<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 9, 1998
REGISTRATION NO. 333-53939
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SOFTWORKS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7372 52-1092916
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
5845 RICHMOND HIGHWAY, SUITE 400
ALEXANDRIA, VIRGINIA 22303
(703) 317-2424
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JUDY G. CARTER
CHIEF EXECUTIVE OFFICER
SOFTWORKS, INC.
5845 RICHMOND HIGHWAY, SUITE 400
ALEXANDRIA, VIRGINIA 22303
(703) 317-2424
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
DAVID H. LIEBERMAN, ESQ. IRA A. GREENSTEIN, ESQ.
BLAU, KRAMER, WACTLAR & LIEBERMAN, P. C. MORRISON & FOERSTER LLP
100 JERICHO QUADRANGLE, SUITE 225 1290 AVENUE OF THE AMERICAS
JERICHO, NEW YORK 11753 NEW YORK, NEW YORK 10104
TEL: (516) 822-4820 TEL: (212) 468-8000
FAX: (516) 822-4824 FAX: (212) 468-7900
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please 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, please 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(c)
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
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TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, par value $.001 per share............ $48,300,000 $14,249(2)
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) under the Securities Act.
(2) $14,234 previously paid.
------------------------
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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION, OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 9, 1998
PROSPECTUS
4,200,000 Shares
[SOFTWORKS LOGO] SOFTWORKS
Common Stock
Of the 4,200,000 shares of Common Stock offered hereby, 1,700,000 are being
sold by SOFTWORKS, Inc. ("SOFTWORKS" or the "Company"), and 2,500,000 are being
sold by certain selling stockholders (the "Selling Stockholders"). The Company
will not receive any of the proceeds from the sale of the shares being sold by
the Selling Stockholders.
Prior to this offering, there has been no public market for the Common
Stock. It is currently anticipated that the initial public offering price will
be between $8.00 and $10.00 per share. The Common Stock has been approved for
quotation on the Nasdaq National Market under the symbol "SWRX."
SEE "RISK FACTORS" BEGINNING ON PAGE 5 FOR CERTAIN CONSIDERATIONS
RELEVANT TO AN INVESTMENT IN COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
-------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Per Share........................... $ $ $ $
Total(3)............................ $ $ $ $
</TABLE>
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(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(2) Before deducting offering expenses payable by the Company estimated at
$750,000.
(3) One of the Selling Stockholders has granted the Underwriters a 30-day option
to purchase up to an additional 630,000 shares of Common Stock solely to
cover over-allotments, if any. If such option is exercised in full, the
total Price to Public, Underwriting Discounts and Commissions, Proceeds to
Company and Proceeds to Selling Stockholders will be $ , $ ,
$ and $ , respectively. See "Underwriting."
The shares of Common Stock offered hereby are offered, subject to prior
sale, when, as and if accepted by the several Underwriters and subject to
approval of certain legal matters by Morrison & Foerster LLP, counsel for the
Underwriters. It is expected that certificates representing the shares of Common
Stock will be available for delivery in New York, New York, on or about
, 1998.
SoundView Financial Group, Inc. Raymond James & Associates, Inc.
, 1998
<PAGE> 3
"SOFTWORKS
Manages the Process,
Not Just the Platform"
"TRADITIONAL APPROACH "SOFTWORKS' Process Approach to
to Multi-Platform Systems Management" Systems Management"
A picture appears here depicting A picture appears here depicting
unintegrated multi-platform integrated systems management
environments and the systems processes for cross platform
management processes that take place environments using SOFTWORKS SST
in those environments. Below the products. Below the picture is a
picture is a description of the description of the benefits of a
pitfalls of traditional process approach.
platform-specific systems
management.
SOFTWORKS and Catalog Solution are registered trademarks of the Company.
This Prospectus also includes other registered and unregistered trademarks and
service marks of the Company and other companies. All trademarks and service
marks appearing herein that do not relate to the Company's products and services
are the property of their respective holders.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
WHICH STABILIZE OR MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT COVERING
TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information in
this Prospectus does not give effect to the exercise of the over-allotment
option described under "Underwriting" or the exercise of any other options or
warrants.
THE COMPANY
SOFTWORKS develops, markets, licenses and supports a family of enterprise
systems management software products for data and storage management and
performance management. The Company provides automated systems management
solutions designed to optimize system and application performance, reduce
hardware expenditures, and enhance the reliability and availability of the data
processing environment for enterprises that employ primarily mainframe computing
environments, and increasingly UNIX and Microsoft(R) Windows NT(R) ("NT"). The
Company believes that it has been a pioneer in the development of automated
systems management solutions and that it is currently a leading vendor in this
market. As of June 30, 1998, the Company's products were licensed for use by 81
of the Fortune 100 companies.
Gartner Group estimates that in 1997, the net new license revenue for the
storage management and network and systems management markets totaled
approximately $8.2 billion. The Company primarily operates in the storage
resource management market, a subset of the storage management market. The
storage resource management market is expected to grow at a 44% compounded
annual growth rate from $201 million in 1997 to $1.2 billion in 2002. Many
information technology ("IT") organizations are now demanding next generation
systems management tools that move beyond simply monitoring and reporting.
Solutions that incorporate platform-specific intelligence and allow automatic
management of storage and performance across heterogeneous environments address
a critical requirement of IT groups today. A comprehensive automation solution
should include proactive alerts, programmed responses and automated corrective
actions enabling effective management of the increasing volume and complexity of
the computing environments with fewer specialized technicians. These solutions
should also provide an efficient and effective vehicle for instituting "best
practices" across the enterprise.
The Company's offerings are grouped into four market segments ("Arenas"):
performance management; data and storage management; Year 2000; and professional
services. Historically, the Company's products addressed only the performance
and data storage requirements of mainframe operating systems. Recently, the
Company's products have been expanded to include UNIX-based storage management
products, and the Company expects to introduce NT-based storage management
products in the near future. In addition, the Company has extended its product
family by launching a suite of products in the Year 2000 Arena. The Company has
also created a professional services organization that provides systems
management services, including training, implementation of software and staff
augmentation.
The Company's products are developed using "SST," its proprietary
combination of a design strategy, a development methodology and a set of core
technologies, which is intended to enable the Company's software products to
provide immediate performance improvement and cost savings. The Company believes
that SST differentiates it from its competition by redefining and extending
traditional monitoring and reporting systems management through the use of
embedded intelligence which provides proactive alerts, programmed responses and
automated corrective actions.
The Company intends to leverage its market position in the mainframe
environment to become a leading provider of data and storage management and
performance management products for multi-platform environments. The Company
also plans to expand its offerings to include additional systems management
products and services for both the mainframe and multi-platform environments.
The Company's strategy is to: (i) enhance and extend product offerings in
current Arenas; (ii) expand domestic and international sales channels; (iii)
leverage its existing customer base; (iv) offer products in new systems
management Arenas; and (v) pursue strategic partnerships, alliances and
acquisitions.
3
<PAGE> 5
The Company has over 5,000 licenses of its products for use at over 1,900
installations. The Company's customers include ADP Financial Information
Services Inc., NationsBanc Services, Inc., Sherwin-Williams Co., Texas
Instruments Incorporated, The Vanguard Group and Wal-Mart Stores, Inc. The
Company sells its products through a global direct sales force and a network of
international distributors and resellers.
The Company was incorporated in Maryland in July 1977 and reincorporated in
Delaware in May 1998. It is a subsidiary of Computer Concepts Corp. ("Computer
Concepts"). The Company maintains its principal offices at 5845 Richmond
Highway, Alexandria, Virginia 22303 and its telephone number is (703) 317-2424.
THE OFFERING
Common Stock offered by the Company... 1,700,000 shares
Common Stock offered by the Selling
Stockholders.......................... 2,500,000 shares
Total Common Stock offered............ 4,200,000 shares
Common Stock to be outstanding after
the offering.......................... 15,973,000 shares
Use of proceeds....................... For working capital and general
corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market
symbol................................ SWRX
SUMMARY FINANCIAL INFORMATION
The following summary financial information concerning the Company, other
than the as adjusted balance sheet data, has been derived from the financial
statements included elsewhere in this Prospectus and should be read in
conjunction with such financial statements and the notes thereto.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue................... $ 11,626 $ 16,525 $ 26,770 $ 4,666 $ 6,596
Gross margin.................... 7,507 12,437 20,522 3,402 4,286
Net (loss) income............... (1,711) 792 786 (333) (767)
=========== =========== =========== =========== ===========
Basic and diluted net (loss)
income per share.............. $ (0.12) $ 0.06 $ 0.06 $ (0.02) $ (0.05)
=========== =========== =========== =========== ===========
Basic and diluted weighted
average shares outstanding.... 14,083,000 14,083,000 14,083,000 14,083,000 14,083,000
=========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------
ACTUAL AS ADJUSTED (1)
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<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 909 $ 14,388
Working capital............................................. (869) 12,610
Total assets................................................ 33,416 46,895
Long term debt, net of current portion...................... 117 117
Total stockholder's equity.................................. 5,328 18,807
</TABLE>
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(1) Adjusted to reflect the sale of 1,700,000 shares of Common Stock by the
Company at the estimated initial public offering price of $9.00 per share
and the receipt by the Company of the net proceeds therefrom.
Except where otherwise indicated, this Prospectus gives effect to a
5,000-for-1 stock split of the Common Stock in May 1998 and a stock dividend in
June 1998.
4
<PAGE> 6
RISK FACTORS
Prospective investors, prior to making an investment decision, should
carefully read this Prospectus and consider, along with other matters referred
to herein, the risk factors below.
Fluctuations in Operating Results. The Company's operating results have
fluctuated in the past, and in the future, are expected to fluctuate
significantly from quarter to quarter and may fluctuate on an annual basis as a
result of a number of factors, including, but not limited to, the size and
timing of customer orders; the timing of renewals or the failure of existing
customers to renew their maintenance agreements with the Company when their
current agreements expire; changes in the Company's sales cycle; the timing of
new product announcements and introductions by the Company and its competitors;
the Company's ability to develop, introduce and market new products and product
enhancements; market acceptance of the Company's products; deferrals of customer
orders in anticipation of new products or product enhancements or service
offerings; changes in contract terms (including terms affecting the timing of
recognition of license and maintenance revenue) and the rate at which such
changes are made; the Company's ability to control costs, including the hiring
of new employees; political instability in, or trade embargoes with respect to,
foreign markets; changes in the Company's management team; and fluctuating
economic conditions. The Company's future operating results may fluctuate as a
result of these and other factors, which could have a material adverse effect on
the Company's business, operating results and financial condition. The Company's
operating results may be above or below the expectations of public market
analysts and investors. In the event that operating results are below
expectations, the price of the Company's Common Stock could be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Management of Growth. In recent periods, the Company has experienced rapid
growth and an increase in responsibilities placed upon the Company's management
which has placed added pressures on the Company's operating and financial
systems. In 1997 and during the quarter ended March 31, 1998, the number of
persons employed by the Company increased by 82 and 20, respectively. In
addition, the Company recently hired a Chairman of the Board and a Chief
Financial Officer. The Company plans to expand the number of sales, marketing
and software development personnel in the United States and elsewhere. The
recent pace of growth, and anticipated expansion in the near future, has placed
and will continue to place a significant strain on the Company's management and
other resources. Failure to integrate new personnel on a timely basis could have
an adverse effect on the Company's operations. Furthermore, the expenses
associated with expanding the Company's management team and hiring new employees
may be incurred prior to the generation of any associated revenue. In addition,
the officers of the Company have had no prior experience managing a public
company. To manage future growth, the Company will be required to continue to
improve its operational, financial, accounting and management systems, and
motivate and effectively manage its employees. If the Company is unable to
manage growth effectively, the quality of the Company's products, its ability to
attract and retain key personnel and develop and market new products, and its
results of operations and financial condition could be materially adversely
affected. See "-- Dependence on Key Personnel" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Expansion of International Operations. In order to further increase sales
opportunities and profitability, the Company believes it will be necessary to
expand its marketing, direct and third-party sales and support channels outside
the United States, particularly in Europe. The Company may consider expanding
direct sales, marketing and support capabilities to countries in which the
Company currently maintains distributor relationships, as well as other
countries, as opportunities arise. The Company has limited experience in
marketing and selling its products outside the United States and there can be no
assurance that the Company will be able to increase sales of its products in
Europe or elsewhere. In addition, as the Company seeks to expand its
international operations, it must recruit, train and manage qualified personnel,
including agents. Failure of the Company to attract and retain qualified
personnel could have a material adverse effect on the Company's business,
operating results and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
"Business -- Sales, Distribution and Marketing."
Foreign Exchange. Since the Company intends to continue to pursue growth
opportunities in international markets, a significant change in the value of the
dollar against the currency of one or more countries
5
<PAGE> 7
where the Company recognizes substantial revenue or earnings may materially
adversely affect the Company's business, operating results and financial
condition. The Company has not sustained material foreign currency exchange
losses and presently does not attempt to hedge its exposure to fluctuations in
foreign currency exchange rates. International revenue generated by the Company
contributed approximately 23%, 30% and 18% of total revenue during 1995, 1996
and 1997, respectively. Should the Company's revenue from international sales
increase as intended, and should such sales be denominated in foreign
currencies, the Company may adopt a hedging strategy to guard against foreign
currency fluctuations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Relationship with Computer Concepts. After giving effect to the sale of
Common Stock offered hereby, Computer Concepts will beneficially own 71.9% of
the outstanding Common Stock of the Company and does not currently intend to
reduce its beneficial ownership of Common Stock to below 50%. Computer Concepts
determined to effect the offering at this time in order to maximize stockholder
value. As the controlling stockholder of the Company, Computer Concepts will
have the ability to control certain fundamental matters affecting the Company
and may be able to influence other decisions of the Company. The ongoing
relationship between Computer Concepts and the Company may result in conflicts
of interest between Computer Concepts and the Company even though they are not
engaged in competing businesses. Computer Concepts has received a going concern
opinion with respect to its audited financial statements for the year ended
December 31, 1997. Computer Concepts expects that its financial condition will
improve due to increased revenue generated by sales and/or licensing of its
technologies, together with the proceeds of this offering. Under certain
circumstances, Computer Concepts' financial condition may influence its
decisions as the controlling stockholder of the Company. Computer Concepts has
no present plans to sell additional shares of Common Stock and does not expect
to pledge any Common Stock in order to secure any credit facility. In addition,
without the prior consent of SoundView Financial Group, Inc., Computer Concepts
cannot sell any Common Stock for 12 months from the date of this Prospectus. See
"Certain Transactions."
Benefits of the Offering to Existing Stockholders. After this offering, it
is expected that a public market will exist for the Common Stock. The Company
expects to use approximately $3.0 million of the net proceeds of this offering
to repay the balance advanced to it by its parent, Computer Concepts. Existing
stockholders are hereby offering an aggregate of 2,500,000 shares of Common
Stock having an aggregate original purchase price of approximately $939,000 and
a market value, based on an estimated initial public offering price of $9.00, of
approximately $22.5 million (or an aggregate of 3,130,000 shares of Common Stock
with an original purchase price of $1.2 million and a market value of $28.2
million if the Underwriters' over-allotment option is exercised in full). After
this offering, existing stockholders are expected to retain an aggregate
11,773,000 shares of Common Stock having an aggregate original purchase price of
approximately $4.4 million, and a market value, based on an estimated initial
public offering price of $9.00, of approximately $106.0 million (or an aggregate
of 11,143,000 shares of Common Stock with an original purchase price of $4.2
million and a market value of $100.3 million if the Underwriters' over-allotment
option is exercised in full). Although Internet Tracking & Security Ventures
("Internet Tracking") is a Selling Stockholder, Computer Concepts is receiving
the benefit of the sale by Internet Tracking of those shares of Common Stock
since Computer Concepts used such shares to acquire certain assets of Internet
Tracking shortly prior to the consummation of this offering.
Ability to Recruit Personnel. The ability to achieve anticipated levels of
revenue is substantially dependent on the ability of the Company to attract and
retain skilled personnel on a timely basis, especially research and development
personnel. The Company believes that its future success will depend in large
part on its ability to attract and retain highly skilled technical, sales,
managerial and professional services personnel to ensure the quality of products
and services provided to its customers. Competition for such personnel, in
particular for product development personnel, is intense, and the Company
competes in the market for such personnel against numerous companies, including
larger, more established companies with significantly greater financial
resources than the Company. There can be no assurance that the Company will be
successful in attracting and retaining skilled personnel. The Company's
inability to attract and retain qualified employees could have a material
adverse effect on the Company's business, operating results and financial
condition. See "-- Dependence on Key Personnel" and "-- Rapid Technological
Change; New Versions and New Products."
6
<PAGE> 8
Dependence on Key Personnel. The Company's business expansion plans are
dependent in substantial part upon the abilities of James A. Cannavino, its
Chairman of the Board, Judy G. Carter, its President and Chief Executive Officer
and Claude R. Kinsey, III, its Vice President and Chief Technology Officer.
Although each of Mr. Cannavino, Ms. Carter and Mr. Kinsey have entered into
employment agreements with the Company, there can be no assurance that they will
remain in the employ of or continue to provide services to the Company. The loss
of the services of any such persons could likely have a material adverse effect
on the Company. The Company has applied for $3 million life insurance policies
for both Mr. Cannavino and Ms. Carter, the proceeds of which will be payable to
the Company. See "Management."
Limited Sales Predictability. Revenue in any quarter is dependent to a
significant degree on orders booked and renewals of maintenance agreements in
that quarter and is not predictable with any degree of certainty. Since the
Company's expense levels are based in part on management's expectations
regarding future revenue, if revenue is below expectations in any quarter, the
adverse effect may be magnified by the Company's inability to adjust spending in
a timely manner to compensate for any revenue shortfall. In addition, because
customers are purchasing larger and more complex software products, as well as
suites of products, the average order value has been increasing and purchases of
the Company's products generally require approval of senior management. For
these and other reasons, sales cycles for the Company's products can be lengthy
and are subject to a number of significant risks over which the Company has
little or no control. As a result of the large dollar amounts which may be
represented by a single order, the timing of the receipt of an order can have a
significant impact on the Company's revenue and earnings for a particular
period. Any significant or ongoing failure to reach definitive agreements with
customers, including renewals of current maintenance agreements upon their
expiration, would have a material adverse effect on the Company's business,
operating results and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Dependence on Proprietary Technology. The Company's success is dependent
upon its confidential and proprietary software technology and other proprietary
rights. The Company does not currently have any patents or pending patent
applications and relies principally on a combination of: (i) trade secret,
copyright and trademark laws; (ii) nondisclosure, use restriction and other
contractual restrictions and agreements; and (iii) certain technical measures to
protect its technology. Because patent applications in the U.S. are not publicly
disclosed until the relevant patent is issued, applications may have been filed
by third parties, which, if issued as patents, could relate to the Company's
services and products as currently designed or as the Company may modify them in
the future to meet the market's requirements.
The Company's policy is to enter into confidentiality, technology ownership
and/or license agreements, as applicable, with its technical software
programming employees as well as with distributors and customers, and to limit
access to and distribution of its software, documentation and other proprietary
information. In addition, the Company does not license or release its source
code, except in connection with source code escrow arrangements and applicable
source code use restrictions. Trade secret, copyright and trademark laws provide
limited protection. There can be no assurance that these laws, in combination
with the steps taken by the Company to protect its proprietary rights, will be
adequate to prevent misappropriation of its technology or other proprietary
rights. Also, such protections do not preclude competitors from independently
developing products with functionality or features similar, substantially
equivalent or superior to the Company's products and technologies. In addition,
effective protection of copyrights, trade secrets, trademarks, and other
proprietary rights may be unavailable or limited in certain foreign countries.
There can be no assurance that licenses for any intellectual property that might
be required in connection with the Company's development of its services or
products, either to avoid infringement of a third party's product, patent or
other rights or to enhance the Company's product offering, would be available on
commercially reasonable terms, if at all. Any failure by or inability of the
Company to protect its proprietary technology or to obtain appropriate licenses
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Business -- Licensing and Intellectual
Property."
Proprietary Rights and Infringement. There has been substantial litigation
in the software industry involving intellectual property rights and the law is
not settled regarding the protectable aspects of software, its design, interface
and architecture. The Company does not believe its products infringe the
intellectual
7
<PAGE> 9
property or other proprietary rights of any third parties, and it is not aware
of any claims by any third party that the Company is infringing any such right.
Nevertheless, there can be no assurance that infringement claims will not be
asserted against the Company or its customers, or that such claims, if asserted,
would not have a material adverse effect on the Company's business, operating
results, and financial condition. In addition, as the Company acquires or
licenses a portion of the software included in its products from third parties,
the Company's exposure to infringement actions may increase because the Company
must rely upon such third parties for information as to the origin and ownership
of such acquired or licensed software. Although the Company intends to obtain
representations as to the origins and ownership of such acquired or licensed
software, there can be no assurance that such representations are or will be
accurate or that such indemnifications will provide adequate compensation for
any breach of such representations. Furthermore, the Company may initiate claims
or litigation against third parties for infringement of or otherwise to protect
or establish the validity of the Company's proprietary rights. The Company could
incur substantial costs, product shipment delays or restrictions, and diversion
of management resources in defending, pursuing and resolving any claims, with or
without merit, relating to proprietary rights. The Company might be subject to
injunctive or other equitable relief, or might be required to pay substantial
damages awards or enter into licensing or royalty arrangements to resolve any
such claims, or might be prevented from selling or delivering its products. Any
of the foregoing could have a material adverse effect on the Company's business,
operating results and financial condition. See "Business -- Licensing and
Intellectual Property."
Risk of Errors or Failures in Software Products. Products as complex as
those offered by the Company may contain errors, failures or bugs. In
particular, the computer environment is characterized by a wide variety of
standard and non-standard configurations and by errors, failures and bugs in
third party platforms and applications that make pre-release testing for
programming or compatibility errors very difficult, time-consuming and
expensive. Furthermore, there can be no assurance that, despite testing by the
Company and by others, errors, failures or bugs will not be found in new
products or releases after commencement of commercial shipments by the Company.
Errors, failures or bugs in the Company's products could result in adverse
publicity, product returns, loss of or delay in market acceptance of the
Company's products or claims by the customer or others against the Company.
Alleviating such problems could require significant expenditures of capital and
resources by the Company and could cause interruptions, delays or cessation of
service to the Company's customers. Errors, failures or bugs in the Company's
products could have a material adverse effect on the Company's business,
operating results and financial condition.
Rapid Technological Change; New Versions and New Products. The software
markets in which the Company competes are characterized by rapid technological
change, frequent introductions of new products and product enhancements, changes
in customer demands and evolving industry standards. The introduction of
products embodying new technologies and the emergence of new industry standards
and practices can render existing products obsolete and unmarketable. For
example, the Company's customers have adopted a wide variety of hardware,
software, database and networking platforms and applications. As a result, to
gain broad market acceptance, the Company must continue to support and maintain
its products on a variety of such platforms and applications, and extend its
product offerings to new platform, network and application environments. The
development of new versions of existing products that are compatible with
different operating systems and environments, the Internet, different database
systems, and other applications entails significant technical risk. The
Company's future success will depend on its ability to address the increasingly
sophisticated needs of its customers by developing and introducing enhancements
to its products and new products on a timely basis that keep pace with
technological developments, evolving industry standards and practices and
changing customer requirements. The success of the Company's products may also
depend, in part, on the Company's ability to introduce products which are
compatible with the Internet and World Wide Web. There can be no assurance that
the Company will be successful in developing, introducing and marketing the
enhancements to its products and new products, or versions of such products that
work with or on different operating environments, networks, platforms or
applications that respond to technological developments, evolving industry
standards and practices or changing customer requirements, or that the Company
will not experience difficulties that could delay or prevent the successful
development, introduction and sale of such enhancements or new products or that
such enhancements will adequately meet the requirements of the marketplace and
achieve any significant degree of market acceptance. If release dates of
8
<PAGE> 10
future product enhancements or new products are delayed or if these products or
enhancements fail to achieve market acceptance when released, the Company's
business, operating results and financial condition could be materially and
adversely affected. In addition, the introduction or announcement of new product
offerings or enhancements by the Company or the Company's competitors or major
hardware, systems or software vendors may cause customers to defer or forego
purchases of the Company's products, which could have a material adverse effect
on the Company's business, operating results and financial condition. See
"Business -- Industry Background," "-- The SOFTWORKS Solution," "-- Strategy,"
"-- Products and Services," and "-- Research and Development."
Competition. The market in which the Company operates is competitive,
rapidly evolving and subject to continuous technological change. There can be no
assurance that the Company can maintain or enhance its competitive position
against current and future competitors. Significant factors, such as the
emergence of new products, fundamental changes in computing technology and data
storage and manipulation platforms and applications and aggressive pricing and
marketing strategies by the Company's competitors, may affect the Company's
competitive position. Many of the Company's current and potential competitors
have longer operating histories, greater name recognition, larger installed
customer bases and substantially greater financial, technical and marketing
resources than the Company. There can be no assurance that the Company's current
and potential competitors will not develop software products that may be or may
be perceived to be more effective or responsive to technological change than the
Company's current or future products or that the Company's technologies and
products will not be rendered obsolete by such developments. Increased
competition could result in price reductions, reduced margins or loss of market
share, any of which could have a material adverse effect on the Company's
business, operating results and financial condition. There can be no assurance
that the Company will be able to compete successfully against current and future
competitors, or that competitive pressures faced by the Company will not have a
material adverse effect on its business, operating results and financial
condition. See "Business -- Competition."
Dependence on Renewals of Maintenance Agreements. The Company derives a
significant portion of its total revenue from the renewal of maintenance
agreements with existing licensees. The Company's planned expense levels are
based in part on management's expectations regarding renewal rates and on future
renewal, license and other revenue. If such renewals and revenue are below
expectations in any quarter, the Company's inability to adjust spending in a
timely manner to compensate for the revenue shortfall could have a material
adverse effect on the Company's business, operating results and financial
condition. The Company's ability to secure renewals may be affected by, among
other factors, its ability to deliver consistent, high-quality and timely
product enhancements; ownership or management changes within customer
organizations, including acquisitions of customers by other companies; customer
capital budget constraints; the introduction or enhancement of competing
products and service offerings by third parties; political and economic
instability in customers' markets; and other factors, many of which may be
beyond the control of the Company. There can be no assurance that the Company
will be able to maintain its historical renewal rates, and any significant or
ongoing decline in renewal rates would have a material adverse effect on the
Company's business, operating results and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Risks Associated with Possible Acquisitions. In the normal course of its
business, the Company evaluates potential acquisitions of businesses, products
and technologies that could complement or expand the Company's business. In the
event the Company identifies an appropriate acquisition candidate, there is no
assurance that the Company would be able to successfully negotiate the terms of
any such acquisition, finance such acquisition or integrate such acquired
business, products or technologies into the Company's existing business and
products. Furthermore, the negotiation of potential acquisitions as well as the
integration of an acquired business could cause diversion of management's time
and resources, and require the Company to use proceeds from the offering to
consummate a potential acquisition. There can be no assurance that a given
acquisition, whether or not consummated, would not have a material adverse
effect on the Company's business, operating results and financial condition. If
the Company consummates one or more significant acquisitions in which the
consideration consists of Common Stock, stockholders of the Company could suffer
significant dilution of their interests in the Company.
9
<PAGE> 11
Discretion In Application of Proceeds. Management of the Company has
certain discretion over the use and expenditure of a significant portion of the
proceeds of this offering. The Company intends to use the funds raised in this
offering primarily for retention of product development personnel, promotion of
its products and for working capital and general corporate purposes. Although
the Company does not contemplate changes in the allocated use of proceeds, to
the extent the Company finds changes are necessary or appropriate in order to
address changed circumstances and/or opportunities, management may find it
necessary to adjust the use of the Company's capital, including the proceeds of
this offering. As a result of the foregoing, the success of the Company may be
substantially dependent upon the discretion and judgment of the management of
the Company with respect to the application and allocation of the net proceeds
hereof.
Year 2000 Risk. Year 2000 compliance is a measure of the ability of
computer hardware and software to differentiate between the years 1900-1999 and
the years 2000-2099. The underlying problem is caused by the fact that computer
programs traditionally have been written using two digits rather than four to
store year information. Failure to address this problem could result in system
failures and the generation of erroneous data. Moreover, there are a number of
software and product design approaches to achieving Year 2000 compliance, and
the Company may incur additional costs in maintaining its products'
compatibility with third-party products and platforms as a result of any Year
2000 compliance modifications that either the Company or a third party makes to
its relevant product offerings.
The Company is reviewing its internal computer programs and systems to
ensure that they will be Year 2000 compliant. The Company presently believes
that its computer systems will be Year 2000 compliant in a timely manner.
However, while the estimated cost of these efforts is not expected to be
material to the Company's financial position or any year's results of
operations, there can be no assurance to this effect. In addition, the Company
cannot predict the effect of the Year 2000 problem on the vendors, customers and
other entities with which the Company transacts business, or with whose products
the Company's products interact and there can be no assurance that the effect of
the Year 2000 problem on such entities will not have a material adverse effect
on the Company's business, operating results and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Immediate and Substantial Dilution. The initial public offering price is
substantially higher than the net tangible book value per share of Common Stock.
Investors purchasing shares of Common Stock in this offering will incur
therefore immediate and substantial dilution in net tangible book value.
Notwithstanding the fact that all options presently outstanding are exercisable
at the offering price, to the extent that options (currently outstanding or
subsequently granted) to purchase the Company's Common Stock are exercised,
there may be further dilution. If the net proceeds of this offering, together
with available funds and cash generated by operations, are insufficient to
satisfy the Company's cash needs, the Company may be required to sell additional
equity or convertible debt securities. The sale of additional equity or
convertible debt securities could result in additional dilution to the Company's
stockholders. See "Dilution" and "Principal and Selling Stockholders."
No Cash Dividends on Common Stock. The Company has never declared or paid
any cash dividends on its shares of Common Stock. The Company intends to utilize
its earnings, if any, to facilitate the expansion of its business. Accordingly,
it has no intention of declaring or paying cash dividends on its Common Stock
for the foreseeable future. See "Dividend Policy."
Absence of Public Market; Negotiated Offering Price. Prior to the
offering, there has been no market for the Common Stock. Although the Common
Stock has been approved for quotation on the Nasdaq National Market, there can
be no assurance that an active market will develop for the Common Stock or, if
developed, that it can be maintained. The initial public offering price of the
Common Stock has been established by negotiations between the Company and the
Underwriter and will not necessarily bear any relationship to the Company's book
value, assets, past operating results, financial condition, or other established
criteria of value. See "Underwriting."
Shares Eligible for Future Sale. Sales of large amounts of the Company's
Common Stock in the public market could adversely affect the market price of the
Common Stock and could impair the Company's future ability to raise capital
through offerings of its equity securities. A substantial number of outstanding
shares of
10
<PAGE> 12
Common Stock and shares of Common Stock issuable upon the exercise of
outstanding stock options will become available for resale in the public market
at prescribed times. Upon completion of this offering, there will be
approximately 15,973,000 shares of Common Stock of the Company outstanding. The
4,200,000 shares offered hereby will be eligible for immediate sale in the
public market without restriction. No other shares will be immediately eligible
for resale in the public market without restriction under the Securities Act of
1933, as amended (the "Securities Act"), but 11,483,000 shares will be eligible
for resale in the public market pursuant to Rule 144 and Rule 701 of the
Securities Act beginning 90 days after the effective date of this Prospectus.
Computer Concepts, which owns all of these shares, has agreed that it will not,
without the prior written consent of SoundView Financial Group, Inc., sell or
otherwise dispose of any shares of Common Stock beneficially owned by it for a
period of one year after the effective date of this Prospectus. Following
expiration of the lock-up period (or earlier consent of SoundView Financial
Group, Inc.), these shares will be eligible for sale subject to the restrictions
of Rule 144. The Company intends to register approximately 3,727,000 shares
reserved for issuance under its stock option plan. Options and stock issued
under the stock option plan shall be subject to a 180 day lock-up period from
the closing of this offering. Following this offering, the holder of 190,000
shares of Common Stock will have certain rights to register those shares under
the Securities Act. See "Principal and Selling Stockholders" and "Shares
Eligible for Future Sale."
Potential Anti-Takeover Effects of Delaware Law and Certificate of
Incorporation; Possible Issuances of Preferred Stock. Certain provisions of
Delaware law and the Company's Certificate of Incorporation and By-laws could
make more difficult a merger, tender offer or proxy contest involving the
Company, even if such events could be beneficial to the interests of the
stockholders. These provisions include Section 203 of the Delaware General
Corporation Law, the classification of the Company's Board of Directors into
three classes and the requirement that 66 2/3% of the stockholders of the
Company entitled to vote thereon approve certain transactions, including mergers
and sales or transfers of all or substantially all the assets of the Company.
Such provisions could limit the price that certain investors might be willing to
pay in the future for shares of the Company's Common Stock or preferred stock.
In addition, the Company's Certificate of Incorporation allows for the issuance
of up to two million shares of preferred stock by the Board of Directors without
stockholder approval on such terms as the Board may determine. The rights of the
holders of Common Stock and preferred stock will be subject to, and may be
adversely affected by, the rights of the holders of additional or other classes
of preferred stock that may be issued in the future. Moreover, although the
ability to issue preferred stock may provide flexibility in connection with
possible acquisitions and other corporate purposes, such issuance may make it
more difficult for a third party to acquire, or may discourage a third party
from acquiring, a majority of the voting stock of the Company. The Company has
not issued any shares of preferred stock and has no current plans to issue any
shares of any classes of capital stock other than as described herein. See
"Description of Capital Stock."
Limitations on Personal Liability of Directors. The Company's Certificate
of Incorporation and By-laws contain provisions which reduce the potential
personal liability of directors for certain monetary damages and provide for
indemnity of directors and other persons. The Company is unaware of any pending
or threatened litigation against the Company or its directors that would result
in any liability for which such director would seek indemnification or similar
protection. The Company has entered into indemnification agreements with certain
of its officers and directors. The indemnification agreements provide for
reimbursement for all direct and indirect costs of any type or nature whatsoever
(including attorneys' fees and related disbursements) actually and reasonably
incurred in connection with either the investigation, defense or appeal of
certain legal proceedings, (as defined) including amounts paid in settlement by
or on behalf of an indemnitee thereunder. See "Management -- Personal Liability
and Indemnification of Directors."
Forward-Looking Statements. All statements other than statements of
historical fact included in this Prospectus, including without limitation
statements under "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," regarding the
Company's financial position, business strategy and the plans and objectives of
the Company's management for future operations, are forward-looking statements.
