract, or for negligences or other tort, or under
any statute) against or involving the Target or any of its Subsidiaries or any
Product or Service and no such claims have been settled, adjudicated or
otherwise disposed of since January 31, 1996.
(l) Year 2000 Compliance.
(i) Products and Services. All of the Products and Services are Year
2000 Compliant except for any failure to be Year 2000 Compliant which
would not be material to the business, assets, financial condition,
operations, results of operations or future prospects of the Target and
its Subsidiaries taken as a whole. If the Target or any of its
Subsidiaries is obligated to repair or replace Products or Services
previously provided by
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the Target or any of its subsidiaries that are not Year 2000 Compliant in
order to meet the Target's or such Subsidiary's contractual obligations,
to avoid personal injury, to avoid misrepresentation claims, or to satisfy
any other contractual or legal obligations or requirements, to the
Target's Knowledge it has repaired or replaced those Products and Services
to make them Year 2000 Compliant. The Target has furnished the Acquiror
with true, correct and complete copies of any customer agreements and
other materials and correspondence in which the Target or any of its
Subsidiaries has furnished (or could be deemed to have furnished)
assurances as to the performance and/or functionally of any Products or
Services on or after January 1, 2000, as a result of the occurrence of
such date.
(ii) Internal MIS Systems and Facilities. To the Knowledge of the
Target, all Internal MIS Systems and Facilities are Year 2000 Complaint.
(iii) Suppliers. To the Knowledge of the Target, but without any
duty to investigate, all vendors of products or services to the Target and
its Subsidiaries, and their respective products, services and operations,
are Year 2000 Compliant.
(iv) Year 2000 Compliance Investigations and Reports. The Target has
furnished the Acquiror with a true, correct and complete copy of any
written internal investigations, memoranda, budget plans, forecasts, or
reports concerning the Year 2000 Compliance of the products, services,
operations, systems, supplies, and facilities of the Target and its
Subsidiaries and the Target's and its Subsidiaries' vendors.
The terms as used within this Section 3(l) have the following
definitions:
"Facilities" means any facilities or equipment used by the
Target or its Subsidiaries in any location, including HVAC systems,
mechanical systems, elevators, security systems, fire suppression systems,
telecommunications systems, fax machines, copy machines, and equipment,
whether or not owned by the Target.
"Internal MIS Systems" means any computer software and systems
(including hardware, firmware, operating systems software, utilities, and
applications software) used in the ordinary course of the Target's or its
Subsidiaries' business by or on behalf of the Target or its Subsidiaries,
including payroll, accounting, billing/receivables, inventory, asset
tracing, customer services, human resources, and e-mail systems.
"Year 2000 Compliant" means that (1) the products, services,
or other items) at issue accurately process, provide and/or receive all
date/time data (including calculating, comparing, sequencing, processing
and outputting) within, from, into, and between centuries (including the
twentieth and twenty-first centuries and the years 1999 and 2000),
including leap year calculations, and (2) neither the performance nor the
functionality nor the Target's provision of the products, services, and
other item(s) at issue will be affected by any dates/times prior to, on,
after, or spanning January 1, 2000. The design of the products, services,
and other item(s) at issue to ensure compliance with the foregoing
warranties and representations includes proper date/time data, century
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recognition and recognition of 1999 and 2000, calculations that
accommodate single century and multi-century formulae and date/time values
before, on, after, and spanning January 1, 2000, and date/time data
interface values that reflect the century, 1999, and 2000. In particular,
but without limitation, (i) no value for current date/time will cause any
material error, interruption, or decreased performance in or for such
product(s), service(s), and other item(s), (ii) all manipulations of date
and time related data (including calculating, comparing, sequencing,
processing, and outputting) will produce correct results for all valid
dates and times when used independently or in combination with other
product, services, and/or items, (iii) date/time elements in interfaces
and data storage will specify the century to eliminate date ambiguity
without human intervention, including leap year calculations, (iv) where
any date/time element is represented without a century, the correct
century will be unambiguous for all manipulations involving that element,
(v) authorization codes, passwords, and zaps (purge functions) will
function normally and in materially the same manner during, prior to, on
and after January 1, 2000, including the manner in which they function
with respect to expiration dates and CPU serial numbers, and (vi) the
Target's or its Subsidiaries' supply of the product(s), service(s), and
other item(s) will not be materially interrupted, delayed, decreased, or
otherwise affected by the advent of the year 2000.
(m) Employee Benefits.
(i) All bonus, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus,
stock purchase, restricted stock and stock option plans, all employment,
termination, severance, welfare, fringe benefit, compensation, medical or
health contract or other plan, contract, policy or arrangement which
covers employees or former employees (the "Employees") and current and
former directors of the Target or its Subsidiaries or their respective
predecessors (the "Compensation and Benefit Plans" or "Plans"), including,
but not limited to, "employee benefit plans" within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") are listed in Schedule 3(m)(i) of the Disclosure Schedule and
any "change in control" or similar provisions therein are specifically
identified in such Schedule. Schedule 3(m)(i) contains a complete and
accurate list of all current Employees of the Target and its Subsidiaries.
True and complete copies of all Compensation and Benefit Plans, including,
but to limited to, any trust instruments and/or insurance contracts, if
any, forming a part of any such plans and agreements, and all amendments
thereto, have been made available to the Acquiror.
(ii) All Compensation and Benefit Plans have been administered in
accordance with their terms and such Plans are in compliance with all
applicable laws, including, without limitation, as applicable, ERISA and
the Internal Revenue Code of 1986, as amended (the "Code"). Each Plan
which is an "employee pension benefit plan" within the meaning of Section
3(2) of ERISA ("Pension Plan") and which is intended to be qualified under
Section 401(a) of the Code, has received a favorable determination letter
from the Internal Revenue Service, and the Target is not aware of any
circumstances likely to result in revocation of any such favorable
determination letter. There is no pending or, to the Knowledge of the
Target, threatened litigation relating to the Compensation and Benefit
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Plans. Neither the Target nor any of its Subsidiaries has engaged in a
transaction with respect to any Plan that, assuming the taxable period of
such transaction expired as of the date hereof, could subject the Target
or any of its Subsidiaries to a tax or penalty imposed by either Section
4975 of the Code or Section 502(i) of ERISA in an amount which would be
material.
(iii) None of the Compensation and Benefit Plans or any other
employee benefit plan within the meaning of Section 3(3) of ERISA under
which the Target (or its Subsidiaries) has or could have any liability (a)
constitutes a "multiemployer plan," as defined in Section 3(37) of ERISA;
or (b) is subject to Title IV of ERISA, Section 302 of ERISA, or Section
412 of the Code.
(iv) Neither the Target nor any of its Subsidiaries have any
obligations for retiree health or life benefits under any Plan, except as
set forth on Schedule 3(m)(iv). There are no restrictions on the rights of
the Target or any of its Subsidiaries to amend or terminate any such Plan
without incurring any liability thereunder.
(v) All Compensation and Benefit Plans covering foreign employees
comply with applicable local law. Neither the Target nor any of its
Subsidiaries has any unfunded liabilities with respect to any Pension Plan
which covers foreign Employees.
(vi) Except as set forth in Schedule 3(m)(vi), the consummation of
the transactions contemplated by this Agreement will not (x) entitle any
employees of the Target or any of its Subsidiaries to severance pay, (y)
accelerate the time of payment or vesting or trigger any payment of
compensation or benefits under, increase the amount payable or trigger any
other material obligation pursuant to, any of the Compensation and Benefit
Plans or (z) result in any breach or violation of, or a default under, any
of the Compensation and Benefit Plans.
(vii) No payment (or acceleration of benefits) required to be made
to any Employee as a result of the transactions contemplated by this
Agreement under any Compensation and Benefit Plan or otherwise will, if
made, constitute an "excess parachute payment" within the meaning of
Section 280G of the Code.
(n) Employees. As of the date hereof and except as set forth on Schedule
3(n), no executive or technical employee of the Target or any of its
Subsidiaries has terminated employment with the Target or such Subsidiary since
May 1, 1999. As at the date hereof, except as set forth in Schedule 3(n), to the
Knowledge of the Target no executive or technical employee of the Target or any
of its Subsidiaries has indicated the intention to terminate employment with the
Target or such Subsidiary, materially reduce his or her time commitment to such
employment, or given any indication that he or she may do so.
(o) Customers. Except as set forth on Schedule 3(o), since January 31,
1999, no existing customer of the Target or any Subsidiary has cancelled any
agreement for Products and Services, reduced the quantity of Products and
Services required from the Target or any Subsidiary, advised the Target that it
will not continue to purchase Products or Services, amended its agreements or
business
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arrangements with the Target or any of its Subsidiaries to the disadvantage of
the Target or such Subsidiary or, to the Knowledge of the Target, indicated its
intention to do any of the foregoing or the possibility that it will seek to do
any of the foregoing.
(p) 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, except
for up to $150,000 plus expenses payable to Ragen MacKenzie, the Target's
financial advisor.
(q) 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).
(r) Affiliate Agreements. Disclosure Schedule 3(r) lists all Affiliates of
the Target who beneficially own Target Shares. The Target has obtained and
delivered to the Acquiror agreements in the form of Exhibit B hereto executed by
each of its Affiliates with respect to transactions in Target Shares and
Acquiror Shares.
(s) Taxation of the Merger. The representations and warranties set forth
in Exhibit D hereto are true and correct.
(t) Agreement of Executive Officers and Directors. The Target has obtained
from each of the Major Shareholders and from each of its directors and delivered
to the Acquiror an agreement in the form of Exhibit C hereto to the effect that
all Target Shares held by such person will be voted in favor of the Merger and
with respect to certain other matters.
(u) Disclosure. The Definitive Target Materials will comply with the
Securities Act and the Securities Exchange Act in all material respects. The
Definitive Target 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 and the Major Shareholders
make no representation or warranty with respect to any information that the
Acquiror will supply specifically for use in the Definitive Target 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.
4. Representations and Warranties of the Acquiror and Acquiror Sub. The
Acquiror and Acquiror Sub each 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.
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(a) Organization. The Acquiror and Acquiror Sub are each corporations duly
organized and validly existing under the laws of the jurisdictions of their
incorporation.
(b) Capitalization. The entire authorized capital stock of the Acquiror
consists of 100,000,000 Acquiror Shares, of which 10,950,617 Acquiror Shares are
issued and outstanding at April 30, 1999, and 5,000,000 shares of preferred
stock, without par value, none of which are issued and outstanding. All of the
Acquiror 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. The entire authorized capital stock of Acquiror Sub consists of
100,000 shares of common stock, without par value, of which 100 shares are
issued and outstanding.
(c) Authorization of Transaction. The Acquiror and Acquiror Sub each has
full power and authority (including full corporate power and authority) and has
taken all corporate action necessary to authorize the execution and delivery of
this Agreement and the performance of their respective obligations hereunder.
This Agreement constitutes the valid and legally binding obligation of the
Acquiror and Acquiror Sub, 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 Acquiror or Acquiror Sub is subject
or any provision of the charter or bylaws of the Acquiror or Acquiror Sub 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 Acquiror or Acquiror Sub
is a party or by which it is bound or to which any of its assets is subject.
Other than in connection with the provisions of the Washington Business
Corporation Act, the Securities Exchange Act, the Securities Act, and the state
securities laws, neither the Acquiror nor Acquiror Sub 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) Brokers' Fees. Neither the Acquiror or Acquiror Sub 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 for which any of
the Target and its Subsidiaries could become liable or obligated.
(f) Continuity of Business Enterprise. It is the present intention of the
Acquiror and Acquiror Sub 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).
(g) 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
Acquiror makes no representation or warranty with respect to any information
that the Target will supply specifically for use in the
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Registration Statement and the Prospectus. None of the information that the
Acquiror will supply specifically for use in the Definitive Target 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.
(h) Litigation. There is no action, suit, investigation or proceeding
pending against, or to the knowledge of the executive officers of Acquiror
threatened against Acquiror or any of its Subsidiaries or any of their
properties before any court or arbitrator or any governmental body, agency or
official which is required by Instructions 1, 2 and 3 to Item 103 of Regulation
S-K of the SEC to be disclosed in Acquiror's filings with the SEC that it has
been required to make under the Securities Act or the Securities Exchange Act
that is not disclosed in the Acquiror's report on Form 10-Q for the quarter
ended March 31, 1999.
5. Covenants. The Parties agree as follows with respect to the period from
and after the execution 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 Acquiror may 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 in compliance with
Section 14(a) of the Securities Exchange Act, proxy materials including a
proxy statement relating to the Special Target Meeting which will also
serve as a prospectus relating to the Acquiror Shares under the Securities
Act. The Acquiror will prepare and file with the SEC a registration
statement under the Securities Act relating to the offering and issuance
of the Acquiror 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, provided that the Target will not file any materials with the
SEC without the prior consent of the Acquiror, which will not be
unreasonably withheld or delayed. The Acquiror and the Target will
cooperate fully in the preparation of the Disclosure Materials, and the
Acquiror will provide the Target, and the Target will provide the
Acquiror, with whatever information and assistance in connection with the
foregoing filings that the filing Party may request. The Acquiror will
take all actions that
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may be necessary, proper, or advisable under state securities laws in
connection with the offering and issuance of the Acquiror Shares.
(ii) Washington Business Corporation Act. The Target will call a
special meeting of its shareholders (the "Special Target Meeting") as soon
as practicable in order that the shareholders may consider and vote upon
the approval of the Merger in accordance with the Washington Business
Corporation Act. The Target will mail the Disclosure Document to its
shareholders and as soon as practicable. The Disclosure Document will
contain the affirmative recommendation of the board of directors of the
Target in favor of the approval of the Merger.
(d) Listing of Acquiror Shares. The Acquiror will use its best efforts to
cause the Acquiror 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.
(e) 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, other than
with the prior written consent of the Acquiror. 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 (except as
set forth on Schedule 5(e)(ii)) or accelerate or permit the acceleration
of the vesting of any options, warrants, or other rights to purchase or
obtain any of its capital stock or issue, sell, or otherwise dispose of
any capital stock of the Target or any Subsidiary (except upon the
conversion or exercise of options, warrants, and other rights to acquire
shares of capital stock of the Target currently outstanding and disclosed
in this Agreement) except that (i) vesting of Target Options held by
Timothy J. Carroll will be accelerated at the Effective Time pursuant to
his employment agreement and (ii) the Target may accelerate the vesting of
Target Options for employees of the Target that the Acquiror notifies the
Target will not be continued as employees of the Surviving Corporation
after the Effective Time;
(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
obligation of any third party or any indebtedness for borrowed money or
capitalized lease obligation outside the Ordinary Course of Business;
(v) none of the Target and its Subsidiaries will sell or dispose of
material assets or will impose any Security Interest upon any of its
assets outside the Ordinary Course of Business;
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(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, officers, and employees
outside the Ordinary Course of Business;
(viii) none of the Target and its Subsidiaries will take any action
that will preclude the Merger from being treated as a tax-free
reorganization pursuant to Internal Revenue Code Sections 368(a)(1)(A) and
368(a)(2)(D);
(ix) none of the Target and its Subsidiaries will amend any
employment agreement or increase the compensation of directors, officers
or employees outside the Ordinary Course of Business; and
(x) none of the Target and its Subsidiaries will commit to any of
the foregoing.
(f) Full Access. The Target will (and will cause each of its Subsidiaries
to) permit representatives of the Acquiror 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
Acquiror will 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(f), 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.
(g) Notice of Developments. Each Party will give prompt written notice to
the other Parties and the Major Shareholders, and each of the Major Shareholders
will give prompt written notice to the Parties, of any material development that
would, if not corrected by the Closing Date, result in any of its own
representations and warranties in Section 3 and Section 4 above being incorrect
at the Closing Date. No disclosure by any Party or Major Shareholder pursuant to
this Section 5(g), 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.
