SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (date of earliest event reported): August 31, 1999
ARIS CORPORATION
(Exact Name of Registrant as Specified in Charter)
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Washington 0-22649 91-1497147
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(State or Other (Commission File Number) (IRS Employer
Jurisdiction of Identification No.)
Incorporation)
2229 - 112th Avenue N.E., Bellevue, Washington 98004
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(Address of Principal Executive Offices) (Zip Code)
(425) 372-2747
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Registrant's telephone number, including area code
None
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(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
Item 2. Acquisition or Disposition of Assets.
On August 31, 1999, ARIS Corporation ("ARIS") acquired all of the
outstanding stock of fine.com International Corp., a Washington corporation
("fine.com"), pursuant to an Agreement and Plan of Merger dated as of May 17,
1999 and amended and restated as of August 5, 1999 (the "Merger Agreement"),
among ARIS, ARIS Interactive, Inc., a Washington corporation and a wholly owned
subsidiary of ARIS ("ARIS Interactive"), fine.com, Daniel M. Fine, Frank Hadam
and Herbert L. Fine. ARIS will account for its acquisition of fine.com under the
purchase method of accounting.
Pursuant to the terms of the Merger Agreement, fine.com was merged with and
into ARIS Interactive and each share of fine.com common stock was converted into
the right to receive 0.5460 shares of ARIS common stock and $1.115 in cash. No
fractional shares of ARIS common stock will be issued in connection with the
merger, but in lieu thereof each holder of fine.com common stock who would
otherwise be entitled to receive a fraction of a share of ARIS common stock,
after aggregating all shares of ARIS common stock to be received by such holder,
will receive from ARIS an amount of cash equal to the average closing price of
one share of ARIS common stock for the ten trading days ending on August 27,
1999 multiplied by the fraction of a share of ARIS common stock to which such
holder would otherwise be entitled.
By virtue of the merger and without the need for any further action on the
part of any holders thereof, each issued and outstanding option to purchase
shares of fine.com common stock outstanding immediately prior to the effective
time of the merger (a "fine.com Option") was assumed by ARIS and converted into
an option to purchase that number of shares of ARIS common stock determined by
multiplying the number of shares of fine.com common stock subject to such
fine.com Option immediately prior to the effective time of the merger by 0.7231,
subject to rounding down to eliminate fractional options, at an exercise price
per share of ARIS common stock equal to the exercise price per share of fine.com
common stock that was in effect for such fine.com Option immediately prior to
the effective time divided by 0.7231, subject to rounding up to the nearest
whole cent.
Pursuant to these exchange ratios, in the merger a total of 1,470,574
shares of ARIS common stock were issued and cash in the amount of approximately
$3.0 million was paid in exchange for all the issued and outstanding shares of
fine.com common stock and options to purchase a total of 263,235 shares of ARIS
common stock were assumed by ARIS in exchange for all issued and outstanding
fine.com Options. The terms of the Merger Agreement were determined on the basis
of arm's-length negotiations. Prior to the execution the Merger Agreement,
neither ARIS nor any of its affiliates nor any director or officer of ARIS or
any associate of any such director or officer, had any material relationship
with fine.com.
<PAGE>
In connection with the merger, Daniel M. Fine and Timothy J. Carroll
entered into employment and/or noncompetition agreements with ARIS. Messrs. Fine
and Carroll were officers of fine.com immediately prior to the effective time of
the merger.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
The financial statements of fine.com are incorporated by reference to
pages F-30 through F-50 of the proxy statement/prospectus contained in ARIS'
registration statement on Form S-4 (Registration No. 333-84595).
(b) Pro Forma Financial Information.
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.
<PAGE>
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.
<PAGE>
ARIS CORPORATION
UNAUDITED PRO FORMA
COMBINED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
ARIS FINE.COM
JUNE 30, APRIL 30, PRO FORMA COMBINED
1999 1999 ADJUSTMENTS NOTES PRO FORMA
-------- --------- ----------- ----- ---------
<S> <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
<PAGE>
ARIS CORPORATION
UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
ARIS FINE.COM
YEAR ENDED YEAR ENDED
DECEMBER 31, JANUARY 31, PRO FORMA COMBINED
1998 1999 ADJUSTMENTS NOTES PRO FORMA
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<S> <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
<PAGE>
ARIS CORPORATION
UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
ARIS FINE.COM
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, APRIL 30, PRO FORMA COMBINED
1999 1999 ADJUSTMENTS NOTES PRO FORMA
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<S> <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
<PAGE>
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):
Consideration:
Cash................................................ $ 3,000
Value of common stock............................... 9,250
-------
12,250
Transaction costs................................... 570
Exchange of stock options........................... 479
-------
$13,299
=======
The cost allocated to the assets and liabilities at the date of the
acquisition is as follows (in thousands):
<TABLE>
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>
<PAGE>
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.
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.
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.
(c) Exhibits.
2.1 Agreement and Plan of Merger dated as of May 17, 1999 and
amended and restated as of August 5, 1999 among ARIS
Corporation, ARIS Interactive, Inc., fine.com International
Corp., Daniel M. Fine, Frank Hadam and Herbert L. Fine
(incorporated by reference to Exhibit 2.4 to ARIS'
registration statement on Form S-4 (Registration No.
333-84595))
23.1 Consent of Ernst & Young LLP, independent auditors
99.1 Financial statements of fine.com International Corp.
(incorporated by reference to pages F-30 through F-50 of the
proxy statement/prospectus contained in ARIS' registration
statement on Form S-4 (Registration No. 333-84595))
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ARIS CORPORATION
By: /s/ Paul Y. Song
---------------------------------------
Paul Y. Song
President and Chief Executive Officer
Dated: September 14, 1999
<PAGE>
EXHIBIT INDEX
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Exhibit Number Description
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2.1 Agreement and Plan of Merger dated as of May 17, 1999 and
amended and restated as of August 5, 1999 among ARIS
Corporation, ARIS Interactive, Inc., fine.com International
Corp., Daniel M. Fine, Frank Hadam and Herbert L. Fine
(incorporated by reference to Exhibit 2.4 to ARIS'
registration statement on Form S-4 (Registration No.
333-84595))
23.1 Consent of Ernst & Young LLP, independent auditors
99.1 Financial statements of fine.com International Corp.
(incorporated by reference to pages F-30 through F-50 of the
proxy statement/prospectus contained in ARIS' registration
statement on Form S-4 (Registration No. 333-84595))
EXHIBIT 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-40923 and Form S-8 No. 333-68199) pertaining to the ARIS
Corporation 1995 Stock Option Plan and the ARIS Corporation 1997 Stock Option
Plan and the Registration Statement (Form S-8 No. 333-40921) pertaining to the
ARIS Corporation 1998 Employee Stock Purchase Plan, of our report with respect
to the consolidated financial statements of fine.com International Corp. dated
April 2, 1999, except for Note 5 as to which the date is April 22, 1999, which
is included in the Proxy Statement of fine.com International Corp. that is made
a part of the Registration Statement (Form S-4 No. 333-84595) and Prospectus of
ARIS Corporation, for the registration of 1,475,000 shares of its common stock.
/s/ ERNST & YOUNG LLP
Seattle, Washington
September 14, 1999