When used in this Prospectus, words such as "anticipate," "believe," "estimate,"
"expect," "intend" and similar expressions, as they relate to the Company or its
management, identify forward-looking statements. Such forward-looking statements
are based on the beliefs
11
<PAGE> 13
of the Company's management, as well as assumptions made by and information
currently available to the Company's management. Actual results could differ
materially from those contemplated by the forward-looking statements as a result
of certain factors, such as those disclosed under "Risk Factors," including but
not limited to, fluctuations in future operating results, technological changes
or difficulties, management of future growth, expansion of international
operations, the risk of errors or failures in the Company's software products,
dependence on proprietary technology, competitive factors, risks associated with
potential acquisitions, the ability to recruit personnel, the dependence on key
personnel, control of the Company by its present stockholder, absence of a
public market and management's discretion in the application of the offering
proceeds. Such statements reflect the current views of the Company with respect
to future events and are subject to these and other risks, uncertainties and
assumptions relating to the operations, results of operations, growth strategy
and liquidity of the Company. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by this paragraph.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby (after deducting underwriting discounts and estimated offering
expenses) are estimated to be $13.5 million. The Company will receive no benefit
from the sale of shares by the Selling Stockholders.
The Company intends to use the net proceeds of this offering primarily for
additional working capital, general corporate purposes, including hiring of
additional personnel and international expansion, and possible acquisitions. In
addition, the Company intends to repay the balance advanced to it by its parent,
Computer Concepts (approximately $3.0 million as of June 30, 1998). See "Certain
Transactions."
The amounts actually expended by the Company for working capital purposes
will vary significantly depending upon a number of factors, including any future
revenue growth and the amount of cash generated by the Company's operations.
Hence, the Company's management will retain broad discretion in the allocation
of the net proceeds from this offering. In addition, the Company may make one or
more acquisitions of complementary technologies, products or businesses which
broaden or enhance the Company's current product offerings. However, the Company
has no specific plans, agreements or commitments, oral or written, and is not
currently engaged in any negotiations for any such acquisition. Pending the uses
described above, the net proceeds will be invested in interest-bearing,
investment-grade securities, U.S. Government securities, money market
investments and short-term, interest-bearing deposits in major banks. See "Risk
Factors -- Discretion in Application of Proceeds" and "-- Risks Associated with
Possible Acquisitions." The net proceeds to the Company from this offering are
expected to be adequate to fund the Company's working capital needs for at least
the next twelve months. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
DIVIDEND POLICY
Holders of the Company's Common Stock are entitled to dividends when, as
and if declared by the Board of Directors out of funds legally available
therefor. The Company has never declared or paid any cash dividends and
currently does not intend to pay cash dividends in the foreseeable future on the
shares of Common Stock. The Company intends to retain earnings, if any, to
finance the development and expansion of its business. In addition, the Company
is a party to a voting trust agreement (the "Voting Trust Agreement") which
limits the payment of dividends. See "Certain Transactions -- Voting Trust
Agreement." Payment of future dividends on the Common Stock will be subject to
the discretion of the Board of Directors and will be contingent upon future
earnings, if any, the Company's financial condition, capital requirements,
general business conditions and other factors. Therefore, there can be no
assurance that any dividends on the Common Stock will ever be paid.
12
<PAGE> 14
DILUTION
The deficit in net tangible book value of the Company at March 31, 1998 was
($859,000), or ($0.06) per share of Common Stock. Net tangible book value per
share is equal to the Company's total tangible assets less total liabilities,
divided by the total number of shares of Common Stock outstanding, after giving
effect to a 5,000-for-1 stock split in May 1998, the issuance of a stock
dividend in June 1998 and the issuance of 190,000 shares of Common Stock to a
financial advisor to the Company simultaneously with the closing of this
offering and in connection therewith. After giving effect to the sale by the
Company of the 1,700,000 shares of Common Stock offered hereby at an estimated
initial public offering price of $9.00 per share, and after deducting the
underwriting discount and estimated offering expenses, the net tangible book
value of the Company as of March 31, 1998 would have been $12.6 million or $0.79
per share of Common Stock. This represents an immediate increase in net tangible
book value of $0.85 per share to existing stockholders and an immediate dilution
of $8.21 per share to new investors. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share..................... $ 9.00
Net tangible book deficit per share before the offering..... $(0.06)
Increase per share attributable to new investors............ 0.85
------
Net tangible book value per share after the offering........ 0.79
-------
Dilution per share to new investors......................... $ 8.21
=======
</TABLE>
The following table summarizes, as of March 31, 1998, the difference
between existing stockholders and the new investors with respect to the number
of shares of Common Stock purchased from the Company, the total consideration
paid and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)(2)........ 14,273,000 89.4% $ 5,289,000 25.7% $0.37
New investors(1)................... 1,700,000 10.6 15,300,000 74.3 $9.00
---------- ----- ----------- -----
Total.................... 15,973,000 100.0% $20,589,000 100.0%
========== ===== =========== =====
</TABLE>
- ---------------
(1) Sales by the Selling Stockholders in this offering will reduce the number of
shares held by existing stockholders to 11,773,000 or 73.7% of the total
number of shares of Common Stock outstanding after this offering (11,143,000
or 69.8%, if the over-allotment option is exercised in full), and will
increase the number of shares held by new investors to 4,200,000 or 26.3%
(4,830,000 or 30.2%, if the over-allotment option is exercised in full) of
the total number of shares of Common Stock outstanding after this offering.
(2) Includes 190,000 shares of Common Stock issued to a financial advisor to the
Company subsequent to March 31, 1998 and prior to the closing of this
offering.
13
<PAGE> 15
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998: (i) on an actual basis, giving effect to a 5,000-for-1 stock
split of the Common Stock in May 1998 and the issuance of a stock dividend in
June 1998; and (ii) as adjusted to give effect to the sale of 1,700,000 shares
of Common Stock offered by the Company hereby at an estimated initial public
offering price of $9.00 per share and the issuance of 190,000 shares of Common
Stock to a financial advisor to the Company in connection with the initial
public offering and after deducting the underwriting discount and estimated
offering expenses payable by the Company. The information should be read in
conjunction with the Consolidated Financial Statements and Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1998
------------------------
ACTUAL AS ADJUSTED(1)
------ --------------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt, net of current portion...................... $ 117 $ 117
Preferred stock, $0.001 par value, 2,000,000 shares
authorized; none issued or outstanding.................... -- --
Common stock, $0.001 par value, 150,000,000 shares
authorized; 14,083,000 shares issued and outstanding
(actual); 15,973,000 shares issued and outstanding (as
adjusted)................................................. 14 16
Additional paid-in capital.................................. 5,549 19,026
Retained (deficit) earnings................................. (189) (189)
Accumulated other comprehensive income...................... (46) (46)
------ -------
Total stockholders' equity............................. 5,328 18,807
------ -------
Total capitalization........................................ $5,445 $18,924
------ -------
</TABLE>
- ---------------
(1) As adjusted to reflect the sale by the Company of the 1,700,000 shares of
Common Stock offered hereby at the estimated initial public offering price
of $9.00 per share and the receipt of the estimated net proceeds therefrom.
See "Use of Proceeds."
14
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for the three fiscal
years ended December 31, 1995, 1996 and 1997 are derived from the Company's
audited financial statements and for the two fiscal years ended December 31,
1994 and December 31, 1993 are derived from the Company's unaudited financial
statements. The financial information as of March 31, 1998 and for the three
months ended March 31, 1997 and 1998 has been derived from unaudited financial
information prepared by the Company, which in the opinion of management,
includes all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of the financial information set forth therein. This
data should be read in conjunction with the consolidated financial statements of
the Company, related notes, and other financial information included elsewhere
in this Prospectus. See "Financial Statements." All numbers are in thousands,
except share and per share amounts.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------------- -------------------------
1993(1) 1994 1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue:
Software licenses............. $ 3,314 $ 4,438 $ 5,718 $ 8,611 $ 16,633 $ 2,295 $ 3,736
Maintenance................... 3,926 5,011 5,908 7,914 9,957 2,371 2,551
Professional services......... -- -- -- -- 180 -- 309
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenue............... 7,240 9,449 11,626 16,525 26,770 4,666 6,596
Cost of revenue:
Software licenses............. 740 223 432 424 580 101 439
Maintenance................... 1,370 1,905 3,687 3,664 5,513 1,163 1,646
Professional services......... -- -- -- -- 155 -- 225
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total cost of revenue....... 2,110 2,128 4,119 4,088 6,248 1,264 2,310
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross margin.................... 5,130 7,321 7,507 12,437 20,522 3,402 4,286
Operating expenses:
Sales and marketing........... 2,314 2,898 4,262 6,161 12,463 2,305 3,395
General and administrative.... 1,746 1,970 1,619 2,217 2,791 884 1,102
Amortization and
depreciation................ 268 861 2,088 1,596 1,972 436 490
Research and development...... 500 850 908 967 1,480 273 272
Impairment on goodwill........ -- -- 1,320 -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses.... 4,828 6,579 10,197 10,941 18,706 3,898 5,259
Income (loss) before provision
for (benefit from) income
taxes....................... 302 742 (2,690) 1,496 1,816 (496) (973)
Provision for (benefit from)
income taxes................ 128 260 (979) 704 1,030 (163) (206)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)........... $ 174 $ 482 $ (1,711) $ 792 $ 786 $ (333) $ (767)
=========== =========== =========== =========== =========== =========== ===========
Basic and diluted net income
(loss) per share............ $ 0.01 $ 0.03 $ (0.12) $ 0.06 $ 0.06 $ (0.02) $ (0.05)
=========== =========== =========== =========== =========== =========== ===========
Basic and diluted weighted
average shares outstanding.... 14,083,000 14,083,000 14,083,000 14,083,000 14,083,000 14,083,000 14,083,000
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
------ ------- ------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................. $1,210 $ 246 $ 167 $ 1,735 $ 360 $ 909
Working capital....................................... (810) (2,098) (3,516) (824) 125 (869)
Total assets.......................................... 9,827 12,633 12,766 22,543 33,629 33,416
Long term debt, net of current portion................ -- 135 465 351 140 117
Total stockholder's equity............................ 5,726 6,214 4,563 5,355 6,087 5,328
</TABLE>
- ---------------
(1) On September 1, 1993, the Company was acquired by Computer Concepts and
goodwill and software development costs were recorded on the books of the
Company as of the date of acquisition (see Note 8 to the Consolidated
Financial Statements). Amortization of the goodwill and software development
costs have been reflected in the selected consolidated financial data since
that time.
15
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Selected
Financial Data and the Financial Statements and Notes thereto included elsewhere
in this Prospectus. Quarterly financial data has been derived from information
prepared by the Company. Such data should be read in conjunction with the
consolidated financial statements of the Company, related notes and other
financial information included elsewhere in this prospectus. Certain statements
in this "Management's Discussion and Analysis of Financial Condition and Results
of Operations" are forward-looking statements. The forward-looking statements
contained herein are based on current expectations and entail various risks and
uncertainties that could cause actual results to differ materially from those
expressed in such forward-looking statements. For a more detailed discussion of
these and other business risks, see "Risk Factors."
OVERVIEW
The Company develops, markets, licenses and supports a family of enterprise
systems management software products for data and storage management and
performance management. The Company provides automated systems management
solutions designed to optimize system and application performance, reduce
hardware expenditures, and enhance the reliability and availability of the data
processing environment for enterprises that employ primarily mainframe computing
environments, and increasingly UNIX and Microsoft(R) Windows NT(R)("NT"). The
Company believes that it has been a pioneer in the development of automated
systems management solutions and that it is currently a leading vendor in this
market. As of June 30, 1998, the Company's products were licensed for use by 81
of the Fortune 100 companies.
The Company's offerings are grouped into four market segments ("Arenas"):
performance management; data and storage management; Year 2000; and professional
services. Historically, the Company's products addressed only the performance
and data storage requirements of mainframe operating systems. Recently, the
Company's products have been expanded to include UNIX-based storage management
products, and the Company expects to introduce NT-based storage management
products in the near future. In addition, the Company has extended its product
family by launching a suite of products in the Year 2000 Arena. The Company has
also created a professional services organization that provides systems
management services, including training, implementation of software, and staff
augmentation.
The Company's revenue consists of revenue from licensing its software
products, revenue from the maintenance and support of its software products and,
commencing in the third quarter of 1997, revenue from professional services
relating to information technology ("IT") consulting and staff augmentation.
Generally, the Company is required by its license agreement to provide
maintenance and enhancements during the maintenance period. "Maintenance"
includes diagnosis and correction of errors in the current version of the
product and telephone consultation to discuss general support questions.
"Enhancements" include upgrades to the products as they become available and new
releases of products, except for those which are sold as charged options to the
Company's general customer base. Substantially all of the Company's license
agreements are perpetual. Maintenance agreements are typically for a term of one
year and renew automatically upon the payment by the customer of an annual
maintenance fee.
Revenue from software licenses is recognized in accordance with the
Statement of Position 97-2 of the American Institute of Certified Public
Accountants, "Software Revenue Recognition." Revenue from the sale of perpetual
and term software licenses is recognized, net of provisions for returns, at the
time of delivery and acceptance of software products by the customer, when
collectibility is probable. The Company provides customers with the option to
pay for license fees over extended periods of time, generally three to five
years. In such instances, the Company does not consider sales contracts with
amounts due for periods greater than one year from delivery, fixed and
determinable, and accordingly recognizes such amounts as revenue when they
become due. Maintenance revenue that is bundled with an initial license fee is
deferred and recognized ratably over the maintenance period. Amounts deferred
for maintenance are based on the fair value of equivalent maintenance services
sold separately. Revenue from professional services, such as training and staff
augmentation, is recognized as the services are performed. Deferred license
revenue resulting from extended
16
<PAGE> 18
payment agreements is included in accounts receivable due after one year and
deferred revenue. Related sales commissions are also deferred and recognized
over the period of the installment payment plan.
Historically, the Company has not experienced any significant bad debts
associated with these long-term arrangements. No single customer accounted for
greater than 3% of the Company's total revenue in 1997. During 1997, license
revenue for Catalog Solution comprised approximately 57.6% of total new license
revenue and license revenue for Performance Solution comprised approximately 16%
of total new license revenue. The Company's cost of license revenue consists
primarily of royalties paid to in-house and third-party software developers and
amortization of capitalized research and development costs. Beginning in 1997
and continuing for four years, the Company is obligated to pay a minimum annual
royalty associated with certain Year 2000 products.
The Company's maintenance revenue has provided a stable and recurring
revenue stream due to relatively high maintenance renewal rates, which have
averaged approximately 95% over the past three years. Maintenance fee revenue
was $5.9 million, $7.9 million and $10.0 million, or 50.8%, 47.9% and 37.2% of
total revenue in 1995, 1996 and 1997, respectively. Revenue related to
professional services and staff augmentation is recognized as the services are
performed.
The Company markets and sells its products and services through a direct
sales force in the United States and directly and through distributors in South
America, Europe and Asia. International revenue transactions are denominated in
U.S. dollars and local currencies. Revenue generated by the Company's
international distributors is translated into U.S. dollars at the time the
transaction occurs. The Company has not sustained material foreign currency
exchange losses and presently does not attempt to hedge its exposure to
fluctuations in foreign currency exchange rates. International revenue generated
by the Company contributed approximately 23%, 30% and 18% of total revenue
during 1995, 1996 and 1997, respectively. Should the Company's revenue from
international sales increase as intended, and should such sales be denominated
in foreign currencies, the Company intends to adopt an adequate hedging strategy
to guard against foreign currency fluctuations.
Research and development costs consist principally of salaries and related
payroll for the employees engaged in the development and modification of
software products. For the two years ended December 31, 1996 and 1997, and the
three months ended March 31, 1998, research and development expenses were
$967,000, $1.5 million, and $272,000, respectively. The Company believes that
significant investments in research and development are required in order to
remain competitive.
The Company's operating results have fluctuated in the past and in the
future are expected to fluctuate significantly from quarter to quarter and may
fluctuate on an annual basis as a result of a number of factors. Revenue in any
quarter is dependent to a significant degree on orders booked and renewals of
agreements for maintenance in that quarter and is not predictable with any
degree of certainty. Since the Company's expense levels are based in part on
management's expectations regarding future revenue, if revenue is below
expectations in any quarter, the adverse effect may be magnified by the
Company's inability to adjust spending in a timely manner to compensate for any
revenue shortfall. In addition, because customers are purchasing larger and more
complex software products, as well as suites of products, the average order
value has been increasing and purchases of the Company's products require
approval of higher executive levels. See "Risk Factors -- Fluctuations in
Operating Results" and "Limited Sales Predictability."
SOFTWORKS was incorporated in Maryland in 1977 and was acquired by Computer
Concepts in 1993. It has operated as a wholly-owned subsidiary of Computer
Concepts since its acquisition. The Company was reincorporated in Delaware in
May 1998. Pursuant to the terms of a voting trust agreement, as of the effective
date of this offering, the payment of any management fee to Computer Concepts
will terminate and restrictions will be imposed on future intercompany
transactions. See "Certain Transactions."
17
<PAGE> 19
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial
data as a percentage of total revenue.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------- ----------------
1995 1996 1997 1997 1998
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Revenue:
Software licenses................................ 49.2% 52.1% 62.1% 49.2% 56.6%
Maintenance...................................... 50.8 47.9 37.2 50.8 38.7
Professional services............................ -- -- 0.7 -- 4.7
----- ----- ----- ----- -----
Total revenue................................. 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
Software licenses................................ 3.7 2.5 2.1 2.2 6.6
Maintenance...................................... 31.7 22.2 20.6 24.9 25.0
Professional services............................ -- -- 0.6 -- 3.4
----- ----- ----- ----- -----
Total cost of revenue......................... 35.4 24.7 23.3 27.1 35.0
----- ----- ----- ----- -----
Gross margin....................................... 64.6 75.3 76.7 72.9 65.0
Operating expenses:
Sales and marketing.............................. 36.7 37.3 46.6 49.4 51.5
General and administrative....................... 13.9 13.4 10.4 18.9 16.7
Amortization and depreciation.................... 18.0 9.6 7.4 9.3 7.4
Research and development......................... 7.8 5.9 5.5 5.9 4.1
Impairment on goodwill........................... 11.3 -- -- -- --
----- ----- ----- ----- -----
Total operating expenses...................... 87.7 66.2 69.9 83.5 79.7
----- ----- ----- ----- -----
(Loss) income before (benefit from) provision for
income taxes.................................. (23.1) 9.1 6.8 (10.6) (14.7)
(Benefit from) provision for income taxes........ (8.4) 4.3 3.9 (3.5) (3.1)
----- ----- ----- ----- -----
Net (loss) income.................................. (14.7)% 4.8% 2.9% (7.1)% (11.6)%
===== ===== ===== ===== =====
</TABLE>
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
Total Revenue. Total revenue increased 41.4% to $6.6 million for the three
months ended March 31, 1998 from $4.7 million for the three months ended March
31, 1997. The increase was largely the result of sales of product licenses by
the Company's expanded direct sales force. In addition, revenue increased due to
sales of new products and product enhancements, including Year 2000 products.
License revenue increased 62.8% to $3.7 million for the three months ended March
31, 1998 from $2.3 million for the three months ended March 31, 1997.
Maintenance revenue increased 7.6% to $2.6 million for the three months ended
March 31, 1998 from $2.4 million for the three months ended March 31, 1997. This
increase is attributable to overall growth in license revenue and renewals of
maintenance contracts by the installed customer base. Professional services,
which commenced significant operations in the third quarter of 1997, contributed
$309,000 to total revenue for the period ended March 31, 1998. Foreign revenue
decreased as a percentage of total revenue to 20% for the period ending March
31, 1998 from 21.8% for the period ending March 31, 1997. In terms of absolute
dollars, foreign revenue increased to $1.3 million for the period ending March
31, 1998 from $1.0 million for the period ending March 31, 1997. The increase
was primarily the result of the expansion of the Company into Australia.
Cost of Revenue. Included in the cost of revenue are cost of software
license revenue, cost of maintenance revenue, and cost of professional service
revenue. Cost of software license revenue includes royalties paid to its
developers and to a third party under a licensing agreement for certain Year
2000 products. Cost of software license revenue increased 334.7% to $439,000, or
6.6% of total revenue, for the three months
18
<PAGE> 20
ended March 31, 1998 from $101,000, or 2.2% of total revenue, for the three
months ended March 31, 1997. This increase was primarily attributable to the
third party agreement that was not in effect in during the three-month period
ended March 31, 1997, as well as an increase in software license revenue. Cost
of maintenance revenue increased 41.5% to $1.6 million, or 25.0% of total
revenue, for the three months ended March 31, 1998 from $1.2 million, or 24.9%
of total revenue, for the three months ended March 31, 1997. This increase is
attributable to the increase in maintenance revenue over the same time period
resulting from an increasing customer base of maintenance contracts. As a
percentage of maintenance revenue, the cost of maintenance was 64.5% for the
period ended March 31, 1998 and 49.1% for the period ended March 31, 1997. This
increase is primarily attributable to staffing of maintenance personnel to
support international sales in lieu of reliance upon distributors, as well as to
support the launch of new multi-platform products. Cost of professional services
revenue, which consists primarily of salaries and expenses, commenced operations
in the third quarter of 1997 and was $225,000 for the three months ended March
31, 1998.
Sales and Marketing Expense. Sales and marketing expense includes salaries
and related costs, commissions, travel, facilities and computers, communications
costs and promotional expenses for the Company's direct sales organization and
marketing staff. Sales and marketing expense increased 47.3% to $3.4 million for
the three months ended March 31, 1998 from $2.3 million for the three months
ended March 31, 1997. This increase was attributable to increased numbers of
sales people, as well as the establishment of new offices in Australia, Brazil,
France, Italy, Spain and additional offices in the United States. As a
percentage of revenue, sales and marketing expense increased to 51.5% for the
three months ended March 31, 1998 from 49.4% for the three months ended March
31, 1997. The Company expects to continue hiring additional sales and marketing
personnel.
General and Administrative Expense. General and administrative expense
includes administrative salaries and related benefits, management fees, as well
as legal, accounting and other professional fees. General and administrative
expense increased 24.7% to $1.1 million for the three months ended March 31,
1998 from $884,000 for the three months ended March 31, 1997. The increase in
general and administrative expenses was principally due to an increase in
finance and administrative personnel necessary to support the Company's growth.
As a percentage of revenue, this expense decreased to 16.7% for the three months
ended March 31, 1998 from 18.9% for the three months ended March 31, 1997.
Amortization and Depreciation Expense. Amortization and depreciation
expense increased 12.4% to $490,000 for the three months ended March 31, 1998
from $436,000 for the three months ended March 31, 1997.
Research and Development Expense. Research and development expense
includes salaries and related costs for the personnel involved in the Company's
research and development efforts. Research and development expense was $272,000
for the three months ended March 31, 1998 and $273,000 for the three months
ended March 31, 1997. As a percentage of revenue, this expense decreased to 4.1%
for the three months ended March 31, 1998 from 5.9% for the three months ended
March 31, 1997.
Provision for (Benefit from) Income Taxes. The benefit from income taxes
increased 26.4% to $206,000 for the three months ended March 31, 1998 from
$163,000 for the three months ended March 31, 1997. During these periods, the
Company reported its financial results on a consolidated basis with Computer
Concepts and did not file separate tax returns.
Years Ended December 31, 1997 and 1996
Total Revenue. Total revenue increased 62.0% to $26.8 million in 1997 from
$16.5 million in 1996. License revenue increased 93.2% to $16.6 million in 1997
from $8.6 million in 1996. The increase was primarily due to an increase in the
number of licenses of the Company's products in the Performance Arena and
Datastor Arena, the conversion from central processing unit ("CPU")-based
pricing to millions of instructions processed per second ("MIPS")-based pricing,
as well as the introduction of its Year 2000 products. New products in the Year
2000 Arena introduced during 1997 accounted for approximately 3.5% of software
license revenue. During 1997, the Company entered into approximately 104
MIPS-based licenses which accounted for $5.7 million in revenue. Maintenance
revenue increased 25.8% to $10.0 million in 1997
19
<PAGE> 21
from $7.9 million in 1996. This increase is attributable to overall growth in
license revenue and renewals of maintenance contracts by the installed customer
base. Professional services commenced significant operations in the third
quarter of 1997 and contributed $180,000 to total revenue in 1997. Foreign
revenue decreased as a percentage of total revenue to 17.6% for the period
ending December 31, 1997 from 29.5% for the period ending December 31, 1996. In
terms of absolute dollars, foreign revenue decreased slightly to $4.7 million
for the period ending December 31, 1997 from $4.9 million for the period ending
December 31, 1996.
Cost of Revenue. Cost of software license revenue, including royalties
paid to its developers and the amortization of capitalized software development
costs increased 36.8% to $580,000, or 2.1% of total revenue, in 1997, from
$424,000, or 2.5% of total revenue, in 1996. Cost of maintenance increased 50.5%
to $5.5 million in 1997 from $3.7 million in 1996. As a percentage of
maintenance revenue, cost of maintenance increased to 55.4% in 1997 from 46.3%
in 1996. This increase is primarily attributable to staffing of maintenance
personnel to support international sales in lieu of reliance upon distributors.
Sales and Marketing Expense. Sales and Marketing expense increased 102.3%
to $12.5 million in 1997 from $6.2 million in 1996. Sales and marketing expense
was 46.6% of total revenue in 1997 and 37.3% of total revenue in 1996. The
increase was primarily attributable to the expansion of the direct sales force
both domestically and internationally.
General and Administrative Expense. General and administrative expense
increased 25.9% to $2.8 million in 1997 from $2.2 million in 1996. As a
percentage of total revenue, general and administrative expense declined to
10.4% in 1997 from 13.4% in 1996. General and administrative expenses grew in
absolute dollars as the Company added personnel to all administrative areas, but
declined as a percentage of total revenue principally due to economies of scale
associated with increased revenue.
Amortization and Depreciation Expense. Amortization and depreciation
expense increased 23.6% to $2.0 million in 1997 from $1.6 million in 1996. This
increase was primarily due to the depreciation of additional computer equipment
and software purchased during 1997.
Research and Development Expense. Research and development expense
increased 53.1% to $1.5 million in 1997 from $967,000 in 1996. The increase was
primarily attributable to the Company's accelerated development of
multi-platform and Year 2000 products.
Provision for (Benefit from) Income Taxes. The provision for income taxes
increased 46.3% to $1.0 million in 1997 from $704,000 in 1996. During these
years, the Company was reported on a consolidated basis for Federal income tax
purposes with its parent corporation and did not file a separate Federal tax
return. On a stand-alone basis, if the Company had filed a separate Federal tax
return, its effective rates for 1997 and 1996 would have been 56.7% and 47.1%,
respectively. These rates differ from the Federal statutory income tax rate
primarily because of the non-deductibility of operating losses incurred by the
recently established foreign subsidiary corporations. A valuation reserve has
been established for the deferred tax asset generated from foreign net operating
losses as it is uncertain how, and if, these losses will be utilized against
future foreign income. During these periods, the Company reported its financial
results on a consolidated basis with Computer Concepts and did not file separate
tax returns.
Years Ended December 31, 1996 and 1995
Total Revenue. Total revenue increased 42.1% to $16.5 million in 1996 from
$11.6 million in 1995. License revenue increased 50.6% to $8.6 million in 1996
from $5.7 million in 1995. The increase was primarily due to an increase in the
number of licenses of the Company's Catalog Solution and Performance Solution
products. The Company did not introduce any new products during 1996.
Maintenance revenue increased 34.0% to $7.9 million in 1996 from $5.9 million in
1995. This increase is attributable to overall growth in license revenue and
renewals of maintenance contracts by the installed customer base. Foreign
revenue increased to 29.5% ($4.9 million) for the period ending December 31,
1996 from 23.4% ($2.7 million) for the period ending December 31, 1995.
20
<PAGE> 22
Cost of Revenue. Cost of software license revenue was relatively constant
at $424,000, or 2.5% of total revenue, in 1996 as compared to $432,000, or 3.7%
of total revenue, in 1995. Cost of maintenance revenue was $3.7 million in 1996
and 1995.
Sales and Marketing Expense. Sales and marketing expense increased 44.6%
to $6.2 million in 1996 from $4.3 million in 1995. Sales and marketing expense
was 37.3% of total revenue in 1996 and 36.7% of total revenue in 1995. The
increase was primarily attributable to the expansion of the direct sales force
both domestically and internationally.
General and Administrative Expense. General and administrative expense
increased 36.9% to $2.2 million in 1996 from $1.6 million in 1995. As a
percentage of total revenue, general and administrative expense decreased to
13.4% in 1996 from 13.9% in 1995.
Amortization and Depreciation Expense. Amortization and depreciation
expense decreased 23.6% to $1.6 million in 1996 from $2.1 million in 1995.
During 1995, the Company recorded amortization expense related to goodwill
resulting from the acquisition of DBopen, Inc. (see Note 3 to the Consolidated
Financial Statements). The remaining asset was written off during the fourth
quarter of 1995, and as a result, no such amortization was recorded in 1996.
Research and Development Expense. Research and development expense
increased 6.5% to $967,000 in 1996 from $908,000 in 1995. As a percentage of
total revenue, research and development expense decreased to 5.9% in 1996 from
7.8% in 1995.
Provision for (Benefit from) Income Taxes. The provision for income taxes
in 1996 was $704,000 as compared to an income tax benefit of $979,000 in 1995.
During these years, the Company was reported on a consolidated basis for Federal
income tax purposes with its parent corporation and did not file a separate
Federal tax return. On a standalone basis, if the Company had filed a separate
Federal tax return, its effective rates for 1996 and 1995 would have been 47.1%
and (36.4)%, respectively. These rates differ from the Federal statutory income
tax rate primarily because of the non-deductibility of operating losses incurred
by the recently established foreign subsidiary corporations. During these
periods, the Company reported its financial results on a consolidated basis with
Computer Concepts and did not file separate tax returns.
21
<PAGE> 23
QUARTERLY RESULTS OF OPERATIONS
The following tables present certain unaudited quarterly statements of
operations data for each of the Company's last nine quarters, including the
period ended March 31, 1998, as well as the percentage of the Company's total
revenue represented by each item. The information has been derived from the
Company's audited Financial Statements. The unaudited quarterly Financial
Statements have been prepared on substantially the same basis as the audited
Financial Statements contained herein. In the opinion of management, the
unaudited quarterly Financial Statements include all adjustments, consisting
only of normal recurring adjustments that the Company considers to be necessary
to present fairly this information when read in conjunction with the Company's
Financial Statements and notes thereto appearing elsewhere herein. The results
of the operations for any quarter are not necessarily indicative of the results
to be expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1996 1996 1996 1996 1997 1997 1997 1997 1998
-------- -------- --------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Software licenses.......... $1,406 $1,528 $2,049 $3,628 $2,295 $3,809 $4,281 $6,248 $3,736
Maintenance................ 1,786 1,886 2,039 2,203 2,371 2,458 2,578 2,550 2,551
Professional services...... -- -- -- -- -- -- 45 135 309
------ ------ ------ ------ ------ ------ ------ ------ ------
Total revenue............ 3,192 3,414 4,088 5,831 4,666 6,267 6,904 8,933 6,596
Cost of revenue:
Software licenses.......... 140 98 124 62 101 114 161 204 439
Maintenance................ 868 829 829 1,138 1,163 1,337 1,355 1,658 1,646
Professional services...... -- -- -- -- -- -- 38 117 225
------ ------ ------ ------ ------ ------ ------ ------ ------
Total cost of revenue.... 1,008 927 953 1,200 1,264 1,451 1,554 1,979 2,310
------ ------ ------ ------ ------ ------ ------ ------ ------
Gross margin................. 2,184 2,487 3,135 4,631 3,402 4,816 5,350 6,954 4,286
Operating expenses:
Sales and marketing........ 1,220 1,225 1,455 2,261 2,305 3,300 3,247 3,611 3,395
General and
administrative........... 503 479 512 723 884 594 586 727 1,102
Amortization and
depreciation............. 371 389 399 437 436 445 500 591 490
Research and development... 247 212 248 260 273 413 683 111 272
------ ------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses............... 2,341 2,305 2,614 3,681 3,898 4,752 5,016 5,040 5,259
------ ------ ------ ------ ------ ------ ------ ------ ------
(Loss) income before (benefit
from) provision for income
taxes...................... (157) 182 521 950 (496) 64 334 1,914 (973)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(Benefit from) provision for
income taxes................ (31) 127 224 384 (163) 84 207 902 (206)
------ ------ ------ ------ ------ ------ ------ ------ ------
Net (loss) income............. $ (126) $ 55 $ 297 $ 566 $ (333) $ (20) $ 127 $1,012 $ (767)
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
22
<PAGE> 24
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1996 1996 1996 1996 1997 1997 1997 1997 1998
-------- -------- --------- -------- -------- -------- --------- -------- --------
(AS A PERCENTAGE OF TOTAL REVENUE)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Software licenses.......... 44.0% 44.8% 50.1% 62.2% 49.2% 60.8% 62.0% 70.0% 56.6%
Maintenance................ 56.0 55.2 49.9 37.8 50.8 39.2 37.3 28.5 38.7
Professional services...... -- -- -- -- -- -- 0.7 1.5 4.7
------ ------ ------ ------ ------ ------ ------ ------ ------
Total revenue............ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
Software licenses.......... 4.4 2.9 3.0 1.1 2.2 1.8 2.3 2.3 6.6
Maintenance................ 27.2 24.3 20.3 19.5 24.9 21.3 19.6 18.6 25.0
Professional services...... -- -- -- -- -- -- 0.6 1.3 3.4
------ ------ ------ ------ ------ ------ ------ ------ ------
Total cost of revenue.... 31.6 27.2 23.3 20.6 27.1 23.1 22.5 22.2 35.0
------ ------ ------ ------ ------ ------ ------ ------ ------
Gross margin................. 68.4 72.8 76.7 79.4 72.9 76.9 77.5 77.8 65.0
Operating expenses:
Sales and marketing........ 38.2 35.9 35.6 38.8 49.4 52.7 47.0 40.4 51.5
General and
administrative........... 15.8 14.0 12.5 12.4 18.9 9.5 8.5 8.1 16.7
Amortization and
depreciation............. 11.6 11.4 9.8 7.5 9.3 7.1 7.3 6.6 7.4
Research and development... 7.7 6.2 6.1 4.4 5.9 6.6 9.9 1.3 4.1
------ ------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses............... 73.3 67.5 64.0 63.1 83.5 75.9 72.7 56.4 79.7
------ ------ ------ ------ ------ ------ ------ ------ ------
(Loss) income before (benefit
from) provision for income
taxes...................... (4.9) 5.3 12.7 16.3 (10.6) 1.0 4.8 21.4 (14.7)
(Benefit from) provision for
income taxes............... (1.0) 3.7 5.4 6.6 (3.5) 1.3 3.0 10.1 (3.1)
------ ------ ------ ------ ------ ------ ------ ------ ------
Net (loss) income............ (3.9)% 1.6% 7.3% 9.7% (7.1)% (0.3)% 1.8% 11.3% (11.6)%
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
Demand for the Company's products is generally higher during the fourth
quarter, primarily due to the capital spending trends of its customers, which
has resulted in higher license revenue in that period and lower license revenue
in the first quarter. The Company anticipates that its business will continue to
be subject to such seasonal variations.