(h) Acquisition Proposals. The Target and each Major Shareholder agree
that neither the Target nor any of its Subsidiaries nor any of the respective
officers, directors, agents, employees or representatives of the Target or any
of its Subsidiaries (including, without limitation, any investment banker,
attorney or accountant retained by the Target or any of its Subsidiaries) nor
any of the Major Shareholders (whether or not acting on behalf of the Target)
shall initiate, solicit or encourage, directly or indirectly, any inquiries or
the making of any proposal or offer to the Target or any Subsidiary or any of
the shareholders of the Target with respect to a merger, consolidation or
similar transaction involving, or any purchase of all or any significant portion
of the assets or any equity securities of, the Target or any of its Subsidiaries
(any such proposal or offer being hereinafter referred to as an "Acquisition
Proposal") or, except to the extent legally required for the discharge by the
board of directors of the Target of its fiduciary duties as advised in writing
by counsel, engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions
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with, any Person relating to an Acquisition Proposal, or otherwise facilitate
any effort or attempt to make or implement an Acquisition Proposal. The Target
shall immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing. The Target shall take the necessary steps to promptly
inform the individuals or entities referred to in the first sentence hereof of
the obligations undertaken in this Section 5(h). The Target will notify the
Acquiror immediately if any inquiries or proposals relating to an actual or
potential Acquisition Proposal are received by, any such information is
requested from, or any such negotiations or discussions are sought to be
initiated or continued with the Target or any of its Subsidiaries. The Target
also will promptly request each person which has heretofore executed a
confidentiality agreement in connection with its consideration of acquiring the
Target and/or any of its Subsidiaries to return all Confidential Information
heretofore furnished to such person by or on behalf of the Target.
(i) Indemnification. The Acquiror will observe any indemnification
provisions now existing in the articles 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. The Acquiror shall obtain
directors' and officers' liability insurance covering each individual who served
as an officer or director of the Target at any time prior to the Effective Time
for a period of 24 months after the Effective Time for an amount and coverage
not less than that in effect for such directors and officers of the Target
immediately prior to the Effective Time.
(j) Continuity of Business Enterprise The Acquiror will cause the
Surviving Corporation to 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) Target's Compensation and Benefit Plans. The Target will take such
actions as the Acquiror reasonably requests with respect to the Target's
Compensation and Benefit Plans, it being understood that the purpose of the
covenant contained in this Section 5(k) is to conform the Target's Compensation
and Benefit Plans to applicable legal requirements and to minimize any future
liabilities of the Acquiror, Acquiror Sub and the Surviving Corporation in
respect of the Target's Compensation and Benefit Plans.
6. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Acquiror. The obligation of the
Acquiror 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 Shareholder Approval and the number of Dissenting Shares shall not
exceed 10% of the number of outstanding Target Shares;
(ii) the Target and its Subsidiaries shall have procured all of the
third party consents specified in Section 5(b) above, unless, in the
opinion of the Acquiror, acting reasonably, the
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<PAGE> 23
failure to obtain such consents would not have a material adverse effect
on the operations of the Surviving Corporation;
(iii) 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;
(iv) the Target shall have performed and complied with all of its
covenants and obligations 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 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) since the date of this Agreement, there shall have been no
material adverse change in the business, assets, financial condition,
operations, results of operations or prospects of the Target and its
Subsidiaries taken as a whole, it being understood that a material adverse
change in the employee base of the Target and its Subsidiaries may
constitute such a material adverse change;
(vii) the Target shall have delivered to the Acquiror a certificate
of its Chief Executive Officer and Chief Financial Officer to the effect
that each of the conditions specified above in Section 6(a)(i)-(vi) is
satisfied in all respects;
(viii) the Registration Statement shall have become effective under
the Securities Act prior to the mailing of the Disclosure Document to
Target Shareholders;
(ix) the Acquiror 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;
(x) the Acquiror shall have received an opinion from Dorsey &
Whitney LLP, dated as of the Effective Time, substantially to the effect
that, on the basis of the facts, representations and assumptions set forth
in such opinions which are consistent with the state of facts existing at
the Effective Time, the Merger will be treated for Federal income tax
purposes as a reorganization within the meaning of Section 368(a) of the
Code and that accordingly:
(A) No gain or loss will be recognized by the Acquiror, Acquiror Sub
or the Target as a result of the Merger.
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<PAGE> 24
(B) No gain or loss will be recognized by the shareholders of Target
who exchange Target Shares for Acquiror Shares pursuant to the Merger,
except with respect to any cash received by such Target shareholders in
the Merger.
(C) Gain, if any, but not loss, will be recognized by Target
shareholders upon the exchange of Target Shares for cash pursuant to the
Merger. Such gain will be recognized, but not in excess of the amount of
cash, in an amount equal to the difference, if any, between (a) the fair
market value of the Acquiror Shares and cash received and (b) the Target
shareholder's adjusted tax basis in the Target Shares surrendered in
exchange therefor pursuant to the Merger. If the receipt of cash payments
has the effect of a distribution of a dividend to a Target Shareholder,
some or all of the gain recognized will be treated as a dividend taxed as
ordinary income. If the exchange does not have the effect of a
distribution of a dividend, all of the gain recognized would be a capital
gain, provided the Target Shares are a capital asset in the hands of the
Target shareholder at the time of the Merger.
(D) The aggregate tax basis of the Acquiror Shares received by a
Target Shareholder who exchanges Target Shares in the Merger will be the
same as the aggregate tax basis of the Target Shares surrendered in
exchange therefor, decreased by the amount of any cash received by such
Target Shareholder which is treated as a redemption rather than a dividend
and increased by the amount of any non-dividend gain recognized by such
Target Shareholder in connection with the Merger.
(E) The holding period of the Acquiror Shares received by a Target
Shareholder pursuant to the Merger will include the period during which
the Target Shares surrendered therefor were held, provided the Target
Shares are a capital asset in the hands of the Target shareholder at the
time of the Merger.
In rendering such opinion, such counsel may require and rely upon
representations and covenants including those contained in certificates of
officers of the Acquiror, Acquiror Sub and the Target and others,
including certain Target shareholders who are parties to this Agreement.
(xi) the Acquiror 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 Acquiror shall have specified in
writing at least four business days prior to the Closing;
(xii) 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 satisfactory in form and
substance to the Acquiror, acting reasonably; and
(xiii) Daniel M. Fine shall have entered into an employment
agreement with the Acquiror in form and substance acceptable to the
Acquiror and Daniel M. Fine.
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<PAGE> 25
The Acquiror 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 and no stop order suspending the effectiveness of the
Registration Statement shall have been issued or proceedings therefor
initiated or threatened by the SEC;
(ii) the Acquiror 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) since August 5, 1999, there shall have been no material adverse
change in the business, assets, financial condition, operations, results
of operations or future prospects of the Acquiror and its Subsidiaries,
taken as a whole, which the Disclosure Document does not (i) disclose has
occurred, (ii) disclose may occur (other than in the "Risk Factors"
section) or (iii) disclose may occur under a caption in the "Risk Factors"
section that is referred to in the Disclosure Document other than in the
"Risk Factors" section;
(v) each of the Acquiror and Acquiror Sub shall have performed and
complied with all of its covenants and obligations hereunder in all
material respects through the Closing;
(vi) each of the Acquiror and Acquiror Sub shall have delivered to
the Target a certificate of its Chief Executive Officer and its Chief
Financial Officer or general counsel 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 Shareholder Approval;
(viii) the Target shall have received a favorable opinion from
Dorsey & Whitney LLP, dated as of the Effective Time, as to the matters
set forth in Section 4(a) (other than as to outstanding shares), (b), and
(c) hereof and as to the valid issuance and listing on Nasdaq of the
Acquiror Shares being issued in the Merger and the effectiveness of the
Registration Statement;
(ix) Target shall have received an opinion from Dorsey & Whitney
LLP, dated as of the Effective Time, substantially to the effect that, on
the basis of the facts, representations and assumptions set forth in such
opinions which are consistent with the state of facts existing at the
Effective Time, the Merger will be treated for Federal income tax purposes
as a reorganization within the meaning of Section 368(a) of the Code and
that accordingly:
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<PAGE> 26
(A) No gain or loss will be recognized by the Acquiror, Acquiror Sub
or Target as a result of the Merger.
(B) No gain or loss will be recognized by the shareholders of Target
who exchange Target Shares for Acquiror Shares pursuant to the Merger,
except with respect to any cash received by such Target shareholders in
the Merger.
(C) Gain, if any, but not loss, will be recognized by Target
Shareholders upon the exchange of Target Shares for cash pursuant to the
Merger. Such gain will be recognized, but not in excess of the amount of
cash, in an amount equal to the difference, if any, between (a) the fair
market value of the Acquiror Shares and cash received and (b) the Target
Shareholder's adjusted tax basis in the Target Shares surrendered in
exchange therefor pursuant to the Merger. If the receipt of cash payments
has the effect of a distribution of a dividend to a Target Shareholder,
some or all of the gain recognized will be treated as a dividend taxed as
ordinary income. If the exchange does not have the effect of a
distribution of a dividend, all of the gain recognized would be a capital
gain, provided the Target Shares are a capital asset in the hands of the
Target Shareholder at the time of the Merger.
(D) The aggregate tax basis of the Acquiror Shares received by a
Target Shareholder who exchanges Target Shares in the Merger will be the
same as the aggregate tax basis of the Target Shares surrendered in
exchange therefor, decreased by the amount of any cash received by such
Target Shareholder which is treated as a redemption rather than a dividend
and increased by the amount of any non-dividend gain recognized by such
Target Shareholder in connection with the Merger.
(E) The holding period of the Acquiror Shares received by a Target
Shareholder pursuant to the Merger will include the period during which
the Target Shares surrendered therefor were held, provided the Target
Shares are a capital asset in the hands of the Target Shareholder at the
time of the Merger.
In rendering such opinion, such counsel may require and rely upon
representations and covenants including those contained in certificates of
officers of the Acquiror, Acquiror Sub and the Target and others,
including certain Target shareholders who are parties to this Agreement.
Failure of the Target or Majority Shareholders to provide such
certificates shall constitute a waiver by the Target of the requirement
for this opinion.
(x) all actions to be taken by the Acquiror or Acquiror Sub 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 satisfactory in form
and substance to the Target, acting reasonably.
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.
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<PAGE> 27
7. Termination of Agreement. This Agreement may be terminated with the
prior authorization of the board of directors of the Party terminating the
Agreement (whether before or after shareholder approval) as provided below:
(a) the Acquiror and the Target may terminate this Agreement by mutual
written consent at any time prior to the Effective Time;
(b) the Acquiror may terminate this Agreement by giving written notice to
the Target at any time prior to the Effective Time if:
(i) the Target or any Major Shareholder shall have breached any
material representation, warranty, covenant or obligation contained in
this Agreement in any material respect, the Acquiror has notified the
Target of the breach, and the breach has continued without cure for a
period of 20 days after the notice of breach;
(ii) the Closing shall not have occurred on or before December 31,
1999, by reason of the failure of any condition precedent under Section
6(a) hereof (unless the Target has breached any material representation,
warranty, covenant or failure results primarily from the Acquiror
breaching any representation, warranty, covenant or obligation contained
in this Agreement);
(iii) the Target or any person described in Section 5(h) shall have
taken any action proscribed by Section 5(h), or any action that would have
been proscribed by Section 5(h) but for the exception thereto allowing
certain activity to be taken if required by fiduciary obligations as
advised in writing by counsel;
(iv) the board of directors of Target shall have withdrawn or
modified in a manner adverse to the Acquiror or Acquiror Sub its approval
or recommendation of the Merger or this Agreement, or fails to reaffirm
such approval or recommendation when requested by the Acquiror
(c) the Target may terminate this Agreement by giving written notice to
the Acquiror at any time prior to the Effective Time if:
(i) the Acquiror has breached any material representation, warranty,
covenant or obligation contained in this Agreement in any material
respect, the Target has notified the Acquiror of the breach, and the
breach has continued without cure for a period of 20 days after the notice
of breach;
(ii) the Closing shall not have occurred on or before December 31,
1999, 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, covenant or obligation contained
in this Agreement);
(iii) the Target is not in material breach of its representations,
warranties, covenants or obligations under the Agreement and the board of
directors of the Target receives an
26
<PAGE> 28
unsolicited written offer with respect to an Acquisition Proposal, or an
unsolicited tender offer for Target Shares is commenced, and the board of
directors of the Target determines that such transaction (the "Alternative
Transaction") is more favorable to the shareholders of the Target than the
Merger, provided the Target has given the Acquiror five business days
prior notice of its intention to terminate this Agreement to accept the
Alternative Transaction and the Acquiror shall have failed to offer to
amend this Agreement so that it is at least as favorable to the
shareholders of the Target as the Alternative Transaction.
(d) The Acquiror or the Target may terminate this Agreement by giving
written notice to the other Parties at any time after the Special Target Meeting
in the event this Agreement and the Merger fail to receive the Requisite Target
Shareholder Approval, and the Acquiror may terminate this Agreement if the
number of Dissenting Shares exceeds 10% of the outstanding Target Shares.
8. Effect of Termination.
(a) Liabilities Upon Termination. If this Agreement is terminated
pursuant to Section 7, none of the Acquiror, Acquiror Sub or the Target
(nor any of their officers or directors) shall have any liability or
further obligation to any other Party or its shareholders except as
provided in Sections 8(b) and 8(c) below, as liquidated damages and in
lieu of all other liabilities to any person for breach of this Agreement,
provided that the confidentiality provisions of Section 9(b) and 5(f)
shall survive termination of this Agreement.
(b) Acquiror's Break-up fee. If:
(i) this Agreement shall have been terminated by the
Acquiror pursuant to Section 7(b)(i), 7(b)(iii) or
7(b)(iv) hereof;
(ii) this Agreement is terminated by the Target pursuant to
Section 7(c)(iii); or
(iii) this Agreement is terminated pursuant to Section 7(d)
hereof;
then, in any such event, the Target shall promptly, but in no event later than
five business days after a request from the Acquiror for payment (other than a
termination pursuant to Section 7(c) (iii), in which case payment shall be made
upon giving notice of termination), pay to the Acquiror (A) a fee equal to
$500,000, which amount shall be payable in same day funds; plus, (B) upon
receipt of an invoice or invoices therefor an amount equal to out-of-pocket
expenses, including fees and expenses paid to investment bankers, lawyers,
accountants and other service providers, incurred in connection with the
transactions contemplated by this Agreement. If not paid when due, amounts
payable pursuant to this Section 8(b) shall bear interest at the rate of ten
percent (10%) per annum. The Target acknowledges that the agreements contained
in this Section 8(b) (i) reflect reasonable compensation to the Acquiror for
undertaking the Merger and risking the loss of the benefits of the Merger under
the circumstances contemplated by this Section 8(b), (ii) were agreed to by the
Target for the purpose of inducing the Acquiror and Acquiror Sub to execute this
Agreement and undertake their obligations hereunder, and (iii) are
27
<PAGE> 29
an integral part of the transactions contemplated by the Parties in this
Agreement, and that without these agreements, the Acquiror and Acquiror Sub
would not have entered into this Agreement.
(c) Target's Breakup Fee. If the Acquiror shall terminate this
Agreement under circumstances other than those permitted in Section 7(a), (b) or
(d) hereof, or if the Target terminates pursuant to Section 7(c)(i) (other than
for breaches of the representations and warranties set forth in Section 4(g) or
4(h)), the Acquiror shall promptly pay to the Target (A) a fee equal to
$500,000, which amount shall be payable in same day funds; plus (B) upon receipt
of an invoice or invoices therefor an amount equal to out-of-pocket expenses,
including fees and expenses paid to investment bankers, lawyers, accountants,
and other service providers, incurred in connection with the transactions
contemplated by the Agreement. If not paid when due, amounts payable pursuant to
this Section 8(c) shall bear interest at the rate of 10% per annum. The Acquiror
acknowledges that the agreements contained in this Section 8(c) (i) reflect
reasonable compensation to the Target for undertaking the Merger and risking the
loss of benefits of the Merger under the circumstances contemplated by this
Section 8(c), (ii) were agreed for the purpose of inducing the Target to execute
this Agreement and undertake its obligations hereunder, and (iii) are an
integral part of the transactions contemplated by the Parties in this Agreement,
and without these agreements, the Target would not have entered into this
Agreement.
9. Miscellaneous.
(a) Survival and Indemnity.