The operating results for any quarter are not necessarily indicative of
results that will be obtained for any future period. Due to the relatively fixed
nature of certain of the Company's costs, including personnel and facilities
costs, a decline in revenue, failure to achieve expected revenue in any fiscal
quarter or unanticipated variations in billing and utilization rates of service
personnel would result in lower profitability in that quarter. The Company's
quarterly results may fluctuate as a result of a variety of factors, many of
which are not within the Company's control, including timing and levels of
software purchases by customers, the timing, size and state of new product
development projects, new product introductions by the Company or its
competitors, levels of market acceptance for the Company's products, or the
hiring of additional personnel. In addition, the Company historically has
recognized a large portion of its revenue from sales in the last month of a
quarter such that the magnitude of quarterly fluctuations may not become evident
until late in, or at the end of, a particular quarter. The Company believes,
therefore, that past operating results and period-on-period comparisons should
not be relied upon as an indication of future performance.
23
<PAGE> 25
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations through cash generated from
operations and advances from Computer Concepts. At March 31, 1998, the balance
owing to Computer Concepts was $1.2 million. The Company anticipates repaying
the balance with the proceeds of this offering. The Voting Trust Agreement
prohibits advances from Computer Concepts to the Company without the prior
approval of the Trustees. See "CERTAIN TRANSACTIONS -- Voting Trust Agreement."
At March 31, 1998 the Company had $909,000 in cash and cash equivalents.
The Company's operating activities provided cash of $1.7 million and used cash
of $162,000 in the three months ended March 31, 1998 and March 31, 1997,
respectively, and provided $213,000, $2.7 million and $564,000 for the years
ended December 31, 1997, 1996 and 1995, respectively.
Cash used in investing activities during the three months ended March 31,
1998 was $795,000, and was $2.6 million, $1.3 million and $1.4 million for the
years ended December 31, 1997, 1996, and 1995, respectively. The Company's use
of cash was principally for the purchase of property and equipment, software
development and technologies, and additional contingent consideration to two of
the Company's former stockholders in conjunction with the acquisition of the
Company by Computer Concepts. Through March 31, 1998, the Company paid
approximately $1.6 million of a maximum amount payable to such former
stockholders of $2.0 million. (See Note 8 to the Consolidated Financial
Statements).
The Company's principal commitments as of March 31, 1998 consisted
primarily of (i) leases on its corporate headquarters facilities, various sales
offices and operating equipment, (ii) employment agreements and (iii) a software
distribution agreement. (See Note 13 to the Consolidated Financial Statements)
There were no material commitments for capital expenditures. The Company intends
to enter into a credit agreement in July 1998 with a commercial bank to obtain a
$3.0 million line of credit secured by all of the Company's real and personal
property, consisting primarily of the Company's domestic accounts receivable.
Amounts outstanding under the line of credit will bear interest at the bank's
prime rate or LIBOR plus 1.7%, at the Company's option. Amounts available under
this facility, together with the Company's current cash balances and cash flow
from its operations and the proceeds of this offering, are expected to be
sufficient to meet its working capital and capital expenditure needs for at
least the next 12 months. However, there can be no assurance that the Company
will have sufficient capital to finance potential acquisitions or other growth
oriented activities, which could require the Company to incur additional debt or
obtain other financing.
YEAR 2000
The Company is reviewing its internal computer programs and system to
ensure that the programs and systems will be Year 2000 compliant. The Company
presently believes that its computer systems will be Year 2000 compliant in a
timely manner. However, while the estimated cost of these efforts are not
expected to be material to the Company's financial position or any year's
results of operations, there can be no assurance to this effect. In addition,
the Company cannot predict the effect of the Year 2000 problem on the vendors,
customers and other entities with which the Company transacts business, or with
whose products the Company's products interact and there can be no assurance
that the effect of the Year 2000 problem on such entities will not have a
material adverse effect on the Company's business, operating results and
financial condition.
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<PAGE> 26
BUSINESS
OVERVIEW
SOFTWORKS develops, markets, licenses and supports a family of enterprise
systems management software products for data and storage management and
performance management. The Company provides automated systems management
solutions designed to optimize system and application performance, reduce
hardware expenditures, and enhance the reliability and availability of the data
processing environment for enterprises that employ primarily mainframe computing
environments, and increasingly UNIX and Microsoft(R) Windows NT(R) ("NT"). The
Company believes that it has been a pioneer in the development of automated
systems management solutions and that it is currently a leading vendor in this
market. As of June 30, 1998, the Company's products were licensed for use by 81
of the Fortune 100 companies.
The Company's products are developed using "SST," its proprietary
combination of a design strategy, a development methodology and a set of core
technologies, which is intended to enable the Company's software products to
provide immediate performance improvement and cost savings. The Company believes
that SST differentiates it from its competition by redefining and extending
traditional monitoring and reporting systems management through the use of
embedded intelligence which provides proactive alerts, programmed responses and
automated corrective actions.
The Company's offerings are grouped into four market segments ("Arenas"):
performance management; data and storage management; Year 2000; and professional
services. Historically, the Company's products addressed only the performance
and data storage requirements of mainframe operating systems. Recently, the
Company's products have been expanded to include UNIX-based storage management
products, and the Company expects to introduce NT-based storage management
products in the near future. In addition, the Company has extended its product
family by launching a suite of products in the Year 2000 Arena. The Company has
also created a professional services organization that provides systems
management services, including training, implementation of software, and staff
augmentation.
The Company has over 5,000 licenses of its products for use at over 1,900
installations. The Company's customers include ADP Financial Information
Services Inc., NationsBanc Services, Inc., Sherwin-Williams Co., Texas
Instruments Incorporated, The Vanguard Group and Wal-Mart. The Company sells its
products through a global direct sales force and a network of international
distributors and resellers.
INDUSTRY BACKGROUND
The information technology ("IT") infrastructure worldwide is growing
rapidly and becoming increasingly complex. Despite the widespread adoption of
distributed platforms, such as UNIX and NT, mainframes continue to serve as the
basis for a majority of corporate applications, especially those that are
mission critical. In particular, mainframe environments remain the preferred
platform for high-volume, transaction-oriented applications as well as
applications that require the storage and rapid retrieval of large amounts of
data. Contrary to earlier predictions, the growing volume of data and increasing
number of functions residing on non-mainframe platforms has not reduced reliance
upon mainframes. While the number of mainframe sites and central processing
units ("CPUs") has increased only slightly, the amount of mainframe processing
power, as measured by the aggregate number of millions of instructions processed
per second ("MIPS") installed globally, has increased substantially in recent
years and is anticipated to continue to grow approximately 25% per year through
2002, according to Gartner Group. The overall complexity of the IT
infrastructure has increased because mainframes, UNIX and NT platforms must
co-exist to satisfy an array of business application requirements across the
enterprise.
In addition to the increasing complexity of the multi-platform IT
environment, there are other trends that are driving the need for software
solutions that address enterprise-wide systems management requirements. The
proliferation of NT and UNIX application servers complicates the task of
effectively managing the IT assets of major corporations, in part because of the
decentralized systems management practices adopted to deal with heterogeneous
systems. In addition to the duplication of effort associated with decentralized
systems
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<PAGE> 27
management, corporations can no longer guarantee compliance with their "best
practices." "Best practices" are a set of standard practices and policies which
evolved in mainframe environments and are designed to ensure the data integrity
and availability required by mission-critical computing systems. Corporate IT
organizations need solutions that enable them to extend these "best practices"
across their multi-platform computing environments to deliver the data integrity
required for mission-critical applications.
Software vendors have responded to the need for UNIX and NT systems
management by developing distinct tools tailored to address the unique data
administration, performance and security functions required for each specific
platform. These platform-specific tools are designed to monitor systems and
provide reports that require systems management personnel with platform-specific
expertise to interpret the reports and identify and correct problems. The result
has been a significant increase in the number of technical personnel required to
effectively manage enterprise systems, and such personnel are in increasingly
short supply. Further, the systems storage and technical personnel demands
created by the Year 2000 compliance requirement has exacerbated the resulting
personnel shortage.
As a result of these industry-wide developments, many IT organizations now
demand next generation tools that move beyond simply monitoring and reporting.
Solutions that incorporate platform-specific intelligence and allow automatic
management of storage and performance across heterogeneous environments address
a critical requirement of IT groups today. A comprehensive automation solution
should include proactive alerts, programmed responses and automated corrective
actions enabling effective management of the increasing volume and complexity of
the computing environments with fewer specialized technicians. These solutions
should also provide an efficient and effective vehicle for instituting "best
practices" across the enterprise.
According to Gartner Group, the net new license revenue for the network and
systems management and storage management markets in 1997 totaled approximately
$8.2 billion. Gartner Group also estimates that the storage management market is
expected to grow at a compound annual rate of approximately 20% through the year
2002. The Company primarily operates in the storage resource management market,
a subset of the storage management market. The storage resource management
market is expected to grow at a 44% compound annual growth rate from $201
million in 1997 to $1.2 billion in 2002.
THE SOFTWORKS SOLUTION
The Company provides automated systems management solutions to help
organizations more efficiently and effectively manage their IT infrastructure.
The Company's software incorporates intelligent agent technology to perform
system and data management and analysis tasks across multi-platform
environments. By using the Company's products, customers are able to maintain
high standards of service delivery and respond more easily to the rapid
introduction of new technologies. The Company's products are designed to enable
its customers to exploit the most application-appropriate processor without
incurring the expense of maintaining multiple teams of technology specialists
for each operating system platform. The Company's products possess the following
key features:
- Integrated Storage and Performance Management Solution. The Company
provides integrated Arenas for both storage and performance management.
The Company believes that many organizations want an integrated suite of
products to address their storage and performance needs, and the
Company's solutions provide the functionality and scalability that is
typically required. The Company's solutions are designed to optimize
system and application performance, and enhance the reliability and
availability of the data processing environment for enterprises that
employ mainframe, UNIX and/or NT computing environments.
- Automated Responses to Systems Management Requirements. In contrast to
conventional systems management solutions which merely provide reporting
and monitoring capabilities, the Company's new generation of products
provide proactive alerts, programmed responses and automated corrective
actions. This use of automation enables organizations to employ fewer
specialized technicians to manage the increasing volume and complexity
within the enterprise computing environment, thereby enabling IT
personnel to focus more of their time on other mission-critical systems
management tasks.
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<PAGE> 28
"Proactive alerts" detect system events and abnormalities and alert the
user to potential system, application or data availability issues.
SOFTWORKS products probe system resources to determine if key storage and
performance indicators are within acceptable ranges. If an "out of
reasonable range" condition is detected, the products offer three
alternative, but not mutually exclusive, responses. The products can (i)
notify the management console or appropriate network or system monitoring
software; (ii) automatically correct the issue using "pre-programmed
responses" which enable the user to programmatically tell the product
what to do in the event that a particular condition is detected; or (iii)
guide the user through "automated corrective actions" which present the
user with one or more alternative responses to the condition and guide
the user through the corrective action.
- Application of "Best Practices" to a Multi-Platform Environment. The
Company's solutions are designed to enable the centralized control of
disparate applications and platforms, thereby facilitating the
implementation of an organization's "best practices" across
multi-platform environments. The Company's solutions operate efficiently
in multi-platform environments by using embedded intelligent agents which
recognize and respond to the particular requirements of each specific
operating system.
- Reduced Cost of Systems Management. The Company's solutions are designed
to reduce the overall cost of managing an organization's IT
infrastructure through a combination of advanced products and technology
with comprehensive service and support. The Company's SST technology is
specifically designed to enable customers (i) to minimize the amount of
intervention by IT personnel, thereby enabling them to focus on other
mission-critical systems management tasks, and (ii) to facilitate system
availability 24 hours per day, seven days per week. Furthermore, the
Company's solution often reduces hardware expenditures by permitting
organizations to defer purchases of CPU and storage upgrades.
STRATEGY
The Company's objective is to become a leading provider of data and storage
management products, performance management products, and related systems
management software products and services on both mainframe and multi-platform
environments. The primary elements of the Company's strategy to achieve this
objective include the following:
Enhance and Extend Product Offerings in Current Arenas. The Company
intends to use its technical expertise to enhance its core product
functionality, as well as add products to existing Arenas. These products
will enhance customers' ability to derive superior performance in
mission-critical systems and applications, facilitate the management of
enterprise storage devices and data and help ensure system and data
availability. In addition, the Company intends to integrate and extend its
Year 2000 offerings.
Expand Domestic and International Sales Channels. The Company intends
to continue to focus on expanding its sales efforts. SOFTWORKS has
increased its direct sales force from 11 in January 1996 to 88 as of March
31, 1998, and the Company has added 27 sales engineers to support its
direct sales force. In addition to its 10 sales offices in the United
States, the Company maintains direct sales offices in Australia, Brazil,
Canada, France, Spain and the United Kingdom. The Company is also
continuing to expand its international distribution channels by adding
sales agents and opening additional direct sales offices.
Leverage Existing Customer Base. The Company has an extensive
customer base in excess of 1,900 installations. It intends to generate
additional revenue from these customers by cross-selling products in the
same and other product Arenas, as well as providing incentives to upgrade
to multi-year maintenance agreements.
Offer Products in New Systems Management Arenas. Although the Company
currently provides products that address performance, data and storage
management processes across the enterprise, there is significant growth
potential in extending the Company's SST technology and product offerings
to additional systems management market segments. The Company intends to
respond to anticipated demand for additional multi-platform systems
management solutions, such as application systems
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<PAGE> 29
management, performance management, change management or security
management. To facilitate this expansion, the Company is currently
developing the next generation of SST to permit further integration and
web-enablement of the Company's products, as well as to allow integration
and deployment of third party systems management tools.
Pursue Strategic Partnerships, Alliances and Acquisitions. In
addition to its internal development efforts, the Company intends to
acquire new products, technologies or the distribution rights to third-
party products that address complementary systems management market
segments. The Company also intends to pursue relationships whereby third
parties could distribute some of the Company's products.
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<PAGE> 30
PRODUCTS AND SERVICES
Using the Company's proprietary SST development methodologies and core
technologies, the Company has developed offerings grouped into four Arenas --
data and storage management products, performance management products, Year 2000
products and professional services.
Products
The following table describes the functionality of the Company's products:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
INITIAL
RELEASE
PRODUCT DATE DESCRIPTION
<S> <C> <C> <C>
DATASTOR ARENA ENTERPRISE-WIDE TOOLS DESIGNED TO FACILITATE STORAGE
MANAGEMENT AND SYSTEM AND DATA AVAILABILITY
Catalog Solution-SST 1986 - Provides comprehensive OS/390 catalog maintenance,
diagnostics, reporting, backup, repair and recovery
- Reduces disaster recovery time
- Improves the integrity and availability of the catalog
environment and mission-critical data resources distributed
across multiple operating system platforms
- -----------------------------------------------------------------------------------------------------------
CenterStage-SST 1995 - Provides centralized control and monitoring of storage
A suite of independent and and data resources distributed across multiple operating
integratable products for system platforms
OS/390-MVS, AIX, HP-UX, - Reduces the cost, complexity and skill requirements for
Solaris, DB2 and capacity planning, disaster recovery, and storage resource
OpenEdition management
- Reports storage subsystem information and provides an
assessment of data and storage problems
- Provides customer-controlled automation to correct
designated storage problems and minimize the need for
storage administrators to develop platform-specific
solutions
PERFORMANCE ARENA DERIVES SUPERIOR PERFORMANCE FROM MISSION-CRITICAL SYSTEMS
AND APPLICATIONS
Performance Essential-SST - Designed to optimize and improve system and
I/O Plus for VSAM 1984 processing performance
I/O Plus for xSAM 1993 - Reduces the requirement for manual tuning efforts
HiperLoad for VSAM 1992 - May defer or eliminate costly processor upgrades while
helping to ensure that service level requirements are met
- -----------------------------------------------------------------------------------------------------------
TeraSAM-SST 1995 - Provides transparent file segmentation to overcome VSAM's
4GB file size restriction
- Splits large VSAM files into separate physical data sets
that can be managed and processed more efficiently
- Enables parallel backup, restore and reorganization of
segments to reduce batch processing time
- -----------------------------------------------------------------------------------------------------------
VSAM Assist-SST 1978 - Provides VSAM backup, recovery, and migration
capabilities to simplify and improve VSAM file and data
maintenance
- Reduces batch processing time while safeguarding data
- -----------------------------------------------------------------------------------------------------------
VSAM Quick Index-SST 1981 - Reduces batch processing time and processor utilization
by building alternate indices quickly
- Improves data availability by providing faster access to
data
YEAR 2000 ARENA ENTERPRISE-WIDE TOOLS DESIGNED TO IDENTIFY, ASSESS,
DIAGNOSE, SIMULATE, TEST, AGE AND BRIDGE PROGRAMS AND DATA
TO SOLVE MILLENNIUM ISSUES
HotDate 2000 1997- - Independent and integratable products which facilitate
1998 Year 2000 assessment, remediation and testing on OS/390 and
MVS
- -----------------------------------------------------------------------------------------------------------
HotDate 2000/MP 1998 - Products that perform Year 2000 assessment and
remediation for C and COBOL on UNIX (HP-UX, Solaris, AIX)
and assessment for Powerbuilder on NT
- -----------------------------------------------------------------------------------------------------------
</TABLE>
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The Company provides its customers both product maintenance and enhancement
releases under their existing maintenance agreements. Enhancement releases
typically occur once a year and are developed primarily to respond to market
demand and to ensure that the product is competitive in the market. Maintenance
releases occur at a minimum of one maintenance release per product per year. The
Company typically introduces upgrades to its existing products on an annual
basis.
Professional Services
The Company's Professional Services organization provides implementation,
training and consulting services for its own software (Product SKILLPACKS) and
the software of third-party vendors (Extended SKILLPACKS). The Company's
Professional Services organization also provides staff augmentation services to
enable each customer to augment its technical staff with the personnel required
to meet specific short-term or long-term project goals.
The Company's SKILLPACKS are strategic IT services offerings that provide
customers with expertise and assistance in installing and implementing certain
software products. Product SKILLPACKS are intended to expedite the effectiveness
of the Company's products, accelerate the customer's staff productivity and
expose the customer to the full capabilities of the Company's products. Extended
SKILLPACKS provide implementation of third-party products, assistance with
product conversions, training in specific areas related to systems management
and address short-term, critical project requirements. SKILLPACKS prices are
dependant upon the complexity of each customer's environment, the expertise
level of each customer's staff, and each customer's goal and time frame.
Customer Service and Technical Support
The Company maintains an experienced staff of customer service personnel to
provide technical support to its customers. Each member of the customer service
staff is certified through an ongoing in-house training and testing program to
provide support for each individual product. The Company's customer service
staff provides product support via telephone and e-mail 24 hours per day, seven
days per week. The Company generally provides software and documentation
updates, including maintenance releases, operating system upgrades and major
functional upgrades, as part of its customer support services.
CUSTOMERS
As of June 30, 1998, the Company's products were licensed for use by 81 of
the Fortune 100 companies. The Company's target customers are large
organizations with complex information systems. In the past, the Company
targeted multi-platform enterprises that relied on mainframe systems. In the
future, the Company intends also to target organizations that rely on UNIX or
NT-based systems.
The following is a representative list of organizations, each of which
accounted for in excess of $50,000 in revenue to the Company for the fiscal year
ended December 31, 1997:
Acxiom Corporation
ADP Financial Information Services Inc.
American International Group Data
Center, Inc.
Gallileo International, LLC
NationsBanc Services, Inc.
Nielsen Media Research
Norfolk Southern Corporation
Sherwin-Williams Co.
State of Tennessee
Texas Instruments Incorporated
The Vanguard Group
Unum Life Insurance Company
Wachovia Operational Services
Corporation
Wal-Mart Stores, Inc.
SALES, DISTRIBUTION AND MARKETING
SOFTWORKS has over 5,000 licenses of its products for use at over 1,900
installations, including 81 of the Fortune 100 companies. The Company markets
its products and services through its worldwide distribution channels which
include direct sales personnel, agents, and distributors. The Company has
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approximately 115 sales and sales support employees engaged in promoting the
licensing of the Company's products and services. In the United States the
Company operates 10 sales offices. Internationally, the Company has sales
offices in Australia, Brazil, Canada, France, Spain and the United Kingdom. The
U.K. office also covers the Scandinavian and Benelux countries. The Company's
international distributors currently are located in Argentina, Chile, Germany,
Hong Kong, Indonesia, Israel, Japan, Korea, Malaysia, Mexico, Peru, Philippines,
Singapore, South Africa, Thailand, Turkey, Uruguay and Venezuela. All offices
are responsible for specific geographic territories that may extend beyond the
state, province, or country in which the office is located.
The Company's direct sales force is comprised of account managers and sales
engineers who, in addition to the sale of the Company's products, are
responsible for technical demonstrations, product installation and product
implementation. A separate Federal Accounts group specifically targets United
States government clients, including end-users and system integrators. In
addition to the traditional distribution channels, the Company has established a
web-based interface to allow the purchase and download of the Company's
UNIX-based products.
Since 1996, the Company actively has encouraged customers who have licensed
only one or two products to license multiple products and to enter into
multi-year maintenance agreements to generate additional revenue and a
significant deferred revenue stream.
The Company maintains vendor relationships with leading organizations such
as IBM, EMC, Hewlett-Packard, Sun and Oracle. These relationships provide the
Company access to pre-release versions of software to help ensure that the
Company's products utilize the latest technology and continue to be competitive
with new operating systems and database releases. These relationships also
provide the Company with insight for strategic planning and product direction.
The Company has implemented marketing initiatives to support the sales and
distribution of its products and services, and communicate corporate direction.
The Company's marketing department is responsible for collateral development,
lead generation and brand awareness of the Company and its products. Marketing
programs include public relations, seminars, industry conferences and trade
shows, advertising and direct mail. The Company's marketing organization also
contributes to both the product direction and strategic planning processes by
providing market research and conducting surveys and focus groups.
LICENSING AND INTELLECTUAL PROPERTY
The Company considers certain features of its software, its internal
operations and development process, and its SST methodology and technology to be
proprietary. The Company relies on a combination of trade secret, copyright and
trademark laws, contractual provisions and certain technology and security
measures to protect its proprietary intellectual property. The Company does not
currently have any patents or pending patent applications. Notwithstanding the
efforts the Company takes to protect its proprietary rights, existing trade
secret, copyright, and trademark laws afford only limited protection. In
addition, effective protection of copyrights, trade secrets, trademarks and
other proprietary rights may be unavailable or limited in certain foreign
countries. The Company believes that, because of the rapid rate of technological
change in the computer software industry, factors such as the knowledge, ability
and experience of the Company's employees, product and service offering
development, and quality of customer support services are more important than
any available trade secret or copyright protection.
The Company does not sell or transfer title of its products to its clients.
The products are licensed generally pursuant to non-exclusive and perpetual
licensing agreements for which extended payment terms of three to five years may
be offered. In the case of extended payment term agreements, the customer is
contractually bound to equal annual fixed payments. The first year of
maintenance is bundled with standard licensing agreements. In the case of
extended payment term agreements, maintenance is bundled for the length of the
payment term. Thereafter, in both instances, the customer may purchase
maintenance annually. Revenue with respect to such extended payment terms is
deferred and recognized over the period of the installment payment plan.
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The Company's mainframe products are licensed to end users either on a CPU
basis or a MIPS basis. Under the CPU option, the license fee is based
principally upon the number and size of the central processing units. Under the
MIPS option, which the Company is now emphasizing, the license fee is based upon
the amount of the customer's computing power as measured in MIPS. In the last
two fiscal quarters, 40% of the Company's new licenses were priced on a MIPS
basis. The Company's client-server products are licensed to end users on a
per-server or length of service basis.
The Company generates revenue through perpetual product licenses and
maintenance agreements that are renewed annually on the anniversary of the
original purchase date. In 1997, approximately 38% of the Company's revenue was
generated from recurring maintenance agreements. The renewal rate for
maintenance agreements averages approximately 95%. Other revenue is generated
when product licenses are transferred to different or larger CPUs. No single
customer accounted for greater than 3% of the Company's total revenue in 1997.
Currently, the Company licenses certain technology on a perpetual basis
from third parties which is incorporated in some of the Company's products. In
the future, the Company may license additional technology from third parties for
incorporation in some of the Company's products on a perpetual or term basis.
RESEARCH AND DEVELOPMENT
The computer software industry is characterized by rapid technological
change, which requires ongoing development and maintenance of software products.
It is customary for modifications to be made to a software product as experience
with its use grows or changes in manufacturers' hardware and software so
require.
The Company uses a design strategy and development methodology, SST, that
facilitates product development, adherence to market requirements, quality
testing practices, product consistency and ease of integration, and long-term
supportability and maintainability. This methodology has evolved over the life
of the Company to address the changing requirements of product-for-market
development that have come about as a result of client-server technology
advances. The Company is currently expanding the scope of its CenterStage suite
of products to address Oracle and NT, and to enhance and extend the SST
knowledge base. The Company is also finalizing the development of additional
products for its Year 2000 Arena.
The Company believes that its research and development staff, many with
extensive experience in the industry, represents a significant competitive
advantage. As of March 31, 1998, the Company's research and development group
consisted of 31 employees. The Company seeks to recruit highly qualified
employees, and its ability to attract and retain such employees will be a
principal factor in its success in maintaining a leading technological position.
For the two years ended December 31, 1996 and 1997, and the three months ended
March 31, 1998, research and development expenses were $967,000, $1.5 million
and $272,000, respectively. The Company believes that significant investments in
research and development are required in order to remain competitive.
COMPETITION
The market in which the Company operates is highly competitive, rapidly
evolving and subject to continuous technological change. The Company's products
have traditionally addressed niches within the performance and storage
management segments. In conjunction with the Company's SST strategy, the Company
groups its existing products into bundles to compete more effectively and better
address customers' strategic issues. This approach enables the Company to expand
its audience to include systems and applications personnel, as well as a higher
level of management within the customer and prospect base.
Although the Company believes that it maintains a competitive advantage by
bundling its software products to minimize point product competition and by
offering products which the Company believes are unavailable from its
competitors, there are no assurances that the Company can maintain or enhance
its competitive position against current and future competitors. Significant
factors such as the emergence of new products, fundamental changes in computing
technology and data storage and manipulation platforms and
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<PAGE> 34
applications and aggressive pricing and marketing strategies by the Company's
competitors may affect the Company's competitive position. Many of the Company's
current and potential competitors have longer operating histories, greater name
recognition, larger installed customer bases and substantially greater
financial, technical and marketing resources than the Company. There can be no
assurance that the Company's current and potential competitors will not develop
software products that may be or may be perceived to be more effective or
responsive to technological change than are the Company's current or future
products or that the Company's technologies and products will not be rendered
obsolete by such developments. Increased competition could result in price
reductions, reduced margins or loss of market share, any of which could have a
material adverse effect on the Company's business, operating results and
financial condition. The Company's primary competitors are Sterling Software,
Inc. and Boole & Babbage, Inc. in the data and storage management market; Boole
& Babbage, Inc. and Computer Associates International, Inc. in the performance
management market; and Compuware, Inc. and Viasoft Inc. in the Year 2000 market.
The Company believes that its products compete effectively on the basis of
quality, functionality, technical support and service, and embedded intelligence
and proactive automation.
EMPLOYEES
As of March 31, 1998, the Company employed 218 full-time employees,
including 118 in marketing, sales and support services, 82 in research and
development, customer support and maintenance, and 18 in finance and
administration. The Company employs 192 people in the United States and 26 in
foreign countries. The future success of the Company will depend in large part
upon its continued ability to attract and retain highly skilled and qualified
personnel in a highly competitive environment. The Company believes that its
employee relations are good.
PROPERTIES
The Company's executive offices, customer support and marketing operations
are currently located in facilities occupying approximately 26,000 sq. ft. in
Alexandria, Virginia pursuant to a lease expiring in September 2001. The annual
rent and maintenance for the facility is approximately $324,000. The lease
provides for a renewal option for five years at an annual rent increase of three
percent during the option period. The Company also leases an aggregate of 10,000
sq. ft. at an aggregate annual rental of $329,550 in 9 locations throughout the
United States which are used for sales activities. The Company maintains foreign
sales offices in Australia, Brazil, Canada, France, Spain and the United
Kingdom.
LEGAL PROCEEDINGS
The Company is not a party to any litigation that it believes could have a
material adverse effect on its business, financial condition and results of
operations.
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<PAGE> 35
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND OTHER KEY PERSONNEL
The directors, executive officers and other key personnel of the Company
and their ages are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
James A. Cannavino(1)........................ 54 Chairman of the Board of Directors
Judy G. Carter............................... 46 President, Chief Executive Officer and Director
C.R. Kinsey, III............................. 53 Vice President and Chief Technology Officer
Robert C. McLaughlin......................... 52 Treasurer and Chief Financial Officer
Daniel DelGiorno, Jr. ....................... 43 Director
Robert Devine(1)............................. 59 Director
OTHER KEY PERSONNEL
Joseph Miksch................................ 50 Vice President, Global Sales
Lisa Welch................................... 33 Vice President, Technology
</TABLE>
- ---------------
(1) Member, audit committee.
DIRECTORS AND EXECUTIVE OFFICERS
James A. Cannavino has been Chairman of the Board of the Company since
April 1998. Mr. Cannavino is President and Chief Executive Officer of CyberSafe,
Inc., a corporation specializing in network security. He was the President and
Chief Executive Officer of Perot Systems Corporation through July 1997, and
prior to that was a Senior Vice President at IBM, responsible for strategy and
development. He also served on the IBM Corporate Executive Committee and
Worldwide Management Council, and on the board of IBM's integrated services and
solutions company. Mr. Cannavino currently is a consultant to Computer Concepts
and serves on the boards of the National Center for Missing and Exploited
Children, 7th Level and Marist College.
Judy G. Carter has been President and Chief Executive Officer and a
Director of the Company since October 1993. Prior thereto, Ms. Carter was the
Chief Operating Officer for the Company from 1991. Ms. Carter started at the
Company as a system software developer and progressed into a number of
supervisory and managerial roles, culminating in her appointment as vice
president of technical services in 1990. Ms. Carter is a director of Fairfax
Opportunities Unlimited, a non-profit organization.
C.R. Kinsey, III, a co-founder of the Company, has been Vice President of
the Company since May 1998 and has been Chief Technology Officer since 1977.
From 1977 until May 1998, Mr. Kinsey was also Secretary and Treasurer of the
Company. In addition, Mr. Kinsey is a primary technical advisor to the Company's
technology division for new product research and development, product
enhancements and service and support.
Robert C. McLaughlin has been Treasurer and Chief Financial Officer since
March 1998. Prior thereto, Mr. McLaughlin was a Department Director with global
responsibilities at Perot Systems Corporation in Dallas, Texas from November
1996 through December 1997. Mr. McLaughlin also served as Senior Vice President
for a real estate investment venture in West Palm Beach, Florida from 1993 to
1996, as a Vice President of First Union National Bank of Florida, N.A. in Fort
Lauderdale from 1991 to 1993 and a Vice President of Southeast Bank, N.A. in
Miami from 1987 to 1991.
Daniel DelGiorno, Jr. has been a Director of the Company since May 1998.
Mr. DelGiorno is the President and Chief Executive Officer, Treasurer and a
director of Computer Concepts for more than the past five years. He is also the
President and principal stockholder of Tech Marketing Group Corp., a privately
held corporation which is a stockholder of Computer Concepts.
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Robert Devine has been a Director of the Company since May 1998. Mr. Devine
is a director and the Chief Executive Officer of Chemtainer Industries, Inc. for
more than twenty years. Chemtainer Industries manufactures and distributes a
diverse array of commercial and consumer products nationally and internationally
with eleven plants located in nine states from coast to coast. Mr. Devine is
also a director of Rototron Corp. and Tracey International, and has been a
director and vice-president of the non-profit New York City Mental Health
Association for more than ten years.
OTHER KEY PERSONNEL
Joseph Miksch has been Vice President, Global Sales since 1996. Mr. Miksch
is responsible for all of the Company's global direct and indirect sales efforts
in Europe, the Middle East, Africa, Asia-Pacific and North and South America.
Prior to joining the Company, Mr. Miksch was Chief Operating Officer at DBE,
Inc. for two years, where he was responsible for launching new products into the
Oracle and DB2 markets. Prior thereto, for 10 years, Mr. Miksch served in
several senior vice president positions at Computer Associates, Inc. in its
system, graphics application and database divisions.
Lisa Welch has been Vice President, Technology since 1988. Ms. Welch is
responsible for strategic planning and business development, and direct research
and product development. She is also responsible for customer service and
information delivery activities. Prior to joining the Company, Ms. Welch was
employed with NCR as a systems engineer.
EXECUTIVE COMPENSATION
The following table sets forth the annual and long-term compensation with
respect to the Company's Chief Executive Officer and its other most highly
compensated executive officer other than the Chief Executive Officer ("named
executive officers") whose total annual salary and bonus equaled or exceeded
$100,000 for services rendered for the fiscal year ended December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(1) COMPENSATION($)(2)
- --------------------------- ---- --------- -------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Judy G. Carter............ 1997 $155,000(3) $165,000(4) -- $ 1,000
President and Chief
Executive Officer
C.R. Kinsey, III.......... 1997 $155,000(3) $165,000(4) -- $188,000
Vice-President and Chief
Technology Officer
</TABLE>
- ---------------
(1) No Other Annual Compensation is shown because the amounts of perquisites and
other non-cash benefits provided by the Company do not exceed the lesser of
$50,000 or 10% of the total annual base salary and bonus disclosed in this
table for the respective officer.
(2) All Other Compensation includes royalties paid in respect of software
products developed by such officers.
(3) Includes $5,000 deferred from 1996.
(4) Includes $77,500 deferred from 1996.
STOCK OPTION GRANTS IN LAST FISCAL YEAR
No stock options were granted by the Company to the named executive
officers during the fiscal year ended December 31, 1997.
35
<PAGE> 37
EMPLOYMENT AGREEMENTS
Mr. James A. Cannavino has entered into an agreement with the Company
wherein he has agreed to serve as Chairman of the Board of Directors. As
compensation for his services, Mr. Cannavino has been granted options to
purchase 1,200,000 shares of Common Stock, 600,000 of which are Type I options
and 600,000 of which are Type II options. "Type I" options vest one-half on the
earlier of (i) the closing date of this offering, or (ii) December 31, 1998 and
one-half on December 31, 1998. "Type II" options vest on December 31, 2002,
subject to earlier vesting based upon the Company reaching certain defined
levels of net income. The agreement with Mr. Cannavino further provides for the
issuance of a $500,000 full recourse loan to him for relocation or other
purposes upon the effective date of this offering. The loan shall be interest
bearing, is unsecured, and shall be payable on December 1, 2000, provided that
certain accelerated payments are required in the event Mr. Cannavino sells
shares of Common Stock. Mr. Cannavino will also receive a monthly salary of
$2,000 and be reimbursed for certain expenses.
Judy G. Carter, C.R. Kinsey, III, Robert C. McLaughlin, Joseph Miksch and
Lisa Welch have entered into employment agreements with the Company commencing
on the effective date of this offering. The employment agreements with Ms.
Carter and Mr. Kinsey terminate December 31, 2002 and the employment agreements
for Mr. McLaughlin, Mr. Miksch and Ms. Welch are each for a three year term. The
term of the agreements automatically renew for additional one year periods
unless the Company or the employee notifies the other party at least ninety days
prior to the end of any renewal term of its desire to terminate such agreement.
Pursuant to the agreements, Ms. Carter, Mr. Kinsey, Mr. McLaughlin, Mr. Miksch
and Ms. Welch receive annual compensation of $200,000, $200,000, $120,000,
$135,000 and $130,000, respectively and an incentive bonus based on the Company
meeting or exceeding annual or quarterly net income targets to be established by
the Board of Directors. The incentive payments to Ms. Carter and Mr. Kinsey are
up to $150,000 for 1998 and up to $200,000 for each of the years 1999 through
2002. Each employment agreement also provides for certain payments following
death or disability and further provides, in the event of a change in control of
the Company, as defined therein, the right, at the election of the employee, to
terminate the agreement and receive a lump sum payment of approximately three
times the employee's annual salary.
401(k) SAVINGS PLAN
The Company sponsors a retirement plan (the "401(k) Savings Plan") intended
to be qualified under section 401(k) of the Internal Revenue Code of 1986, as
amended. All employees over age 21 who have completed at least 1,000 hours in
their first year of employment by the Company are eligible to participate in the
401(k) Savings Plan. Employees may contribute to the 401(k) Savings Plan on a
tax deferred basis up to 20% of their total annual salary, but in no event more
than the maximum permitted by the Code ($10,000 in calendar 1998). The Company
matches all employee contributions up to $2,375 per year per employee, and all
Company contributions are fully vested. As of December 31, 1997, 115 employees
had elected to participate in the 401(k) Savings Plan. For the fiscal year ended
December 31, 1997, the Company contribution is an aggregate approximately
$52,000 to the 401(k) Savings Plan, of which an aggregate $4,700 was a
contribution for Judy G. Carter and C.R. Kinsey, III.
1998 LONG TERM INCENTIVE PLAN
In May 1998, the Company adopted the SOFTWORKS, Inc. 1998 Long Term
Incentive Plan (the "1998 Incentive Plan") in order to motivate qualified
employees of the Company, to assist the Company in attracting employees and to
align the interests of such persons with those of the Company's stockholders.
The 1998 Incentive Plan provides for the grant of "incentive stock options"
within the meaning of the Section 422 of the Internal Revenue Code of 1986, as
amended, "non-qualified stock options," restricted stock, performance grants and
other types of awards to officers, key employees, consultants and independent
contractors of the Company and its affiliates.
The 1998 Incentive Plan, which will be administered by the Long Term
Incentive Plan Administrative Committee of the Board of Directors, authorizes
the issuance of a maximum of 3,727,000 shares of Common Stock, which may be
either newly issued shares, treasury shares, reacquired shares, shares purchased
in the
36
<PAGE> 38
open market or any combination thereof. If any award under the 1998 Incentive
Plan terminates, expires unexercised, or is cancelled, the shares of Common
Stock that would otherwise have been issuable pursuant thereto will be available
for issuance pursuant to the grant of new awards. To date, the Company has
granted options to purchase 2,300,000 shares of Common Stock under the 1998
Incentive Plan to its officers and key employees. The Company intends to issue
options to purchase an aggregate 1,127,000 shares of Common Stock to various
other employees upon the closing of this offering. Of the 2,300,000 options
granted to date, James A. Cannavino has been granted 600,000 Type I options and
600,000 Type II options, Judy Carter has been granted 150,000 Type I options and
200,000 Type II options, Claude Kinsey has been granted 200,000 Type I options
and 250,000 Type II options and each of Jody Miksch, Lisa Welch and Robert
McLaughlin has been granted 20,000 Type I options and 80,000 Type II options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company had no Compensation Committee for its fiscal year ended
December 31, 1997.
PERSONAL LIABILITY AND INDEMNIFICATION OF DIRECTORS
The Company's Certificate of Incorporation and By-laws contain provisions
which reduce the potential personal liability of Directors for certain monetary
damages and provide for indemnity of Directors and other persons. The Company is
unaware of any pending or threatened litigation against the Company or its
Directors that would result in any liability for which such Director would seek
indemnification or similar protection.
Such indemnification provisions are intended to increase the protection
provided directors and, thus, increase the Company's ability to attract and
retain qualified persons to serve as Directors. The Company believes that the
substantial increase in the number of lawsuits being threatened or filed against
corporations and their directors has resulted in a growing reluctance on the
part of capable persons to serve as members of boards of directors of companies,
particularly of companies which intend to become public companies. The Company
also believes that the increased risk of personal liability without adequate
insurance or other indemnity protection for its directors could result in
overcautious and less effective direction and management of the Company.
Consequently, the Company has agreed to indemnify its Directors and officers and
has applied for directors and officers liability insurance. However, there can
be no assurance that the Company will be able to obtain such insurance.
The provisions affecting personal liability do not abrogate a Director's
fiduciary duty to the Company and its stockholders, but eliminate personal
liability for monetary damages for breach of that duty. The provisions do not,
however, eliminate or limit the liability of a Director for failing to act in
good faith, for engaging in intentional misconduct or knowingly violating a law,
for authorizing the illegal payment of a dividend or repurchase of stock, for
obtaining an improper personal benefit, for breaching a Director's duty of
loyalty (which is generally described as the duty not to engage in any
transaction which involves a conflict between the interests of the Company and
those of the director) or for violations of the federal securities laws. The
provisions also limit or indemnify against liability resulting from grossly
negligent decisions including grossly negligent business decisions relating to
attempts to change control of the Company.
The provisions regarding indemnification provide, in essence, that the
Company will indemnify its Directors against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with any action, suit or proceeding arising out of the
Director's status as a Director of the Company, including actions brought by or
on behalf of the Company (shareholder derivative actions). The provisions do not
require a showing of good faith. Moreover, they do not provide indemnification
for liability arising out of willful misconduct, fraud, or dishonesty, for
"short-swing" profits violations under the federal securities laws, or for the
receipt of illegal remuneration. The provisions also do not provide
indemnification for any liability to the extent such liability is covered by
insurance. One purpose of the provisions is to supplement the coverage provided
by such insurance.
These provisions diminish the potential rights of action which might
otherwise be available to stockholders by limiting the liability of officers and
Directors to the maximum extent allowable under Delaware law and by affording
indemnification against most damages and settlement amounts paid by a
37
<PAGE> 39
director of the Company in connection with any stockholders derivative action.
However, the provisions do not have the effect of limiting the right of a
stockholder to enjoin a Director from taking actions in breach of his fiduciary
duty, or to cause the Company to rescind actions already taken, although as a
practical matter courts may be unwilling to grant such equitable remedies in
circumstances in which such actions have already been taken.
The Company has entered into Indemnification Agreements with certain of its
officers and Directors. The Indemnification Agreements provide for reimbursement
for all direct and indirect costs of any type or nature whatsoever (including
attorneys' fees and related disbursements) actually and reasonably incurred in
connection with either the investigation, defense or appeal of certain legal
proceedings, including amounts paid in settlement by or on behalf of an
indemnitee thereunder.
38
<PAGE> 40
CERTAIN TRANSACTIONS
In prior fiscal years, Computer Concepts provided certain corporate and
administrative services to the Company including executive management and
professional services (accounting, auditing and legal). These services were
performed for $500,000 in each of 1997 and 1996. Prior to 1996, the Company
effectively operated independently of Computer Concepts and was responsible for
its own expenses. As a result, prior to 1996, Computer Concepts performed no
material services nor incurred any material expenses on behalf of the Company.
The Company and Computer Concepts also jointly participated in certain employee
benefit plans (defined contribution and employee health) and the Company was
allocated its applicable share of these costs. Additionally, in prior fiscal
years, certain of the Company's employees received part of their compensation in
the form of Computer Concepts common stock or options. Upon consummation of this
offering, the Company will no longer pay any administrative fees to Computer
Concepts.
Mr. Cannavino, Chairman of the Board of the Company, remains a consultant
to Computer Concepts and will receive from Computer Concepts prior to the
effective date of the Registration Statement of which this Prospectus is a part
100,000 shares of the Company's Common Stock. The 100,000 shares of Common Stock
are to be transferred in consideration for services rendered to Computer
Concepts. It is not anticipated that Mr. Cannavino will receive significant
additional compensation from Computer Concepts for future consulting services.
The employment agreement between the Company and Mr. Cannavino provides for
the issuance of a $500,000 full recourse loan to him for relocation or other
purposes upon the effective date of this offering. The loan shall be interest
bearing, is unsecured, and shall be payable on December 1, 2000, provided that
certain accelerated payments are required in the event Mr. Cannavino sells
shares of Common Stock.
VOTING TRUST AGREEMENT
Prior to the completion of the offering, the Company, Computer Concepts,
James Cannavino, Daniel DelGiorno, Jr. and Robert Devine, each of whom are
members of the Company's Board of Directors and will serve as trustees (the
"Trustees"), intend to enter into a Voting Trust Agreement. Pursuant to the
Voting Trust Agreement, Computer Concepts will deposit its shares of Common
Stock in a voting trust, together with certain shares of Common Stock that may
be acquired by its affiliates. The Voting Trust Agreement provides, among other
things, that the Trustees will have the right to vote the deposited shares in
connection with certain specified major transactions (the "Approval Actions")
and that Computer Concepts and its affiliates will have the right to vote for
the election of Directors and on other actions other than Approval Actions,
except that if an "independent" Trustee (as defined below) ceases to be a
Director for any reason or is required to resign as a Director of the Company
for failure to remain independent, the remaining independent Trustee(s) will
have the right to vote for a successor Director, which Trustee(s) will take
direction from the holders of a majority of the shares of Common Stock not held
by Computer Concepts and its affiliates. The Voting Trust Agreement requires
that each Trustee must be a Director of the Company, that two of the three
Trustees must be "independent" and that a Trustee required to be independent who
ceases to be so will resign as Trustee and as a Director of the Company. The
Voting Trust Agreement does not prevent the pledge of any of the deposited
shares. As used in the Voting Trust Agreement, the term "independent" means any
Director of the Company who does not derive in excess of $60,000 of compensation
from Computer Concepts or its affiliates (other than the Company) in any fiscal
year.
Pursuant to the Agreement, the Company agrees that the following Approval
Actions will not be taken without the approval of the Trustees: (i) the sale,
lease, encumbrance, assignment, transfer or conveyance of all or substantially
all (i.e., 51% or more) of the assets or capital stock of the Company to an
acquiring party, or the merger or consolidation of the Company into or with
another corporation, if Computer Concepts or one of its affiliates is a party to
such transaction; (ii) any filing by the Company or a subsidiary for relief as a
debtor under any bankruptcy or similar law, any application by the Company or a
subsidiary for the appointment of a receiver, trustee, custodian or similar
fiduciary for a substantial portion of the consolidated assets of the Company
and its subsidiaries, or the consent by the Company or a subsidiary to any
petition or application seeking similar relief which is filed against the
Company or the subsidiary, or the voluntary
39
<PAGE> 41
liquidation, dissolution or winding up of the Company; (iii) the declaration or
payment of any dividends on any capital stock of the Company; (iv) the
incurrence of any liens upon any property or properties of the Company which,
individually or in the aggregate, are material to the operations of the Company;
(v) the acquisition of any equity security, or any right to acquire any equity
security, of any other corporation, other than the Company's formation of one or
more wholly-owned subsidiaries (or subsidiaries in which a de minimis number of
shares are held by a third party in order to comply with local law), if such
other corporation is Computer Concepts or one of its affiliates; (vi) the
acquisition of assets outside the ordinary course of business from Computer
Concepts or one of its affiliates; (vii) any transaction or proposed transaction
between the Company and any "person," as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")
(other than a Trustee, the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any corporation
owned directly or indirectly by the stockholders of the Company in substantially
the same proportion as their ownership of stock of the Company), pursuant to
which such person becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the Company's then
outstanding securities; (viii) any transaction or proposed transaction between
the Company and an affiliate or any transaction or proposed transaction between
the Company and Computer Concepts for an aggregate consideration in excess of $1
million unless a fairness opinion is obtained from SoundView Financial Group,
Inc. or any other independent investment banking institution of national
standing appointed by the Company; or (ix) any other transaction which requires
stockholder approval under Delaware law to the extent that any of the parties to
the Voting Trust Agreement have been advised in writing by counsel that the
transaction presents an actual conflict of interest between Computer Concepts
and its affiliates and the other holders of Common Stock.
The Voting Trust Agreement will remain in effect until the earliest of: (i)
Computer Concepts and its affiliates collectively ceasing to own 25% or more of
the Common Stock, (ii) the acquisition by a person other than Computer Concepts
and its affiliates of a greater percentage of the Common Stock than that then
owned by Computer Concepts and its affiliates or (iii) 10 years from the date of
the Voting Trust Agreement.
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<PAGE> 42
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth the beneficial ownership of the Common Stock
as of July 9, 1998 of (i) each person known by the Company to beneficially own
5% or more of the Company's outstanding Common Stock, (ii) each of the Company's
executive officers, directors and director nominees, and (iii) all of the
Company's executive officers and directors as a group. Except as otherwise
indicated, all shares of Common Stock are beneficially owned, and investment and
voting power is held, by the persons named as owners.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED PERCENTAGE OWNERSHIP
-------------------------- --------------------------
BEFORE AFTER BEFORE AFTER
NAME OF BENEFICIAL OWNER OFFERING OFFERING OFFERING OFFERING(1)(2)
------------------------ ----------- ----------- -------- --------------
<S> <C> <C> <C> <C>
Computer Concepts Corp.(3).................. 12,983,000 11,483,000 92.2% 71.9%
Internet Tracking & Security Ventures(4).... 1,000,000 0 7.1 0
James A. Cannavino(5)....................... 400,000 400,000 2.8 2.5
Judy G. Carter(6)........................... 75,000 75,000 * *
Claude R. Kinsey III(7)..................... 100,000 100,000 * *
Robert C. McLaughlin(8)..................... 10,000 10,000 * *
Daniel DelGiorno, Jr.(9).................... 13,049,500 11,549,500 92.2 72.0
Robert Devine(10)........................... 42,000 42,000 * *
All officers and directors as a group (6
persons) (5),(6),(7),(8),(9),(10)......... 13,676,500 12,176,500 93.2 73.5
</TABLE>
- ---------------
* Less than one percent (1%) unless otherwise indicated.
(1) Includes the issuance of 190,000 shares of Common Stock to a financial
advisor.
(2) Assumes no exercise of the Underwriters' over-allotment option.
(3) The address is 80 Orville Drive, Bohemia, New York 11716.
(4) The address is 50 Charles Lindbergh Boulevard, Uniondale, NY 11553.
(5) Includes options currently exercisable or exercisable within 60 days to
purchase 300,000 shares of Common Stock.
(6) Includes options currently exercisable or exercisable within 60 days to
purchase 75,000 shares of Common Stock.
(7) Includes options currently exercisable or exercisable within 60 days to
purchase 100,000 shares of Common Stock.
(8) Includes options currently exercisable or exercisable within 60 days to
purchase 10,000 shares of Common Stock.
(9) Includes shares of Common Stock owned by Computer Concepts, as to which Mr.
DelGiorno disclaims beneficial ownership. Includes options currently
exercisable or exercisable within 60 days to purchase 66,500 shares of
Common Stock.
(10) Includes options currently exercisable or exercisable within 60 days to
purchase 42,000 shares of Common Stock.
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<PAGE> 43
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 150,000,000 shares of
Common Stock, $.001 par value per share and 2,000,000 shares of preferred stock,
$.001 par value per share ("Preferred Stock").
COMMON STOCK
General. The Company has 150,000,000 authorized shares of Common Stock,
14,273,000 of which were issued and outstanding prior to the closing of this
offering. All shares of Common Stock currently outstanding are validly issued,
fully paid and non-assessable, and all shares which are the subject of this
Prospectus, when issued and paid for pursuant to this offering, will be validly
issued, fully paid and non-assessable.
Voting Rights. Each share of Common Stock entitles the holder thereof to
one vote, either in person or by proxy, at meetings of stockholders. The
Company's Board of Directors consists of three classes each of which serves for
a term of three years. At each annual meeting of the stockholders the Directors
in only one class will be elected. The holders are not permitted to vote their
shares cumulatively. Accordingly, the holders of more than fifty percent (50%)
of the issued and outstanding shares of Common Stock can elect all of the
Directors of the Company. See "Principal and Selling Stockholders."
Dividend Policy. All shares of Common Stock are entitled to participate
ratably in dividends when and as declared by the Company's Board of Directors
out of the funds legally available therefor. Any such dividends may be paid in
cash, property or additional shares of Common Stock. The Company has not paid
any cash dividends since its inception and presently anticipates that all
earnings, if any, will be retained for development of the Company's business and
that no dividends on the shares of Common Stock will be declared in the
foreseeable future. Payment of future dividends will be subject to the
discretion of the Company's Board of Directors and will depend upon, among other
things, future earnings, the operating and financial condition of the Company,
its capital requirements, general business conditions and other pertinent facts.
Therefore there can be no assurance that any dividends on the Common Stock will
be paid in the future. In addition, pursuant to the Voting Trust Agreement, the
Company may not declare or pay dividends on the Common Stock without the prior
approval of the Trustees. See "Certain Transactions -- Voting Trust Agreement"
and "Dividend Policy."
Miscellaneous Rights and Provisions. Holders of Common Stock have no
preemptive or other subscription rights, conversion rights, redemption or
sinking fund provisions. In the event of the liquidation or dissolution, whether
voluntary or involuntary, of the Company, each share of Common Stock is entitled
to share ratably in any assets available for distribution to holders of the
equity of the Company after satisfaction of all liabilities, subject to the
rights of holders of Preferred Stock.
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of up to
2,000,000 shares of Preferred Stock. Currently there are no shares of Preferred
Stock issued or outstanding.
The issuance of Preferred Stock by the Company's Board of Directors could
adversely affect the rights of holders of shares of Common Stock by, among other
things, establishing preferential dividends, liquidation rights or voting power.
The issuance of Preferred Stock could be used to discourage or prevent efforts
to acquire control of the Company through the acquisition of shares of Common
Stock.
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS
The Company's Certificate of Incorporation contains certain provisions
which may be deemed to be "anti-takeover" in nature in that such provisions may
deter, discourage or make more difficult the assumption
42
<PAGE> 44
of control of the Company by another entity or person. In addition to the
ability to issue Preferred Stock, these provisions are as follows:
A vote of 66 2/3% of the stockholders is required by the Company's
Certificate of Incorporation in order to approve certain transactions
including mergers and sales or transfers of all or substantially all of the
assets of the Company.
The Company's By-laws provide that the members of the Company's Board
of Directors be classified into three classes: Class I (which consists of
Robert Devine) will serve until the Company's 1999 Annual Meeting of
Stockholders. Class II (which consists of James A. Cannavino and Judy G.
Carter) will serve until the Company's 2000 Annual Meeting of Stockholders.
Class III (which consists of Daniel DelGiorno, Jr.) will serve until the
Company's 2001 Annual Meeting of Stockholders. After their initial
staggered terms, the term of each class will run for three years and expire
at successive annual meetings of stockholders. Accordingly, it is expected
that it would take a minimum of two annual meetings of stockholders to
change a majority of the Board of Directors. Further, Directors may only be
removed for cause prior to the expiration of their term of office.
DELAWARE GENERAL CORPORATION LAW
The Delaware General Corporation Law further contains certain anti-takeover
provisions. Section 203 of the Delaware General Corporation Law provides, with
certain exceptions, that a Delaware corporation may not engage in any of a broad
range of business combinations with a person who owns 15% or more of the
corporation's outstanding voting stock (an "interested stockholder") for a
period of three years from the date that such person became an interested
stockholder unless: (i) the transaction resulting in a person's becoming an
interested stockholder, or the business combination, is approved by the board of
directors of the corporation before the person becomes an interested
stockholder, (ii) the interested stockholder acquires 85% or more of the
outstanding voting stock of the corporation (excluding shares owned by persons
who are both officers and directors of the corporation and shares held by
certain employee stock ownership plans), or (iii) the business combination is
approved by the corporation's board of directors and by the holders of at least
66 2/3% of the corporation's outstanding voting stock at an annual or special
meeting, excluding shares owned by the interested stockholder.
TRANSFER AGENT, REGISTRAR AND WARRANT AGENT
The transfer agent and registrar for the Common Stock is Manhattan Transfer
Registrar Co., Lake Ronkonkama, New York.
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<PAGE> 45
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 15,973,000 shares
of Common Stock outstanding. Of these shares, the 4,200,000 shares of Common
Stock sold in this offering (4,830,000 shares if the Underwriters'
over-allotment option is exercised in full) will be freely tradeable without
restriction or further registration under the Securities Act, except for any
shares purchased by an "affiliate" of the Company (in general, a person who has
a control relationship with the Company), which will be subject to the
limitations of Rule 144 adopted under the Securities Act. All of the remaining
shares are deemed to be "restricted securities," as that term is defined under
Rule 144 promulgated under the Securities Act.
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, commencing ninety (90) days after the
effective date of the Registration Statement of which this Prospectus is a part,
a person, including an affiliate of the Company (or persons whose shares are
aggregated), who has owned restricted shares of Common Stock beneficially for at
least one year is entitled to sell, within any three-month period, a number of
shares that does not exceed the greater of 1% of the total number of outstanding
shares of the same class or the average weekly trading volume of the Common
Stock on all exchanges and/or reported through the automated quotation system of
a registered securities association during the four calendar weeks preceding the
date on which notice of the sale is filed with the Securities and Exchange
Commission (the "Commission"). Sales under Rule 144 are also subject to certain
manner of sale provisions, notice requirements and the availability of current
public information about the Company. A person who has not been an affiliate of
the Company for at least the three months immediately preceding the sale and who
has beneficially owned shares of Common Stock for at least two years is entitled
to sell such shares under Rule 144 without regard to any of the limitations
described above.
11,483,000 of the shares of restricted stock outstanding upon completion of
this offering (10,853,000 shares if the Underwriters' over-allotment option is
exercised in full) have been held for more than one year. Computer Concepts,
which owns all of these shares, has agreed that it will not, without the prior
written consent of SoundView Financial Group, Inc., sell or otherwise dispose of
any shares of Common Stock beneficially owned by it for a period of one year
after the effective date of this Prospectus. Following expiration of the lock-up
period (or earlier consent of SoundView Financial Group, Inc.), these shares
will be eligible for sale subject to the restrictions of Rule 144. The Company
intends to register approximately 3,727,000 shares reserved for issuance under
its stock option plan. Options and stock issued under the stock option plan
shall be subject to a 180 day lock-up period from the closing of this offering.
Following this offering, the holder of 190,000 shares of the Common Stock will
have certain rights to register those shares under the Securities Act. The sale
of a substantial number of these shares in the public market could adversely
affect prevailing market prices following the offering.
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<PAGE> 46
UNDERWRITING
Upon the terms and subject to the conditions set forth in an underwriting
agreement (the "Underwriting Agreement"), the Underwriters named below, for whom
SoundView Financial Group, Inc. and Raymond James & Associates, Inc. are acting
as representatives (the "Representatives"), have severally agreed to purchase
from the Company and the Selling Stockholders an aggregate of 4,200,000 shares
of Common Stock. The number of shares of Common Stock that each Underwriter has
agreed to purchase is set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
SoundView Financial Group, Inc. ............................
Raymond James & Associates, Inc. ...........................
---------
Total............................................. 4,200,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to the approval of
certain legal matters by counsel and to certain other conditions. If any of the
shares of Common Stock are purchased by the Underwriters pursuant to the
Underwriting Agreement, all such shares of Common Stock (other than the shares
of Common Stock covered by the over-allotment option described below) must be so
purchased.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, and to contribute to payments that the Underwriters may be
required to make in respect thereof.
The Underwriters propose to offer the shares of Common Stock directly to
the public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers (who may include the Underwriters) at
such price less a concession not to exceed $ per share. The
Underwriters may allow, and such dealers may reallow, a concession not to exceed
$ per share to any other Underwriter and certain other dealers. After
the initial public offering of the shares offered hereby, the offering price and
other selling terms may be changed by the Representatives. The Representatives
have advised the Company that the Underwriters do not intend to confirm any
shares to any accounts over which they exercise discretionary control.
Computer Concepts has granted to the Underwriters an option, exercisable
for 30 days from the date of this Prospectus, to purchase up to an aggregate of
630,000 additional shares of Common Stock at the initial public offering price
less underwriting discounts and commissions. Such option may be exercised solely
for the purpose of covering over-allotments, if any, in connection with the
offering of the shares offered hereby. To the extent that the Underwriters
exercise such option, each of the Underwriters will be committed, subject to
certain conditions, to purchase a number of additional shares proportionate to
such Underwriter's initial commitment as indicated in the preceding table.
The offering of the shares offered hereby is made for delivery when, as and
if accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation or modification of the offering without notice. The Underwriters
reserve the right to reject an order for the purchase of shares in whole or in
part.
45
<PAGE> 47
The Company, all directors and executive officers of the Company and
certain other persons have agreed that, for a period of 180 days, and Computer
Concepts has agreed that, for a period of 12 months after the date of this
Prospectus, without the prior written consent of SoundView Financial Group,
Inc., they will not, with certain limited exceptions, directly or indirectly,
offer, sell, contract to sell, grant any option to purchase or otherwise dispose
of any shares of Common Stock or any securities convertible into or exercisable
or exchangeable for Common Stock or, in any manner, transfer all or a portion of
the economic consequences associated with the ownership of the Common Stock,
other than the shares of Common Stock offered hereby.
In connection with this offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M under the Exchange Act, pursuant to which such
persons may bid for or purchase shares of Common Stock for the purpose of
stabilizing the market price for shares of Common Stock. The Underwriters also
may create a short position for the account of the Underwriters by selling more
shares of Common Stock in connection with this offering than they are committed
to purchase from the Company and the Selling Stockholders, and in such case may
purchase shares of Common Stock in the open market following the completion of
this offering to cover all or a portion of the shares of Common Stock or by
exercising the Underwriters' over-allotment option referred to above. In
addition, SoundView Financial Group, Inc., on behalf of the Underwriters, may
impose "penalty bids" under contractual arrangements with the other Underwriters
whereby it may reclaim from an Underwriter (or a dealer participating in this
offering) for the account of the other Underwriters, the selling concession with
respect to shares of Common Stock that are distributed in this offering but
subsequently purchased for the account of the Underwriters in the open market.
Any of the transactions described in this paragraph may result in the
maintenance of the price of the Common Stock at a level above that which might
otherwise prevail in the open market. None of the transactions described in this
paragraph are required, and, if they are undertaken, may be discontinued at any
time.
Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock offered hereby
will be determined by negotiation among the Company, the Selling Stockholders
and the Representatives. Among the factors to be considered in determining the
initial public offering price are prevailing market conditions, revenue and
earnings of the Company, market valuations of other companies engaged in
activities similar to the Company, estimates of the business potential and
prospects of the Company, the present state of the Company's business
operations, the history of and prospects for the Company's business and the
industry in which it competes, the Company's management and other factors deemed
relevant. The estimated initial public offering price range set forth on the
cover of this preliminary prospectus is subject to change as a result of market
conditions and other factors.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by the law firm of Blau, Kramer, Wactlar &
Lieberman, P.C., Jericho, New York. A member of Blau, Kramer, Wactlar &
Lieberman, P.C. owns options to purchase an aggregate 25,000 shares of Common
Stock of the Company. Certain matters will be passed upon for the Underwriters
by Morrison & Foerster LLP, New York, New York.
EXPERTS
The audited financial statements of the Company as of December 31, 1996 and
1997, and for each of the three years in the period ended December 31, 1997,
included in this Prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
46
<PAGE> 48
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1, pursuant to the Securities Act, with respect to the Common Stock. This
Prospectus does not contain all of the information set forth in the Registration
Statement, and the exhibits thereto. For further information with respect to the
Company and the Common Stock, reference is made to the Registration Statement
and its exhibits. As of the date of this Prospectus, the Company will be subject
to the informational requirements of the Exchange Act, and in accordance
therewith shall file reports, proxy and information statements, and other
information with the Commission. The Registration Statement and such reports,
proxy and information statements, and other information can be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its
regional offices at Citicorp Center, 500 W. Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of such material can be obtained at prescribed rates from the
Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, or at the Commission's web site located at
http://www.sec.gov.
47
<PAGE> 49
SOFTWORKS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.................... F-2
Consolidated Balance Sheets As of December 31, 1996 and 1997
and As of March 31, 1998 (unaudited) (in thousands, except
share and per share data)................................. F-3
Consolidated Statements of Operations For the Years Ended
December 31, 1995, 1996 and 1997 and For the Three Months
Ended March 31, 1997 (unaudited) and March 31, 1998
(unaudited) (in thousands, except share and per share
data)..................................................... F-4
Consolidated Statements of Stockholder's Equity For the
Years Ended December 31, 1995, 1996 and 1997 and For the
Three Months Ended March 31, 1998 (unaudited) (in
thousands, except share data)............................. F-5
Consolidated Statements of Cash Flows For the Years Ended
December 31, 1995, 1996 and 1997 and For the Three Months
Ended March 31, 1997 (unaudited) and March 31, 1998
(unaudited) (in thousands)................................ F-6
Notes to Consolidated Financial Statements As of December
31, 1996 and 1997 and As of March 31, 1998 (unaudited).... F-7
</TABLE>
F-1
<PAGE> 50
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To SOFTWORKS, Inc.:
We have audited the accompanying consolidated balance sheets of SOFTWORKS,
Inc., a Delaware corporation, and subsidiaries (the "Company") as of December
31, 1996 and 1997, and the related consolidated statements of operations,
stockholder's equity and cash flows for each of the three years in the period
ended December 31, 1997. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
SOFTWORKS, Inc. and subsidiaries as of December 31, 1996 and 1997, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Washington, D.C.