(i) Except as set forth in Section 9(a)(ii), none of the
representations, warranties, and covenants of the
Parties (other than the provisions in Section 2 above
concerning issuance of the Acquiror Shares and the
provisions in Section 5(i) above concerning
indemnification) will survive the Effective Time;
(ii) The representations and warranties of the Major
Shareholders in Section 3 hereof shall survive the
Effective Time for a period of one year, provided that
(i) the representations and warranties set forth in
Sections 3 (b), (i), (j) and (l) hereof and any
representation and warranty as to which any of Major
Shareholders had actual knowledge of the facts which a
reasonable person in such Major Shareholder's
circumstances should have concluded would constitute an
inaccuracy or breach shall survive for two years; and
(ii) the representations and warranties set forth in
Section 3(s) hereof shall survive until all applicable
statutes of limitations, including waivers and
extensions, have expired with respect to each matter
addressed therein. Notwithstanding the preceding
sentence, any representation or warranty for which
indemnity may be sought pursuant to this Section 9(a)
shall survive the time it would otherwise terminate
pursuant to the preceding sentence, if notice of
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<PAGE> 30
the inaccuracy or breach thereof shall have been given
to the Major Shareholder against whom indemnity may be
sought.
(iii) The Major Shareholders agree, jointly and severally, to
indemnify the Acquiror, Acquiror Sub and the Surviving
Corporation against, and agrees to hold each of them
harmless from, any and all damage, loss, liability and
expense (including, without limitation, costs of
investigation and reasonable attorneys' fees in
connection with any claim, action, suit or proceeding)
(collectively, "Damages") incurred or suffered by the
Acquiror, the Acquiror Sub or the Surviving Corporation
arising out of:
(A) any misrepresentation or breach of any
warranty made by Major Shareholders in
Section 3 hereof; or
(B) any claim by any holder or former holder of
Target Shares against Target or its
officers, directors, or controlling persons
alleging violations of Sections 5, 11, or 12
of the Securities Act or Section 10(b) or
14(a) (other than with respect to the
Definitive Target Materials) of the Exchange
Act, intentional or negligent
misrepresentation, breach of fiduciary duty,
or any misstatement of material fact or
omission to state a fact that is required to
be stated or necessary to make the
statements made, in the light of the
circumstances under which they were made,
not misleading.
Provided, however, that the Major Shareholders shall be
not liable for indemnity under this Section 9(a)(iii)
unless the aggregate Damages exceed $50,000, in which
event the Major Shareholders shall be liable for all
Damages, subject to Section 9(a)(iv).
(iv) The aggregate indemnification obligations of the
Majority Shareholders under Section 9(a) shall not
exceed:
(A) With respect to Damages arising out of
misrepresentations and breaches of
warranties set forth in Section 3 hereof
which shall survive for one year pursuant to
Section 9(a)(ii) hereof, an amount equal to
ten percent (10%) of (i) the aggregate
number of Acquiror Shares multiplied by the
Average Price plus (ii) the aggregate amount
of cash, received by the Major Shareholders
(and any transferees of any Target Shares
held by the Major Shareholders on the date
hereof) pursuant to the Merger; provided
that Damages
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<PAGE> 31
claimed under Section 9(a)(iv)(B) shall
count toward the foregoing limitation;
(B) With respect to Damages arising out of
misrepresentations and breaches of
warranties set forth in Section 3 hereof
which shall survive for two years
pursuant to Section 9(a)(ii) hereof and
Damages recoverable under Section
9(a)(iv)(B) hereof, an amount equal to
$1,000,000; provided that Damages claimed
under Section 9(a)(iv)(A) shall count
toward the $1,000,000 limitation.
Provided further, that if and to the extent any Damages
are paid by insurance, the Major Shareholders shall not
have any indemnification obligations hereunder (and the
insurance provider shall not have any rights of
subrogation hereunder), it being understood that the
Acquiror, Acquiror Sub and the Surviving Corporation
shall use commercially reasonable efforts to pursue
recovery against an insurer under insurance coverage,
but none of them shall be required to commence
litigation or otherwise expend significant resources
pursuing collection in the event of a dispute with the
insurer.
(v) No investigation or knowledge by or on behalf of the
Acquiror or Acquiror Sub or the Surviving Corporation
(whether before or after the Effective Time) shall in
any way limit the representations and warranties set
forth in Section 3 or the right of indemnity set
forth in this Section 9(a).
(b) Press Releases and Public Announcements. Neither the Acquiror nor the
Target 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; provided, however, that the Acquiror or the Target 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). No Party other
then the Acquiror or the Target shall issue any press release or make any public
disclosure concerning the subject matter of this Agreement, or otherwise
disclose any information concerning the subject matter of this Agreement to any
person that has not previously been made public by the Acquiror or the Target.
(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 Acquiror Shares are intended for the
benefit of the Target Shareholders and (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.
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<PAGE> 32
(d) Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof, except that the prior confidentiality agreement executed by the Acquiror
and the Target shall remain in effect until the Effective Time or termination of
this Agreement.
(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 Acquiror and the Target.
(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 or Major Shareholders:
Dan Fine
1425 Fourth Avenue South, Suite 800
Seattle, Washington 98101-2915
Copy to:
Robert Seidel, Esq.
Cairncross & Hempelmann, P.S.
70th Floor Columbia Center
701 Fifth Avenue
Seattle, Washington 98104-7016
If to the Acquiror or Acquiror Sub:
ARIS Corporation
Attn: General Counsel
2229 112th Avenue NE
Bellevue, Washington 98004-2936
Copy to:
Chris Barry
Dorsey & Whitney LLP
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<PAGE> 33
1420 Fifth Avenue, Suite 400
Seattle, Washington 98101
Any Party or Major Shareholder 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 or Major Shareholder may change the address to
which notices, requests, demands, claims, and other communications hereunder are
to be delivered by giving the other Parties and the Major Shareholders notice in
the manner herein set forth.
(i) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Washington without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Washington or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Washington.
(j) Amendments and Waivers. The Acquiror, Acquiror Sub and the Target 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
shareholder approval will be subject to the restrictions contained in the
Washington Business Corporation Act, and provided further that no amendment may
increase the obligations of any Major Shareholder with respect to any
representation or warranty without such Major Shareholder's written consent. No
amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by the Acquiror, Acquiror Sub, the Target and any
Major Shareholder required to be a party thereto by the previous sentence. 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 and Major Shareholders 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 Major Shareholders and no
presumption or burden of proof shall arise favoring or disfavoring any Party or
Major Shareholder 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
32
<PAGE> 34
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.
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<PAGE> 35
IN WITNESS WHEREOF, the Parties and the Major Shareholders have executed
this Agreement as of the date first above written.
ARIS CORPORATION
By:
------------------------------
Name:
Title:
ARIS INTERACTIVE, INC.
By:
------------------------------
Name:
Title:
FINE.COM INTERNATIONAL CORP.
By:
------------------------------
Name:
Title:
Major Shareholders:
- ------------------------------------
Daniel M. Fine
- ------------------------------------
Frank Hadam
- ------------------------------------
Herbert L. Fine
34
<PAGE> 36
EXHIBIT A
ARTICLES OF MERGER
FINE.COM INTERNATIONAL CORP.,
A WASHINGTON CORPORATION
WITH AND INTO
ARIS INTERACTIVE, INC.,
A WASHINGTON CORPORATION
In accordance with RCW 23B.11.050
The undersigned, __________________, being the
_______________________________ of fine.com International Corp., a Washington
corporation ("Target") and ____________________, being the ___________________
_______________________ of ARIS Interactive, Inc., a Washington corporation
("Acquiror Sub") DO HEREBY CERTIFY as follows:
(1) the constituent corporations in the merger (the "Merger") are
fine.com International Corp., a Washington corporation, and ARIS Interactive,
Inc., a Washington corporation; the name of the surviving corporation is ARIS
Interactive, Inc., a Washington corporation.
(2) an Agreement and Plan of Merger dated as of
________________________________ (the "Merger Agreement") has been approved,
adopted, and executed by each of the constituent corporations in accordance with
RCW 23B.11.010. The Merger Agreement is attached hereto as Exhibit A and
incorporated herein by reference.
(3) The Merger Agreement was duly approved by the shareholders of
each of the constituent corporations in accordance with Section 23B.011.030 of
the Washington Business Corporation Act.
The Merger shall become effective on the date on which these
Articles of Merger are filed with the Secretary of State of the State of
Washington.
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<PAGE> 37
IN WITNESS WHEREOF, the parties hereto have caused these Articles of
Merger to be duly executed as of this _________ day of __________________, 1999.
FINE.COM INTERNATIONAL CORP.,
a Washington corporation
By:
-------------------------------------
Name:
Title:
ARIS INTERACTIVE, INC.,
a Washington corporation
By:
-------------------------------------
Name:
Title:
A-2
<PAGE> 38
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement") is made as of
the _____ day of ________, 1999 by and between fine.com International Corp., a
Washington corporation ("Target"), and ARIS Interactive, Inc., a Washington
corporation ("Acquiror Sub") (collectively, the "Constituent Corporations"),
with reference to the following facts:
A. Each of the Constituent Corporations has, subject to approval by
their respective shareholders, adopted the plan of merger embodied in this
Agreement, and the Constituent Corporations and their respective boards of
directors deem it advisable and in the best interest of each of the Constituent
Corporations that Target be merged with and into Acquiror Sub pursuant to the
applicable laws of Washington and Section 368 of the Internal Revenue Code of
1986, as amended.
NOW, THEREFORE, the Constituent Corporations do hereby agree to
merge, on the terms and conditions herein provided, as follows:
1. The Merger.
1.1 Governing Law. Target shall be merged into Acquiror Sub in
accordance with the applicable laws of the State of Washington (the "Merger").
Acquiror Sub shall be the surviving corporation and shall be governed by the
laws of the State of Washington.
1.2 Effective Time. The "Effective Time" of the Merger shall
be, and such term as used herein shall mean, the time at which Acquiror Sub and
Target file Articles of Merger in substantially the form attached hereto as
Exhibit A in the office of the Secretary of State of the State of Washington
after satisfaction of the requirements of applicable laws prerequisite to such
filing.
2. Share Conversion. On the Effective Date, by virtue of the
Merger and without any action on the part of the holders thereof:
2.1 each share of common stock, par value $.01 per share, of
Target (a "Target Share") (other than any Target Share as to which any
shareholder has exercised his or its appraisal rights under Section 23B.13.010,
et. seq. of the Washington Business Corporation Act (a "Dissenting Share") or
any Target Share that ARIS Corporation (the "Acquiror") owns beneficially (an
"Acquiror-owned Share")) shall be converted into the right to receive the
following consideration (the "Merger Consideration"):
(1) that number of shares of common stock, without par
value, of the Acquiror ("Acquiror Shares") equal to the lesser of (x) .3717 or
(y) $4.5531, divided by the
1
<PAGE> 39
average of the per share daily closing prices of Acquiror Shares as reported by
Nasdaq for each trading day during the period of ten trading days ending [date
that is the second trading day prior to the Target Special Meeting] (the
"Average Price") (such lesser number of Acquiror Shares being hereinafter
referred to as the "Base Share Consideration"), plus
(2) an amount in cash equal to the lesser of (x) $1.1150
or (y) the amount (if any) by which $4.5531 exceeds the Share Consideration
multiplied by the Average Price (such lesser amount being hereinafter referred
to as the "Cash Consideration"); plus
(3) an additional number of Acquiror Shares (if a
positive number) equal to (x) $4.5531 minus the Base Consideration (as defined
below), divided by (y) the Average Price (such additional number of Acquiror
Shares (if any) plus the Base Share Consideration being hereinafter referred to
as the "Share Consideration"). "Base Consideration" means an amount equal to (x)
the Base Share Consideration multiplied by the Average Price, plus (y) the Cash
Consideration.
At the Effective Time and without any action on the part of the holder, Target
Shares held by such holder shall cease to be outstanding and shall constitute
only the right to receive without interest, the Merger Consideration multiplied
by the number of Target Shares held by such holder and cash in lieu of a
fractional share.
2.2 each Dissenting Share shall be converted into the right to
receive payment from Acquiror Sub with respect thereto in accordance with the
provisions of the Washington Business Corporation Act, and
2.3 each Acquiror-owned Share shall be canceled; provided,
however, that the Merger Consideration shall be subject to equitable adjustment
in the event of any stock split, stock dividend, reverse stock split, or other
change in the number of Target Shares outstanding. No Target Share shall be
deemed to be outstanding or to have any rights other than those set forth above
in this Section 2 after the Effective Time.
2.4 Shares of Acquiror Sub. Each issued and outstanding share
of capital stock of Acquiror Sub at and as of the Effective Time will remain
issued and outstanding and held by the Acquiror.
3. Effect of the Merger.
3.1 Rights, Privileges, Etc. At the Effective Time, Acquiror
Sub, without further act, deed or other transfer, shall retain or succeed to, as
the case may be, and possess and be vested with all the rights, privileges,
immunities, powers, franchises and authority, of a public as well as of a
private nature, of the Constituent Corporations; all property of every
description and every interest therein and all debts and other obligations of or
belonging to or due to the Constituent Corporations on whatever account shall
thereafter be taken and deemed to be held by or transferred to, as the case may
be, or vested in Acquiror Sub without further act or deed; title to any real
estate, or any interest therein, vested in the Constituent Corporations shall
not revert or in any way be impaired by reason of the Merger; and all of the
rights of creditors of
2
<PAGE> 40
the Constituent Corporations shall be preserved unimpaired, and all liens upon
the property of the Constituent Corporations shall be preserved unimpaired, and
such debts, liabilities, obligations and duties of the Constituent Corporations
shall thenceforth remain with or attach to, as the case may be, Acquiror Sub and
may be enforced against it to the same extent as if all of such debts,
liabilities, obligations and duties had been incurred or contracted by it.
3.2 Replacement of Target Options. At the Effective Time and
without any action on the part of the holder, all outstanding options ("Target
Options") to purchase Target Shares shall terminate and cease to be exercisable,
no Target Option shall be accelerated in vesting (other than Target Options held
by employees that Acquiror notifies Target will not be continued as employees of
Acquiror Sub, and Target Options held by Timothy J. Carroll that vest
automatically pursuant to his employment agreement), and the Target's Board of
Directors shall take or cause to be taken such actions as may be required to
cause such result. The Acquiror shall cause to be granted under the Acquiror's
Stock Option Plan to each holder of Target Options, options to purchase a number
of Acquiror Shares equal to that number of Target Shares issuable upon exercise
of such holder's Target Options multiplied by the Option Conversion Ratio at an
exercise price per Acquiror Share equal to the exercise price per Target Share
of such outstanding Target Option divided by the sum of (i) the Share
Consideration plus (ii) the Cash Consideration divided by the Average Price, and
having the same vesting schedule as the Target Options replaced.
3.3 Replacement of Target Warrants. At the Effective Time and
without any action on the part of the holder, each outstanding warrant (a
"Target Warrant") granted by Target to purchase Target Shares shall be converted
into the right to purchase the Merger Consideration in lieu of each Target Share
issuable upon exercise of such Target Warrant upon payment of the exercise price
per Target Share of such outstanding Target Warrant.
3.4 Articles of Incorporation and Bylaws. The Articles of
Incorporation of Acquiror Sub as in effect at the Effective Time shall, from and
after the Effective Time, be and continue to be the Articles of Incorporation of
Acquiror Sub without change or amendment until thereafter amended in accordance
with the provisions thereof and applicable laws. The Bylaws of Acquiror Sub as
in effect at the Effective Time shall, from and after the Effective Time, be and
continue to be the Bylaws of Acquiror Sub without change or amendment until
thereafter amended in accordance with the provisions thereof, the Articles of
Incorporation of Acquiror Sub and applicable laws.
3.5 Directors and Officers. The directors and officers of
Acquiror Sub shall be the directors and officers of Acquiror Sub at the
Effective Time, and such directors and officers shall serve until they are
removed or replaced in accordance with the Articles of Incorporation and Bylaws
of Acquiror Sub.
3.6 Further Action. From time to time, as and when requested
by Acquiror Sub, or by its successors or assigns, any party hereto shall execute
and deliver or cause to be executed and delivered all such deeds and other
instruments, and shall take or cause to be taken all such further or other
actions, as Acquiror Sub, or its successors or assigns, may deem necessary or
desirable in order to vest in and confirm to Acquiror Sub, and its successors or
3
<PAGE> 41
assigns, title to and possession of all the property, rights, privileges, powers
and franchises referred to herein and otherwise to carry out the intent and
purposes of this Agreement.
4. Dissenting Shares. Notwithstanding anything in this Agreement to
the contrary, Target Shares that are Dissenting Shares immediately prior to the
Effective Time shall not be converted into Acquiror Shares pursuant to the
Merger, and the holders of such Dissenting Shares shall be entitled to receive
payment of the fair value of their Dissenting Shares in accordance with the
provisions of the Washington Business Corporation Act; unless and until such
holders shall fail to perfect, lose, or withdraw their rights thereunder. If,
after the Effective Time, any holder of Dissenting Shares shall fail to perfect,
lose or withdraw his or its right to be paid fair value, then such Dissenting
Shares no longer shall be deemed to be Dissenting Shares, and shall be treated
as if they had been converted at the Effective Time into the right to receive
the consideration being paid for Target Shares in the Merger, without any
interest, and Acquiror shall take all necessary action to effect the exchange of
Acquiror Shares for the Target Shares. Target shall give Acquiror prompt written
notice of any demands for payment of fair value for any Target Shares, and
Acquiror shall have the right to participate in all negotiations or proceedings
with respect to such demands. Without the prior written consent of the Acquiror,
the Target shall not settle, offer to settle or make any payment with respect to
any such demands.
5. Termination; Amendment.
5.1 Termination Provision. Anything contained in this
Agreement to the contrary notwithstanding, this Agreement may be terminated and
the merger abandoned:
(a) Upon written notice at any time prior to the
Effective Time by mutual consent of the Constituent Corporations; or
(b) If holders of at least two-thirds of the outstanding
Target Shares shall not vote in favor of the Merger; or
(c) If there exists a suit, action, or other proceeding
commenced, pending or threatened, before any court or other governmental agency
of the federal or state government, in which it is sought to restrain, prohibit
or otherwise adversely affect the consummation of the Merger contemplated
hereby.
5.2 Amendment Provisions. Anything contained in this Agreement
notwithstanding, this Agreement may be amended or modified in writing at any
time prior to the Effective Time; provided that, an amendment made subsequent to
the adoption of this Agreement by the shareholders of the Constituent
Corporations shall not (1) alter or change the amount or kind of shares,
securities, cash, property and/or rights to be received in exchange for or on
conversion of all or any of the shares of any class or series thereof of the
Constituent Corporations, (2) alter or change any terms of the Articles of
Incorporation of Acquiror Sub or (3) alter or change any of the terms and
conditions of this Agreement if such alteration or change would adversely affect
the holders of shares of any class or series thereof of the Constituent
Corporations; provided, however, the Constituent Corporations may by agreement
in writing
4
<PAGE> 42
extend the time for performance of, or waive compliance with, the conditions or
agreements set forth herein.
5.3 Board Action. In exercising their rights under this
Section 5, each of the Constituent Corporations may act by its Board of
Directors, and such rights may be so exercised, notwithstanding the prior
approval of this Agreement by the shareholders of the Constituent Corporations.
5
<PAGE> 43
IN WITNESS WHEREOF, this Agreement, having first been duly approved
by resolutions of the Board of Directors of each of the Constituent
Corporations, is hereby executed on behalf of each of the Constituent
Corporations by their respective officers thereunto duly authorized.
FINE.COM INTERNATIONAL CORP.
By:
-------------------------------------
Name:
Title:
ARIS INTERACTIVE, INC.
By:
-------------------------------------
Name:
Title:
6
<PAGE> 44
EXHIBIT B
AFFILIATE'S LETTER
ARIS Corporation
2229 112th Avenue N.E.
Bellevue, Washington 98004
Ladies and Gentlemen:
The undersigned shareholder, officer and/or director of fine.com
International Corp. (the "Target") has been advised that the undersigned may be
deemed by the Target to be an "affiliate" of the Target, as that term is used in
paragraphs (c) and (d) of Rule 145 under the Securities Act of 1933, as amended
(the "Securities Act") (such rule, as amended or replaced by any successor rule,
referred to herein as "Rule 145").
Pursuant to the terms of the Agreement and Plan of Merger dated as of
May 17, 1999 (the "Merger Agreement"), among ARIS Corporation ("Acquiror"), ARIS
Interactive, Inc. ("Acquiror Sub"), the Target and certain shareholders of the
Target, the Target will be merged with and into Acquiror Sub (the "Merger"). As
a result of the Merger, outstanding shares of common stock, par value $.01 per
share, of the Target ("Target Common Stock") will be converted into the right to
receive shares of common stock, without par value, of the Acquiror ("Acquiror
Common Stock") or a combination of Acquiror Common Stock and cash, as determined
pursuant to the Merger Agreement.
In order to induce the Acquiror and the Target to enter into the Merger
Agreement and to consummate the Merger, the undersigned (referred to herein as
"Affiliate") represents, warrants and agrees as follows:
1. Affiliate has been advised that the issuance of the Acquiror Common Stock, if
any, to Affiliate pursuant to the Merger is being registered with the Securities
and Exchange Commission (the "SEC") under the Securities Act and the rules and
regulations promulgated thereunder on a Registration Statement on Form S-4.
However, Affiliate has also been advised that, because Affiliate may be deemed
to be an "affiliate" of the Target (as that term is used in paragraphs (c) and
(d) of Rule 145), any sale, transfer or other disposition by Affiliate of any
Acquiror Common Stock issued pursuant to the Merger will, under current law,
require either (a) further registration under the Securities Act of the Acquiror
Common Stock to be sold, transferred, or otherwise disposed of, or (b)
compliance with Rule 145, or (c) the availability of another exemption from such
registration.
2. Affiliate will not offer to sell, sell, or otherwise dispose of any Acquiror
Common Stock issued pursuant to the Merger except pursuant to an effective
registration statement or in compliance with Rule 145 or another exemption from
the registration requirements of the Securities Act (the compliance with Rule
145 or the availability of such other exemption to be established by Affiliate
to the reasonable satisfaction of Acquiror's counsel).
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<PAGE> 45
3. Affiliate consents to the placement of a stop transfer order with the
Target's and Acquiror's stock transfer agent and registrar, and to the placement
of the following legend on certificates representing the Acquiror Common Stock
issued or to be issued to Affiliate:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED EXCEPT IN COMPLIANCE WITH AN AFFILIATE'S LETTER FROM THE
UNDERSIGNED TO ARIS CORPORATION, AND PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR IN COMPLIANCE WITH RULE 145 UNDER THE SECURITIES ACT OF 1933
OR ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT OF 1933."
4. Affiliate has carefully read this letter and has discussed with counsel for
Affiliate or counsel for the Target, to the extent Affiliate felt necessary, the
requirements of this letter and other applicable limitations on the ability of
Affiliate to sell, transfer, or otherwise dispose of Target Common Stock and
Acquiror Common Stock. Affiliate understands that if Affiliate should become an
"affiliate" of Acquiror, there will be additional restrictions on Affiliate's
ability to sell, transfer or otherwise dispose of Acquiror Common Stock.
5. The Target agrees to take all reasonable actions up to the date of the
Merger, including but not limited to the placement of a stop transfer order with
the Target's stock transfer agent and registrar, to ensure compliance by
Affiliate with the provisions of this letter.
6. Execution of this letter should not be considered an admission on the part of
Affiliate that Affiliate is an "affiliate" of the Target as described in the
first paragraph of this letter, nor as a waiver of any rights that Affiliate may
have to object to any claim that Affiliate is such an affiliate on or after the
date of this letter.
7. By Acquiror's acceptance of this letter, Acquiror hereby agrees with
Affiliate as follows:
(A) For so long as and to the extent necessary to permit Affiliate to sell
Acquiror Common Stock pursuant to Rule 145 and, to the extent applicable, Rule
144 under the Securities Act, Acquiror shall (a) use its reasonable efforts to
(i) file, on a timely basis, all reports and data required to be filed with the
SEC by it pursuant to Section 13 of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), and (ii) furnish to Affiliate upon request a written
statement as to whether Acquiror has complied with such reporting requirements
during the 12 months preceding any proposed sale of Acquiror Common Stock by
Affiliate under Rule 145, and (b) otherwise use its reasonable efforts in permit
such sales pursuant to Rule 145 and Rule 144. Acquiror hereby represents to
Affiliate that it has filed all reports required to be filed with the SEC under
Section 13 of the 1934 Act during the preceding 12 months.
(B) It is understood and agreed that certificates with the legends set
forth in paragraph 3 above will be substituted by delivery of certificates
without such legends if (i) one year shall have elapsed from the date the
undersigned acquired the Acquiror Common Stock received in the
B-2
<PAGE> 46
Merger and the provisions of Rule 145(d)(2) are then available to the
undersigned, (ii) two years shall have elapsed from the date the undersigned
acquired the Acquiror Common Stock received in the Merger and the provisions of
Rule 145(d)(3) are then applicable to the undersigned, or (iii) Acquiror has
received either an opinion of counsel, which opinion and counsel shall be
reasonably satisfactory to Acquiror, or a "no action" letter obtained by the
undersigned from the staff of the SEC, to the effect that the restrictions
imposed by Rule 145 under the Act no longer apply to the undersigned.
8. Notwithstanding any other provision contained herein, this Affiliate's Letter
and all obligations of and restrictions imposed on Affiliate hereunder, and all
obligations imposed on the Target hereunder, shall terminate upon the
termination of the Merger Agreement in accordance with its terms; provided that
such termination shall not relieve Affiliate of liability for any prior breach
of Affiliate's obligations hereunder.
Very truly yours,
May 17, 1999
----------------------------------------
----------------------------------------
(Print Name)
B-3
<PAGE> 47
EXHIBIT C
VOTING AGREEMENT
VOTING AGREEMENT, dated as of May 17, 1999 (this "Agreement"), between
[SHAREHOLDER] (the "Shareholder") and ARIS Corporation, a Washington corporation
("Acquiror").
WHEREAS, fine.com International Corp., a Washington corporation
("Target"), Acquiror and ARIS Interactive, Inc., a Washington corporation and a
wholly owned subsidiary of Acquiror ("Acquiror Sub"), are contemporaneously
entering into an Agreement and Plan of Merger, dated as of this date (the
"Merger Agreement"), which provides, among other things, for the merger of
Target with and into Acquiror Sub (the "Merger");
WHEREAS, as a condition to their willingness to enter into the Merger
Agreement, Acquiror and Acquiror Sub have requested that the Shareholder make
certain agreements with respect to certain shares of Common Stock, par value
$.01 per share ("Shares"), of Target beneficially owned by him, upon the terms
and subject to the conditions of this Agreement; and
WHEREAS, in order to induce Acquiror and Acquiror Sub to enter into the
Merger Agreement, the Shareholder is willing to make certain agreements with
respect to the Subject Shares (as defined);
NOW, THEREFORE, in consideration of the promises and the mutual covenants
and agreements set forth in this Agreement, the parties agree as follows:
1. Voting Agreements; Proxy.
(a) For so long as this Agreement is in effect, in any meeting of
shareholders of Target, and in any action by consent of the shareholders of
Target, the Shareholder shall vote, or, if applicable, give consents with
respect to, all of the Subject Shares that are held by the Shareholder on the
record date applicable to the meeting or consent (i) in favor of the Merger
Agreement and the Merger contemplated by the Merger Agreement, as the Merger
Agreement may be modified or amended from time to time in a manner not adverse
to the Shareholder and (ii) against any competing Acquisition Proposal (as
defined in the Merger Agreement) or other proposal inconsistent with the Merger
Agreement or which may delay the likelihood of the completion of the Merger. The
Shareholder shall use his best efforts to cast that Shareholder's vote or give
that Shareholder's consent in accordance with the procedures communicated to
that Shareholder by Target relating thereto so that the vote or consent shall be
duly counted for purposes of determining that a quorum is present and for
purposes of recording the results of that vote or consent.
(b) Upon the reasonable written request of Acquiror, in furtherance of the
transactions contemplated in this Agreement and by the Merger Agreement and in
order to secure the performance of the Shareholder's duties under Section 1(a)
of this Agreement, the Shareholder shall promptly execute, in accordance with
the provisions of RCW 23B.07.220, and deliver to
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<PAGE> 48
Acquiror an irrevocable proxy, substantially in the form attached as Exhibit A,
and irrevocably appoint Acquiror or its designees, with full power of
substitution, its attorney and proxy to vote or, if applicable, to give consent
with respect to, all Shares constituting Subject Shares at the time of the
relevant record date with regard to any of the matters referred to in paragraph
(a) above at any meeting of the shareholders of Target, or in connection with
any action by written consent by the shareholders of Target. The Shareholder
acknowledges and agrees that this proxy, if and when given, shall be coupled
with an interest, shall constitute, among other things, an inducement for
Acquiror to enter into the Merger Agreement, shall be irrevocable and shall not
be terminated by operation of law or otherwise upon the occurrence of any event
and that no subsequent proxies with respect to such Subject Shares shall be
given (and if given shall not be effective); provided, however, that any such
proxy shall terminate automatically and without further action on behalf of the
Shareholder upon the termination of this Agreement.
2. Covenants. For so long as this Agreement is in effect, the Shareholder agrees
not to (i) sell, transfer, pledge, assign, hypothecate, encumber, tender or
otherwise dispose of, or enter into any contract with respect to the sale,
transfer, pledge, assignment, hypothecation, encumbrance, tender or other
disposition of (each such disposition or contract, a "Transfer"), any Subject
Shares or Shares the Shareholder then has the right to acquire, or will have the
right to acquire within 60 days, pursuant to options to purchase Shares granted
to the Shareholder by Target; (ii) grant any proxies with respect to any shares
that then constitute Subject Shares, deposit any of the Subject Shares into a
voting trust or enter into a voting or option agreement with respect to any of
the Subject Shares; (iii) subject to Section 7, directly or indirectly, solicit,
initiate, encourage or otherwise facilitate any inquiries or the making of any
proposal or offer with respect to an Acquisition Proposal or engage in any
negotiation concerning, or provide any confidential information or data to, or
have any discussions with any person relating to, an Acquisition Proposal; or
(iv) take any action which would make any representation or warranty of the
Shareholder in this Agreement untrue or incorrect or prevent, burden or
materially delay the consummation of the transactions contemplated by this
Agreement; provided, however, that nothing in the foregoing provisions of this
Section 3 shall prohibit the Shareholder from effecting (i) any Transfer of
Subject Shares pursuant to any bona fide charitable gift or by will or
applicable laws of descent and distribution, or for estate planning purposes or
(ii) the Transfer of up to _______ Subject Shares to Blue Note Partners, a
Washington general partnership, [Daniel M. Fine's Voting Agreement to include
the following additional language][of up to 50,000 Subject Shares to Timothy J.
Carroll and of up to 50,000 Subject Shares to Tor Taylor d/b/a IntLex,] in each
case if the transferee agrees in writing to be bound by the provisions of this
Agreement. As used in this Agreement, "person" shall have the meaning specified
in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of 1934, as
amended.
3. Representations and Warranties of the Shareholder. The Shareholder represents
and warrants to Acquiror that:
(a) Capacity; No Violations. The Shareholder has the legal capacity to
enter into this Agreement and to consummate the transactions contemplated by
this Agreement. This Agreement has been duly executed and delivered by the
Shareholder and constitutes a valid and binding agreement of the Shareholder
enforceable against the Shareholder in accordance with its terms except as such
enforceability may be limited by applicable bankruptcy, insolvency and similar
laws
C-2
<PAGE> 49
affecting creditors' rights generally and general principles of equity (whether
considered in a proceeding in equity or at law). The execution, delivery and
performance by the Shareholder of this Agreement will not (i) conflict with,
require a consent, waiver or approval under, or result in a breach or default
under, any of the terms of any contract, commitment or other obligation to which
the Shareholder is a party or by which the Shareholder is bound; (ii) violate
any order, writ, injunction, decree or statute, or any law, rule or regulation
applicable to the Shareholder or the Subject Shares; or (iii) result in the
creation of, or impose any obligation on the Shareholder to create, any Lien
upon the Subject Shares that would prevent the Shareholder from voting the
Subject Shares. In this Agreement, "Lien" shall mean any lien, pledge, security
interest, claim, third party right or other encumbrance.
(b) Subject Shares. As of the date of this Agreement, the Shareholder is
the beneficial owner of and has the power to vote or direct the voting of the
Subject Shares free and clear of any Liens that would prevent the Shareholder
from voting such Subject Shares. As of the date of this Agreement, the Subject
Shares are the only shares of any class of capital stock of Target which the
Shareholder has the right, power or authority (sole or shared) to sell or vote,
and, other than options or warrants to purchase Shares held by the Shareholder
as of this date, the Shareholder does not have any right to acquire, nor is it
the beneficial owner of, any other shares of any class of capital stock of
Target or any securities convertible into or exchangeable or exercisable for any
shares of any class of capital stock of Target. The Shareholder is not a party
to any contracts (including proxies, voting trusts or voting agreements) that
would prevent the Shareholder from voting the Subject Shares.