June 29, 1998
F-2
<PAGE> 51
SOFTWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 1,735 $ 360 $ 909
Accounts receivable, net of allowance for doubtful
accounts of $249, $206, and $185 in 1996, 1997, and
1998, respectively..................................... 5,962 10,652 6,885
Installment receivables................................... 2,697 6,148 7,686
Prepaid expenses and other current assets................. 423 984 1,344
Deferred tax assets....................................... 472 138 240
------- ------- -------
Total current assets................................... 11,289 18,282 17,064
------- ------- -------
Installment receivables, noncurrent....................... 3,714 6,480 7,173
Property and equipment, net............................... 1,223 1,523 1,481
Software development costs, net........................... 948 1,303 1,521
Goodwill, net of accumulated amortization of $1,728,
$2,477, and $2,684 in 1996, 1997, and 1998,
respectively........................................... 4,683 4,611 4,666
Other assets.............................................. 357 734 686
Deferred tax assets, noncurrent........................... 329 696 825
------- ------- -------
Total assets...................................... $22,543 $33,629 $33,416
======= ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable and accrued expenses..................... $ 2,022 $ 4,689 $ 3,745
Current portion of long-term debt......................... 225 183 137
Deferred maintenance revenue.............................. 6,258 6,225 5,848
Deferred installment revenue.............................. 2,461 5,506 6,985
Due to Parent............................................. 1,147 1,554 1,218
------- ------- -------
Total current liabilities.............................. 12,113 18,157 17,933
------- ------- -------
Deferred maintenance revenue, noncurrent.................. 249 740 783
Deferred installment revenue, noncurrent.................. 3,950 7,122 7,872
Long-term debt............................................ 351 140 117
Payable to Parent for federal income taxes................ 525 1,383 1,383
------- ------- -------
Total liabilities...................................... 17,188 27,542 28,088
------- ------- -------
Commitments and Contingencies
Stockholder's Equity:
Preferred stock, $.001 par value; 2,000,000 shares
authorized, none issued or outstanding................. -- -- --
Common stock, $.001 par value; 150,000,000 shares
authorized; 14,083,000 shares issued and outstanding... 14 14 14
Additional paid-in capital................................ 5,549 5,549 5,549
Retained (deficit) earnings............................... (208) 578 (189)
Accumulated other comprehensive loss...................... -- (54) (46)
------- ------- -------
Total stockholder's equity............................. 5,355 6,087 5,328
------- ------- -------
Total liabilities and stockholder's equity........ $22,543 $33,629 $33,416
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE> 52
SOFTWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Software licenses............. $ 5,718 $ 8,611 $ 16,633 $ 2,295 $ 3,736
Maintenance................... 5,908 7,914 9,957 2,371 2,551
Professional services......... -- -- 180 -- 309
----------- ----------- ----------- ----------- -----------
Total revenue.............. 11,626 16,525 26,770 4,666 6,596
----------- ----------- ----------- ----------- -----------
Cost of revenue:
Software licenses............. 432 424 580 101 439
Maintenance................... 3,687 3,664 5,513 1,163 1,646
Professional services......... -- -- 155 -- 225
----------- ----------- ----------- ----------- -----------
Total cost of revenue...... 4,119 4,088 6,248 1,264 2,310
----------- ----------- ----------- ----------- -----------
Gross margin.................... 7,507 12,437 20,522 3,402 4,286
----------- ----------- ----------- ----------- -----------
Operating expenses:
Sales and marketing........... 4,262 6,161 12,463 2,305 3,395
General and administrative.... 1,619 2,217 2,791 884 1,102
Amortization and
depreciation............... 2,088 1,596 1,972 436 490
Research and development...... 908 967 1,480 273 272
Impairment on goodwill........ 1,320 -- -- -- --
----------- ----------- ----------- ----------- -----------
Total operating expenses... 10,197 10,941 18,706 3,898 5,259
----------- ----------- ----------- ----------- -----------
(Loss) income before (benefit)
provision for income taxes.... (2,690) 1,496 1,816 (496) (973)
(Benefit) provision for income
taxes......................... (979) 704 1,030 (163) (206)
----------- ----------- ----------- ----------- -----------
Net (loss) income............... $ (1,711) $ 792 $ 786 $ (333) $ (767)
=========== =========== =========== =========== ===========
Basic and diluted net (loss)
income per share.............. $ (0.12) $ 0.06 $ 0.06 $ (0.02) $ (0.05)
=========== =========== =========== =========== ===========
Basic and diluted weighted
average shares outstanding.... 14,083,000 14,083,000 14,083,000 14,083,000 14,083,000
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE> 53
SOFTWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL RETAINED OTHER TOTAL
------------------- PAID-IN (DEFICIT) COMPREHENSIVE STOCKHOLDER'S COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME (LOSS) EQUITY INCOME (LOSS)
---------- ------ ---------- --------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1995.......... 14,083,000 $14 $5,489 $ 711 $ -- $ 6,214
Contribution to capital......... -- -- 60 -- -- 60
Net loss and comprehensive
loss.......................... -- -- -- (1,711) -- (1,711) $(1,711)
---------- --- ------ ------- ---- ------- =======
BALANCE, December 31, 1995........ 14,083,000 14 5,549 (1,000) -- 4,563
Net income and comprehensive
income........................ -- -- -- 792 -- 792 $ 792
---------- --- ------ ------- ---- ------- =======
BALANCE, December 31, 1996........ 14,083,000 14 5,549 (208) -- 5,355
Foreign currency translation
adjustment.................... -- -- -- -- (54) (54) $ (54)
Net income...................... -- -- -- 786 -- 786 786
---------- --- ------ ------- ---- ------- -------
Total comprehensive income.... $ 732
=======
BALANCE, December 31, 1997........ 14,083,000 14 5,549 578 (54) 6,087
Foreign currency translation
adjustment (unaudited)........ -- -- -- -- 8 8 $ 8
Net loss (unaudited)............ -- -- -- (767) -- (767) (767)
---------- --- ------ ------- ---- ------- -------
Total comprehensive (loss)
(unaudited)................. $ (759)
=======
BALANCE, March 31, 1998
(unaudited)..................... 14,083,000 $14 $5,549 $ (189) $(46) $ 5,328
========== === ====== ======= ==== =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 54
SOFTWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------ ----------------
1995 1996 1997 1997 1998
------- ------- -------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income................................. $(1,711) $ 792 $ 786 $ (333) $ (767)
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating
activities --
Amortization and depreciation:
Property and equipment........................ 432 505 697 147 180
Software development costs.................... 509 543 689 149 170
Goodwill...................................... 1,238 659 749 177 207
Provision for doubtful accounts................. 5 50 75 75 55
Loss on disposal of property and equipment...... 22 2 -- -- --
Impairment on goodwill.......................... 1,320 -- -- -- --
Deferred tax (benefit) provision................ (1,070) 569 (33) (184) (231)
Changes in operating assets and liabilities --
Accounts receivable and installment
receivables..................................... (1,260) (8,598) (11,002) (343) 1,480
Inventories..................................... 2 -- -- -- --
Prepaid expenses and other current assets....... 63 (314) (561) (151) (360)
Other assets.................................... 39 (306) (377) 10 48
Accounts payable and accrued expenses........... (42) 761 2,515 (195) (936)
Deferred revenue................................ 1,017 8,071 6,675 486 1,895
------- ------- -------- ------ ------
Net cash provided by (used in) operating
activities................................. 564 2,734 213 (162) 1,741
------- ------- -------- ------ ------
Cash flows from investing activities:
Purchases of property and equipment............... (515) (445) (990) (258) (138)
Software development and technology purchases..... (546) (359) (1,044) (96) (388)
Additional consideration for SOFTWORKS, Inc.
acquisition..................................... (327) (478) (522) (224) (269)
------- ------- -------- ------ ------
Net cash used in investing activities......... (1,388) (1,282) (2,556) (578) (795)
------- ------- -------- ------ ------
Cash flows from financing activities:
Net borrowings from (advances to) Parent.......... 728 145 407 15 (336)
Change in amount payable to Parent for federal
income taxes.................................... -- -- 858 -- --
Repayments of long-term debt...................... (94) (190) (253) (61) (69)
Proceeds from long-term debt...................... 111 161 -- -- --
------- ------- -------- ------ ------
Net cash provided by (used in) financing
activities................................. 745 116 1,012 (46) (405)
------- ------- -------- ------ ------
Effect of exchange rate changes on cash and cash
equivalents....................................... -- -- (44) -- 8
------- ------- -------- ------ ------
Net (decrease) increase in cash and cash
equivalents....................................... (79) 1,568 (1,375) (786) 549
Cash and cash equivalents, beginning of period...... 246 167 1,735 1,735 360
------- ------- -------- ------ ------
Cash and cash equivalents, end of period............ $ 167 $ 1,735 $ 360 $ 949 $ 909
======= ======= ======== ====== ======
Supplemental disclosure of cash flow information:
Interest paid..................................... $ 45 $ 46 $ 44 $ 13 $ 10
------- ------- -------- ------ ------
Income tax paid (refunded)........................ $ 91 $ 40 $ (96) $ -- $ 14
======= ======= ======== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 55
SOFTWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996, AND 1997 AND AS OF MARCH 31, 1998 (UNAUDITED)
1. ORGANIZATION AND NATURE OF OPERATIONS:
The Company
SOFTWORKS, Inc. ("SOFTWORKS" or the "Company") designs, develops, markets,
and supports systems management software products for enterprise computing
environments primarily in the United States. SOFTWORKS wholly-owns subsidiaries
in the United Kingdom, France, Brazil, Australia, Italy, and Spain which operate
primarily as sales offices. SOFTWORKS was incorporated in 1977 under the state
laws of Maryland and reincorporated in 1998 under the state laws of Delaware. In
1993, SOFTWORKS was acquired by Computer Concepts Corp. (the "Parent" or the
"Stockholder"), which is a publicly traded company listed on the Nasdaq SmallCap
Exchange under the symbol "CCEE."
Public Offering
On May 28, 1998, the Board of Directors of SOFTWORKS, in conjunction with
the Parent, authorized management of SOFTWORKS to file a registration statement
with the Securities and Exchange Commission permitting SOFTWORKS to sell
1,700,000 shares of common stock to the public as well as 2,500,000 shares of
SOFTWORKS' common stock owned by the existing Stockholder (the "Offering").
Increase in Authorized Shares and Stock Split
SOFTWORKS has restated its articles of incorporation to increase the number
of authorized shares to 2,000,000 of preferred shares and 150,000,000 of common
shares. Additionally, on May 28, 1998, the Board of Directors of SOFTWORKS
effected a 5,000-for-1 stock split. Further, on June 29, 1998, the Board of
Directors of SOFTWORKS declared and issued a stock dividend of 583,000 shares of
Common Stock to its Stockholder. The effects of the stock split, and stock
dividend have been given retroactive application in the consolidated financial
statements for all periods presented.
Voting Trust Agreement
In conjunction with the Offering, shares owned by the Parent will be placed
in a voting trust. The voting power of the trust will be held by three trustees
who will be members of the Board of Directors of SOFTWORKS. One trustee will be
the Chairman of the Parent and the remaining two trustees will be directors who
do not have a significant financial interest in the Parent, of which one is the
Chairman of SOFTWORKS. The agreement provides that upon a change in either of
the remaining two trustees, the non-Parent stockholders have control of the
selection of the successor director/trustee. This agreement remains in effect
until the Parent reduces its ownership to 25% of SOFTWORKS.
Principles of Consolidation
The consolidated financial statements include the accounts of SOFTWORKS and
its wholly-owned subsidiaries (the "Company"). All significant intercompany
transactions and balances have been eliminated in consolidation.
Risks and Other Factors
As a company that develops, markets, licenses and supports a family of
enterprise systems management software products for data and storage management
and performance management, SOFTWORKS faces certain risks. These include
dependence on proprietary technology, rapid technological change, errors or
failures in its products, dependence on key personnel, challenges in recruiting
personnel and a highly competitive marketplace.
F-7
<PAGE> 56
SOFTWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
After the Offering, the Parent will continue to own more than 50% of the
outstanding shares of the Company. The Parent received a going concern opinion
with respect to its audited financial statements for the year ended December 31,
1997. Under certain circumstances, the Parent's financial condition may
influence its decisions as the controlling stockholder of the Company. The
voting trust agreement noted above gives the majority of trustees control over
significant corporate actions, including certain disposition or encumbrance of
assets and the payment of dividends.
2. SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information
The unaudited consolidated balance sheet as of March 31, 1998, and the
unaudited consolidated statements of operations and cash flows for the three
months ended March 31, 1997 and 1998, have been prepared by the Company and in
the opinion of management include all adjustments, consisting only of normal
recurring accruals, which management considers necessary for fair presentation
of the financial statements for such periods. The Company's results of
operations for the three months ended March 31, 1998, are not necessarily
indicative of results that may be expected for any other future interim periods
or for the year ending December 31, 1998. Demand for the Company's products has
historically been higher during the fourth quarter, primarily due to the capital
spending trends of its customers, which has resulted in higher software license
revenue in that period and lower software license revenue in the first quarter.
Revenue Recognition
Revenue from the sale of perpetual and term software licenses are
recognized, net of provisions for returns, at the time of delivery and
acceptance of software products by the customer, when collectibility is
probable. The Company provides customers with the option to pay for license fees
over extended periods of time, generally three to five years. In such instances,
the Company does not consider sales contracts with amounts due for periods
greater than one year from delivery, fixed and determinable, and accordingly
recognizes such amounts as revenue when they become due. Maintenance revenue
that is bundled with an initial license fee is deferred and recognized ratably
over the maintenance period. Amounts deferred for maintenance are based on the
fair value of equivalent maintenance services sold separately. Revenue from
professional services, such as training and staff augmentation, is recognized as
the services are performed.
The American Institute of Certified Public Accountants issued Statement of
Position 97-2 "Software Revenue Recognition" ("SOP 97-2"), which superceded
Statement of Position 91-1 "Software Revenue Recognition." SOP 97-2 provides
additional guidance with respect to multiple element arrangements; returns,
exchanges, and platform transfer rights; resellers; services; funded software
development arrangements; and contract accounting. The Company implemented SOP
97-2 for the year ended December 31, 1997. The adoption of SOP 97-2 was not
material to the Company's revenue recognition policy for software transactions.
Cash Equivalents
The Company considers all highly liquid instruments with an original
maturity of three months or less at the time of purchase to be cash equivalents.
Installment Receivables
Perpetual license agreements may be executed under installment payment
plans generally with annual payment terms for three to five years. Revenue and
related sales commissions are deferred and recognized as payments become due.
F-8
<PAGE> 57
SOFTWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property and Equipment
Property and equipment are stated at cost and depreciated on a
straight-line basis over the estimated useful lives of the related assets.
Leasehold improvements are amortized over the shorter of the useful life of the
asset or the lease term. Capitalized lease assets are amortized over the shorter
of the lease term or the service life of the related assets.
Software Development Costs
Costs associated with the development of software products are generally
capitalized once technological feasibility is established. Purchased software
technologies are recorded at cost and software technologies acquired in purchase
business transactions are recorded at their estimated fair value. Software costs
associated with technology development and purchased software technologies are
amortized using the greater of the ratio of current revenue to total projected
revenue for a product or the straight line method. Amortization of software
costs begins when products become available for general customer release. Costs
incurred prior to establishment of technological feasibility are expensed as
incurred and reflected as research and development costs in the accompanying
consolidated statements of operations.
Goodwill
In connection with its acquisition by the Parent in 1993 under which there
was a change in 100 percent of the Company's equity interests, the excess of the
acquisition cost of the Company over the then fair value of its tangible and
intangible net assets (or goodwill) has been recorded on the books of the
Company, using "push-down" accounting. The goodwill is being amortized over a
ten year period.
Impairment of Long-Lived Assets
The Company reviews its long-lived assets, including goodwill resulting
from business acquisitions, capitalized software development costs, and property
and equipment, for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be fully recoverable. To
determine recoverability of its long-lived assets, the Company evaluates the
probability that future undiscounted net cash flows, without interest charges,
will be less than the carrying amount of the assets. The Company has determined
that as of December 31, 1997, there has been no impairment in the carrying value
of long-lived assets.
Income Taxes
The Company's results are included in the consolidated Federal income tax
returns of the Parent. Income taxes are calculated as if the Company filed on a
separate return basis and the amount of current income tax expense or benefit is
either owed to or due from the Parent. Separate provisions for income taxes have
been determined for wholly-owned foreign subsidiaries which are consolidated for
SOFTWORKS' financial reporting, but not eligible to be included in the Parent's
consolidated U.S. Federal income tax return. Withholding taxes payable to
various other foreign countries are also included in the current foreign tax
provision.
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." ("SFAS No. 109").
SFAS No. 109 requires the determination of deferred tax assets and liabilities
based on the differences between the financial statement and income tax bases of
assets and liabilities, using enacted tax rates. SFAS No. 109 requires that the
net deferred tax asset is adjusted by a valuation allowance, if, based on the
weight of available evidence, it is more likely than not that some portion or
all of the net deferred tax asset will not be realized.
F-9
<PAGE> 58
SOFTWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Basic and Diluted Net (Loss) Income Per Share
In March 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, "Earnings Per Share" ("SFAS No. 128"). SFAS No. 128 is
effective for financial statements issued for periods ending after December 15,
1997 and has been implemented for all periods presented. SFAS No. 128 requires
dual presentation of basic and diluted earnings per share. Basic earnings per
share includes no dilution and is computed by dividing net income (loss)
available to common stockholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share includes the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock. For all periods presented the
Company had no potentially dilutive securities, as a result the basic and
diluted earnings per share amounts are identical.
Basic and diluted net earnings per share is also computed pursuant to SEC
Staff Accounting Bulletin No. 98 ("SAB 98"). SAB 98 requires that all equity
instruments issued at nominal prices, prior to the effective date of an initial
public offering, be included in the calculation of basic and diluted net income
(loss) per share as if they were outstanding for all periods presented. To date
the Company has not had any nominal issuances or grants at nominal prices.
Foreign Currency
The functional currency for all of the Company's foreign operations is the
subsidiary's local currency. Assets and liabilities of foreign subsidiaries are
translated into U.S. dollars at year-end exchange rates and revenue and expense
accounts and cash flows are translated at average exchange rates during the
period. Gains and losses resulting from translation are recorded as accumulated
other comprehensive income in stockholder's equity. Transaction gains and losses
are recognized in the consolidated statements of operations as incurred.
Included in cash and cash equivalents at December 31, 1996, December 31,
1997 and March 31, 1998 (unaudited) is approximately $619,000, $278,000 and
$337,000, respectively, of cash denominated in various foreign currencies.
Concentrations and Fair Value of Financial Instruments
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of cash equivalents and trade
accounts receivables. At December 31, 1997, the Company's cash investments are
held at various financial institutions, which limits the amount of credit
exposure to any one financial institution. Concentrations of credit risk with
respect to trade accounts receivables are limited due to the large number of
customers comprising the Company's revenue base and their dispersion across
different industries and geographic areas. The Company performs ongoing credit
evaluations of its customers' financial condition and, generally, requires no
collateral from its customers. Unless otherwise disclosed, the fair value of
financial instruments approximates their recorded values.
Use of Estimates
In preparing consolidated financial statements in conformity with generally
accepted accounting principles, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenue and expenses, during the
reporting period. Actual results could differ from those estimates.
F-10
<PAGE> 59
SOFTWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. ACQUISITION OF DBOPEN, INC.:
In October 1994, the Company entered into an agreement to acquire DBopen,
Inc. ("DBopen"), a provider of personal computer database administration tools
employing client/server technology. In connection with the acquisition, the
Parent issued $939,000 of restricted common stock and assumed long-term debt of
approximately $423,000. The acquisition was accounted for as a purchase and,
accordingly, DBopen's assets and liabilities were recorded at their fair values
as of December 31, 1994 and the operations of DBopen were included in the
Company's operations as of that date. The cost of the acquisition exceeded the
fair value of net assets acquired by $1,916,000 and was recorded as goodwill.
As a result of limited sales and changing market conditions during late
1995, it became apparent that significant additional expenditures would have to
be incurred in order to modify the DBopen products to meet such changing market
conditions. In the opinion of management, such additional costs would exceed the
projected benefits and the decision was made to discontinue the products.
Consistent with this business decision, the Company wrote-off the remaining
carrying value of its investment in DBopen of $1,320,000 in the fourth quarter
of 1995.
4. INSTALLMENT RECEIVABLES AND DEFERRED INSTALLMENT REVENUE:
During 1996, the Company began offering customers extended payment terms to
purchase software. The payment schedule for installment receivables, noncurrent,
at December 31, 1997, is as follows (in thousands):
<TABLE>
<S> <C>
Due in 1999......................................... $4,161
Due in 2000......................................... 1,422
Due in 2001......................................... 897
------
$6,480
======
</TABLE>
Deferred installment revenue which relates to the installment receivables
is scheduled to be earned as follows (in thousands):
<TABLE>
<CAPTION>
SOFTWARE
LICENSES MAINTENANCE TOTAL
-------- ----------- -------
<S> <C> <C> <C>
Earned in 1998....................................... $5,059 $ 447 $5,506
====== ====== ======
Earned in 1999....................................... $3,506 $1,043 $4,549
Earned in 2000....................................... 1,181 428 1,609
Earned in 2001....................................... 745 171 916
Earned in 2002....................................... -- 48 48
------ ------ ------
$5,432 $1,690 $7,122
====== ====== ======
</TABLE>
5. PREPAID EXPENSES AND OTHER ASSETS:
Included in prepaid expenses and other current assets are prepaid
commissions of $211,000, $511,000 and $1,006,000 at December 31, 1996, December
31, 1997 and March 31, 1998 (unaudited), respectively. Also included in other
assets are noncurrent prepaid commissions of $289,000, $538,000 and $585,000 at
December 31, 1996, December 31, 1997 and March 31, 1998 (unaudited),
respectively.
F-11
<PAGE> 60
SOFTWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
USEFUL LIFE ------------------ MARCH 31,
IN YEARS 1996 1997 1998
----------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Computer equipment and software......... 3 to 7 $ 1,636 $ 2,565 $ 2,698
Furniture and fixtures.................. 5 to 7 163 204 209
Leasehold improvements.................. 7 473 500 500
------- ------- -------
2,272 3,269 3,407
Less accumulated depreciation and
amortization.......................... (1,049) (1,746) (1,926)
------- ------- -------
Property and equipment, net............. $ 1,223 $ 1,523 $ 1,481
======= ======= =======
</TABLE>
7. SOFTWARE DEVELOPMENT COSTS:
Software development costs consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Capitalized software development costs.............. $ 478 $ 1,242 $ 1,617
Purchased and acquired software technologies for
resale............................................ 1,894 2,174 2,187
------- ------- -------
2,372 3,416 3,804
Less accumulated depreciation....................... (1,424) (2,113) (2,283)
------- ------- -------
Software development costs, net..................... $ 948 $ 1,303 $ 1,521
======= ======= =======
</TABLE>
8. ACQUISITION BY THE PARENT:
In September 1993, the Company was acquired by the Parent and the
acquisition was accounted for using the purchase method of accounting.
Accordingly, assets and liabilities were recorded at their fair values as of the
effective date of the acquisition, and the operations of the Company have been
included in the Parent's consolidated statements of operations since that date.
The purchase price approximated $5,700,000 (payable in cash and restricted
common stock of the Parent) and originally resulted in $5,484,000 of goodwill
related to the excess of cost over the fair value of net assets acquired. The
acquisition agreement also requires the Company to make additional contingent
purchase consideration payments to two of the Company's former stockholders
based upon certain product revenue for the three-year period ending September
1998, up to a maximum of $1,000,000 each, for an aggregate maximum of
$2,000,000. Through March 31, 1998 (unaudited), the Company has incurred a
liability of $1,864,000 ($1,596,000 of which has been paid) to the non-employee
former stockholders, which has been treated as additional consideration in
connection with the acquisition and, accordingly, added to the goodwill related
to the acquisition.
F-12
<PAGE> 61
SOFTWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Trade accounts payable.............................. $ 515 $ 1,834 $1,613
Accrued payroll and benefits........................ 643 579 528
Commissions payable................................. 556 1,368 669
Other accrued expenses.............................. 308 908 935
------- ------- ------
$ 2,022 $ 4,689 $3,745
======= ======= ======
</TABLE>
10. TRANSACTIONS WITH THE PARENT:
The Parent provides certain corporate and administrative services to the
Company including executive management and professional services (accounting,
auditing and legal). These services were performed for $500,000 in the years
ended December 31, 1996 and 1997, and $125,000 for the three months ended March
31, 1997 (unaudited) and 1998 (unaudited). These costs were allocated to the
Company based on a proportional cost allocation method. Prior to 1996, the
Company effectively operated independently of its Parent and was responsible for
its own expenses. As a result, prior to 1996 the Parent performed no material
services nor incurred any material expenses on behalf of the Company. The
Company and its Parent also jointly participate in certain employee benefit
plans (defined contribution and employee health), and the Company is allocated a
portion of these costs on an incremental basis.
Management believes that the intercompany charges and cost allocations are
reasonable and approximate the expenses that the Company would have incurred had
it been operating as a stand-alone entity. Subsequent to the Offering
contemplated by this prospectus, the Company will perform the corporate and
administrative functions directly, using its own resources or purchased
services, and will be responsible for the costs and expenses associated with the
management of a public corporation. At March 31, 1998, the Company owed the
Parent $1,218,000, which will be repaid with proceeds from the Offering.
Additionally, certain Company employees receive part of their compensation
in the form of the Parent's common stock or options. Included in the Company's
consolidated statements of operations are non-cash compensation charges related
to the fair value of the Parent's common stock issued and non-cash compensation
charges related to the intrinsic value of stock options granted pursuant to APB
Opinion No. 25, "Accounting for Stock Issued to Employees". Charges for both
stock and options totaled $0, $187,000, and $18,000 for the years ended December
31, 1995, 1996, and 1997, respectively.
F-13
<PAGE> 62
SOFTWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
If the Company had elected to recognize compensation expense based upon the
fair value of the options at the date of the grant consistent with the
methodology prescribed by SFAS Statement No. 123, "Accounting For Stock-Based
Compensation," the effect on the Company's net (loss) income would be as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
------- ----- -----
<S> <C> <C> <C>
Net (loss) income:
As reported............................................. $(1,711) $ 792 $ 786
Pro forma............................................... (1,752) 672 598
Basic and diluted (loss) income per share:
As reported............................................. $ (0.12) $0.06 $0.06
Pro forma............................................... (0.12) 0.05 0.04
</TABLE>
The fair value of options granted during 1995, 1996, and 1997,
respectively, is estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions: (1) expected volatility
ranging from 79% to 130%, (2) risk-free interest rates ranging from 5.4% to
6.25% and (3) expected lives ranging from 1.1 to 3.9 years.
11. INCOME TAXES:
The following table summarizes components of income (loss) before income
taxes and the (benefit from) provision for both current and deferred income
taxes.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
------- ------ ------
<S> <C> <C> <C>
(Loss) income before (benefit from) provision for income
taxes:
United States......................................... $(2,602) $1,471 $2,579
Foreign............................................... (88) 25 (763)
------- ------ ------
Total......................................... $(2,690) $1,496 $1,816
======= ====== ======
(Benefit from) provision for income taxes:
Current --
United States...................................... $ -- $ -- $ 858
Foreign............................................ 91 135 55
State and other.................................... -- -- 150
------- ------ ------
91 135 1,063
------- ------ ------
Deferred --
United States...................................... (926) 505 (27)
Foreign............................................ 16 (16) --
State and other.................................... (160) 80 (6)
------- ------ ------
(1,070) 569 (33)
------- ------ ------
Total......................................... $ (979) $ 704 $1,030
======= ====== ======
</TABLE>
F-14
<PAGE> 63
SOFTWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the significant differences between the U.S.
Federal statutory tax rate and the Company's effective tax rate for financial
statement purposes:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1996 1997
------ ----- -----
<S> <C> <C> <C>
U.S. Federal statutory tax rate............................. (34.0)% 34.0% 34.0%
State and local taxes, net of U.S. federal tax effect....... (5.7) 6.8 3.5
Non-U.S. taxes.............................................. 2.2 5.9 2.0
Foreign operating loss (income)............................. 1.1 (0.6) 14.3
Other....................................................... -- 1.0 2.9
----- ---- ----
Effective tax rate.......................................... (36.4)% 47.1% 56.7%
===== ==== ====
</TABLE>
The tax effects of temporary differences and carryforwards that give rise
to significant portions of deferred tax assets are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1997
---- -----
<S> <C> <C>
Current:
Net operating loss carryforwards -- U.S................... $414 $ --
Accruals and reserves..................................... 58 138
---- -----
472 138
---- -----
Long-Term:
Fixed and intangible assets............................... 190 347
Capitalized software...................................... 139 349
Net operating loss carryforwards -- foreign............... -- 229
Valuation allowance on foreign net operating loss
carryforwards.......................................... -- (229)
---- -----
329 696
---- -----
Net deferred tax assets................................... $801 $ 834
==== =====
</TABLE>
In 1997, the Company utilized federal net operating losses generated in
1995 and 1996, aggregating $1,000,000. Included in the deferred tax assets as of
December 31, 1997 are net operating losses from foreign subsidiaries in the
amount of $763,000, resulting in a deferred tax benefit of $229,000. Most of the
net operating loss carryforwards have no expiration date. The Company has
provided for full valuation allowances of these foreign net operating losses due
to the uncertainty of future income estimates.
12. STOCKHOLDER'S EQUITY:
Stock Option Plan
In May 1998, the Company adopted the SOFTWORKS, Inc. 1998 Long Term
Incentive Plan (the "1998 Incentive Plan") which authorizes the issuance of a
maximum of 3,727,000 shares of Common Stock. The 1998 Incentive Plan provides
for grants of options to officers, key employees, consultants and independent
contractors of the Company and its affiliates. The 1998 Incentive Plan provides
for the granting of incentive stock options, non-qualified stock options,
performance grants and other types of awards. This plan is administered by the
Long Term Incentive Plan Administrative Committee of the Board of Directors,
which has sole discretion and authority, consistent with the provisions of the
1998 Incentive Plan, to determine which eligible participants will receive
options, the time when options will be granted and the terms of options granted.
As of June 29, 1998, the Company has not granted any options to purchase shares
of Common Stock under the 1998 Incentive Plan.
F-15
<PAGE> 64
SOFTWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock Split and Stock Dividend
In May 1998, the Company declared and issued a stock dividend, to its sole
Stockholder of 2,640 shares (pre-split) of Common Stock. This dividend brought
the total outstanding shares at the time of the stock dividend to 2,700
(pre-split). On a post 5,000-for-1 split basis (see Note 1) the Common Stock
outstanding is 13,500,000. Because of its magnitude, the stock dividend has been
treated as a stock split. The effects of the stock dividend and the 5,000-for-1
stock split have been given retroactive application in the consolidated
financial statements for all periods presented.
On June 29, 1998, the Company declared and issued a stock dividend of
583,000 shares of Common Stock to its Stockholder. The effects of this stock
dividend have also been given retroactive application in the consolidated
financial statements for all periods presented.
13. COMMITMENTS AND CONTINGENCIES:
Royalty Commitments
The Company has entered into royalty agreements with several employees of
the Company. These agreements call for royalties ranging from 1% to 10% on
various product revenue. These agreements range in term from three to five years
and contain no provisions for minimum royalties. One agreement is with an
officer of the Company and has resulted in royalty expense of $64,000, $98,000,
and $188,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
The agreement with this officer will be terminated in conjunction with the
signing of an employment agreement in 1998.
Leases
The Company leases certain computer equipment under long-term
non-cancelable leases which are classified as capital leases and are included as
part of property and equipment. Operating leases are primarily for office space,
equipment and automobiles.
At December 31, 1997, the future minimum lease payments under operating and
capital leases are summarized as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING DECEMBER 31, LEASES LEASES
------------------------ --------- -------
<S> <C> <C>
1998...................................................... $ 647 $63
1999...................................................... 559 --
2000...................................................... 494 --
2001...................................................... 347 --
2002...................................................... 101 --
------ ---
Total........................................... 2,148 63
Amounts representing interest............................. -- (2)
------ ---
Net............................................. $2,148 $61
====== ===
</TABLE>
Rent expense approximated $391,000, $522,000, $896,000, $193,000 and
$292,000 for the years ended December 31, 1995, 1996, and 1997, and for the
three months ended March 31, 1997 (unaudited) and March 31, 1998 (unaudited),
respectively.
Employee 401(k) Savings Plan
The Company provides pension benefits to eligible employees through a
401(k) plan sponsored jointly by the Company and the Parent. The Company's
allocable share of employer matching contributions to this
F-16
<PAGE> 65
SOFTWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
401(k) plan approximated $26,000, $36,000, $52,000, $15,000 and $19,000 for the
years ended December 31, 1995, 1996, and 1997, and for the three months ended
March 31, 1997 (unaudited) and March 31, 1998 (unaudited), respectively.
Software Distribution Agreement
In July 1997, the Company acquired from Cognizant Technology Solutions
Corporation ("CTS") the rights to technology (the "Technology") that complement
the Company's existing Year 2000 product solutions. Pursuant to the software
distribution agreement, in exchange for the Technology rights, the Company is
required to pay CTS a royalty on sales of the Technology at defined rates
subject to minimum annual royalties as follows: $100,000 in 1997, $900,000 in
1998, $1,400,000 in 1999 and $400,000 in 2000. The total minimum annual royalty
payments are being amortized on a straight-line basis over the five year term of
the contract.
Employment Agreements
The Company is in the process of negotiating employment agreements in an
effort to retain several key employees. The employment agreements are expected
to have terms in excess of one year and will include provisions typically found
in such agreement with respect to confidentiality, severance and incentives.
14. GEOGRAPHIC INFORMATION:
The Company is primarily engaged in a single line of business. Geographic
data is summarized between the United States and Foreign. Foreign consists of
operations through the Company's foreign subsidiaries in the United Kingdom,
France, Brazil, Australia, Spain and Italy, as well as sales generated through
foreign distributors primarily in Europe and Asia. Geographic data is presented
in accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" for all periods presented as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------- -------------------
1995 1996 1997 1997 1998
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
United States...................... $ 8,894 $11,643 $22,038 $ 3,647 $ 5,290
Foreign............................ 2,732 4,882 4,732 1,019 1,306
------- ------- ------- ------- -------
Total...................... $11,626 $16,525 $26,770 $ 4,666 $ 6,596
======= ======= ======= ======= =======
Operating (Loss) Income:
United States...................... $(2,843) $ 590 $ 2,356 $ (263) $ (384)
Foreign............................ 153 906 (540) (233) (589)
------- ------- ------- ------- -------
Total...................... $(2,690) $ 1,496 $ 1,816 $ (496) $ (973)
======= ======= ======= ======= =======
Identifiable Assets:
United States...................... $12,348 $21,272 $30,961 $21,240 $29,951
Foreign............................ 418 1,271 2,668 1,152 3,465
------- ------- ------- ------- -------
Total...................... $12,766 $22,543 $33,629 $22,392 $33,416
======= ======= ======= ======= =======
</TABLE>
F-17
<PAGE> 66
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THIS OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING STOCKHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 5
Use of Proceeds....................... 12
Dividend Policy....................... 12
Dilution.............................. 13
Capitalization........................ 14
Selected Financial Data............... 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 16
Business.............................. 25
Management............................ 34
Certain Transactions.................. 39
Principal and Selling Stockholders.... 41
Description of Capital Stock.......... 42
Shares Eligible for Future Sale....... 44
Underwriting.......................... 45
Legal Matters......................... 46
Experts............................... 46
Available Information................. 47
Index to Financial Statements......... F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
4,200,000 Shares
[SOFTWORKS LOGO]
SOFTWORKS
Common Stock
-----------------------
PROSPECTUS
-----------------------
SoundView Financial Group, Inc.
Raymond James & Associates, Inc.
, 1998
------------------------------------------------------
------------------------------------------------------
<PAGE> 67
Arching across the page are the words "Intelligent, Intuitive, Integrated
Systems Management for the Enterprise"
- - maximize return on technology investments;
- - leverage staff skills and knowledge;
- - manage heterogeneous environments;
- - provide proactive and controlled automation;
- - provide embedded intelligence to make decisions;
- - exploit the strengths and address the weaknesses of operating systems.
A picture appears across the bottom of a CD Rom Disk, lines and numbers and a
person's face.
<PAGE> 68
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of the distribution, all of which shall be borne by
the Company, are as follows:
<TABLE>
<CAPTION>
ITEM AMOUNT
---- --------
<S> <C>
SEC registration fee........................................ $ 14,394
NASD filing fee............................................. 5,325
Nasdaq Application.......................................... 90,500
Blue Sky fees and expenses (including legal fees)........... 12,000
Transfer Agent fees......................................... 3,950
Accounting fees and expenses................................ 250,000
Legal fees and expenses..................................... 245,000
Printing and Engraving fees................................. 105,000
Miscellaneous............................................... 23,831
--------
Total............................................. $750,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company, a Delaware corporation, is empowered by Section 145 of the
Delaware General Corporation Law (the "Delaware Act"), subject to the procedures
and limitations stated therein, to indemnify certain parties. Section 145 of the
Delaware Act provides in part that a corporation shall have the power to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding (other than
an action by or in the right of the corporation) by reason of the fact that such
person is or was a director, officer, employee or agent of the corporation or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and with respect
to any criminal action or proceeding had no reasonable cause to believe his
conduct was unlawful. Similar indemnity is authorized for such persons against
expenses (including attorneys' fees) actually and reasonably incurred in defense
or settlement of any threatened, pending or completed action or suit by or in
the right of the corporation, if such person acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation, and provided further that (unless a court of competent jurisdiction
otherwise provides) such person shall not have been adjudged liable to the
corporation. Any such indemnification may be made only as authorized in each
specific case upon a determination by the stockholders or disinterested
directors that indemnification is proper because the indemnitee has met the
applicable standard of conduct. Where an officer or a director is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director actually or reasonably incurred. Section 145 provides further that
indemnification pursuant to its provisions is not exclusive of other rights of
indemnification to which a person may be entitled under any law, agreement, vote
of stockholders or disinterested directors or otherwise.
The Company's Certificate of Incorporation and By-laws contain provisions
that limit the potential personal liability of directors for certain monetary
damages and provide for indemnity of directors and other persons. The Company
has applied for officers and directors liability insurance. The Company is
unaware of any pending or threatened litigation against the Company or its
directors that would result in any liability for which such director would seek
indemnification or similar protection.