4. Expenses. Each party to this Agreement shall pay its own expenses incurred in
connection with this Agreement.
5. Specific Performance. The Shareholder acknowledges and agrees that if he
fails to perform any of its obligations under this Agreement, immediate and
irreparable harm or injury would be caused to Acquiror for which money damages
would not be an adequate remedy. In that event, the Shareholder agrees that
Acquiror shall have the right, in addition to any other rights it may have, to
specific performance of this Agreement. Accordingly, if Acquiror should
institute an action or proceeding seeking specific enforcement of the provisions
of this Agreement, the Shareholder hereby waives the claim or defense that
Acquiror has an adequate remedy at law and hereby agrees not to assert in that
action or proceeding the claim or defense that a remedy at law exists. The
Shareholder further agrees to waive any requirements for the securing or posting
of any bond in connection with obtaining any equitable relief.
6. Shareholder Capacity. No person bound by this Agreement who is or becomes
during the term hereof a director or officer of the Company makes any agreement
or understanding herein in his capacity as such director or officer. The
Shareholder signs solely in his capacity as the beneficial owner of [, or the
general partner of a partnership which is the beneficial owner of,] the
Shareholder's Subject Shares and nothing herein shall limit or affect any
actions taken by the Shareholder in his capacity as an officer or director of
Target to the extent specifically permitted by the Merger Agreement. Nothing in
this Agreement shall be deemed to constitute a transfer of the beneficial
ownership of the Subject Shares by the Shareholder.
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7. Notices. All notices and other communications given or made pursuant to this
Agreement shall be in writing and shall be deemed to have been duly given or
made as of the date of receipt and shall be delivered personally or mailed by
registered or certified mail (postage prepaid, return receipt requested), sent
by overnight courier or sent by telecopy, to the applicable party at the
following addresses or telecopy numbers (or at any other address or telecopy
number for a party as shall be specified by like notice):
If to Acquiror:
ARIS Corporation
2229 112th Ave. N.E.
Bellevue, Washington 98004
Attention: Bert Sugayan, Esq.
Telecopy: (425) 372-2798
With a copy to:
Dorsey & Whitney LLP
U.S. Bank Centre
1420 Fifth Avenue
Seattle, Washington 98101
Attention: Christopher J. Barry, Esq.
Telecopy: (206) 903-8820
If to the Shareholder:
[SHAREHOLDER ADDRESS]
With a copy to:
Robert Seidel, Esq.
Cairncross & Hempelmann, P.S.
70th Floor Columbia Center
701 Fifth Avenue
Seattle, Washington 98104-7016
8. Parties in Interest. This Agreement shall inure to the benefit of and be
binding upon the parties and their respective successors and assigns; provided,
however, that any successor in interest or assignee shall agree to be bound by
the provisions of this Agreement. Nothing in this Agreement, express or implied,
is intended to confer upon any Person other than Acquiror, the Shareholder or
their successors or assigns, any rights or remedies under, or by reason, of this
Agreement.
9. Entire Agreement; Amendments. This Agreement contains the entire agreement
between the Shareholder and Acquiror with respect to the subject matter of this
Agreement and supersedes all prior and contemporaneous agreements and
understandings, oral or written, with respect to these transactions. This
Agreement may not be changed, amended or modified orally, but may be
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changed only by an agreement in writing signed by the party against whom any
waiver, change, amendment, modification or discharge may be sought.
10. Assignment. No party to this Agreement may assign any of its rights or
obligations under this Agreement without the prior written consent of the other
party to this Agreement, except that (a) Acquiror may assign its rights and
obligations under this Agreement to any of its direct or indirect wholly owned
subsidiaries (including Acquiror Sub), but no transfer shall relieve Acquiror of
its obligations under this Agreement if the transferee does not perform its
obligations, and (b) the Shareholder may transfer Subject Shares to the extent
permitted by Section 3 of this Agreement.
11. Headings. The section headings in this Agreement are for convenience only
and shall not affect the construction of this Agreement.
12. Counterparts. This Agreement may be executed in any number of counterparts,
each of which, when executed, shall be deemed to be an original and all of which
together shall constitute one and the same document.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington without giving effect to any
choice or conflict of law provision or rule (whether of the State of Washington
or any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Washington.
14. Termination. This Agreement shall terminate automatically and without
further action on behalf of any party at the earlier of (i) the Effective Time
(as defined in the Merger Agreement) and (ii) the date the Merger Agreement is
terminated pursuant to its terms.
15. Subject Shares. The term "Subject Shares" shall mean the Shares set forth
opposite the Shareholder's name on Schedule A hereto, together with any Shares
of capital stock of Target acquired by the Shareholder after the date hereof
over which the Shareholder has the power to vote or power to direct the voting.
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IN WITNESS WHEREOF, Acquiror and the Shareholder have caused this Agreement to
be duly executed and delivered on the day and year first above written.
ARIS CORPORATION
By:
---------------------------------
Name:
Title:
Shareholder:
- ---------------------------------------
- ---------------------------------------
(Print Name)
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SCHEDULE A
SHAREHOLDER SHARES OWNED
- ----------- -------------
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EXHIBIT A
IRREVOCABLE PROXY
In order to secure the performance of the duties of the undersigned pursuant to
the Voting Agreement, dated as of May __, 1999 (the "Voting Agreement") between
the undersigned and ARIS Corporation, a Washington corporation ("Acquiror"), a
copy of such agreement being attached hereto and incorporated by reference
herein, the undersigned hereby irrevocably appoints __________, ___________ and
____________, and each of them, the attorneys, agents and proxies, with full
power of substitution in each of them, for the undersigned and in the name,
place and stead of the undersigned, to vote or, if applicable, to give written
consent, in such manner as each such attorney, agent and proxy or his substitute
shall in his sole discretion deem proper to record such vote (or consent) in the
manner set forth in Section 1 of the Voting Agreement with respect to all shares
of Common Stock, par value $.01 per share (the "Shares"), of fine.com
International Corporation., a Washington corporation (the "Company"), which the
undersigned is or may be entitled to vote at any meeting of the Company held
after the date hereof, whether annual or special and whether or to an adjourned
meeting, or, if applicable, to give written consent with respect thereto. This
Proxy is coupled with an interest, shall be irrevocable and binding on any
successor in interest of the undersigned and shall not be terminated by
operation of law or otherwise upon the occurrence of any event (other than as
provided in Section 1 of the Voting Agreement), including, without limitation,
the death or incapacity of the undersigned. This Proxy shall operate to revoke
any prior proxy as to the Shares heretofore granted by the undersigned. This
Proxy shall terminate upon the termination of the Voting Agreement. This Proxy
has been executed in accordance with RCW 23B.07.220.
Dated: May ___, 1999
- ------------------------
[Name]
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EXHIBIT D
1. The Merger is the result of arm's-length bargaining between
Target and Acquiror. Target is entering into the Merger for business reasons and
not for the principal purpose of avoiding federal income tax. Accordingly, to
the Knowledge of the undersigned, the fair market value of the Acquiror Shares
and cash payments received pursuant to the Merger Agreement will be
approximately equal to the fair market value of the Target Shares surrendered in
exchange therefor.
2. There is no plan or intention by the undersigned shareholders of
Target and to the Knowledge of the undersigned, there is no plan or intention by
any other shareholders of Target, to enter into any transaction or arrangement
with any person that would result, directly or indirectly, in the sale to,
exchange with or delivery to (each of the foregoing a "disposition") Acquiror or
any person related to Acquiror, within the meaning of Treasury Regulation
Section 1.368-1(e)(3) ("Acquiror Related Person"), of any interest in the
Acquiror Shares to be received in the Merger such that the Target shareholders'
ownership in the aggregate of Acquiror Shares would be reduced to a number of
Acquiror Shares having a value, as of the Effective Time, of less than 50
percent of the total value of all of the formerly outstanding Target Shares as
of such date. For purposes of this representation, (i) any transaction or
arrangement resulting in a reduction of a Target shareholder's benefits or
burdens of ownership (by short sale or otherwise) with respect to the holding of
Acquiror Shares will be treated as a disposition by such shareholder of such
stock; (ii) any transaction or arrangement resulting in the disposition by a
Target shareholder of Acquiror Shares to a person other than Acquiror or a
Acquiror Related Person (other than a disposition described in the preceding
sentence) will be disregarded and will not be treated as a reduction in such
shareholder's ownership of Acquiror Shares; and (iii) Target Shares exchanged
for cash in lieu of fractional Acquiror Shares will be treated as outstanding
immediately prior to the Effective Time. Moreover, Target Shares that are sold
to, exchanged with or otherwise delivered to Acquiror, a Acquiror Related
Person, or a person related to Target within the meaning of Treasury Regulation
Section 1.368-1(e)(3) ("Target Related Person") prior to (and in connection
with) the Merger will be taken into account in making this representation and,
accordingly, Acquiror Shares received in the Merger with respect to such Target
Shares will not be included among the shares of Acquiror Shares treated as owned
by Target shareholders following the Merger.
3. Prior to and in connection with the Merger, (i) Target has not
redeemed (and will not redeem) any shares of Target stock and has not made (and
will not make) any distributions (except for regular, normal dividends) with
respect thereto, and (ii) the persons related to Target, within the meaning of
Temp. Treas. Reg. Section 1.368-1T(e)(2)(ii) (referring to Treas. Reg. Section
1.368-1(e)(3)), have not acquired (and will not acquire) shares of Target stock
from any holder thereof.
4. Pursuant to the Merger, Acquiror Sub will acquire at least 90% of
the fair market value of the net assets of Target and at least 70% of the fair
market value of the gross assets of Target held immediately prior to the Merger.
For purposes of this representation, amounts paid by Target to dissenters,
amounts paid by Target to Target shareholders who receive cash or other
property, amounts used by Target to pay reorganization expenses, and all
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redemptions and distributions (except for regular, normal dividends) made by
Target in connection with the Merger will be included as assets of Target
immediately prior to the Merger.
5. Since December 31, 1996, Target has not disposed of any assets
other than in the ordinary course of business and has not redeemed any stock,
warrants, options or similar instruments, and Target will not undertake any such
disposition or redemption prior to the Merger.
6. To the Knowledge of the undersigned, Acquiror and its affiliated
entities have not owned any shares of Target stock or possessed any right to
acquire Target stock (regardless of when exercisable) at any time during the
five year period preceding the Merger. For purposes of this representation,
"affiliated entities" are entities in which the Acquiror directly or indirectly
holds 50% or more of the vote or value.
7. Target has no plan or intention to issue additional shares of its
stock that would result in Acquiror losing control of Target within the meaning
of Section 368(c) of the Code.
8. The liabilities of Target assumed by Acquiror Sub and the
liabilities to which the transferred assets of Target are subject were incurred
by Target in the ordinary course of its business.
9. Target and Target Shareholders will pay their respective
expenses, if any, incurred in connection with the Merger.
10. There is no intercorporate indebtedness existing between
Acquiror and Target or between Acquiror Sub and Target that was issued,
acquired, or will be settled at a discount.
11. Target is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code. For purposes of this representation, an
"investment company" within the meaning of Section 368(a)(2)(F)(iii) and (iv) of
the Code means a regulated investment company, a real estate investment trust,
or a corporation (i) 50 percent or more of the value of whose total assets are
stock and securities (whether or not held for investment) (the "50 Percent Asset
Test") and (ii) 80 percent or more of the value of whose total assets are held
for investment (the "80 Percent Asset Test"). In general, in applying the 50
Percent Asset Test and the 80 Percent Asset Test, (i) the stock and securities
of any subsidiary corporation whose outstanding stock is at least 50 percent
owned (by vote or value), directly or indirectly, by the corporation; any
interest in at least 50 percent of the profits or capital of a partnership
owned, directly or indirectly, by the corporation; and any active general
partnership interests owned by the corporation are disregarded and the
corporation is instead considered to own its ratable share of each of the
subsidiary corporation's or partnership's assets and (ii) any limited
partnership interests or passive general partnership interests not described in
clause (i) are considered securities. For purposes of the preceding sentence,
indirect ownership is determined (i) in the case of the stock of a lower-tier
subsidiary corporation, by multiplying the percentages of stock owned in each
corporation in the chain of ownership and (ii) in the case of an interest in the
profits or capital of a lower-tier partnership, by multiplying the percentage
interests in the profits or capital (as the case may be) of each partnership in
the chain of ownership; provided, however, that such lower-tier partnership
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interest and all upper-tier partnership interests in the chain of ownership must
constitute limited partnership interests or passive general partnership
interests. In general, for purposes of the 80 Percent Asset Test, assets are
considered held for investment if (i) they are held primarily for (a) gain from
appreciation in value, (b) production of passive income (including royalties,
rents, dividends, interest, and annuities), or (c) both of these and (ii) they
are not held primarily for sale to customers in the ordinary course of a trade
or business. Further, (i) in applying the 50 Percent Asset Test, "securities"
include obligations of State and local governments, commodity futures contracts,
shares of regulated investment companies and real estate investment trusts, and
other investments constituting "securities" within the meaning of the Investment
Company Act of 1940 (15 U.S.C. 80a-2(36)) (other than treasury stock), and (ii)
in applying the 50 Percent Asset Test and the 80 Percent Asset Test, assets
acquired with a purpose of terminating the corporation's status as an investment
company or qualifying a corporation as a diversified investment company and all
cash, cash items (including receivables and other cash equivalents other than
securities), and U.S. Government securities are excluded from the numerator and
the denominator.
12. On the date of the Merger, to the Knowledge of the undersigned,
the fair market value of the assets of Target transferred to Acquiror Sub will
exceed the sum of the liabilities assumed by Acquiror Sub, plus the amount of
liabilities, if any, to which such assets are subject.
13. On the date of Merger, to the Knowledge of the undersigned, the
fair market value of the assets of Target will exceed the sum of its
liabilities, plus the amount of liabilities, if any, to which the assets are
subject.
14. Target is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
15. None of the compensation received by any shareholder-employees
of Target will be separate consideration for, or allocable to, any of their
Target Shares; none of the Acquiror Shares received by any Target
shareholder-employees pursuant to the Merger will be separate consideration for,
or allocable to, any employment agreement; and the compensation paid to any
Target shareholder-employees will be for services actually rendered and to the
Knowledge of the undersigned, will be commensurate with amounts paid to third
parties bargaining at arm's length for similar services under similar
circumstances.
16. The payment of cash in lieu of fractional shares of Acquiror
Shares is solely for the purpose of avoiding the expense and inconvenience to
Acquiror of issuing fractional shares and does not represent separately
bargained for consideration. To the Knowledge of the undersigned, the total cash
consideration that will be paid in the Merger to the shareholders of Target in
lieu of fractional shares of Acquiror will not exceed one percent of the total
consideration to be issued in the Merger to the shareholders of Target in
exchange for their Target Shares. The fractional share interests of each Target
shareholder will be aggregated, and no Target shareholder will receive cash in
an amount greater than the value of one full share of Target Shares.
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17. Target will satisfy the information reporting requirements of
Treasury Regulation Section 1.368-3 with respect to the Merger.
18. Except for an initial public offering by Target of Target Shares
in August 1997 and for transactions involving an aggregate ownership interest of
20% or less of Target, there have been no significant changes in the
shareholders of Target since December 31, 1996.
19. Target is not a "collapsible" corporation as defined in Section
341 of the Code.
20. At the Effective Time of the Merger, Target will not have
outstanding any warrants, options, convertible securities or any other type of
right pursuant to which any person could acquire stock in Target that, if
exercised or converted, would affect Acquiror's acquisition or retention of
control of Target as defined in Section 368(c) of the Code.
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Exhibit 5.1
[Letterhead of Dorsey & Whitney LLP]
August 5, 1999
ARIS Corporation
2229 112th Avenue N.E.
Bellevue, Washington 98004
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
We have acted as counsel to ARIS Corporation, a Washington corporation
(the "Company"), in connection with a Registration Statement on Form S-4 (the
"Registration Statement") relating to the issuance by the Company of up to
1,423,875 shares of common stock of the Company, without par value (the "Common
Stock"), to the shareholders of fine.com International Corp., a Washington
corporation ("fine.com"), in connection with the merger of fine.com with and
into a wholly owned subsidiary of the Company as described in the Registration
Statement (the "Merger").