The provisions affecting personal liability do not abrogate a director's
fiduciary duty to the Company and its stockholders, but eliminate personal
liability for monetary damages for breach of that duty. The provisions
II-1
<PAGE> 69
do not, however, eliminate or limit the liability of a director for failing to
act in good faith, for engaging in intentional misconduct or knowingly violating
a law, for authorizing the illegal payment of a dividend or repurchase of stock,
for obtaining an improper personal benefit, for breaching a director's duty of
loyalty (which is generally described as the duty not to engage in any
transaction that involves a conflict between the interests of the Company and
those of the director) or for violations of the federal securities laws. The
provisions also limit or indemnify against liability resulting from grossly
negligent decisions, including grossly negligent business decisions relating to
attempts to change control of the Company.
The provisions regarding indemnification provide, in essence, that the
Company will indemnify its directors against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with any action, suit or proceeding arising out of the
director's status as a director of the Company, including actions brought by or
on behalf of the Company (stockholder derivative actions). The provisions do not
require a showing of good faith. Moreover, they do not provide indemnification
for liability arising out of willful misconduct, fraud, or dishonesty, for
"short-swing" profits violations under the federal securities laws, or for the
receipt of illegal remuneration. The provisions also do not provide
indemnification for any liability to the extent such liability is covered by
insurance. One purpose of the provisions is to supplement the coverage provided
by such insurance.
These provisions diminish the potential rights of action that might
otherwise be available to stockholders by limiting the liability of officers and
directors to the maximum extent allowable under Delaware law and by affording
indemnification against most damages and settlement amounts paid by a director
of the Company in connection with any stockholders derivative action. However,
the provisions do not have the effect of limiting the right of a stockholder to
enjoin a director from taking actions in breach of the director's fiduciary
duty, or to cause the Company to rescind actions already taken, although as a
practical matter courts may be unwilling to grant such equitable remedies in
circumstances in which such actions have already been taken.
The Company has entered into indemnification agreements with certain of its
officers. The indemnification agreements provide for reimbursement for all
direct and indirect costs of any type or nature whatsoever (including attorneys'
fees and related disbursements) actually and reasonably incurred in connection
with either the investigation, defense or appeal of a legal proceeding,
including amounts paid in settlement by or on behalf of an indemnitee
thereunder.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In May 1998, the Company effected a reincorporation into the State of
Delaware pursuant to an agreement and plan of merger by and between the Company
and SOFTWORKS, Inc., a Maryland corporation (the "Merger"). The issuance of
shares by the Company in connection with the Merger was exempt from registration
under the Securities Act pursuant to Section 3(a)(9) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBITS
- --------
<C> <S>
1.1 Form of Underwriting Agreement
1.2 Form of Agreement Among Underwriters*
1.3 Form of Selected Dealer Agreement*
3.1 Certificate of Incorporation of the Registrant*
3.2 By-laws of the Registrant
4.1 Specimen Common Stock Certificate
5.1 Form of Opinion and Consent of Blau, Kramer, Wactlar &
Lieberman, P.C. regarding the legality of the securities
being registered
9 Form of Voting Trust Agreement
10.1 Lease Agreement dated June 14, 1994 between the Registrant
and WHT Real Estate Limited Partnership*
10.2 First Amendment to Lease Agreement*
</TABLE>
II-2
<PAGE> 70
<TABLE>
<CAPTION>
EXHIBITS
- --------
<C> <S>
10.3 Second Amendment to Lease Agreement*
10.4 1998 Long Term Incentive Plan
10.5 Employment Agreement between the Registrant and James
Cannavino
10.6 Employment Agreement between the Registrant and C. R.
Kinsey, III
10.7 Employment Agreement between the Registrant and Judy G.
Carter
10.8 Employment Agreement between the Registrant and Lisa Welch
10.9 Employment Agreement between the Registrant and Joseph
Miksch
10.10 Employment Agreement between the Registrant and Robert
McLaughlin
10.11 Form of Indemnification Agreement between the Company and
its officers and directors*
10.12 Distribution Agreement dated July 8, 1997 between the
Registrant and Cognizant Technology Solutions Corporation*
21 The following lists the Company's subsidiaries:
</TABLE>
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION
------------------ -----------------------------
<S> <C>
SOFTWORKS International, Limited United Kingdom
SOFTWORKS SAVANTECHNOLOGY
International, S.A. Spain
SOFTWORKS International, Pty. Limited Australia
SOFTWORKS SAVANTECHNOLOGY do Brazil Ltda Brazil
SOFTWORKS S.A. France
SOFTWORKS Italia S.r.1. Italy
SOFTWORKS Services Corp. Texas
</TABLE>
<TABLE>
<C> <S>
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Blau, Kramer, Wactlar & Lieberman, P.C. (included
in Exhibit 5)**
24 Power of Attorney (included in signature page)*
27.1 Financial Data Schedule
</TABLE>
- ---------------
* Previously filed
** To be filed by amendment.
FINANCIAL STATEMENT SCHEDULES
Not applicable.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
For purposes of determining any liability under the Securities Act of
1933 (the "Act"), the information omitted from the form of Prospectus filed
as part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Company pursuant to Rule
424(b)(1) and (4) and Rule 497(h) under the Act shall be deemed to be part
of this Registration Statement as of the time it was declared effective.
For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
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.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers, and controlling
persons of the issuer pursuant to the foregoing provisions, or otherwise,
the issuer 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 and is, therefore, unenforce-
II-3
<PAGE> 71
able. In the event that a claim for indemnification against such
liabilities (other than the payment by the issuer of expenses incurred or
paid by a director, officer or controlling person of the issuer 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 issuer 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 and will be
governed by the final adjudication of such issue.
II-4
<PAGE> 72
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
duly caused this Amendment No. 2 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in New York, New York
on the 7th day of July, 1998.
SOFTWORKS, Inc.
By: /s/ JUDY G. CARTER
------------------------------------
Judy G. Carter
President (Chief Executive Officer)
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed below on July 7, 1998, by
the following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ JAMES A. CANNAVINO* Chairman of the Board and Director
- -----------------------------------------------------
James A. Cannavino
/s/ JUDY G. CARTER President, Chief Executive Officer and a
- ----------------------------------------------------- Director
Judy G. Carter
/s/ C. R. KINSEY, III* Vice President and Secretary
- -----------------------------------------------------
C. R. Kinsey, III
/s/ ROBERT C. MCLAUGHLIN* Treasurer and Chief Financial Officer
- -----------------------------------------------------
Robert C. McLaughlin
/s/ DANIEL DELGIORNO, JR.* Director
- -----------------------------------------------------
Daniel DelGiorno, Jr.
/s/ ROBERT DEVINE* Director
- -----------------------------------------------------
Robert Devine
*By: /s/ JUDY G. CARTER
- -----------------------------------------------------
Judy G. Carter
Attorney-in-fact
</TABLE>
II-5
<PAGE> 73
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS PAGE
- -------- ----
<C> <S> <C>
1.1 Form of Underwriting Agreement
1.2 Form of Agreement Among Underwriters*
1.3 Form of Selected Dealer Agreement*
3.1 Certificate of Incorporation of the Registrant*
3.2 By-laws of the Registrant
4.1 Specimen Common Stock Certificate
5.1 Form of Opinion and Consent of Blau, Kramer, Wactlar &
Lieberman, P.C. regarding the legality of the securities
being registered
9 Form of Voting Trust Agreement
10.1 Lease Agreement dated June 14, 1994 between the Registrant
and WHT Real Estate Limited Partnership*
10.2 Amendment No. 1 to Lease Agreement*
10.3 Amendment No. 2 to Lease Agreement*
10.4 1998 Long Term Incentive Plan
10.5 Employment Agreement between the Registrant and James
Cannavino
10.6 Employment Agreement between the Registrant and C. R.
Kinsey, III
10.7 Employment Agreement between the Registrant and Judy G.
Carter
10.8 Employment Agreement between the Registrant and Lisa Welch
10.9 Employment Agreement between the Registrant and Joseph
Miksch
10.10 Employment Agreement between the Registrant and Robert
McLaughlin
10.11 Form of Indemnification Agreement between the Company and
its officers and directors*
10.12 Distribution Agreement dated July 8, 1997 between the
Registrant and Cognizant Technology Solutions Corporation*
21 The following lists the Company's subsidiaries, all of which
are wholly-owned by the Company.
</TABLE>
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY JURISDICTION OF INCORPORATION
------------------ -----------------------------
<S> <C>
SOFTWORKS International, Ltd. United Kingdom
SOFTWORKS SAVANTECHNOLOGY International, S.A. Spain
SOFTWORKS International, Pty. Limited Australia
SOFTWORKS SAVANTECHNOLOGY do Brazil Ltda Brazil
SOFTWORKS, S.A. France
SOFTWORKS Italia S.r.1. Italy
SOFTWORKS Services Corp. Texas
</TABLE>
<TABLE>
<C> <S> <C>
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Blau, Kramer, Wactlar & Lieberman, P.C. (included
in Exhibit 5)**
24 Power of Attorney (included in signature page)*
27.1 Financial Data Schedule
</TABLE>
- ---------------
* Previously filed
** To be filed by amendment
<PAGE> 1
Exhibit 1.1
4,200,000 Shares
SOFTWORKS INC.
COMMON STOCK
UNDERWRITING AGREEMENT
================================================================================
July __, 1998
SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES, INC.
As Representatives of the several Underwriters
c/o SoundView Financial Group, Inc.
22 Gatehouse Road
Stamford, Connecticut 06902
Ladies and Gentlemen:
1. DESCRIPTION OF SHARES.
Softworks, Inc., a Delaware corporation (the "Company"), and the selling
stockholders named in Schedule B attached hereto (the "Selling Stockholders")
propose to sell, upon the terms and subject to the conditions of this Agreement,
to the several underwriters named in Schedule A attached hereto (collectively,
the "Underwriters," or each an "Underwriter"), an aggregate of 4,200,000 shares
(the "Firm Shares") of the Company's common stock, par value $.001 per share
("Common Stock"). Computer Concepts Corp. ("Computer Concepts") also
proposes to sell to the Underwriters, upon the terms and subject to the
conditions of this Agreement, as set forth in Section 5, up to an aggregate of
an additional 630,000 shares of Common Stock (the "Option Shares," and,
collectively with the Firm Shares, the "Shares").
2. REGISTRATION STATEMENT AND PROSPECTUS.
A registration statement (File No. 333-53939) on Form S-1 relating to the
Shares, including a Preliminary Prospectus and such amendments to such
registration statement as may have been required to the date of this Agreement,
has been prepared by the Company under the provisions of the Securities Act of
1933, as amended (the "Securities Act"), and the rules and regulations
(collectively referred to as the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed with the
Commission.
The term "Preliminary Prospectus" as used herein means a preliminary
prospectus as contemplated by Rule 430 or Rule 430A ("Rule 430A") of the Rules
and Regulations included at
<PAGE> 2
any time as part of the registration statement. Copies of such registration
statement and amendments and of each related Preliminary Prospectus have been
delivered to the representatives of the several Underwriters hereunder
(collectively, the "Representatives"). The term "Registration Statement" means
the registration statement as amended at the time it becomes or became effective
(the "Effective Date"), including financial statements and all exhibits and any
information deemed to be included by Rule 430A or Rule 434 of the Rules and
Regulations. If the Company files a registration statement to register a portion
of the Shares and relies on Rule 462(b) of the Rules and Regulations for such
registration statement to become effective upon filing with the Commission (the
"Rule 462 Registration Statement"), then any reference to the "Registration
Statement" shall be deemed to include the Rule 462 Registration Statement, as
amended from time to time. The term "Prospectus" means the prospectus as first
filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations
or, if no such filing is required, the form of final prospectus included in the
Registration Statement at the Effective Date.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to, and agrees with, the several
Underwriters that:
(a) Securities Act Compliance. The Registration Statement conforms in all
material respects with the requirements of the Securities Act and has been filed
with the Commission under the Securities Act. The Commission has not issued or,
to the Company's knowledge, threatened to issue any order preventing or
suspending the use of any Preliminary Prospectus, and, at its date of issue,
each Preliminary Prospectus conformed in all material respects with the
requirements of the Securities Act and did not include any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and, when the Registration Statement
becomes effective and at all times subsequent thereto up to and including the
Closing Dates (as hereinafter defined), the Registration Statement and the
Prospectus and any amendments or supplements thereto contained and will contain
all material statements and information required to be included therein by the
Securities Act and conformed and will conform in all material respects to the
requirements of the Securities Act, and neither the Registration Statement nor
the Prospectus, nor any amendment or supplement thereto, included or will
include any untrue statement of a material fact or omitted or will omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; provided, however, that the foregoing representations,
warranties and agreements shall not apply to information contained in or omitted
from any Preliminary Prospectus or the Registration Statement or the Prospectus
or any such amendment or supplement thereto in reliance upon, and in conformity
with, written information furnished to the Company by any Underwriter
specifically for use in the preparation thereof. There is no contract,
agreement, lease, franchise or document required to be described in the
Registration Statement or Prospectus or to be filed as an exhibit to the
2
<PAGE> 3
SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
Registration Statement which is not described therein or filed therewith as
required, and all descriptions of any such contracts, agreements, leases,
franchises or documents contained in the Registration Statement are accurate and
complete descriptions of such documents in all material respects.
(b) Organization, Good Standing and Qualification. The Company and each of
its subsidiaries has been duly organized and is validly existing and in good
standing as a corporation under the laws of its jurisdiction of incorporation,
with power and authority (corporate and other) to own or lease its properties
and to conduct its business as described in the Prospectus. The Company and each
of its subsidiaries is in possession of and operating in compliance with all
franchises, grants, authorizations, licenses, permits, easements, consents,
certificates and orders required for the conduct of its business, all of which
are valid and in full force and effect, and is duly qualified to do business and
in good standing as a foreign corporation in all other jurisdictions where its
ownership or leasing of properties or the conduct of its business requires such
qualification. The Company and each of its subsidiaries has obtained all
necessary consents, approvals, authorizations, orders, registrations,
qualifications, licenses and permits of and from all public regulatory or
governmental agencies and bodies to own, lease and operate its properties and
conduct its business as now being conducted and as described in the Registration
Statement and the Prospectus, except where the failure to obtain any of the
foregoing would not have a material adverse effect on the condition (financial
or otherwise), properties, business, management, prospects, net worth or results
of operations of the Company and its subsidiaries taken as a whole ("Material
Adverse Effect"), and no such consent, approval, authorization, order,
registration, qualification, license or permit contains a materially burdensome
restriction not adequately disclosed in the Registration Statement and the
Prospectus.
(c) Subsidiaries. Except as set forth in Exhibit 21 to the Registration
Statement, the Company does not have any subsidiaries and does not own or
control, directly or indirectly, any interest in any other corporation,
association or other business entity.
(d) No Changes. Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, and except as set forth
or contemplated in the Prospectus, neither the Company nor any of its
subsidiaries has incurred any liabilities or obligations nor entered into any
transactions not in the ordinary course of business, and there has not been any
Material Adverse Effect, or any material adverse change in the capital stock,
short-term or long-term debt of the Company and its subsidiaries taken as a
whole.
(e) Valid Issuance of the Shares. The Shares to be issued and sold by the
Company to the Underwriters hereunder have been duly and validly authorized and,
when issued and delivered against payment therefor as provided herein, will be
duly and validly issued, fully paid and nonassessable and free of any preemptive
or similar rights and will conform in all material respects to the description
thereof in the Prospectus.
3
<PAGE> 4
SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
(f) Authorization. The Company has the full corporate power and authority
to enter into this Agreement and to perform its obligations hereunder (including
to issue, sell and deliver the Shares), and this Agreement has been duly and
validly authorized, executed and delivered by the Company and is a valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms, except (i) as such enforceability may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting creditor's rights
generally, (ii) as the enforceability of any indemnification provision may be
limited under federal or state securities laws or (iii) as the remedy of
specific forms of equitable relief may be subject to equitable defenses and the
discretion of the court before which any proceeding may be brought
(collectively, the "Enforceability Exceptions").
(g) Compliance with other Instruments. The execution, delivery and
performance of this Agreement and the consummation of the transactions herein
contemplated will not result in a breach of any of the terms or provisions of,
constitute a default under or result in the creation of any lien under any
indenture, mortgage, deed of trust, loan agreement or other material agreement
or instrument to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries or any of their respective
properties is or may be bound, the Certificate of Incorporation, By-laws or
other organizational documents of the Company or of any of its subsidiaries, or
any law, order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Company or any of its subsidiaries or any of their
respective properties.
(h) Legal Compliance. The Company and each of its subsidiaries, in all
material respects, is in compliance with and conducts its business in conformity
with all applicable federal, state, local and foreign laws, rules and
regulations of any court or governmental agency or body, and, to the knowledge
of the Company, except as set forth in the Registration Statement and the
Prospectus, no prospective change in any of such federal or state laws, rules or
regulations has been adopted which, when made effective, would have a Material
Adverse Effect.
(i) Governmental Consents. No consent, approval, authorization or order of
any court or governmental agency or body is required for the consummation by the
Company of the transactions contemplated by this Agreement, except such as may
be required by the National Association of Securities Dealers, Inc. (the "NASD")
or under federal or state securities laws in connection with the purchase and
distribution of the Shares by the Underwriters.
(j) Financial Statements. The financial statements, together with the
related notes and schedules, set forth in the Prospectus and elsewhere in the
Registration Statement fairly present, on the basis stated in the Registration
Statement, the financial condition and the results of operations of the Company
and its subsidiaries at the respective dates or for the respective periods
therein specified. Such statements and related notes and schedules have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis,
4
<PAGE> 5
SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
except as may be set forth in the Prospectus. The selected financial and
statistical data set forth in the Prospectus under the caption "Selected
Financial Data" fairly present, on the basis stated in the Registration
Statement, the information set forth therein. The Company has provided the
Representatives with all financial statements from its inception to the date
hereof that are available to the officers of the Company.
(k) Independent Auditors. Arthur Andersen LLP, who have expressed their
opinions on the audited financial statements and related schedules included in
the Registration Statement and the Prospectus, are independent public
accountants as required by the Securities Act and the Rules and Regulations.
(l) Capitalization. The Company's authorized and outstanding capital stock
is on the date hereof, and will be on the Closing Dates, as set forth under the
heading "Capitalization" in the Prospectus (except that such disclosure need not
reflect the issuance of the Option Shares) and conforms in all material respects
to the description thereof set forth under the heading "Description of Capital
Stock" in the Prospectus. The outstanding shares of Common Stock (including the
outstanding Shares) (i) conform in all material respects to the description
thereof in the Prospectus, (ii) have been duly authorized and validly issued and
are fully paid and nonassessable, (iii) have been issued in compliance with all
federal and state securities laws, and (iv) were not issued in violation of or
subject to any preemptive rights or similar rights to subscribe for or purchase
securities. Except as disclosed in the Prospectus and the financial statements
of the Company and related notes thereto included in the Prospectus, the Company
does not have outstanding any options or warrants to purchase, or any preemptive
rights or other rights to subscribe for or to purchase any securities or
obligations convertible into, or any contracts or commitments to issue or sell,
shares of its capital stock or any such options, rights, convertible securities
or obligations, except for options granted subsequent to the date of information
provided in the Prospectus pursuant to the Company's 1998 Long Term Incentive
Plan (the "Stock Option Plan"), as disclosed in the Prospectus. The description
of the Stock Option Plan and the options or other rights granted or exercised
thereunder, as set forth in the Prospectus, accurately and fairly presents the
information required to be disclosed with respect to such Stock Option Plan,
options and rights.
(m) Litigation. Except as set forth in the Prospectus, there is no legal
or governmental action, suit, proceeding or investigation pending to which the
Company or any of its subsidiaries or affiliates is a party or to which any
property of the Company or any subsidiary or affiliate is subject, which, if
determined adversely to the Company or any such subsidiary or affiliate, might
individually or in the aggregate (i) prevent or adversely affect the
transactions contemplated by this Agreement, (ii) suspend the effectiveness of
the Registration Statement, (iii) prevent or suspend the use of the Preliminary
Prospectus in any jurisdiction, or (iv) have a Material Adverse Effect, and, to
the best of the Company's knowledge, no such action, suit, proceeding or
investigation is threatened or contemplated against the Company or any
subsidiary or affiliate by governmental authorities or others. Neither the
Company nor any
5
<PAGE> 6
SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
of its subsidiaries is a party to and is not subject to the provisions of any
material injunction, judgment, decree or order of any court, regulatory body or
other governmental agency or body.
(n) Tax Returns and Payments. The Company has filed all necessary federal,
state, local and foreign income, payroll, franchise and other tax returns,
except where the failure to file would not have a Material Adverse Effect, and
has paid all taxes shown as due thereon or with respect to any of its
properties, and there is no tax deficiency that has been, or, to the knowledge
of the Company, is likely to be asserted against the Company, any of its
subsidiaries or any of their respective properties or assets that would have a
Material Adverse Effect. All distributions to the stockholders of the Company
prior to the date hereof have been made in compliance with applicable law and
have not exceeded the amounts to which such stockholders were legally entitled.
(o) Registration Rights. No person or entity has the right to require
registration of shares of Common Stock or other securities of the Company as a
result of the filing or effectiveness of the Registration Statement and, in any
event, except as set forth in the Prospectus, no person or entity has the right
to require registration of shares of Common Stock or other securities of the
Company.
(p) Price Stabilization and Manipulation. Neither the Company nor any of
its officers, directors, subsidiaries or affiliates has taken or will take,
directly or indirectly, any action designed or intended to stabilize or
manipulate the price of any security of the Company, or which caused or resulted
in, or which might in the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any security of the Company.
(q) Patents and Trademarks. The Company owns or otherwise possesses or has
the right to use all patents, trademarks, trademark registrations, service
marks, service mark registrations, trade names, copyrights, licenses,
inventions, trade secrets and rights either (i) described in the Prospectus as
being owned by it or (ii) necessary for the conduct of its business as so
described, as now conducted or as proposed to be conducted. The Company is not
aware of any claim to the contrary or any challenge by any other person to the
rights of the Company with respect to the foregoing. The Company's business as
now conducted does not infringe or conflict with in any material respect any
trademarks, service marks, trade names, copyrights, trade secrets, licenses,
U.S. patents or other intellectual property or franchise rights or, to the
Company's knowledge, foreign patents of any person. No claim has been made
against the Company alleging the infringement by the Company of any patent,
trademark, service mark, trade name, copyright, trade secret, license in or
other intellectual property right or franchise right of any person, except as
described in the Prospectus or with respect to claims which, singly or in the
aggregate, will not have a Material Adverse Effect.
(r) Material Contracts. The Company or a subsidiary of the Company, as the
case may be, has performed all material obligations required to be performed by
it under all contracts
6
<PAGE> 7
SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
required by Item 601(b)(10) of Regulation S-K under the Securities Act to be
filed as exhibits to the Registration Statement, and neither the Company nor, to
the knowledge of the Company, any other party to such contract is in default
under or in breach of any such obligations, except with respect to any defaults
or breaches which, singly or in the aggregate, will not result in a Material
Adverse Effect. Neither he Company nor any of its subsidiaries has received any
notice of such default or breach.
(s) Voting Trust Agreement. The Voting Trust Agreement, dated as of ____
__, 1998 (the "Voting Trust Agreement"), by and among the Company, Computer
Concepts Corp. ("Computer Concepts") and each of James Cannavino, Daniel
DelGiorno, Jr. and Robert Devine (collectively, the "Trustees"), has been duly
and validly authorized, executed and delivered by the Company and each of the
Trustees and is a valid and binding agreement of the Company and each of the
Trustees, enforceable against the Company and each of the Trustees in accordance
with its terms, subject to the Enforceability Exceptions.
(t) Labor Agreements and Actions. Neither the Company nor any of its
subsidiaries is involved in any labor dispute and, to the Company's knowledge,
no such dispute is threatened. The Company is not aware that (i) any executive,
key employee or significant group of employees of the Company or of any of its
subsidiaries plans to terminate employment with the Company or any of its
subsidiaries, or (ii) any such executive or key employee is subject to any
noncompete, nondisclosure, confidentiality, employment, consulting or similar
agreement that would be violated by the present or proposed business activities
of the Company or of any of its subsidiaries. Neither the Company nor any of its
subsidiaries has or expects to have any liability for any prohibited transaction
or funding deficiency or any complete or partial withdrawal liability with
respect to any pension, profit sharing or other plan which is subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), to which
the Company or any of its subsidiaries makes or ever has made a contribution and
in which any employee of the Company or of any of its subsidiaries is or has
ever been a participant, except where such liability would not have a Material
Adverse Effect. With respect to such plans, the Company and each of its
subsidiaries are in compliance in all material respects with all applicable
provisions of ERISA, except with respect to any non-compliance with such
provisions which, singly or in the aggregate, will not have a Material Adverse
Effect.
(u) Lock-Up Agreements. Except as disclosed in the Prospectus, the Company
has obtained the written agreement, in substantially the form attached hereto as
Schedule C, from each of its officers and directors and each holder of any
shares of Common Stock or securities convertible into or exchangeable or
exercisable for or rights to purchase or acquire shares of Common Stock, except
such written agreement will not apply to any Common Stock issuable upon exercise
of employee stock options issued in accordance with the terms of the Stock
Option Plan as in effect on the date hereof, it being understood that such
Common Stock will bear a legend prohibiting the transfer of such Common Stock
for a period of 180 days after the effective date of the Registration Statement.
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SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
(v) Title to Property and Assets. The Company or a subsidiary of the
Company has and, as of the Closing Dates, will have good and marketable title in
fee simple to all real property and good and marketable title to all personal
property owned or proposed to be owned by it which is material to the business
of the Company and its subsidiaries taken as a whole, in each case free and
clear of all liens, encumbrances and defects except such as are described the
Prospectus or such as would not have a Material Adverse Effect. Any real
property and buildings held under lease by the Company or any subsidiary of the
Company or proposed to be held after giving effect to the transactions described
in the Prospectus are, or will be as of the Closing Dates, held by it under
valid, subsisting and enforceable leases with such exceptions as would not have
a Material Adverse Effect, in each case except as described in or contemplated
by the Prospectus.
(w) Insurance. The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are customary in the business in which it is engaged or
proposes to engage in after giving effect to the transactions described in the
Prospectus, and the Company has no reason to believe that it will not be able to
renew any such existing insurance coverage as and when such coverage expires or
to obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not have a Material Adverse Effect, except as
described in or contemplated by the Prospectus.
(x) Brokers. Except as may be set forth in the Prospectus, there is no
broker, finder or other party that is entitled to receive from the Company any
brokerage or finder's fee or similar fee or commission as a result of any of the
transactions contemplated by this Agreement.
(y) Internal Accounting Controls. The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general or
specific authorization, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(z) Distribution of Offering Materials. The Company has not distributed
and will not distribute prior to the later of (i) the First Closing Date or the
Option Closing Date, as the case may be, and (ii) the completion of the
distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than any Preliminary Prospectus, the
Prospectus, the Registration Statement and other materials, if any, permitted by
the Securities Act and the use of which has been approved in advance in writing
by the Representatives.
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<PAGE> 9
SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
(aa) Payment or Receipt of Funds. Except as set forth in the Prospectus,
neither the Company nor, to the Company's knowledge, any employee or agent of
the Company has made any payment of funds of the Company or received or retained
any funds in violation of any law, rule or regulation, which payment, receipt or
retention of funds is of a character required to be disclosed in the Prospectus.
(bb) Investment Company. The Company is not an "investment company" or an
entity "controlled" by an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended.
(cc) Environmental Laws. The Company and each of its subsidiaries is in
compliance with the terms and conditions of all applicable federal, state, local
and foreign laws and regulations relating to the protection of human health and
safety, the environment or hazardous or toxic substances or wastes, pollutants
or contaminants ("Environmental Laws"), except where the failure to be in
compliance would not have a Material Adverse Effect. Neither the Company nor any
of its subsidiaries has received notice from any governmental authority of any
claim under any Environmental Laws which asserts a claim that could result in a
Material Adverse Effect. No property that is owned, leased or occupied by the
Company or by any of its subsidiaries has been designated as a Superfund site
pursuant to the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended (420 U.S.C. (S) 9601 et seq.), or otherwise designated
as a contaminated site under applicable state or local laws.
(dd) Permits. The Company and each of its subsidiaries have such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("permits"), including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease and operate its property and
to conduct its business. The Company and each of its subsidiaries have fulfilled
and performed all of its material obligations with respect to such permits and
no event has occurred which allows, or after notice or lapse of time would
allow, revocation or termination thereof or results in any other material
impairment of the rights of the holder of any such permit, except events the
existence of which would not have a Material Adverse Effect, and, except as
described in the Prospectus, such permits contain no restrictions that are
materially burdensome to the Company and its subsidiaries taken as a whole.
(ee) Employment Matters. To the Company's knowledge, neither the Company
nor any of its subsidiaries has violated any federal or state law relating to
discrimination in the hiring, promotion or pay of employees nor any applicable
federal or state wages and hours laws, nor any provisions of ERISA or the rules
and regulations promulgated thereunder, which in each case might have a Material
Adverse Effect.
(ff) 1934 Act Registration. The Company has filed a registration statement
pursuant to Section 12 (g) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"),
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SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
which registration statement has been or will be declared effective
simultaneously with the effectiveness of the Registration Statement.
(gg) Nasdaq Listing. The Common Stock has been approved for quotation on
the Nasdaq National Market, subject to official notice of issuance.
(hh) Certificates. Each certificate signed by any officer of the Company
and delivered to the Underwriters or counsel for the Underwriters pursuant to
this Agreement or in connection with the offering contemplated hereby shall be
deemed to be a representation and warranty of the Company to the Underwriters as
to the matters covered thereby.
4. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS.
1. Each Selling Stockholder, severally and not jointly, represents and warrants
to, and agrees with, the several Underwriters that:
(a) Valid and Marketable Title. Such Selling Stockholder now has, and on
the Closing Dates will have, valid and marketable title to the Shares to be sold
by such Selling Stockholder, free and clear of any lien, claim, security
interest or other encumbrance, including, without limitation, any restriction on
transfer, and has full right, power and authority to enter into this Agreement,
the Power of Attorney and the Custody Agreement (each as hereinafter defined),
and each of the several Underwriters will acquire valid and marketable title to
all of the Shares being sold to the Underwriters by such Selling Stockholder,
free and clear of any liens, encumbrances, equities claims, restrictions on
transfer or other defects whatsoever.
(b) Authority. Such Selling Stockholder now has, and on the Closing Dates
will have, upon delivery of and payment for each of the Shares hereunder, full
right, power and authority, and shall have obtained any approval required by
law, to sell, transfer, assign and deliver the Shares being sold by such Selling
Stockholder hereunder.
(c) Market Stand-Off. Such Selling Stockholder has executed and delivered
to the Representatives a lock-up agreement in substantially the form attached
hereto as Schedule C (the "Lock-Up Agreement"), providing that, with certain
limited exceptions specified therein, and as provided in more detail therein,
for a period of one hundred eighty (180) days after the effective date of the
Registration Statement, and in the case of Computer Concepts, twelve (12) months
after the effective date of the Registration Statement, without the consent of
SoundView Financial Group, Inc. ("SoundView"), such Selling Stockholder will not
offer to sell, sell, contract to sell or otherwise dispose of any shares of
Common Stock, or securities convertible into or exchangeable for shares of
Common Stock, including, without limitation, shares of Common Stock which may be
deemed to be beneficially owned by such Selling Stockholders in accordance with
the Rules and Regulations, except for the Shares being sold hereunder and any
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<PAGE> 11
SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
shares of Common Stock issuable upon exercise of employee stock options issued
in accordance with the terms of the Stock Option Plan as in effect on the date
hereof.
(d) Power of Attorney. Such Selling Stockholder has duly executed and
delivered a power of attorney, in substantially the form heretofore delivered to
the Representatives (the "Power of Attorney"), appointing __________ and
__________, and each of them, as attorney-in-fact (the "Attorneys-in-Fact") with
authority to execute and deliver this Agreement on behalf of such Selling
Stockholder, to authorize the delivery of the Shares to be sold by such Selling
Stockholder hereunder and otherwise to act on behalf of such Selling Stockholder
in connection with the transactions contemplated by this Agreement.
(e) Custody Agreement. Such Selling Stockholder has duly executed and
delivered a custody agreement, in substantially the form heretofore delivered to
the Representatives (the "Custody Agreement"), with _______________ as custodian
(the "Custodian"), pursuant to which certificates in negotiable form for the
Shares to be sold by such Selling Stockholder hereunder have been placed in
custody for delivery under this Agreement.
(f) Binding Obligations. Such Selling Stockholder has, by execution and
delivery of each of this Agreement, the Power of Attorney, the Custody Agreement
and the Lock-Up Agreement, created valid and binding obligations of such Selling
Stockholder, enforceable against such Selling Stockholder in accordance with
their respective terms, subject to the Enforceability Exceptions.
(g) Compliance with other Instruments. The performance of this Agreement,
the Custody Agreement and the Power of Attorney, and the consummation of the
transactions contemplated hereby and thereby, will not result in a breach or
violation in any material respect by such Selling Stockholder of any of the
terms or provisions of, or constitute a default by such Selling Stockholder
under, (i) any indenture, mortgage, deed of trust, trust (constructive or
other), loan agreement, lease, franchise, license or other material agreement or
instrument to which such Selling Stockholder is a party or by which such Selling
Stockholder or any of its properties is bound, (ii) any judgment of any court or
governmental agency or body applicable to such Selling Stockholder or any of its
properties, or any statute, decree, order, Rule or regulation of any court or
governmental agency or body applicable to such Selling Stockholder or any of its
properties, or (iii) any provisions of the charter, bylaws or other
organizational documents of such Selling Stockholder.
(h) No Revocation. Each Selling Stockholder agrees that (i) the Shares
represented by the certificates held in custody under the Custody Agreement are
for the benefit of and coupled with and subject to the interests of the
Underwriters and the Company hereunder, (ii) the arrangement for such custody
and the appointment of the Attorneys-in-Fact are irrevocable, (iii) the
obligations of such Selling Stockholder hereunder shall not be terminated by
operation of law, whether by the liquidation or dissolution of such Selling
Stockholder or any other event,
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SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
and (iv) if such Selling Stockholder should die or become incapacitated or is
liquidated or dissolved or any other event occurs, before the delivery of the
Shares hereunder, certificates for the Shares to be sold by such Selling
Stockholder shall be delivered on behalf of such Selling Stockholder in
accordance with the terms and conditions of this Agreement and the Custody
Agreement, and action taken by the Attorneys-in-Fact or any of them under the
Power of Attorney shall be as valid as if such liquidation or dissolution or
other event had not occurred, whether or not the Custodian, the
Attorneys-in-Fact or any of them shall have notice of such liquidation or
dissolution or other event.