We have examined such documents and have reviewed such questions of law as
we have considered necessary and appropriate for the purposes of our opinions
set forth below. In rendering our opinions set forth below, we have assumed the
authenticity of all documents submitted to us as originals, the genuineness of
all signatures and the conformity to authentic originals of all documents
submitted to us as copies. We have also assumed the legal capacity for all
purposes relevant hereto of all natural persons and, with respect to all parties
to agreements or instruments relevant hereto other than the Company, that such
parties had the requisite power and authority (corporate or otherwise) to
execute, deliver and perform such agreements or instruments, that such
agreements or instruments have been duly authorized by all requisite action
(corporate or otherwise), executed and delivered by such parties and that such
agreements or instruments are the valid, binding and enforceable obligations of
such parties. As to questions of fact material to our opinions, we have relied
upon certificates of officers of the Company and of public officials. We have
also assumed that the Common Stock will be issued and delivered in exchange for
shares of common stock of fine.com as described in the Registration Statement.
Based on the foregoing, we are of the opinion that the shares of Common
Stock to be issued by the Company pursuant to the Registration Statement have
been duly authorized by all requisite corporate action and, upon issuance and
delivery thereof in exchange for shares of common stock of fine.com in the
Merger as described in the Registration Statement, will be validly issued, fully
paid and nonassessable.
Our opinions expressed above are limited to the laws of the State of
Washington.
<PAGE> 2
We hereby consent to the filing of this opinion and the form of our tax
opinion addressed to the Company and fine.com as exhibits to the Registration
Statement, and to the references to our firm under the headings "The
Merger--Material Federal Income Tax Consequences", "The Merger
Agreement--Conditions to the Completion of the Merger" and "Legal Matters" in
the Proxy Statement/Prospectus constituting part of the Registration Statement.
Very truly yours,
/s/ DORSEY & WHITNEY LLP
<PAGE> 1
EXHIBIT 8.1
[Letterhead of Dorsey & Whitney LLP]
August ___, 1999
ARIS Corporation
fine.com International Corp.
RE: Federal Income Tax Consequences of Merger of fine.com International
with and into ARIS Interactive, Inc. a wholly owned subsidiary of
ARIS Corporation
Ladies and Gentlemen:
We have acted as special counsel to ARIS Corporation ("Acquiror"), a
Washington corporation, in connection with the merger of fine.com International
Corporation, a Washington corporation ("Target") with and into ARIS Interactive,
Inc., a Washington corporation ("Acquiror Sub"), a wholly owned subsidiary of
Acquiror, pursuant to that certain Agreement and Plan of Merger dated as of May
17, 1999 and amended and restated as of August [3], 1999 (by and among Acquiror,
Acquiror Sub, Target and certain Target shareholders (the "Merger Agreement").
In accordance with the Merger Agreement, we are rendering the following opinion
to Acquiror and to the Target. Unless otherwise provided herein, the capitalized
terms used herein shall have the meaning as set forth and explained in the
Merger Agreement.
At the Effective Time of the Merger and pursuant to the Merger
Agreement, Target will be merged with and into Acquiror Sub and the separate
existence of Target will cease. Pursuant to the Merger, each Target Share issued
and outstanding at the Effective Time of the Merger (other than any shares as to
which statutory dissenters' appraisal rights have been exercised) will be
converted into the right to receive Acquiror Shares or a combination of Acquiror
Shares and cash, as described in the Merger Agreement.
1
<PAGE> 2
Acquiror has asked for our opinion concerning certain federal income
tax consequences of the Merger. For purposes of rendering this opinion, we have
examined the Merger Agreement and such other instruments and documents as we
have deemed necessary or appropriate, and we have reviewed such questions of law
as we have considered necessary or appropriate.
Our opinion is based upon the existing provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), the current Treasury Department
Regulations issued thereunder, the current published administrative positions of
the Internal Revenue Service contained in revenue rulings, revenue procedures
and other administrative pronouncements, and judicial decisions, all of which
are subject to change prospectively and retroactively. Any change in such
authorities may affect the opinions rendered herein. We undertake no
responsibility to advise you of any new developments in the application or
interpretations of the federal income tax laws.
In rendering this opinion, we have relied upon the statements,
descriptions, representations and warranties set forth in the Merger Agreement
and the representations set forth in the Certificates of even date herewith
delivered to us by Acquiror, Acquiror Sub, Target and certain Target
shareholders (the "Certificates") and no actions have been (or will be taken)
which are inconsistent with such statements, descriptions, representations and
warranties. In connection with rendering this opinion, we have assumed that any
statement made in the Merger Agreement, the Certificates or related documents
"to the best of knowledge", "to the knowledge", "to the belief" or similar
phrases of any person or party is correct without such qualification. Our
opinion is also based on the assumption that the parties to the Merger Agreement
will at all times comply with the terms of the Merger Agreement and that the
Merger will be consummated in the manner described therein.
An opinion of counsel is predicated upon all the facts and
conditions set forth in this opinion and is based upon counsel's analysis of the
statutes, regulatory interpretations and case law in effect as of the date of
the opinion. It is not a guarantee of the current status of the law and should
not be accepted as a guarantee that a court of law or an administrative agency
will concur in the opinion.
Based upon the foregoing, it is our opinion that the following
federal income tax consequences will result from the Merger:
1. The Merger will qualify as a reorganization under Section 368(a)
of the Code.
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2. No gain or loss will be recognized by Acquiror, Acquiror Sub or
Target as a result of the Merger.
3. No gain or loss will be recognized by the shareholders of Target
who exchange Target Shares for Acquiror Shares pursuant to the Merger,
except with respect to any cash received by such Target shareholders in
the Merger.
4. Gain, if any, but not loss, will be recognized by Target
shareholders upon the exchange of Target Shares for cash pursuant to the
Merger. Such gain will be recognized, but not in excess of the amount of
cash, in an amount equal to the difference, if any, between (a) the fair
market value of the Acquiror Shares and cash received and (b) the Target
shareholder's adjusted tax basis in the Target Shares surrendered in
exchange therefor pursuant to the Merger. If the receipt of cash payments
has the effect of a distribution of a dividend to a Target Shareholder,
some or all of the gain recognized will be treated as a dividend taxed as
ordinary income. If the exchange does not have the effect of a
distribution of a dividend, all of the gain recognized would be a capital
gain, provided the Target Shares are a capital asset in the hands of the
Target shareholder at the time of the Merger.
5. The aggregate tax basis of the Acquiror Shares received by a
Target shareholder who exchanges Target Shares in the Merger will be the
same as the aggregate tax basis of the Target Shares surrendered in
exchange therefor, decreased by the amount of any cash received by such
Target shareholder which is treated as a redemption rather than a dividend
and increased by the amount of any non-dividend gain recognized by such
Target Shareholder in connection with the Merger.
6. The holding period of the Acquiror Shares received by a Target
shareholder pursuant to the Merger will include the period during which
the Target Shares surrendered therefor were held, provided the Target
Shares are a capital asset in the hands of the Target shareholder at the
time of the Merger.
7. A Target shareholder who receives cash in lieu of a fractional
share interest in Acquiror Shares will recognize gain or loss measured by
the difference between the amount of cash received and the portion of the
adjusted tax basis in the Target Shares allocable to the fractional share
interest. Such gain or loss recognized would generally be a capital gain
or loss, provided the Target Shares are a capital asset in the hands of
the Target shareholder at the time of the merger. However, if the receipt
of cash in lieu of a fractional share interest is essentially equivalent
to a dividend to that Target shareholder, some or all of the gain
recognized will be treated as a dividend taxed as ordinary income.
3
<PAGE> 4
This opinion is expressed as of the date hereof, and we are under no
obligation to supplement or revise our opinion to reflect any changes (a) in
applicable law or (b) in any information, document, corporate record, covenant,
statement, representation, assumption or other matter stated herein which
becomes untrue or incorrect.
Our opinion is limited to the matters expressly addressed in the
seven (7) numbered paragraphs above. No opinion is expressed and none should
be inferred as to any other matter, including, without limitation, whether any
cash payment to any Target shareholder qualifies as a redemption or dividend.
In addition, our opinion does not address transactions effectuated prior to or
after the Merger, whether or not such transactions are in connection with the
Merger.
Very truly yours,
4
<PAGE> 1
EXHIBIT 10.13
FORM OF
VOTING AGREEMENT
VOTING AGREEMENT, dated as of May 17, 1999 (this "Agreement"), between
[SHAREHOLDER] (the "Shareholder") and ARIS Corporation, a Washington corporation
("Acquiror").
WHEREAS, fine.com International Corp., a Washington corporation
("Target"), Acquiror and ARIS Interactive, Inc., a Washington corporation and a
wholly owned subsidiary of Acquiror ("Acquiror Sub"), are contemporaneously
entering into an Agreement and Plan of Merger, dated as of this date (the
"Merger Agreement"), which provides, among other things, for the merger of
Target with and into Acquiror Sub (the "Merger");
WHEREAS, as a condition to their willingness to enter into the Merger
Agreement, Acquiror and Acquiror Sub have requested that the Shareholder make
certain agreements with respect to certain shares of Common Stock, par value
$.01 per share ("Shares"), of Target beneficially owned by him, upon the terms
and subject to the conditions of this Agreement; and
WHEREAS, in order to induce Acquiror and Acquiror Sub to enter into the
Merger Agreement, the Shareholder is willing to make certain agreements with
respect to the Subject Shares (as defined);
NOW, THEREFORE, in consideration of the promises and the mutual covenants
and agreements set forth in this Agreement, the parties agree as follows:
1. Voting Agreements; Proxy.
(a) For so long as this Agreement is in effect, in any meeting of
shareholders of Target, and in any action by consent of the shareholders of
Target, the Shareholder shall vote, or, if applicable, give consents with
respect to, all of the Subject Shares that are held by the Shareholder on the
record date applicable to the meeting or consent (i) in favor of the Merger
Agreement and the Merger contemplated by the Merger Agreement, as the Merger
Agreement may be modified or amended from time to time in a manner not adverse
to the Shareholder and (ii) against any competing Acquisition Proposal (as
defined in the Merger Agreement) or other proposal inconsistent with the Merger
Agreement or which may delay the likelihood of the completion of the Merger. The
Shareholder shall use his best efforts to cast that Shareholder's vote or give
that Shareholder's consent in accordance with the procedures communicated to
that Shareholder by Target relating thereto so that the vote or consent shall be
duly counted for purposes of determining that a quorum is present and for
purposes of recording the results of that vote or consent.
(b) Upon the reasonable written request of Acquiror, in furtherance
of the transactions contemplated in this Agreement and by the Merger Agreement
and in order to secure the performance of the Shareholder's duties under Section
1(a) of this Agreement, the Shareholder shall promptly execute, in accordance
with the provisions of RCW 23B.07.220, and deliver to Acquiror an irrevocable
proxy, substantially in the form attached as Exhibit A, and irrevocably appoint
Acquiror or its designees, with full power of substitution, its attorney and
proxy to vote or, if applicable, to give consent with respect to, all Shares
constituting Subject Shares at the time of the relevant record date with regard
to any of the matters referred to in paragraph (a) above at any meeting of the
shareholders of Target, or in connection with any action by written consent by
the shareholders of Target. The Shareholder acknowledges and agrees that this
proxy, if and when given, shall be coupled with an interest, shall constitute,
among other things, an inducement for Acquiror to enter into the Merger
Agreement, shall be irrevocable and shall not be terminated by operation of law
or otherwise upon the occurrence of any event and that no subsequent proxies
with respect to such Subject Shares shall be given (and if given shall not be
effective); provided, however, that any such proxy shall terminate automatically
and without further action on behalf of the Shareholder upon the termination of
this Agreement.
2. Covenants. For so long as this Agreement is in effect, the Shareholder
agrees not to (i) sell, transfer, pledge, assign, hypothecate, encumber, tender
or otherwise dispose of, or enter into any contract with respect to the sale,
transfer, pledge, assignment, hypothecation, encumbrance, tender or other
disposition of (each such disposition or contract, a "Transfer"), any Subject
Shares or Shares the Shareholder then has the right to acquire, or will have the
right to acquire within 60 days, pursuant to options to purchase Shares granted
to the Shareholder by Target; (ii) grant any proxies with
<PAGE> 2
respect to any shares that then constitute Subject Shares, deposit any of the
Subject Shares into a voting trust or enter into a voting or option agreement
with respect to any of the Subject Shares; (iii) subject to Section 7, directly
or indirectly, solicit, initiate, encourage or otherwise facilitate any
inquiries or the making of any proposal or offer with respect to an Acquisition
Proposal or engage in any negotiation concerning, or provide any confidential
information or data to, or have any discussions with any person relating to, an
Acquisition Proposal; or (iv) take any action which would make any
representation or warranty of the Shareholder in this Agreement untrue or
incorrect or prevent, burden or materially delay the consummation of the
transactions contemplated by this Agreement; provided, however, that nothing in
the foregoing provisions of this Section 3 shall prohibit the Shareholder from
effecting (i) any Transfer of Subject Shares pursuant to any bona fide
charitable gift or by will or applicable laws of descent and distribution, or
for estate planning purposes or (ii) the Transfer of up to _______ Subject
Shares to Blue Note Partners, a Washington general partnership, [Daniel M.
Fine's Voting Agreement to include the following additional language][of up to
50,000 Subject Shares to Timothy J. Carroll and of up to 50,000 Subject Shares
to Tor Taylor d/b/a IntLex,] in each case if the transferee agrees in writing to
be bound by the provisions of this Agreement. As used in this Agreement,
"person" shall have the meaning specified in Sections 3(a)(9) and 13(d)(3) of
the Securities Exchange Act of 1934, as amended.
3. Representations and Warranties of the Shareholder. The Shareholder
represents and warrants to Acquiror that:
(a) Capacity; No Violations. The Shareholder has the legal capacity
to enter into this Agreement and to consummate the transactions contemplated by
this Agreement. This Agreement has been duly executed and delivered by the
Shareholder and constitutes a valid and binding agreement of the Shareholder
enforceable against the Shareholder in accordance with its terms except as such
enforceability may be limited by applicable bankruptcy, insolvency and similar
laws affecting creditors' rights generally and general principles of equity
(whether considered in a proceeding in equity or at law). The execution,
delivery and performance by the Shareholder of this Agreement will not (i)
conflict with, require a consent, waiver or approval under, or result in a
breach or default under, any of the terms of any contract, commitment or other
obligation to which the Shareholder is a party or by which the Shareholder is
bound; (ii) violate any order, writ, injunction, decree or statute, or any law,
rule or regulation applicable to the Shareholder or the Subject Shares; or (iii)
result in the creation of, or impose any obligation on the Shareholder to
create, any Lien upon the Subject Shares that would prevent the Shareholder from
voting the Subject Shares. In this Agreement, "Lien" shall mean any lien,
pledge, security interest, claim, third party right or other encumbrance.
(b) Subject Shares. As of the date of this Agreement, the
Shareholder is the beneficial owner of and has the power to vote or direct the
voting of the Subject Shares free and clear of any Liens that would prevent the
Shareholder from voting such Subject Shares. As of the date of this Agreement,
the Subject Shares are the only shares of any class of capital stock of Target
which the Shareholder has the right, power or authority (sole or shared) to sell
or vote, and, other than options or warrants to purchase Shares held by the
Shareholder as of this date, the Shareholder does not have any right to acquire,
nor is it the beneficial owner of, any other shares of any class of capital
stock of Target or any securities convertible into or exchangeable or
exercisable for any shares of any class of capital stock of Target. The
Shareholder is not a party to any contracts (including proxies, voting trusts or
voting agreements) that would prevent the Shareholder from voting the Subject
Shares.
4. Expenses. Each party to this Agreement shall pay its own expenses
incurred in connection with this Agreement.
5. Specific Performance. The Shareholder acknowledges and agrees that if
he fails to perform any of its obligations under this Agreement, immediate and
irreparable harm or injury would be caused to Acquiror for which money damages
would not be an adequate remedy. In that event, the Shareholder agrees that
Acquiror shall have the right, in addition to any other rights it may have, to
specific performance of this Agreement. Accordingly, if Acquiror should
institute an action or proceeding seeking specific enforcement of the provisions
of this Agreement, the Shareholder hereby waives the claim or defense that
Acquiror has an adequate remedy at law and hereby agrees not to assert in that
action or proceeding the claim or defense that a remedy at law exists. The
Shareholder further agrees to waive any requirements for the securing or posting
of any bond in connection with obtaining any equitable relief.
6. Shareholder Capacity. No person bound by this Agreement who is or
becomes during the term hereof a director or officer of the Company makes any
agreement or understanding herein in his capacity as such director or officer.
<PAGE> 3
The Shareholder signs solely in his capacity as the beneficial owner of [, or
the general partner of a partnership which is the beneficial owner of,] the
Shareholder's Subject Shares and nothing herein shall limit or affect any
actions taken by the Shareholder in his capacity as an officer or director of
Target to the extent specifically permitted by the Merger Agreement. Nothing in
this Agreement shall be deemed to constitute a transfer of the beneficial
ownership of the Subject Shares by the Shareholder.
7. Notices. All notices and other communications given or made pursuant to
this Agreement shall be in writing and shall be deemed to have been duly given
or made as of the date of receipt and shall be delivered personally or mailed by
registered or certified mail (postage prepaid, return receipt requested), sent
by overnight courier or sent by telecopy, to the applicable party at the
following addresses or telecopy numbers (or at any other address or telecopy
number for a party as shall be specified by like notice):
If to Acquiror:
ARIS Corporation
2229 112th Ave. N.E.
Bellevue, Washington 98004
Attention: Bert Sugayan, Esq.
Telecopy: (425) 372-2798
With a copy to:
Dorsey & Whitney LLP
U.S. Bank Centre
1420 Fifth Avenue
Seattle, Washington 98101
Attention: Christopher J. Barry, Esq.
Telecopy: (206) 903-8820
If to the Shareholder:
[SHAREHOLDER ADDRESS]
With a copy to:
Robert Seidel, Esq.
Cairncross & Hempelmann, P.S.
70th Floor Columbia Center
701 Fifth Avenue
Seattle, Washington 98104-7016
8. Parties in Interest. This Agreement shall inure to the benefit of and
be binding upon the parties and their respective successors and assigns;
provided, however, that any successor in interest or assignee shall agree to be
bound by the provisions of this Agreement. Nothing in this Agreement, express or
implied, is intended to confer upon any Person other than Acquiror, the
Shareholder or their successors or assigns, any rights or remedies under, or by
reason, of this Agreement.
9. Entire Agreement; Amendments. This Agreement contains the entire
agreement between the Shareholder and Acquiror with respect to the subject
matter of this Agreement and supersedes all prior and contemporaneous agreements
and understandings, oral or written, with respect to these transactions. This
Agreement may not be changed, amended or modified orally, but may be changed
only by an agreement in writing signed by the party against whom any waiver,
change, amendment, modification or discharge may be sought.
10. Assignment. No party to this Agreement may assign any of its rights or
obligations under this Agreement without the prior written consent of the other
party to this Agreement, except that (a) Acquiror may assign its rights and
obligations under this Agreement to any of its direct or indirect wholly owned
subsidiaries (including Acquiror Sub), but no transfer shall relieve Acquiror of
its obligations under this Agreement if the transferee does not perform its
obligations, and (b) the Shareholder may transfer Subject Shares to the extent
permitted by Section 3 of this Agreement.
<PAGE> 4
11. Headings. The section headings in this Agreement are for convenience
only and shall not affect the construction of this Agreement.
12. Counterparts. This Agreement may be executed in any number of
counterparts, each of which, when executed, shall be deemed to be an original
and all of which together shall constitute one and the same document.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington without giving effect to any
choice or conflict of law provision or rule (whether of the State of Washington
or any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Washington.
14. Termination. This Agreement shall terminate automatically and without
further action on behalf of any party at the earlier of (i) the Effective Time
(as defined in the Merger Agreement) and (ii) the date the Merger Agreement is
terminated pursuant to its terms.
15. Subject Shares. The term "Subject Shares" shall mean the Shares set
forth opposite the Shareholder's name on Schedule A hereto, together with any
Shares of capital stock of Target acquired by the Shareholder after the date
hereof over which the Shareholder has the power to vote or power to direct the
voting.
IN WITNESS WHEREOF, Acquiror and the Shareholder have caused this
Agreement to be duly executed and delivered on the day and year first above
written.
ARIS CORPORATION
By:
------------------------------
Name:
Title:
Shareholder:
- ------------------------------------
- ------------------------------------
(Print Name)
<PAGE> 1
EXHIBIT 10.14
Form of
Employment Agreement
With Daniel M. Fine
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT entered into this __th day of___, 1999 (the
"Effective Date"), between ARIS Corporation (the "Company"), and Daniel M. Fine
(the "Executive").
WHEREAS, the Company desires to employ Executive and to ensure the
continued availability to the Company of the Executive's services, and the
Executive is willing to accept such employment and render such services, all
upon and subject to the terms and conditions contained in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants set forth in this Agreement, and intending to be legally bound, the
Company and the Executive agree as follows:
1. Term of Employment.
(a) Term. The Company hereby employs the Executive, and the
Executive hereby accepts employment with the Company, for a period
commencing on the Effective Date and ending on the eve of the second
anniversary of the Effective Date.
(b) Continuing Effect. Notwithstanding any termination of this
Agreement except for termination under Section 5(c), at the end of the
Term or otherwise, the provisions of Sections 6 and 7 shall remain in
full force and effect and the provisions of Section 7 shall be binding
upon the legal representatives, successors and assigns of the Executive.
2. Duties.
(a) General Duties. The Executive shall serve as Director of
Business Development, Interactive Servicesfor the Company, with duties
and responsibilities that are customary for such position. This position
is not deemed to be an "affiliate" for purposes of reporting
requirements for public companies. The Executive will use his best
efforts to perform his duties and discharge his responsibilities
pursuant to this Agreement competently, carefully and faithfully. In
determining whether or not the Executive has used his best efforts
hereunder, the Executive's and the Company's delegation of authority and
all surrounding circumstances shall be taken into account and the best
efforts of the Executive shall not be judged solely on the Company's
earnings or other results of the Executive's performance.
(b) Devotion of Time. Subject to the last sentence of this
Section 2(b), the Executive shall devote all of his time, attention and
energies during normal business hours (exclusive of periods of sickness
and disability and of such normal holiday and vacation periods as have
been established by the Company) to the affairs of the Company. The
Executive shall not enter the employ of or serve as a consultant to, or
in any way perform any services with or without compensation to, any
other persons, business or organization without the prior consent of the
President and Chief Executive Officer of the Company; provided, that the
Executive shall be permitted to devote a limited amount of his time,
without compensation, to professional, charitable or similar
organizations.
<PAGE> 2
3. Compensation and Expenses.
(a) Signing Bonus. Executive shall be entitled to a $100,000
signing bonus as of the Effective Date of this Agreement
(b) Salary. For the services of the Executive to be rendered
under this Agreement, the Company shall pay the Executive an annual
salary of $150,000.
(c) Expenses. In addition to any compensation received pursuant
to Section 3, the Company will reimburse or advance funds to the
Executive for all reasonable travel, entertainment and miscellaneous
expenses incurred in connection with the performance of his duties under
this Agreement, provided that the Executive properly accounts for such
expenses to the Company in accordance with the Company's practices. Such
reimbursement or advances will be made in accordance with policies and
procedures of the Company in effect from time to time relating to
reimbursement of or advances to executive officers.
(d) Stay Bonus. As an incentive for Executive to remain in the
employment of the Company, Executive shall be entitled to a stay bonus
of up to $125,000, payable as follows:
(i) Seven (7) quarterly payments of $11,904.76, payable on
the first business day of each calendar quarter, the first such payment
being due and payable January 3, 2000, and the last such payment being
due and payable on September 3, 2001, provided in each instance that
Executive has remained in the continuous employment of Company from the
date hereof through the date that each such payment becomes due and
payable; and
(ii) $41,666.67 shall be due and payable on January 2,
2002, provided that Executive has remained in the continuous employment
of the Company from the date hereof through January 2, 2002.
4. Benefits.
(a) Vacation; Sick Leave. For each 12-month period during the
Term, the Executive will be entitled to three weeks of vacation without
loss of compensation or other benefits to which he is entitled under
this Agreement, to be taken at such times as the Executive may select
and the affairs of the Company may permit. Executive shall be entitled
to sick leave in accordance with Company policy.
(b) Employee Benefit Programs. The Executive is entitled to
participate in any pension, 401(k), insurance or other employee benefit
plan that is maintained by the Company for its employees.
5. Termination.
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<PAGE> 3
(a) Termination for Cause. The Company may terminate the
Executive's employment pursuant to the terms of this Agreement at any
time for cause by giving written notice of termination. Such termination
will become effective upon the giving of such notice. Upon any such
termination for cause, the Executive shall have no right to
compensation, bonus or reimbursement under Section 3, or to participate
in any employee benefit programs under Section 4, except as provided by
law, for any period subsequent to the effective date of termination. For
purposes of this Section 5(a), "cause" shall mean: (i) the Executive is
convicted of a felony which is related to the Executive's employment or
the business of the Company; (ii) the Executive, in carrying out his
duties hereunder, has been found in a civil action to have committed
gross negligence or intentional misconduct resulting in either case in
material harm to the Company; (iii) the Executive materially breaches
any provision of this Agreement, is terminated for conduct which
violates any policy where termination of employment is a stated
consequence underto the Company's Employee Handbook as may be amended
from time to time, provided that all progressive discipline procedures
set forth in such Employee Handbook have been complied with; or (iv)
violates any statutory or common law duty of loyalty to the Company.
(b) Termination Without Cause. In the event that the Company
terminates Executive's employment without cause, Executive shall be
entitled to a lump-sum payment equal to: (i) compensation equal to
Executive's then current base salary for one year, or through the
remaining term hereof, whichever is less; and (ii) any payments to
Executive under Section 3(d) hereof during the lesser of one year or the
remaining term hereof shall accelerate and become immediately due and
payable to Executive as of the date of termination.
(c) Termination by Executive for Good Reason. In the event that
Executive terminates employment during the term hereof for good reason,
Executive shall be entitled to a lump-sum payment equal to that set
forth in paragraph 5(b) above. For purposes of this paragraph 5(c),
"good reason" shall mean: (i) there is a material reduction in the
character and scope of Executive's duties, level of responsibility or
working conditions; (ii) Executive's salary set forth in paragraph 4(b)
is reduced; (iii) the Company breaches any material term of this
Agreement and such breach is not cured by the Company within 30 days
after receiving notice of such breach from Executive; or (iv) Executive
is required to be based other than in the Seattle metropolitan area.
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<PAGE> 4
6. Non-Competition Agreement.
(a) Competition with the Company. Until termination of his
employment and for a period of 24 months commencing on the date of
termination, the Executive, directly or indirectly, in association with
or as a stockholder, director, officer, consultant, employee, partner,
joint venturer, member or otherwise of or through any person, firm,
corporation, partnership, association or other entity, will not compete
with the Company or any of its affiliates in the offer, sale or
marketing of products or services that are competitive with the products
or services offered by the Company's subsidiary, ARIS Interactive,
Inc.(the "Prohibited Business"), within any metropolitan area in the
United States or elsewhere in which the Company is then engaged in the
offer and sale of competitive products or services; provided, however,
the foregoing shall not prevent Executive from accepting employment with
an enterprise engaged in two or more lines of business, one of which is
the same as the Prohibited Business if Executive's employment is totally
unrelated to the Prohibited Business; provided, further, the foregoing
shall not prohibit Executive from owning up to 5% of the securities of
any publicly-traded enterprise provided Executive is not an employee,
director, officer, consultant to such enterprise or otherwise reimbursed
for services rendered to such enterprise.
(b) Solicitation of Customers and Employees. During the periods
in which the provisions of Section 6(a) shall be in effect, the
Executive, directly or indirectly, will not solicit or cause others to
solicit or otherwise interfere with the Company's relationship with any
employee of the Company or to solicit or cause others to solicit
business from any Customer (defined below) for the offer, sale or
marketing of products or services that are competitive with the products
or services offered by the Company on behalf of any enterprise or
business other than the Company, refer such business from any Customer
to any enterprise or business other than the Compny or receive
commissions based on sales or otherwise relating to such business from
any Customer, or any enterprise or business other than the Company. For
purposes of this Section 6(b), the term "Customer" means any person,
firm, corporation, partnership, association or other entity to which the
Company or any of its affiliates sold or provided goods or services
during the 24-month period prior to the time at which any determination
is required to be made as to whether any such person, firm, corporation,
partnership, association or other entity is a Customer.
7. Non-Disclosure of Confidential Information.
(a) Confidential Information. Confidential Information includes,
but is not limited to, trade secrets, processes, policies, procedures,
techniques, designs, drawings, know-how, show-how, technical
information, specifications, computer software (including, but not
limited to, computer programs developed, improved or modified by the
Company for or on behalf of the Company for use in the Company's
business, and source code), information and data relating to the
development, research, testing, manufacturing, costs, marketing and uses
of the Products (as defined herein), the Company's budgets and strategic
plans, and the identity and
4
<PAGE> 5
special needs of customers for the Products, data-bases, data, all
technology relating to the Company's software, consulting and training
businesses, systems, methods of operation, customer lists, customer
information, solicitation leads, marketing and advertising materials,
methods and manuals and forms, all of which pertain to the activities or
operations of the Company, names, home addresses and all telephone
numbers and e-mail addresses of the Company's employees and former
employees. Confidential Information also includes, without limitation,
Confidential Information received from the Company's subsidiaries and
affiliates. For purposes of this Agreement, the following will not
constitute Confidential Information (i) information which is or
subsequently becomes generally available to the public through no act of
the Employee, (ii) information set forth in the written records of the
Employee prior to disclosure to the Employee by or on behalf of the
Company, and (iii) information which is lawfully obtained by the
Employee in writing from a third party (excluding any affiliates of the
Employee) who did not acquire such confidential information or trade
secret, directly or indirectly, from Employee or the Company. As used
herein, the term "Products" shall include all computer software
researched, developed, tested, manufactured, sold, licensed, leased or
otherwise distributed or put in to use by the Company, its subsidiaries,
and affiliates, together with all services provided by the Company, its
subsidiaries and affiliates during the term of Employee's employment.
(b) Legitimate Business Interests. The Employee recognizes that
the Company has legitimate business interests to protect and as a
consequence, the Employee agrees to the restrictions contained in this
Agreement because they further the Company's legitimate business
interests. These legitimate business interests include, but are not
limited to (i) trade secrets as defined in Section 7(b), (ii) valuable
confidential business or professional information that otherwise does
not qualify as trade secrets including all Confidential Information;
(iii) substantial relationships with specific prospective or existing
customers or clients; (iv) customer or client goodwill associated with
the Company's business; and (v) specialized training relating to the
Company's technology, methods and procedures.
5
<PAGE> 6
(c) Confidentiality. For a period of five years, the Confidential
Information shall be held by the Employee in the strictest confidence
and shall not, without the prior written consent of the Company, be
disclosed to any person other than in connection with Employee's
employment by the Company. The Employee further acknowledges that such
Confidential Information as is acquired and used by the Company or its
affiliates is a special, valuable and unique asset. The Employee shall
exercise all due and diligence precautions to protect the integrity of
the Company's Confidential Information and to keep it confidential
whether it is in written form, on electronic media or oral. The Employee
shall not copy any Confidential Information except to the extent
necessary to his employment nor remove any Confidential Information or
copies thereof from the Company's premises except to the extent
necessary to his employment and then only with the authorization of an
officer of the Company. All records, files, materials and other
Confidential Information obtained by the Employee in the course of his
employment with the Company are confidential and proprietary and shall
remain the exclusive property of the Company or its customers, as the
case may be. The Employee shall not, except in connection with and as
required by his performance of his duties under this Agreement, for any
reason use for his own benefit or the benefit of any person or entity
with which he may be associated or disclose any such Confidential
Information to any person, firm, corporation, association or other
entity for any reason or purpose whatsoever without the prior written
consent of an executive officer of the Company (excluding the Employee,
if applicable).