(i) No Stabilization or Manipulation. Such Selling Stockholder has not
taken, and will not take, directly or indirectly, any action designed to, or
which might reasonably be expected to, cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Shares pursuant to the distribution contemplated by this
Agreement, and, other than as permitted by the Securities Act, the Selling
Stockholder has not distributed and will not distribute any prospectus or other
offering material in connection with the offering and sale of the Shares.
(j) Governmental Consents. The execution, delivery and performance of this
Agreement by such Selling Stockholder, compliance by such Selling Stockholder
with all the provisions hereof and the consummation of the transactions
contemplated hereby will not require any consent, approval, authorization or
other order of any court, regulatory body, administrative agency or other
governmental body (except as such may be required under federal or state
securities laws or by the NASD).
(k) Beneficial Ownership. The information set forth under the heading
"Principal and Selling Stockholders" in the Prospectus which specifically
relates to such Selling Stockholder does not, and will not on the Closing Dates,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of circumstances under which they were made, not misleading, and such
Selling Stockholder has agreed to immediately notify the Company if, at any time
during the period when a Prospectus is required by law to be delivered in
connection with sales of Common Stock by an Underwriter or a dealer, there is
any change in such information.
(l) Organization and Good Standing. Such Selling Stockholder, if other
than a natural person, has been duly organized and is validly existing and in
good standing under the laws of the jurisdiction of its organization as the type
of entity it purports to be.
(m) No Preemptive or Other Rights. Such Selling Stockholder does not have,
or has waived prior to the date hereof, any preemptive right, co-sale right or
right of first refusal or other similar right to purchase any of the Shares that
are to be sold by the Company or any of the other Selling Stockholders to the
Underwriters pursuant to this Agreement. Such Selling Stockholder does not have,
or has waived prior to the date hereof, any registration right or other
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<PAGE> 13
SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
similar right to participate in the offering made by the Prospectus, other than
such rights of participation as have been satisfied by the participation of such
Selling Stockholder in the transactions to which this Agreement relates in
accordance with the terms of this Agreement. Such Selling Stockholder does not
own any warrants, options or similar rights to acquire, and does not have any
right or arrangement to acquire, any capital stock, rights, warrants, options or
other securities from the Company, other than those described in the
Registration Statement and the Prospectus.
2. Computer Concepts hereby makes to the several Underwriters the
representations and warranties of the Company set forth in Section 3 hereof. In
addition, Computer Concepts represents and warrants to, and agrees with the
several Underwriters that, the Voting Trust Agreement has been duly authorized,
executed and delivered by Computer Concepts and is a valid and binding agreement
of Computer Concepts, enforceable against Computer Concepts in accordance with
its terms, subject to the Enforceability Exceptions.
5. PURCHASE AND SALE OF THE SHARES.
The Company and the Selling Stockholders agree, severally and not jointly,
to sell to the Underwriters the Firm Shares, with the number of shares to be
sold by the Company and each Selling Stockholder being the number of Shares set
opposite his, her or its name in Schedule B attached hereto, and on the basis of
the representations, warranties, covenants and agreements herein contained, but
upon the terms and subject to the conditions herein set forth, the Underwriters
agree, severally and not jointly, to purchase the Firm Shares from the Company
and the Selling Stockholders, with the number of shares of Firm Shares to be
purchased by each Underwriter being set opposite its name in Schedule A attached
hereto, subject to adjustment in accordance with Section 14 hereof. The number
of Shares to be purchased by each Underwriter from each Selling Stockholder
hereunder shall bear the same proportion to the total number of Shares to be
purchased by such Underwriter hereunder as the number of Shares being sold by
each Selling Stockholder bears to the total number of Shares being sold by all
of the Selling Stockholders, subject to adjustment by the Representatives to
eliminate fractions.
(a) Purchase Price. The purchase price per Share to be paid by the
Underwriters to the Company and the Selling Stockholders will be $____ per share
(the "Purchase Price").
(b) Closing. The Company and the Selling Stockholders will deliver the
Firm Shares to the Representatives for the respective accounts of the several
Underwriters in the form of definitive certificates, issued in such names and in
such denominations as the Representatives may direct by notice in writing to the
Company and the Selling Stockholders given at or prior to 10:00 a.m., New York
time, on the second full business day preceding the First Closing Date (as
defined below) or, if no such direction is received, in the names of the
respective Underwriters or in such other names as SoundView may designate
(solely for the purpose of administrative convenience) and in such denominations
as SoundView may determine, against payment of the
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<PAGE> 14
SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
aggregate Purchase Price therefor in Federal or other immediately available
funds, by certified or official bank check or checks payable to the order of the
Company and the Custodian or by wire transfer to accounts designated by the
Company and the Custodian, all at the offices of Morrison & Foerster LLP, 1290
Avenue of the Americas, New York, New York 10104. Such delivery and closing
shall occur at 10:00 a.m., New York time, on the [third/fourth] business day
after the date of this Agreement (the "First Closing Date"). The First Closing
Date and the location of delivery of, and the form of payment for, the Firm
Shares may be varied by agreement between the Company and SoundView. The First
Closing Date may be postponed pursuant to the provisions of Section 14.
(c) Certificates for the Shares. The Company and the Selling Stockholders
shall make the certificates for the Firm Shares available to the Representatives
for examination on behalf of the Underwriters not later than 12:00 p.m., New
York time, on the business day preceding the First Closing Date at such location
within New York, New York as may be designated by the Representatives. If the
Representatives so elect, delivery of the Firm Shares may be made by credit
through full fast transfer to the accounts at The Depository Trust Company
designated by the Representatives.
(d) Payment on behalf of Underwriters. It is understood that the
Representatives, individually and not as Representatives of the several
Underwriters, may (but shall not be obligated to) make payment to the Company or
the Selling Stockholders on behalf of any Underwriter or Underwriters for the
Shares to be purchased by such Underwriter or Underwriters. Any such payment by
the Representatives shall not relieve such Underwriter or Underwriters from any
of its or their other obligations hereunder.
(e) Initial Public Offering. The several Underwriters agree to make an
initial public offering of the Firm Shares at the initial public offering price
of $____ per share as soon after the effectiveness of the Registration Statement
as, in their judgment, is advisable. The Representatives shall promptly advise
the Company and the Selling Stockholders of the making of the initial public
offering. After the initial public offering, the several Underwriters may, in
their discretion, vary the public offering price.
(f) Over-Allotment Option.
(i) Option Shares. For the purpose of covering any over-allotments
in connection with the distribution and sale of the Firm Shares as
contemplated by the Prospectus, Computer Concepts hereby grants to the
Underwriters an option (the "Option") to purchase up to 630,000 Option
Shares. The price per share to be paid for the Option Shares shall be the
Purchase Price. The Option may be exercised as to all or any part of the
Option Shares at any time, and from time to time, not more than thirty
(30) days subsequent to the effective date of this Agreement. No Option
Shares shall be sold and delivered unless the Firm Shares previously have
been, or simultaneously are, sold and
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<PAGE> 15
SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
delivered. The right to purchase the Option Shares or any portion thereof
may be surrendered and terminated at any time upon notice by the
Underwriters to the Company and Computer Concepts.
(ii) Exercise of Option. The Option may be exercised by the
Underwriters by SoundView's giving written notice to the Company and
Computer Concepts setting forth the number of shares of the Option Shares
to be purchased by them and the date and time for delivery of and payment
for the Option Shares (the "Option Closing Date," and, collectively with
the First Closing Date, the "Closing Dates"). The Option Closing Date
shall not be earlier than the First Closing Date and shall in no event be
earlier than two (2) business days nor later than ten (10) business days
after written notice is given. Option Shares shall be purchased for the
account of each Underwriter in the same proportion as the number of Firm
Shares set forth opposite such Underwriter's name on Schedule A attached
hereto bears to the total number of Firm Shares (subject to adjustment by
the Underwriters to eliminate odd lots). Upon exercise of the Option by
the Underwriters, the Selling Stockholders agree to sell to the
Underwriters the number of Option Shares set forth in the written notice
of exercise and the Underwriters agree, severally and not jointly and upon
the terms and subject to the conditions herein set forth, to purchase the
number of such shares determined as aforesaid.
(iii) Option Closing. Computer Concepts will deliver the Option
Shares to the Underwriters (in the form of definitive certificates, issued
in such names and in such denominations as the Representatives may direct
by notice in writing to the Company and Computer Concepts given at or
prior to 10:00 a.m., New York time, on the second full business day
preceding the Option Closing Date or, if no such direction is received, in
the names of the respective Underwriters or in such other names as
SoundView may designate (solely for the purpose of administrative
convenience) and in such denominations as SoundView may determine, against
payment of the aggregate Purchase Price therefor in Federal or other
immediately available funds, by certified or official bank check or checks
payable to the order of the Custodian or by wire transfer to accounts
designated by the Custodian, all at the offices of Morrison & Foerster
LLP, 1290 Avenue of the Americas, New York, New York 10104. Computer
Concepts shall make the certificates for the Option Shares available to
the Underwriters for examination not later than 12:00 p.m., New York time,
on the business day preceding the Option Closing Date, at such location
within New York, New York as may be designated by the Representatives. If
the Representatives so elect, delivery of the Option Shares may be made by
credit through full fast transfer to the accounts at The Depository Trust
Company designated by the Representatives. The Option Closing Date and the
location of delivery of, and the form of payment for, the Option Shares
may be varied by agreement between the Company and SoundView. The Option
Closing Date may be postponed pursuant to the provisions of Section 14.
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SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
6. COVENANTS AND AGREEMENTS OF THE COMPANY.
The Company covenants and agrees with the several Underwriters that:
(a) Effectiveness of Registration Statement. The Company will (i) if the
Company and the Representatives have determined not to proceed pursuant to Rule
430A, use its best efforts to cause the Registration Statement to become
effective, (ii) if the Company and the Representatives have determined to
proceed pursuant to Rule 430A, use its best efforts to comply with the
provisions of and make all requisite filings with the Commission pursuant to
Rule 430A and Rule 424, (iii) if the Company and the Representatives have
determined to deliver Prospectuses pursuant to Rule 434, to use its best efforts
to comply with all the applicable provisions thereof, and (iv) use its best
efforts to cause any abbreviated registration statement pursuant to Rule 462(b)
of the Rules and Regulations as may be required subsequent to the date the
Registration Statement is declared effective to become effective as promptly as
possible. The Company will advise the Representatives promptly as to the time at
which the Registration Statement becomes effective, will advise the
Representatives promptly of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the institution
of any proceedings for that purpose, and will use its best efforts to prevent
the issuance of any such stop order and to obtain as soon as possible the
lifting thereof, if issued. The Company will advise the Representatives promptly
of the receipt of any comments of the Commission or any request by the
Commission for any amendment of or supplement to the Registration Statement or
the Prospectus or for additional information and will not at any time file any
amendment to the Registration Statement or supplement to the Prospectus which
shall not previously have been submitted to the Representatives a reasonable
time prior to the proposed filing thereof or to which the Representatives shall
reasonably object in writing or which is not in compliance with the Securities
Act and the Rules and Regulations.
(b) Amendments and Reports. The Company will prepare and file with the
Commission, promptly upon the request of the Representatives, any amendments or
supplements to the Registration Statement or the Prospectus which in the opinion
of the Representatives may be necessary to enable the several Underwriters to
continue the distribution of the Shares and will use its best efforts to cause
the same to become effective as promptly as possible. The Company will promptly
file all reports and any definitive proxy or information statements required to
be filed with the Commission pursuant to Section 13, 14 or 15(d) of the Exchange
Act subsequent to the date of the Prospectus and for so long as the delivery of
a prospectus is required in connection with the offering or sale of the Shares.
(c) Prospectus. If, at any time after the effective date of the
Registration Statement when a prospectus relating to the Shares is required to
be delivered under the Securities Act, any event relating to or affecting the
Company occurs as a result of which the Prospectus or any other prospectus as
then in effect would include an untrue statement of a material fact, or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances
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SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
under which they were made, not misleading, or if it is necessary at any time to
amend the Prospectus to comply with the Securities Act, the Company will
promptly notify the Representatives thereof and will prepare an amended or
supplemented prospectus which will correct such statement or omission.
(d) Copies of Registration Statement and Prospectus. The Company will
deliver to the Representatives, at or before the Closing Dates, manually signed
copies of the Registration Statement, and each amendment thereto, including all
financial statements and exhibits thereto, and will deliver to the
Representatives such number of copies of the Registration Statement, including
such financial statements but without exhibits, and all amendments thereto, as
the Representatives may reasonably request. The Company will deliver or mail to
or upon the order of the Representatives, from time to time until the effective
date of the Registration Statement, as many copies of the Preliminary Prospectus
as the Representatives may reasonably request. The Company will deliver or mail
to or upon the order of the Representatives on the date of the initial public
offering, and thereafter from time to time during the period when delivery of a
prospectus relating to the Shares is required under the Securities Act, as many
copies of the Prospectus, in final form or as thereafter amended or supplemented
as the Representatives may reasonably request.
(e) Section 11(a) Earnings Statement. The Company will make generally
available to its Stockholders as soon as practicable, but not later than fifteen
(15) months after the effective date of the Registration Statement, an earnings
statement which will be in reasonable detail (but which need not be audited) and
which will comply with Section 11(a) of the Securities Act, covering a period of
at least twelve (12) months beginning after the "effective date" (as defined in
Rule 158 under the Securities Act) of the Registration Statement.
(f) Blue Sky Qualification. The Company will cooperate with the
Representatives to enable the Shares to be registered or qualified for offering
and sale by the Underwriters and by dealers under the securities laws of such
jurisdictions as the Representatives may reasonably request.
(g) Reports to Stockholders. So long as the Company shall be subject to
the reporting requirements of the Exchange Act, the Company will furnish to its
Stockholders annual reports containing financial statements certified by
independent public accountants and will furnish or make available to its
Stockholders quarterly summary financial information in reasonable detail, which
may be unaudited.
(h) Nasdaq National Market. The Company will use its best efforts to
maintain the listing of the Common Stock on the Nasdaq National Market for a
period of five (5) years after the effective date of the Registration Statement.
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SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
(i) Transfer Agent and Registrar. The Company will maintain a transfer
agent and registrar for its Common Stock.
(j) Market Stand-Off. The Company will not offer, sell, assign, transfer,
encumber, contract to sell, grant an option to purchase or otherwise dispose of
any shares of Common Stock or securities convertible into or exercisable or
exchangeable for Common Stock (including, without limitation, Common Stock which
may be deemed to be beneficially owned by the Company in accordance with the
Rules and Regulations) during the one hundred eighty (180) days following the
effective date of the Registration Statement, except for the Shares being sold
hereunder and any shares of Common Stock issuable upon exercise of employee
stock options issued in accordance with the terms of the Stock Option Plan as in
effect on the date hereof. In addition, during the 180 days following the
effective date of the Registration Statement, the Company will not release any
officer, director or securityholder of the Company from their obligations under
any similar agreement with the Company not to sell, transfer or dispose of
securities of the Company for the 180-day period following the effective date of
the Registration Statement (including the restrictive legends referred to in
Section 3(u) hereof).
(k) Use of Proceeds. The Company will apply the net proceeds from the sale
of the Shares substantially in conformity with the description set forth under
the heading "Use of Proceeds" in the Prospectus.
(l) SEC Correspondence. The Company will supply the Representatives with
copies of all correspondence to and from, and all documents issued to and by,
the Commission in connection with the registration of the Shares under the
Securities Act.
(m) Financial Statements. Prior to the Closing Dates the Company will
furnish to the Representatives, as soon as they have been prepared, copies of
any unaudited interim financial statements of the Company for any periods
subsequent to the periods covered by the financial statements appearing in the
Registration Statement and the Prospectus.
(n) Press Releases. Prior to the Closing Dates and during the period when
a prospectus relating to the Shares is required to be delivered under the
Securities Act, the Company will issue no press release or other communications
directly or indirectly and hold no press conference with respect to the Company
or its financial condition, results of operation, business, prospects, assets or
liabilities, or the offering of the Shares, without the prior consent of the
Representatives, which consent shall not be unreasonably withheld.
(o) Reports to Representatives. During the period of three (3) years from
the date hereof, the Company will furnish to the Representatives, and, upon
request of the Representatives, to each of the Underwriters (i) as soon as
practicable after the end of each fiscal year, copies of the Annual Report of
the Company containing the balance sheet of the Company as of the close of such
fiscal year and statements of income, Stockholder's equity and
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SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
cash flows for the year then ended and the opinion thereon of the Company's
independent public accountants, (ii) as soon as practicable after the filing
thereof, copies of each proxy statement, Annual Report on Form 10-K, Quarterly
Report on Form 10-Q, Report on Form 8-K or other report filed by the Company
with the Commission, Nasdaq or any securities exchange, (iii) as soon as
available, copies of any report or communication of the Company mailed generally
to holders of its Common Stock, and (iv) such other information concerning the
Company as the Representatives may reasonably request from time to time.
(p) Form S-8. The Company will not file any registration statements on
Form S-8 covering shares of Common Stock issuable under its stock option plans
for a period of one hundred eighty (180) days following the effectiveness of the
Registration Statement.
7. PAYMENT OF EXPENSES.
(a) Expenses of the Company. The Company will pay, either directly or by
reimbursement, all costs, fees and expenses incurred in connection with expenses
incident to the performance of the obligations of the Company and of the Selling
Stockholders under this Agreement, including, but not limited to, (i) all
expenses and taxes incident to the issuance and delivery of the Shares to the
Representatives, (ii) all expenses incident to the registration of the Shares
under the Securities Act, (iii) all costs of preparing stock certificates,
including printing and engraving costs, (iv) all fees and expenses of the
registrar and transfer agent of the Shares, (v) all necessary issue, transfer
and other stamp taxes in connection with the issuance and sale of the Shares to
the Underwriters, (vi) all fees and expenses of the Company's counsel and the
Company's independent accountants, (vii) all costs and expenses incurred in
connection with the preparation, printing, filing, shipping and distribution of
the Registration Statement, each Preliminary Prospectus and the Prospectus,
including all exhibits and financial statements, and all amendments and
supplements provided for herein, the Powers of Attorney, the Custody Agreement,
the Underwriters' Questionnaire, the Blue Sky memoranda and this Agreement,
(viii) all filing fees and attorneys' fees and expenses incurred by the Company
or the Underwriters in connection with exemptions from qualifying or registering
(or obtaining qualification or registration of) all or any part of the Shares
for offer and sale and determination of its eligibility for investment under the
Blue Sky or other securities laws of such jurisdictions as the Representatives
may designate, (ix) all filing fees paid or incurred in connection with filings
made with the NASD and (x) all fees and expenses associated with the listing of
the Shares and the Common Stock on the Nasdaq National Market.
(b) Expenses of the Selling Stockholders. Each Selling Stockholder will
pay, either directly or by reimbursement, all fees and expenses incident to the
performance of such Selling Stockholder's obligations under this Agreement which
are not otherwise specifically provided for herein, including, but not limited
to, any fees and expenses of counsel for such Selling Stockholder, such Selling
Stockholder's pro rata share of fees and expenses of the Attorneys-in-
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SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
Fact and the Custodian and all expenses and taxes incident to the sale and
delivery of the Shares to be sold by such Selling Stockholder to the
Underwriters hereunder.
8. INDEMNIFICATION AND CONTRIBUTION.
(a) Indemnification by the Company. The Company agrees to indemnify and
hold harmless each Underwriter, each person, if any, who controls such
Underwriter within the meaning of the Securities Act and the respective
officers, directors, partners, employees, representatives and agents of each of
such Underwriter and controlling person (collectively, the "Underwriter
Indemnified Parties" and, each, an "Underwriter Indemnified Party") against any
losses, claims, damages, liabilities or expenses (including the reasonable cost
of investigating and defending against any claims therefor and fees of counsel
incurred in connection therewith), joint or several, which may be based upon the
Securities Act, the Exchange Act, or any other federal, state, local or foreign
statute or regulation, or at common law, on the ground or alleged ground that
any Preliminary Prospectus, the Registration Statement or the Prospectus (or any
Preliminary Prospectus, the Registration Statement or the Prospectus as from
time to time amended or supplemented) includes or allegedly includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, unless such
statement or omission was made in reliance upon, and in conformity with, written
information furnished to the Company by any Underwriter, directly or through the
Representatives, specifically for use in the preparation thereof. The Company
will be entitled to participate at its own expense in the defense or, if it so
elects, to assume the defense of any suit brought to enforce any such liability,
but, if the Company elects to assume the defense, such defense shall be
conducted by counsel chosen by it. In the event the Company elects to assume the
defense of any such suit and retain such counsel, any Underwriter Indemnified
Parties, defendant or defendants in the suit, may retain additional counsel but
shall bear the fees and expenses of such counsel unless (i) the Company shall
have specifically authorized the retaining of such counsel, or (ii) the parties
to such suit include any such Underwriter Indemnified Parties, and the Company
and such Underwriter Indemnified Parties have been advised by counsel to the
Underwriters that one or more legal defenses may be available to it or them
which may not be available to the Company, in which case the Company shall not
be entitled to assume the defense of such suit, notwithstanding its obligation
to bear the fees and expenses of such counsel. This indemnity agreement is not
exclusive and will be in addition to any liability which the Company might
otherwise have and shall not limit any rights or remedies which may otherwise be
available at law or in equity to each Underwriter Indemnified Party.
(b) Indemnification by the Selling Stockholders. Each Selling Stockholder
agrees to indemnify and hold harmless each Underwriter Indemnified Party against
any losses, claims, damages, liabilities or expenses (including, unless such
Selling Stockholder elects to assume the defense, the reasonable cost of
investigating and defending against any claims therefor and fees of counsel
incurred in connection therewith), which may be based upon the Securities Act,
the
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SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
Exchange Act, or any other federal, state, local or foreign statute or
regulation, or at common law, on the ground or alleged ground that any
Preliminary Prospectus, the Registration Statement or the Prospectus (or any
Preliminary Prospectus, the Registration Statement or the Prospectus, as from
time to time amended and supplemented) includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, unless such statement or omission
was made in reliance upon, and in conformity with, written information furnished
to the Company by any Underwriter, directly or through the Representatives,
specifically for use in the preparation thereof; provided, however, that the
indemnification obligation arising under this Section 8(b) shall apply only to
the extent that such loss, claim, damage, liability or expense is caused by or
related to an untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with information relating to
such Selling Stockholder furnished in writing to the Company by or on behalf of
such Selling Stockholder expressly for use in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendments or supplements thereto.
Such Selling Stockholder shall be entitled to participate at his own expense in
the defense, or, if he so elects, to assume the defense of any suit brought to
enforce any such liability, but, if such Selling Stockholder elects to assume
the defense, such defense shall be conducted by counsel chosen by him. In the
event that any Selling Stockholder elects to assume the defense of any such suit
and retain such counsel, the Underwriter Indemnified Parties, defendant or
defendants in the suit, may retain additional counsel but shall bear the fees
and expenses of such counsel unless (i) such Selling Stockholder shall have
specifically authorized the retaining of such counsel, or (ii) the parties to
such suit include such Underwriter Indemnified Parties and such Selling
Stockholder and such Underwriter Indemnified Parties have been advised by
counsel to the Underwriters that one or more legal defenses may be available to
it or them which may not be available to such Selling Stockholder, in which case
such Selling Stockholder shall not be entitled to assume the defense of such
suit notwithstanding its obligation to bear the fees and expenses of such
counsel. Subject to Section 8(e) below, this indemnity agreement is not
exclusive and will be in addition to any liability which such Selling
Stockholder might otherwise have and shall not limit any rights or remedies
which may otherwise be available at law or in equity to each Underwriter
Indemnified Party. The Company and the Selling Stockholders may agree, as among
themselves and without limiting the rights of the Underwriters under this
Agreement, as to their respective amounts of such liability for which they each
shall be responsible.
(c) Indemnification by Underwriters. Each Underwriter severally agrees to
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the Registration Statement and each person, if any, who
controls the Company within the meaning of the Securities Act (collectively, the
"Company Indemnified Parties") and each Selling Stockholder and each person, if
any, who controls a Selling Stockholder within the meaning of the Securities Act
(collectively, the "Stockholder Indemnified Parties") against any losses,
claims, damages, liabilities or expenses (including, unless the Underwriter or
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SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
Underwriters elect to assume the defense, the reasonable cost of investigating
and defending against any claims therefor and fees of counsel incurred in
connection therewith), joint or several, which arise out of or are based in
whole or in part upon the Securities Act, the Exchange Act or any other federal,
state, local or foreign statute or regulation, or at common law, on the ground
or alleged ground that any Preliminary Prospectus, the Registration Statement or
the Prospectus (or any Preliminary Prospectus, the Registration Statement or the
Prospectus, as from time to time amended and supplemented) includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances in which they were made, not misleading, but only insofar as
any such statement or omission was made in reliance upon, and in conformity
with, written information furnished to the Company by such Underwriter, directly
or through the Representatives, specifically for use in the preparation thereof,
and the parties acknowledge and agree that the only information furnished by the
Underwriters to the Company for inclusion in any Preliminary Prospectus, the
Registration Statement or the Prospectus, as from time to time amended or
supplemented, is the information set forth in the last paragraph of the front
cover page of the Prospectus (insofar as such information relates to the
Underwriters), the information on page 2 of the Prospectus concerning
stabilization and over-allotment by the Underwriters, and the information under
the caption "Underwriting" in the Prospectus that does not describe this
Agreement; provided, however, that in no case is such Underwriter to be liable
with respect to any claims made against any Company Indemnified Party or
Stockholder Indemnified Party against whom the action is brought unless such
Company Indemnified Party or Stockholder Indemnified Party shall have notified
such Underwriter in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the claim shall have
been served upon the Company Indemnified Party or Stockholder Indemnified Party,
but failure to notify such Underwriter of such claim shall not relieve it from
any liability which it may have to any Company Indemnified Party or Stockholder
Indemnified Party otherwise than on account of its indemnity agreement contained
in this paragraph. Such Underwriter shall be entitled to participate at its own
expense in the defense, or, if it so elects, to assume the defense of any suit
brought to enforce any such liability, but, if such Underwriter elects to assume
the defense, such defense shall be conducted by counsel chosen by it. In the
event that any Underwriter elects to assume the defense of any such suit and
retain such counsel, the Company Indemnified Parties or Stockholder Indemnified
Parties and any other Underwriter or Underwriters or controlling person or
persons, defendant or defendants in the suit, shall bear the fees and expenses
of any additional counsel retained by them, respectively. The Underwriter
against whom indemnity may be sought shall not be liable to indemnify any person
for any settlement of any such claim effected without such Underwriter's
consent. This indemnity agreement is not exclusive and will be in addition to
any liability which such Underwriter might otherwise have and shall not limit
any rights or remedies which may otherwise be available at law or in equity to
any Company Indemnified Party or Stockholder Indemnified Party.
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SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
(d) Contribution. If the indemnification provided for in this Section 8 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a) or (b) or (c) above in respect of any losses, claims, damages,
liabilities or expenses (or actions in respect thereof) referred to herein, then
each indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) in such proportion as is appropriate to
reflect the relative benefits received by the Company and the Selling
Stockholders on the one hand, and the Underwriters on the other hand, from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law, then each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company and the Selling Stockholders on the
one hand, and the Underwriters on the other hand, in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses (or actions in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the Company
and the Selling Stockholders on the one hand, and the Underwriters on the other
hand, shall be deemed to be in the same proportion as the total net proceeds
from the offering (before deducting expenses) received by the Company and the
Selling Stockholders bear to the total underwriting discounts and commissions
received by the Underwriters, in each case as set forth in the table on the
cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company, the Selling Stockholders or the
Underwriters, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company,
the Selling Stockholders and the Underwriters agree that it would not be just
and equitable if contribution were determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to above. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or expenses (or actions in
respect thereof) referred to above shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating, defending, settling or compromising any such claim.
Notwithstanding the provisions of this subsection (d), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such Underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. The Underwriters' obligations to
contribute are several in proportion to their respective underwriting
obligations and not joint. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
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SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
(e) Limitation of Liability. Notwithstanding any provision herein to the
contrary, (i) the indemnity agreements contained in Section 8(a) and Section
8(b) with respect to any Preliminary Prospectus shall not inure to the benefit
of any Underwriter (or any person controlling such Underwriter) from whom the
person asserting any such loss, claim, damage, liability or expense purchased
the Shares which are the subject thereof if at or prior to the written
confirmation of the sale of such Shares a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
(excluding the documents incorporated therein by reference), the untrue
statement or omission of a material fact contained in such Preliminary
Prospectus was corrected in the Prospectus (or the Prospectus as amended or
supplemented), and such failure to send or deliver a copy of the Prospectus (or
the Prospectus as amended or supplemented) was not the result of the Company's
non-compliance with the provisions of Section 6(d), (ii) the liability for
indemnification under Section 8(b) of each Selling Stockholder shall not exceed
the Purchase Price of the Shares sold by such Selling Stockholder to the
Underwriters, and (iii) such liability shall be further limited for each Selling
Stockholder such that such Selling Stockholder's liability, in proportion to the
aggregate liability of all Selling Stockholders as a group, shall not exceed the
proportion that the number of Shares sold by such Selling Stockholder bears to
the aggregate number of Shares sold by all Selling Stockholders hereunder;
provided, however, that the limitation on liability set forth in the foregoing
clause (iii) shall not apply with respect to any particular Selling Stockholder
if such liability is attributable to such Selling Stockholder, as set forth in
the first sentence of Section 8(b); and, provided, further, that nothing in the
foregoing clause (iii) shall require the Underwriters to seek indemnification
from any other Selling Stockholder(s) as a condition of their being entitled to
indemnification from any particular Selling Stockholder. Notwithstanding
anything to the contrary in this Agreement, the Underwriters and their control
persons shall not seek indemnification pursuant to this Section 8 unless they
shall have first reasonably determined that the Company is unable or not
required to fully satisfy the obligations of the Selling Stockholders pursuant
to such Sections.
9. SURVIVAL OF INDEMNITIES, REPRESENTATIONS, WARRANTIES, ETC.
Unless this Agreement is terminated in accordance with Section 12 hereof,
the respective indemnities, covenants, agreements, representations, warranties
and other statements of the Company, the Selling Stockholders and the several
Underwriters, as set forth in this Agreement or made by them respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless of
any investigation made by or on behalf of any Underwriter, the Selling
Stockholders, the Company or any of its officers or directors or any controlling
person, and shall survive delivery of and payment for the Shares.
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SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
10. CONDITIONS OF UNDERWRITERS' OBLIGATIONS.
The respective obligations of the several Underwriters hereunder shall be
subject to the material accuracy, at and (except as otherwise stated herein) as
of the date hereof and at and as of the Closing Dates, of the representations
and warranties made herein by the Company and the Selling Stockholders, to
compliance at and as of the Closing Dates by the Company and the Selling
Stockholders with their covenants and agreements herein contained and other
provisions hereof to be satisfied at or prior to the Closing Dates, and to the
following additional conditions:
(a) Effective Registration Statement. The Registration Statement shall
have become effective and no stop order suspending the effectiveness thereof
shall have been issued and no proceedings for that purpose shall have been
initiated or, to the knowledge of the Company or the Representatives, shall be
threatened by the Commission, and any request for additional information on the
part of the Commission (to be included in the Registration Statement or the
Prospectus or otherwise) shall have been complied with to the reasonable
satisfaction of the Representatives. Any filings of the Prospectus, or any
supplement thereto, required pursuant to Rule 424(b) or Rule 434 of the Rules
and Regulations, shall have been made in the manner and within the time period
required by Rule 424(b) and Rule 434 of the Rules and Regulations, as the case
may be.
(b) Changes. The Representatives shall have been reasonably satisfied that
there shall not have occurred any change prior to the Closing Dates in the
condition (financial or otherwise), properties, business, prospects, net worth
or results of operations of the Company and its subsidiaries taken as a whole,
or any material adverse change in the capital stock, short-term or long-term
debt of the Company and its subsidiaries taken as a whole, such that (i) the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, contains an untrue statement of fact which, in the reasonable opinion
of the Representatives, is material, or omits to state a fact which, in the
reasonable opinion of the Representatives, is required to be stated therein or
is necessary to make the statements therein not misleading, or (ii) it is
impracticable in the reasonable judgment of the Representatives to proceed with
the public offering or to purchase the Shares as contemplated hereby.
(c) Litigation. The Representatives shall be satisfied that no legal or
governmental action, suit, proceeding or investigation affecting the Company or
any of its subsidiaries which may have a Material Adverse Effect or may affect
the Company's or the Selling Stockholders' ability to perform their respective
obligations under this Agreement shall have been instituted or threatened, and
there shall have occurred no material adverse development in any existing such
action, suit, proceeding or investigation.
(d) Comfort Letter. Prior to the execution of this Agreement, the
Representatives shall have received from Arthur Andersen LLP, independent
certified public accountants, a letter, dated the date hereof, in form and
substance reasonably satisfactory to the Underwriters.
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SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
(e) Bring-Down. The Representatives shall have received from Arthur
Andersen L.L.P., independent certified public accountants, letters, dated the
Closing Dates, to the effect that such accountants reaffirm, as of the Closing
Dates, and as though made on the Closing Dates, the statements made in the
letter furnished by such accountants pursuant to Section 10(d); provided,
however, that the letter delivered on the First Closing Date shall use a
"cut-off date" not earlier than the date hereof, and the letter delivered on the
Option Closing Date shall use a "cut-off date" not more than five (5) business
days prior to such Option Closing Date.