8. Equitable Relief.
(a) The Company and the Executive recognize that the services to
be rendered under this Agreement by the Executive are special, unique
and of extraordinary character, and that in the event of the breach by
the Executive of the terms and conditions of this Agreement or if the
Executive, without the prior consent of the board of directors of the
Company, shall leave his employment for any reason and take any action
in violation of Section 6 or Section 7, the Company will be entitled to
institute and prosecute proceedings in any court of competent
jurisdiction referred to in Section 8(b) below, to enjoin the Executive
from breaching the provisions of Section 6 or Section 7. In such action,
the Company will not be required to plead or prove irreparable harm or
lack of an adequate remedy at law. Nothing contained in this Section 8
shall be construed to prevent the Company from seeking such other remedy
in arbitration in case of any breach of this Agreement by the Executive,
as the Company may elect.
(b) Any proceeding or action must be commenced in Seattle, King
County, Washington, where the Company maintains its principal offices.
The Executive and the Company irrevocably and unconditionally submit to
the exclusive jurisdiction of such courts and agree to take any and all
future action necessary to submit to the jurisdiction of such courts.
The Executive and the Company irrevocably waive any objection that they
now have or hereafter irrevocably waive any objection that they now have
or hereafter may have to the laying of venue of any suit, action or
proceeding brought in any such court and further irrevocably waive any
claim that any such suit, action or proceeding brought in any such court
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<PAGE> 7
has been brought in an inconvenient forum. Final judgment against the
Executive or the Company in any such suit shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment, a certified or
true copy of which shall be conclusive evidence of the fact and the
amount of any liability of the Executive or the Company therein
described, or by appropriate proceedings under any applicable treaty or
otherwise.
9. Assignability. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of the Company, provided that such successor or assign shall acquire all
or substantially all of the securities or assets and business of the Company.
The Executive's obligations hereunder may not be assigned or alienated and any
attempt to do so by the Executive will be void.
10. Severability.
(a) The Executive expressly agrees that the character, duration
and geographical scope of the provisions set forth in this Agreement are
reasonable in light of the circumstances as they exist on the date
hereof. Should a decision, however, be made at a later date by a court
of competent jurisdiction that the character, duration or geographical
scope of such provisions is unreasonable, then it is the intention and
the agreement of the Executive and the Company that this Agreement shall
be construed by the court in such a manner as to impose only those
restrictions on the Executive's conduct that are reasonable in the light
of the circumstances and as are necessary to assure to the Company the
benefits of this Agreement. If, in any judicial proceeding, a court
shall refuse to enforce all of the separate covenants deemed included
herein because taken together they are more extensive than necessary to
assure to the Company the intended benefits of this Agreement, it is
expressly understood and agreed by the parties hereto that the
provisions of this Agreement that, if eliminated, would permit the
remaining separate provisions to be enforced in such proceeding shall be
deemed eliminated, for the purposes of such proceeding, from this
Agreement.
(b) If any provision of this Agreement otherwise is deemed to be
invalid or unenforceable or is prohibited by the laws of the state or
jurisdiction where it is to be performed, this Agreement shall be
considered divisible as to such provision and such provision shall be
inoperative in such state or jurisdiction and shall not be part of the
consideration moving from either of the parties to the other. The
remaining provisions of this Agreement shall be valid and binding and of
like effect as though such provision were not included.
11. Notices and Addresses. All notices, offers, acceptance and any other
acts under this Agreement (except payment) shall be in writing, and shall be
sufficiently given if delivered to the addressees in person, by Federal Express
or similar receipted delivery, by facsimile delivery or, if mailed, postage
prepaid, by certified mail, return receipt requested, as follows:
To the Company: ARIS Corporation
Attn: President
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<PAGE> 8
2229 112th Street NE
Bellevue, WA 98004
To the Executive: Daniel M. Fine
23619 104th Avenue West
Edmonds, WA 98020
or to such other address as either of them, by notice to the other may designate
from time to time. The transmission confirmation receipt from the sender's
facsimile machine shall be conclusive evidence of successful facsimile delivery.
Time shall be counted to, or from, as the case may be, the delivery in person or
by mailing.
12. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. The execution of this
Agreement may be by actual or facsimile signature.
13. Arbitration. Any controversy, dispute or claim arising out of or
relating to this Agreement, or its interpretation, application, implementation,
breach or enforcement which the parties are unable to resolve by mutual
agreement, shall be settled by submission by either party of the controversy,
claim or dispute to binding arbitration in King County, Washington (unless the
parties agree in writing to a different location), before a single arbitrator in
accordance with the rules of the American Arbitration Association then in
effect. In any such arbitration proceeding the parties agree to provide all
discovery deemed necessary by the arbitrator. The decision and award made by the
arbitrator shall be final, binding and conclusive on all parties hereto for all
purposes, and judgment may be entered thereon in any court having jurisdiction
thereof.
14. Attorney's Fees. In the event that there is any controversy or claim
arising out of or relating to this Agreement, or to the interpretation, breach
or enforcement thereof, and any action or proceeding is commenced to enforce the
provisions of this Agreement, the prevailing party shall be entitled to a
reasonable attorney's fee, costs and expenses.
15. Governing Law. This Agreement and any dispute, disagreement, or
issue of construction or interpretation arising hereunder whether relating to
its execution, its validity, the obligations provided therein or performance
shall be governed or interpreted according to the internal laws of the State of
Washington without regard to choice of law considerations.
16. Entire Agreement. This Agreement constitutes the entire Agreement
between the parties and supersedes all prior oral and written agreements between
the parties hereto with respect to the subject matter hereof. Neither this
Agreement nor any provision hereof may be changed, waived, discharged or
terminated orally, except by a statement in writing signed by the party or
parties against which enforcement or the change, waiver discharge or termination
is sought.
17. Additional Documents. The parties hereto shall execute such
additional instruments as
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<PAGE> 9
may be reasonably required by their counsel in order to carry out the purpose
and intent of this Agreement and to fulfill the obligations of the parties
hereunder.
18. Section and Paragraph Headings. The section and paragraph headings
in this Agreement are for reference purposes only and shall not affect the
meaning or interpretation of this Agreement.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date and year first above written.
ARIS CORPORATION
By:______________________________________
Paul Song, President and CEO
EXECUTIVE
By:______________________________________
Daniel M. Fine
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
(WITH PRINCIPAL OFFICE LOCATION)
ARIS Software, Inc.
Incorporated under the laws of Washington
2229 - 112th Avenue NE
Bellevue, WA 98004
ARIS Interactive, Inc.
Incorporated under the laws of Washington
2229 - 112th Avenue NE
Bellevue, WA 98004
ARIS Information Technology Training, Inc.
Incorporated under the laws of Washington
2229 - 112th Avenue NE
Bellevue, WA 98004
ARIS (International), L.L.C.
A limited liability company organized under the laws of Washington
2229 - 112th Avenue NE
Bellevue, WA 98004
ARIS UK Limited
(formerly Oxford Computer Group Limited)
Incorporated under the laws of England and Wales
Wolsey Hall
66 Banbury Road
Oxford, England OX2 6PR
ARIS Computer Services GmbH.
A German company with limited liability (Gesellschaft mit beschrankter Haftung)
Hebelstrase 22d
Heidelberg, Germany 69115
<PAGE> 1
EXHIBIT 23.1
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, 1999, 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, 1998 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 PricewaterhouseCoopers LLP under the headings "Experts" and
"Selected Financial Data" in such Prospectus. However, it should be noted that
PricewaterhouseCoopers LLP has not prepared or certified such "Selected
Financial Data."
PricewaterhouseCoopers LLP
Seattle, Washington
August 3, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form S-4 of ARIS Corporation of our report dated 5 May
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 Financial Data" in such Prospectus.
However, it should be noted that BDO Stoy Hayward has not prepared or certified
such "Selected Financial Data" nor do we take any responsibility for the
accuracy or completeness thereof.
BDO Stoy Hayward
Chartered Accountants
London, England
24 June 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated April 2, 1999, except for Note 5 as to which the
date is April 22, 1999, included in the Proxy Statement of fine.com
International Corp. that is made a part of the Registration Statement (Form S-4)
and Prospectus of ARIS Corporation, for the registration of shares of
its common stock.
ERNST & YOUNG LLP
Seattle, Washington
August 2, 1999
<PAGE> 1
EXHIBIT 23.4
Board of Directors
fine.com International Corp.
Members of the Board:
We hereby consent to the inclusion of our opinion letter to the Board of
Directors of fine.com International Corp. as Annex B to the proxy
statement/prospectus constituting a part of the Registration Statement on Form
S-4 relating to the proposed merger transaction involving fine.com and ARIS
Corporation and references thereto in such proxy statement/prospectus under the
captions "SUMMARY - Opinion of fine.com's Financial Advisor", "THE MERGER -
Background of the Merger"; THE MERGER - fine.com's Reasons for the Merger", and
"THE MERGER - Opinion of Financial Advisor to fine.com". In giving such consent,
we do not admit that we come within the category of persons whose consent is
required under, and we do not admit that we are "experts" for purposes of, the
Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder.
/s/ Ragen MacKenzie Incorporated
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 6,901
<SECURITIES> 2,002
<RECEIVABLES> 28,603
<ALLOWANCES> (1,215)
<INVENTORY> 0
<CURRENT-ASSETS> 41,092
<PP&E> 15,623
<DEPRECIATION> 0
<TOTAL-ASSETS> 67,155
<CURRENT-LIABILITIES> 11,727
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 55,141
<TOTAL-LIABILITY-AND-EQUITY> 67,155
<SALES> 0
<TOTAL-REVENUES> 60,058
<CGS> 29,936
<TOTAL-COSTS> 56,671
<OTHER-EXPENSES> (356)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,743
<INCOME-TAX> 1,498
<INCOME-CONTINUING> 2,245
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,245
<EPS-BASIC> 0.20
<EPS-DILUTED> 0.20
</TABLE>
<PAGE> 1
EXHIBIT 99.1
FINE.COM INTERNATIONAL CORP.
_____________, 1999
Dear Shareholder:
You are cordially invited to attend a special meeting of shareholders of
fine.com International Corp., to be held at the Century Square Plaza Building,
16th Floor, Room 1625, located at 1501 Fourth Avenue, Seattle, Washington, on
Tuesday, August 31, 1999, at 8:00 a.m., local time. At this meeting, you will be
asked to consider a proposal to approve the Agreement and Plan of Merger dated
as of May 17, 1999 among fine.com, ARIS Corporation, ARIS Interactive, Inc., a
wholly owned subsidiary of ARIS, Daniel M. Fine, Frank Hadam and Herbert L.
Fine, by which fine.com will be merged with and into ARIS Interactive. The
attached proxy statement/prospectus describes the proposed merger and the merger
agreement in detail and provides additional pertinent information about fine.com
and ARIS. YOU ARE URGED TO READ CAREFULLY THE FULL TEXT OF THE PROXY
STATEMENT/PROSPECTUS AND ITS ANNEXES.
If the merger agreement and the merger are approved by the shareholders of
fine.com:
- fine.com will merge with and into ARIS Interactive, and ARIS
Interactive will be the surviving corporation;
- each outstanding share of fine.com common stock will be converted into
the right to receive shares of ARIS common stock or a combination of
shares of ARIS common stock and cash (the "Merger Consideration") as
described in the proxy statement/prospectus;
- each outstanding fine.com warrant to purchase one share of fine.com
common stock will be converted into the right to purchase the Merger
Consideration; and
- each outstanding fine.com option to purchase fine.com common stock will
be converted into one ARIS option to purchase shares of ARIS common
stock based on the exchange ratio in computing the Merger
Consideration.
fine.com has retained the investment banking firm of Ragen MacKenzie
Incorporated as its financial advisor in connection with the merger. Ragen
MacKenzie has rendered its opinion, a copy of which is attached as Annex B 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
fine.com shareholders pursuant to the merger agreement is fair, from a financial
point of view, to the shareholders of fine.com. THE BOARD OF DIRECTORS OF
FINE.COM HAS DETERMINED THAT THE TERMS OF THE MERGER AGREEMENT AND THE PROPOSED
MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, FINE.COM AND ITS SHAREHOLDERS
AND UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER
AGREEMENT AND THE MERGER.
FOR RISKS IN CONNECTION WITH THE MERGER, SEE "RISK FACTORS" BEGINNING ON
PAGE - .
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,
Daniel M. Fine
Chairman and Chief Executive Officer
<PAGE> 1
EXHIBIT 99.2
FINE.COM INTERNATIONAL CORP.
1525 Fourth Avenue, Suite 800
Seattle, Washington 98101-2915
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
ON TUESDAY, AUGUST 31, 1999
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of fine.com
International Corp. will be held at the Century Square Plaza Building, 16th
Floor, Room 1625, located at 1501 Fourth Avenue, Seattle, Washington, on
Tuesday, August 31, 1999, at 8:00 a.m., local time, for the following purposes:
(1) To consider and vote upon approval of the Agreement and Plan of
Merger dated as of May 17, 1999 among fine.com, ARIS Corporation,
ARIS Interactive, Inc., a wholly owned subsidiary of ARIS, Daniel M.
Fine, Frank Hadam and Herbert L. Fine, pursuant to which fine.com
will be merged into ARIS Interactive. Pursuant to the merger
agreement:
- fine.com will merge with and into ARIS Interactive, and ARIS
Interactive will be the surviving corporation;
- each outstanding share of fine.com common stock will be converted
into the right to receive shares of ARIS common stock or a
combination of shares of ARIS common stock and cash as described
in the proxy statement/prospectus that accompanies this notice;
- each outstanding fine.com warrant to purchase one share of
fine.com common stock will be converted into the right to
purchase the consideration to be paid for each share of fine.com
common stock in the merger; and
- each outstanding fine.com option to purchase fine.com common
stock will be converted into one ARIS option to purchase shares
of ARIS common stock, based on the exchange ratio in computing
the Merger Consideration.
The complete text of the merger agreement is attached as Annex 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 of the special
meeting.
Pursuant to the bylaws of fine.com, the board of directors has fixed the
close of business on July 30, 1999 as the record date for the determination of
the shareholders entitled to notice of and to vote at the special meeting or any
adjournment of the special meeting. Shareholders of fine.com are entitled to
assert statutory dissenters' rights in the merger, as described in more detail
in the accompanying proxy statement/prospectus.
By Order of the Board of Directors,
Timothy J. Carroll
Secretary
Seattle, Washington
August ___, 1999
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES THAT YOU OWN. EACH
SHAREHOLDER, WHETHER OR NOT YOU PLAN 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 SHAREHOLDER MAY BE REVOKED AT
ANY TIME BEFORE IT IS EXERCISED. ANY SHAREHOLDER 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 SHAREHOLDER 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> 1
Exhibit 99.3
FORM OF
FINE.COM INTERNATIONAL CORP.
PROXY FOR SPECIAL MEETING OF SHAREHOLDERS
AUGUST 31, 1999
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Daniel M. Fine and Timothy J. Carroll, and
each or both of them, proxies, with full power of substitution to vote all
shares of stock of fine.com International Corp. which the undersigned is
entitled to vote at the Special Meeting of Shareholders of fine.com
International Corp., to be held on Tuesday, August 31, 1999, at 8:00 a.m., at
the Century Square Plaza Building, 16th Floor, Room 1625, located at 1501 Fourth
Avenue, Seattle, Washington and at any adjournment or postponement thereof, upon
matters set forth in the Notice of Special Meeting of Shareholders and Proxy
Statement/Prospectus dated August 10, 1999, a copy of which has been received by
the undersigned. The proxies are further authorized to vote, in their
discretion, upon such other business as may properly come before the meeting or
any adjournment or postponement thereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED, OR, IF NO
DIRECTION IS GIVEN, WILL BE VOTED FOR THE MERGER AGREEMENT AND THE MERGER AS
DESCRIBED IN THE PROPOSAL.
Please mark your votes as indicated in this example. [X]
1. To consider and vote upon approval of the Agreement and Plan of
Merger dated as of May 17, 1999 and amended and restated as of
August 5, 1999, among fine.com, ARIS Corporation, ARIS Interactive,
Inc., a wholly owned subsidiary of ARIS, Daniel M. Fine, Frank Hadam
and Herbert L. Fine, pursuant to which fine.com will be merged with
and into ARIS Interactive.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. To transact such other business as may properly come before the
meeting and any adjournment or postponement thereof.
Date: , 1999
------------
Signature(s) of Shareholder(s)
----------------------------------------------
Print Name(s)
(If signing as attorney, executor, trustee or
guardian, please give your full title as such. If
shares are held jointly, each holder should sign.)
[ ] Check this box if you plan on attending the
Special Meeting of Shareholders in person.