(f) Legal Opinion of Counsel for the Company. The Representatives shall
have received from Blau, Kramer, Wactlar & Lieberman, P.C., counsel for the
Company and Computer Concepts, an opinion, dated the Closing Dates, which
opinion shall be rendered to the Underwriters at the request of the Company and
Computer Concepts (and shall so state therein) to the effect that:
(i) the Company and each of its subsidiaries has been duly
incorporated, is validly existing as corporation in good standing under
the laws of its jurisdiction of incorporation and has the corporate power
and authority required to carry on its business and to own, lease and
operate its property as described in the Prospectus;
(ii) the Company and each of its subsidiaries is duly qualified and
is in good standing as a foreign corporation authorized to do business in
each jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the failure
to be so qualified would not have a Material Adverse Effect;
(iii) all of the outstanding shares of Common Stock (including the
Shares to be sold by the Selling Stockholders) have been duly authorized
and validly issued and are fully paid, non-assessable and not subject to
any preemptive or similar rights, except as disclosed in the Prospectus;
(iv) the Shares to be issued and sold by the Company hereunder have
been duly authorized, and when issued and delivered to the Underwriters
against payment therefor as provided by this Agreement, will have been
validly issued and will be fully paid and non-assessable, and the issuance
of such shares is not subject to any preemptive or similar rights;
(v) this Agreement has been duly and validly authorized, executed
and delivered by the Company and by Computer Concepts and is a valid and
binding agreement of the Company and Computer Concepts, enforceable
against the Company and Computer Concepts in accordance with its terms,
subject to the Enforceability Exceptions;
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RAYMOND JAMES & ASSOCIATES
JULY___, 1998
(vi) the authorized capital stock of the Company, including the
Common Stock, conforms in all material respects to the description thereof
contained in the Prospectus;
(vii) the Registration Statement has become effective under the
Securities Act and, to such counsel's knowledge, no stop order suspending
its effectiveness has been issued and no proceedings for that purpose are,
to the knowledge of such counsel, pending before or contemplated by the
Commission;
(viii) the Company is not in violation of its Certificate of
Incorporation or By-laws and, to such counsel's knowledge, the Company is
not in default in the performance of any obligation, agreement or
condition contained in any bond, debenture, note or any other evidence of
indebtedness or in any other agreement, indenture or instrument material
to the conduct of the business of the Company, to which the Company is a
party or by which it or its property is bound;
(ix) the execution, delivery and performance of this Agreement by
the Company and each Selling Stockholder, compliance by the Company and
each Selling Stockholder with all the provisions hereof and the
consummation of the transactions contemplated hereby will not require any
consent, approval, authorization or other order of any court, regulatory
body, administrative agency or other governmental body (except as such may
be required under the Securities Act) and will not conflict with or
constitute a breach of any of the terms or provisions of, or a default
under, the Certificate of Incorporation, By-laws or other organizational
documents of the Company or of any of its subsidiaries, or any agreement,
indenture or other instrument known to such counsel to which the Company
or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or their respective properties is bound, or, to such
counsel's knowledge, violate or conflict with any laws, administrative
regulations or rulings or court decrees applicable to the Company or its
property;
(x) to such counsel's knowledge, there is no legal or governmental
proceeding pending or threatened to which the Company or any of its
subsidiaries is a party or to which any of its property is subject which
is required to be described in the Registration Statement or the
Prospectus and is not so described, or of any contract or other document
which is required to be described in the Registration Statement or the
Prospectus or is required to be filed as an exhibit to the Registration
Statement which is not described or filed as required;
(xi) the Company is not an "investment company" or a company
"controlled" by an "investment company," as defined in the Investment
Company Act of 1940, as amended;
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RAYMOND JAMES & ASSOCIATES
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(xii) to such counsel's knowledge, except otherwise set forth in the
Registration Statement, no holder of any security of the Company has any
right to require registration of shares of Common Stock or any other
security of the Company;
(xiii) to such counsel's knowledge, except as otherwise set forth in
the Registration Statement or such as are not material to the business,
prospects, financial condition or results of operation of the Company and
its subsidiaries taken as a whole, the Company and each of its
subsidiaries has good and marketable title, free and clear of all liens,
claims, encumbrances and restrictions except liens for taxes not yet due
and payable, to all property and assets described in the Registration
Statement as being owned by it;
(xiv) to such counsel's knowledge, all leases to which the Company
and each of its subsidiaries is a party are valid and binding and no
default has occurred or is continuing thereunder, with the exception of
those leases the violation of which would not, in the aggregate, have a
Material Adverse Effect;
(xv) (A) the Registration Statement (including any Registration
Statement filed under Rule 462(b) under the Securities Act, if any) and
the Prospectus and any supplement or amendment thereto (except for
financial statements, schedules and reports thereon, and other financial
and statistical data included therein, as to which no opinion need be
expressed) comply as to form in all material respects with the Securities
Act, and (B) although counsel has not undertaken to investigate or verify
independently and is not passing upon, and does not assume any
responsibility for the accuracy, completeness or fairness of the
statements contained in the Prospectus or any amendment or supplement
thereto, nothing has come to the attention of such counsel which has
caused it to believe that (except for financial statements, schedules and
reports thereon, and other financial and statistical data included therein
as aforesaid) the Registration Statement and the prospectus included
therein at the time the Registration Statement became effective contained
any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, or that the Prospectus, as amended or
supplemented, if applicable (except for financial statements, schedules
and reports thereon, and other financial and statistical data included
therein as aforesaid) contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading;
(xvi) the Custody Agreement has been duly and validly authorized,
executed and delivered by Computer Concepts and is a valid and binding
agreement of Computer Concepts, enforceable against Computer Concepts in
accordance with its terms, subject to the Enforceability Exceptions;
28
<PAGE> 29
SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
(xvii) Computer Concepts has full legal right, power and authority,
and any approval required by law (other than any approval imposed by the
applicable state securities and Blue Sky laws) to sell, assign, transfer
and deliver the Shares to be sold by Computer Concepts in the manner
provided in this Agreement and the Custody Agreement;
(xviii) Computer Concepts has good and valid title to the
certificates for the Shares to be sold by such Selling Stockholder and,
upon delivery thereof, pursuant hereto and payment therefor, good and
valid title will pass to the Underwriters, severally, free of all
restrictions on transfer, liens, encumbrances, security interests and
claims whatsoever; (xix) the Power of Attorney signed by Computer Concepts
appointing __________ and ___________, or either of them, as Computer
Concept's attorney-in-fact to the extent set forth therein with regard to
the transactions contemplated hereby has been duly and validly authorized,
executed and delivered by or on behalf of Computer Concepts and is a valid
and binding instrument of Computer Concepts, enforceable against Computer
Concepts in accordance with its terms, subject to the Enforceability
Exceptions; and
(xx) the Voting Trust Agreement has been duly and validly
authorized, executed and delivered by each of the parties thereto and is a
valid and binding agreement of each of the parties thereto, enforceable
against such parties in accordance with its terms, subject to the
Enforceability Exceptions.
Counsel rendering the foregoing opinion may rely as to questions of law
not involving the laws of the United States or the States of New York or
Delaware upon opinions of local counsel, and as to questions of fact upon
representations or certificates of officers of the Company, the Selling
Stockholders or officers of the Selling Stockholders (when such Selling
Stockholder is not a natural person), and of government officials, in which case
their opinion is to state that they are so relying and that they have no
knowledge of any material misstatement or inaccuracy in any such opinion,
representation or certificate. Copies of any opinion, representation or
certificate so relied upon shall be delivered to the Representatives and to
counsel for the Underwriters.
(g) Legal Opinion of Counsel for Internet Tracking & Security Ventures
("Internet Tracking"). The Representatives shall have received from
___________, counsel for Internet Tracking, an opinion, dated the Closing Date,
which opinion shall be rendered to the Underwriters at the request of Internet
Tracking (and shall so state therein) to the effect that:
(i) this Agreement has been duly and validly authorized, executed and
delivered by Internet Tracking and is a valid and binding agreement of Internet
Tracking, enforceable against Internet Tracking in accordance with its terms,
subject to the Enforceability Exceptions;
(ii) the Custody Agreement has been duly and validly authorized,
executed and delivered by Internet Tracking and is a valid and binding
agreement of Internet Tracking, enforceable against Internet Tracking in
accordance with its terms, subject to the Enforceability Exceptions;
(iii) Internet Tracking has full legal right, power and authority,
and any approval required by law (other than any approval imposed by the
applicable state securities and Blue Sky laws) to sell, assign, transfer and
deliver the Shares to be sold by Internet Tracking in the manner provided in
this Agreement and the Custody Agreement;
(iv) Internet Tracking has good and clear title to the certificates
for the Shares to be sold by Internet Tracking and, upon delivery thereof,
pursuant hereto and payment therefor, good and clear title will pass to the
Underwriters, severally, free of all restrictions on transfer, liens,
encumbrances, security interests and claims whatsoever; and
(v) the Power of Attorney signed by Internet Tracking appointing
____________ and ____________, or either of them, as Internet Tracking's
attorney-in-fact to the extent set forth therein with regard to the
transactions contemplated hereby has been duly and validly authorized, executed
and delivered by Internet Tracking and is a valid and binding instrument of
Internet Tracking, enforceable against Internet Tracking in accordance with its
terms, subject to the Enforceability Exceptions.
29
<PAGE> 30
SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
(h) Legal Opinion of Counsel for the Underwriters. The Representatives
shall have received from Morrison & Foerster, LLP, counsel for the Underwriters,
their opinion or opinions, dated the Closing Dates, with respect to the validity
of the Shares, the Registration Statement and the Prospectus and such other
related matters as it may reasonably request, and the Company and the Selling
Stockholders shall have furnished to such counsel such documents as they may
request for the purpose of enabling them to pass upon such matters.
(i) Officers' Certificate. The Representatives shall have received a
certificate, dated the Closing Dates, of the Chief Executive Officer of
the Company and the Chief Financial Officer of the Company to the effect
that:
(i) No stop order suspending the effectiveness of the Registration
Statement has been issued, and, to the knowledge of the signers, no
proceedings for that purpose have been instituted or are pending or
contemplated under the Securities Act;
(ii) Neither any Preliminary Prospectus, as of its date, nor the
Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, as of the time when the Registration Statement became effective
and at all times subsequent thereto up
30
<PAGE> 31
SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
to the delivery of such certificate, included any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading;
(iii) The representations and warranties of the Company in this
Agreement are true and correct in all material respects at and as of the
Closing Dates, and the Company has substantially complied with all of the
agreements and substantially performed or satisfied all of the conditions
on its part to be performed or satisfied at or prior to the Closing Dates;
and
(iv) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, and except as disclosed in
or contemplated by the Prospectus, (A) there has not been any material
adverse change or a development involving a material adverse change in the
condition (financial or otherwise), properties, business, management,
prospects, net worth or results of operations of the Company, (B) the
business and operations conducted by the Company have not sustained a loss
by strike, fire, flood, accident or other calamity (whether or not
insured) of such a character as to interfere materially with the conduct
of the business and operations of the Company, (C) no legal or
governmental action, suit, proceeding or investigation is pending or
threatened against the Company which is material to the Company, whether
or not arising from transactions in the ordinary course of business, or
which may materially and adversely affect the transactions contemplated by
this Agreement, (D) since such dates and except as so disclosed, the
Company has not incurred any material liability or obligation, direct,
contingent or indirect, made any change in its capital stock (except
pursuant to its Stock Option Plan), made any material change in its
short-term or funded debt or repurchased or otherwise acquired any of the
Company's capital stock, (E) the Company has not declared or paid any
dividend, or made any other distribution, upon its outstanding capital
stock payable to Stockholders of record on a date prior to the Closing
Dates, and (F) the Company has not entered into any material transactions
not in the ordinary course of business.
(j) Certificate of Selling Stockholders. The Representatives shall have
received a certificate or certificates, dated the Closing Dates, of the
Attorneys-in-Fact on behalf of each of the Selling Stockholders to the effect
that as of the Closing Dates its representations and warranties in this
Agreement are true and correct as if made on and as of the Closing Dates, and
that it has performed all its obligations and satisfied all the conditions on
its part to be performed or satisfied at or prior to the Closing Dates.
(k) Opinion of Intellectual Property Counsel. The Representatives shall
have received from Marzouk & Parry special intellectual property counsel for the
Company, an opinion,
31
<PAGE> 32
SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
dated the Closing Dates, with respect to certain intellectual property law
matters. Such opinion shall be in form and substance reasonably satisfactory to
the Underwriters.
(l) Additional Certificates. The Company and each of the Selling
Stockholders shall have furnished to the Representatives such additional
certificates as the Representatives may have reasonably requested as to the
accuracy, at and as of the Closing Dates, of the representations and warranties
made herein by them and as to compliance at and as of the Closing Dates by them
with their covenants and agreements herein contained and other provisions hereof
to be satisfied at or prior to the Closing Dates, and as to satisfaction of the
other conditions to the obligations of the Underwriters hereunder.
(m) Satisfaction. All opinions, certificates, letters and other documents
will be in compliance with the provisions hereunder only if they are reasonably
satisfactory in form and substance to the Representatives. The Company will
furnish to the Representatives such number of original and conformed copies of
such opinions, certificates, letters and other documents as the Representatives
shall reasonably request. If any of the conditions hereinabove provided for in
this Section 8 shall not have been satisfied when and as required by this
Agreement, this Agreement may be terminated by the Representatives by notifying
the Company of such termination in writing or by telegram at or prior to the
Closing Dates, but SoundView shall be entitled to waive any of such conditions.
11. EFFECTIVE DATE.
This Agreement shall become effective upon execution and delivery by all
the parties hereto and the written or oral release of notification of the
effectiveness of the Registration Statement by the Commission.
12. TERMINATION.
The Representatives shall have the right to terminate this Agreement by
giving notice to the Company as hereinafter specified at any time at or prior to
the First Closing Date or the Option Closing Date, as the case may be, (a) if
the Company or any Selling Stockholder shall have failed, refused or been unable
to perform any agreement on its part to be performed, or because any other
condition of the Underwriters' obligations hereunder required to be fulfilled is
not fulfilled, including, without limitation, any change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company from that set forth in the Registration Statement or Prospectus,
which, in the sole reasonable judgment of the Representatives, is material and
adverse, or (b) if additional material governmental restrictions, not in force
and effect on the date hereof, shall have been imposed upon trading in
securities generally or minimum or maximum prices shall have been generally
established on the New York Stock Exchange or on the American Stock Exchange or
in the over-the-counter market by the NASD, or trading in securities generally
shall have been suspended on either such exchange
32
<PAGE> 33
SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
or in the over-the-counter market by the NASD, or if a banking moratorium shall
have been declared by federal or New York authorities, or (c) if the Company
shall have sustained a loss by strike, fire, flood, earthquake, accident or
other calamity of such character as to interfere materially with the conduct of
the business and operations of the Company regardless of whether or not such
loss shall have been insured, or (d) if there shall have been a material adverse
change in the general political or economic conditions or financial markets as
in the reasonable judgment of the Representatives makes it inadvisable or
impracticable to proceed with the offering, sale and delivery of the Shares, or
(e) if there shall have been an outbreak or escalation of hostilities or of any
other insurrection or armed conflict or the declaration by the United States of
a national emergency which, in the reasonable opinion of the Representatives,
makes it impracticable or inadvisable to proceed with the public offering of the
Shares as contemplated by the Prospectus. In the event of termination pursuant
to this Section 12 the Company shall remain obligated to pay costs and expenses
pursuant to Section 7, Section 8 and Section 13 hereof. If the Company shall
elect to prevent this Agreement from becoming effective as provided in Section
11, the Company shall promptly notify the Representatives by telephone,
facsimile or telegraph, in each case confirmed by letter. If the Representatives
elect to prevent this Agreement from becoming effective as provided in Section
11 or to terminate this Agreement as provided in this Section 12, the
Representatives shall promptly notify the Company by telephone, facsimile or
telegraph, in each case confirmed by letter.
13. REIMBURSEMENT OF UNDERWRITERS.
Notwithstanding any other provisions hereof, if this Agreement shall not
become effective by reason of any election of the Company pursuant to Section 11
or shall be terminated by the Representatives under Section 10 or Section 12(a),
the Company will bear and pay the expenses specified in Section 7 hereof and, in
addition to its obligations pursuant to Section 8 hereof, the Company will
reimburse the reasonable out-of-pocket expenses of the several Underwriters
(including reasonable fees and disbursements of counsel for the Underwriters)
incurred in connection with this Agreement and the proposed purchase of the
Shares, and promptly upon demand the Company will pay such amounts to the
Representatives.
14. SUBSTITUTION OF UNDERWRITERS.
If any Underwriter or Underwriters shall default in its or their
obligations to purchase shares of Shares hereunder and the aggregate number of
shares which such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed ten percent (10%) of the total number of shares
underwritten, the other Underwriters shall be obligated severally, in proportion
to their respective commitments hereunder, to purchase the shares which such
defaulting Underwriter or Underwriters agreed but failed to purchase. If any
Underwriter or Underwriters shall so default and the aggregate number of shares
with respect to which such default or defaults occur is more than ten percent
(10%) of the total number of shares underwritten and arrangements satisfactory
to the Representatives and the Company for the
33
<PAGE> 34
SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
purchase of such shares by other persons are not made within forty-eight (48)
hours after such default, this Agreement shall terminate. If the remaining
Underwriters or substituted Underwriters are required hereby or agree to take up
all or part of the shares of Shares of a defaulting Underwriter or Underwriters
as provided in this Section 14, (a) the Company and the Selling Stockholders
shall have the right to postpone the Closing Dates for a period of not more than
seven (7) full business days in order that the Company and the Selling
Stockholders may effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees promptly to file any amendments to the
Registration Statement or supplements to the Prospectus which may thereby be
made necessary, and (b) the respective numbers of shares to be purchased by the
remaining Underwriters or substituted Underwriters shall be taken as the basis
of their underwriting obligation for all purposes of this Agreement. Any action
taken under this Section 14 shall not relieve any defaulting Underwriter of its
liability to the Company, the Selling Stockholders or the other Underwriters for
damages occasioned by its default hereunder. Any termination of this Agreement
pursuant to this Section 14 shall be without liability on the part of any
non-defaulting Underwriter, the Selling Stockholders or the Company, except for
expenses to be paid or reimbursed pursuant to Section 7 and except for the
provisions of Section 8.
15. NOTICES.
All communications hereunder shall be in writing and, (a) if sent to the
Underwriters, shall be mailed, delivered, transmitted by facsimile or
telegraphed and confirmed to the Representatives, c/o SoundView, 22 Gatehouse
Road, Stamford, Connecticut 06902 (facsimile: (203) 462-7257), except that
notices given to an Underwriter pursuant to Section 8 hereof shall be sent to
such Underwriter at the address furnished by the Representatives, or (b) if sent
to the Company, shall be mailed, delivered, transmitted by facsimile or
telegraphed and confirmed to the Company, 5845 Richmond Highway, Suite 400,
Alexandria, Virginia 22303, Attn: President (facsimile: (703) 341-2424), with a
copy to Blau, Kramer, Wactlar & Lieberman, P.C. , 100 Jericho Quadrangle, Suite
225, Jericho, New York 11753, Attn: David H. Lieberman (facsimile (516)
822-4824) or (c) if sent to Computer Concepts, shall be mailed, delivered,
transmitted by facsimile or telegraphed and confirmed to the Selling
Stockholders, c/o the Attorneys-in-Fact, c/o the Company, 5845 Richmond Highway,
Suite 400, Alexandria, Virginia 22303, Attn: President (facsimile: (703)
341-2424), with a copy to Blau, Kramer, Wactlar & Lieberman, P.C. , 100 Jericho
Quadrangle, Suite 225, Jericho, New York 11753, Attn: David H. Lieberman
(facsimile (516) 822-4824) in the case of Computer Concepts Corp., and with a
copy to ______________, ______________, ______________ New York ___________,
Attn ____________ (facsimile ( )___ ____ ) in the case of Internet Tracking
and Security Ventures.
16. SUCCESSORS.
This Agreement shall inure to the benefit of and be binding upon the
several Underwriters, the Company and the Selling Stockholders and their
respective successors and legal representatives. Nothing expressed or mentioned
in this Agreement is intended or shall be construed to give any person other
than the persons mentioned in the preceding sentence any
34
<PAGE> 35
SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
legal or equitable right, remedy or claim under or in respect of this Agreement,
or any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person, except that the
representations, warranties, covenants, agreements and indemnities of the
Company and the Selling Stockholders contained in this Agreement shall also be
for the benefit of the person or persons, if any, who control any Underwriter or
Underwriters within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act, and the indemnities of the several Underwriters shall
also be for the benefit of each director of the Company, each of its officers
who has signed the Registration Statement and the person or persons, if any, who
control the Company or any Selling Stockholders within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act.
17. APPLICABLE LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York, without giving effect to principles of conflicts
of laws.
18. AUTHORITY OF REPRESENTATIVES.
In connection with this Agreement, the Representatives will act for and on
behalf of the several Underwriters, and any action taken under this Agreement by
the Representatives will be binding on all the Underwriters, and any action
taken under this Agreement by any of the Attorneys-in-Fact will be binding on
all of the Selling Stockholders.
19. PARTIAL UNENFORCEABILITY.
The invalidity or unenforceability of any section, paragraph or provision
of this Agreement shall not affect the validity or enforceability of any other
section, paragraph or provision hereof. If any section, paragraph or provision
of this Agreement is for any reason determined to be invalid or unenforceable,
there shall be deemed to be made such minor changes (and only such minor
changes) as are necessary to make it valid and enforceable.
20. ENTIRE AGREEMENT.
This Agreement constitutes the entire agreement of the parties to this
Agreement and supersedes all prior written or oral and all contemporaneous oral
agreements, understandings and negotiations with respect to the subject matter
hereof.
21. GENERAL.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include on another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This
35
<PAGE> 36
SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
Agreement may be amended or modified, and the observance of any term of this
Agreement may be waived, only by a writing signed by the Company, the Selling
Stockholders and the Representatives.
22. COUNTERPARTS.
This Agreement may be signed in two (2) or more counterparts, each of
which shall be deemed an original, and all of which together shall constitute
one and the same instrument.
23. ATTORNEY-IN-FACT.
Any person executing and delivering this Agreement as Attorney-in-Fact for
the Selling Stockholders represents by so doing that he has been duly appointed
as Attorney-in-Fact by such Selling Stockholder pursuant to a validly existing
and binding Power of Attorney which authorizes such Attorney-in-Fact to take
such action.
If the foregoing correctly sets forth our understanding, please indicate
your acceptance thereof in the space provided below for that purpose, whereupon
this letter and your acceptance shall constitute a binding agreement between us.
Very truly yours,
SOFTWORKS, INC.
By:
---------------------------------
Judy Carter, Chief Executive Officer
and Chief Executive Officer
SELLING STOCKHOLDERS NAMED IN SCHEDULE B
By:
---------------------------------
Name:
As Attorney-in-Fact of the Selling
Stockholders listed in Schedule B hereto.
Agreed to and accepted as of
the date first set forth above:
36
<PAGE> 37
SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES
JULY___, 1998
SOUNDVIEW FINANCIAL GROUP, INC.
RAYMOND JAMES & ASSOCIATES, INC.
By: SoundView Financial Group, Inc.
By:
-------------------------------------
Brian T. Bristol, Managing Director
37
<PAGE> 38
SCHEDULE A
<TABLE>
<CAPTION>
Number of Firm Number of Option
Shares to be Shares to be
Name Purchased Purchased
- -------------------------------- ----------------- ----------------
<S> <C> <C>
SoundView Financial Group, Inc.
Raymond James & Associates,
Inc.
----------------- ----------------
TOTAL 4,200,000 630,000
================= ================
</TABLE>
<PAGE> 39
SCHEDULE B
<TABLE>
<CAPTION>
Number of Firm Number of Option
Shares to be Shares to be
Name Sold Sold
- -------------------------------- -------------- ----------------
<S> <C> <C>
Softworks 1,700,000 --
Computer Concepts Corp. 1,500,000 630,000
Internet Tracking & Security Ventures 1,000,000 --
-------------- ----------------
TOTAL 4,200,000 630,000
============== ================
</TABLE>
<PAGE> 40
SCHEDULE C
LOCK-UP AGREEMENT
SoundView Financial Group, Inc.
Raymond James & Associates, Inc.
c/o SoundView Financial Group, Inc.
22 Gatehouse Road
Stamford, Connecticut 06902
Ladies and Gentlemen:
The undersigned is a director, officer and/or securityholder of Softworks,
Inc. (the "Company") and wishes to facilitate the proposed initial public
offering (the "Offering") of the Company's common stock ("Common Stock")
pursuant to a registration statement on Form S-1 (the "Registration Statement")
to be filed with the Securities and Exchange Commission (the "SEC").
The undersigned recognizes and agrees that the Offering will benefit the
undersigned as a director, officer or securityholder of the Company. In
consideration of the foregoing, and in order to induce the several underwriters
to act as such in connection with the Offering, the undersigned hereby
irrevocably agrees not to, directly or indirectly, offer, sell, contract to
sell, transfer the economic risk of ownership in, make any short sale, pledge,
establish an open "put equivalent position" within the meaning of Rule 16a-1(h)
under the Securities Exchange Act of 1934, as amended, grant any option to sell,
transfer or otherwise dispose of any shares of Common Stock, or any securities
convertible into or exchangeable or exercisable for or any rights to purchase or
acquire Common Stock, or publicly announce the undersigned's intention to do any
of the foregoing, without the prior written consent of SoundView Financial
Group, Inc., for a period commencing on the date hereof and terminating one
hundred eighty (180) days after the effective date of the Registration
Statement, and in the case of Computer Concepts, twelve (12) months after the
effective date of the Registration Statement (the "Lock-Up Period"); provided,
however, that shares of Common Stock purchased by the undersigned in the public
market after the Offering, and any shares of Common Stock issuable upon exercise
of employee stock options issued in accordance with the terms of the Company's
1998 Long Term Incentive Plan, as disclosed in the Registration Statement, shall
not be subject to this agreement.
Notwithstanding the foregoing, if the undersigned is an individual, he or
she may transfer any shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock either during his or her lifetime
or on death by will or intestacy to his or her immediate family or to a trust if
the beneficiaries of such trust are exclusively the undersigned and/or a member
or members of his or her immediate family; provided, however, that prior to any
such transfer each transferee shall execute an agreement, satisfactory to
SoundView Financial Group, Inc., pursuant to which each transferee shall agree
to receive and hold such shares of Common Stock, or securities convertible into
or exchangeable or exercisable for
<PAGE> 41
Soundview Financial Group, Inc.
Raymond James & Associates
May___, 1998
Page Two
Common Stock, subject to the provisions hereof, and there shall be no further
transfer except in accordance with the provisions hereof. In addition, if the
undersigned is a partnership, the partnership may transfer any shares of Common
Stock or securities convertible into or exchangeable or exercisable for Common
Stock to a partner of such partnership, to a retired partner of such
partnership, or to the estate of any such partner or retired partner, and any
such partner who is an individual may transfer such shares of Common Stock or
securities convertible into or exchangeable or exercisable for Common Stock by
gift, will or intestacy to a member or members of his or her immediate family;
provided, however, that prior to any such transfer each transferee shall execute
an agreement, satisfactory to SoundView Financial Group, Inc., pursuant to which
each transferee shall agree to receive and hold such shares of Common Stock or
securities convertible into or exchangeable or exercisable for Common Stock,
subject to the provisions hereof, and there shall be no further transfer except
in accordance with the provisions hereof. For purposes of this paragraph,
"immediate family" shall mean spouse, lineal descendant, father, mother, brother
or sister of the transferor.
In addition, the undersigned agrees that, without the prior written
consent of SoundView Financial Group, Inc., the undersigned will not, during the
Lock-Up Period, make any demand for, or exercise any right with respect to, the
registration of any shares of Common Stock or any security convertible into or
exercisable or exchangeable for Common Stock.
The undersigned confirms that he or she understands that the underwriters
of the Offering and the Company will rely upon the representations set forth in
this agreement in proceeding with the Offering. The undersigned further confirms
that this agreement is irrevocable and shall be binding upon the undersigned's
heirs, legal representatives, successors and assigns so long as the closing of
the Offering occurs on or prior to ________ __, 1998. The undersigned agrees and
consents to the entry of stop transfer instructions with the Company's transfer
agent against the transfer of Common Stock or other securities of the Company
held by the undersigned except in compliance with this agreement.
Dated: ___________, __ 1998.
Name of Securityholder
By:
-------------------------------------
Name:
Title:
<PAGE> 1
Exhibit 3.2
SOFTWORKS, Inc.
BY-LAWS
* * * * * *
ARTICLE I
OFFICES
Section 1. The registered office shall be in the city of Wilmington,
County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other
places both within and without the State of Delaware as the board of directors
may from time to time determine or the business of the corporation may require.
ARTICLE II
MEETING OF STOCKHOLDERS
Section 1. All meetings of the stockholders for the election of
directors shall be held at such place as may be fixed from time to time by the
board of directors either within or without the State of Delaware as shall be
designated from time to time by the board of directors and stated in the notice
of the meeting. Meetings of stockholders for any other
-1-
<PAGE> 2
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2. Annual meetings of stockholders shall be held on the
second Thursday of September if not a legal holiday, and if a legal holiday,
then on the next secular day following, at 11:00 a.m., or at such other date and
time as shall be designated from time to time by the board of directors and
stated in the notice of meeting, at which they shall elect by a plurality vote
those directors whose terms have expired pursuant to the provisions of the
Certificate of Incorporation, and transact such other business as may properly
be brought before the meeting.
Section 3. Written notice of the annual meeting stating the place,
date and hour of the meeting shall be given to each stockholder entitled to vote
at such meeting not less than ten nor more than fifty days before the date of
the meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of meeting,
or, if not specified, at the place where the
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meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, may be called only at the written request of the Chairman of the
Board, the President, a majority of the Board of Directors or by stockholders
owning at least sixty-six and two-thirds percent (66-2/3%) of the entire voting
power of the corporation's capital stock. Such request shall state the purpose
or purposes of the proposed meeting.
Section 6. Written notice of a special meeting stating the place,
date and hour of the meeting and the purpose for which the meeting is called,
shall be given not less than ten nor more than fifty days before the date of the
meeting to each stockholder entitled to vote at such meeting.
Section 7. (A)(1) Nominations of persons for election to the board
of directors of the corporation and the proposal of business to be considered by
the stockholders may be made at an annual meeting of stockholders (a) pursuant
to the Corporation's notice of meeting, (b) by or at the direction of the board
of directors or (c) by any stockholder of the corporation who was a stockholder
of record at the time of giving of notice provided for in this By-law, who is
entitled to vote at the meeting and who complies with the notice procedures set
forth in this By-law.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) of paragraph
(A) (1) of this by-law the stockholder must have given timely notice thereof in
writing to the Secretary of the corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
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stockholder's notice shall be delivered to the Secretary at the principal
executive offices of the corporation not later than the close of business on the
60th day nor earlier than the close of business on the 90th day prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is more than 30 days
before or more than 60 days after such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the close of
business on the 90th day prior to such annual meeting and not later than the
close of business on the later of the 60th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of such
meeting is first made by the Corporation. In no event shall the public
announcement of an adjournment of an annual meeting commence a new time period
for the giving of a stockholder's notice as described above. Such stockholder's
notice shall set forth (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors in an election contest, or is otherwise required, in each
case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Rule 14a-11 thereunder (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (b) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (c) as to the stockholder giving the notice and the beneficial owner,
if any, on whose behalf the nomination or proposal is made (i) the name
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and address of such stockholder, as they appear on the Corporation's books, and
of such beneficial owner and (ii) the class and number of shares of the
corporation which are owned beneficially and of record by such stockholder and
such beneficial owner.
(3) Notwithstanding anything in the second sentence of
paragraph (A) (2) of this by-law to the contrary, in the event that the number
of directors to be elected to the board of directors of the corporation is
increased and there is no public announcement by the corporation naming all of
the nominees for director or specifying the size of the increased board of
directors at least 70 days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this by-law shall also
be considered timely, but only with respect to nominees for any new positions
created by such increase, if it shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the 10th day following the day on which such public announcement is
first made by the Corporation.
(B) Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting. Nominations of persons for election to the
board of directors may be made at a special meeting of stockholders at which
directors are to be elected pursuant to the corporation's notice of meeting (a)
by or at the direction of the board of directors or (b) provided that the board
of directors has determined that directors shall be elected at such meeting, by
any stockholder of the corporation who is a stockholder of record at the time of
giving of notice provided for in this by-law, who shall be entitled to vote at
the meeting and who complies with the notice procedures set forth in this
by-law. In the event the corporation calls a special meeting of stockholders for
the purpose of electing
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one or more directors to the board of directors, any such stockholder may
nominate a person or persons (as the case may be), for election to such
position(s) as specified in the corporation's notice of meeting, if the
stockholder's notice required by paragraph (A) (2) of this by-law shall be
delivered to the Secretary at the principal executive offices of the corporation
not earlier than the close of business on the 90th day prior to such special
meeting and not later than the close of business on the later of the 60th day
prior to such special meeting or the 10th day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees proposed by the board of directors to be elected at such meeting. In no
event shall the public announcement of an adjournment of a special meeting
commence a new time period for the giving of a stockholder's notice as described
above.
(C)(1) Only such persons who are nominated in accordance with the
procedures set forth in this by-law shall be eligible to serve as directors and
only such business shall be conducted at a meeting of stockholders as shall have
been brought before the meeting in accordance with the procedures set forth in
this by-law. Except as otherwise provided by law, the certificate of
incorporation or these by-laws, the Chairman of the meeting shall have the power
and duty to determine whether a nomination or any business proposed to be
brought before the meeting was made or proposed, as the case may be, in
accordance with the procedures set forth in this by-law and, if any proposed
nomination or business is not in compliance with this by-law, to declare that
such defective proposal or nomination shall be disregarded.
(2) For purposes of this by-law, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or
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comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
(3) Notwithstanding the foregoing provisions of this by-law, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this by-law. Nothing in this by-law shall be deemed to affect any
rights (i) of stockholders to request inclusion of proposals in the
corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(ii) of the holders of any series of Preferred Stock to elect directors under
specified circumstances.
Section 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting, at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
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Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present in person or
represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required in which case
such express provision shall govern and control the decision of such question.
Section 10. Unless otherwise provided in the certificate of
incorporation or certificates of designations, and preferences, each stockholder
shall at every meeting of the stockholders be entitled to one vote in person or
by proxy for each share of the capital stock having voting power held by such
stockholder, but no proxy shall be voted on after three years from its date,
unless the proxy provides for a longer period.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole
board shall be not less than three nor more than nine. No director need be a
stockholder of the corporation. Any director may be removed from office at any
time by the affirmative vote of stockholders of record holding a majority of the
outstanding shares of stock of the corporation entitled to vote, given at a
meeting of the stockholders called for that purpose.
Section 2. The board of directors shall be divided into three
classes as nearly equal in number as possible, and no class shall include less
than two directors. The terms of office of the directors initially classified
shall be as follows: that of Class I shall expire at the next annual
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meeting of stockholders in 1999, Class II at the second succeeding annual
meeting of stockholders in 2000 and Class III at the third succeeding annual
meeting of stockholders in 2001. The foregoing notwithstanding, each director
shall serve until his successor shall have been duly elected and qualified,
unless he shall resign, become disqualified, disabled or shall otherwise be
removed. Whenever a vacancy occurs on the board of directors, a majority of the
remaining directors have the power to fill the vacancy by electing a successor
director to fill that portion of the unexpired term resulting from the vacancy.
Section 3. The business of the corporation shall be managed by its
board of directors, which may exercise all such powers of the corporation and do
all such lawful acts and things as are not by statute or by these by-laws
directed or required to be exercised or done by the stockholders.
Section 4. The board of directors shall choose a chairman of the
board of directors who shall preside at all meetings of stockholders and
directors.
Section 5. The board of directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
Section 6. Regular meetings of the board of directors may be held
without notice at such time and at such place as shall from time to time be
determined by the board.
Section 7. Special meetings of the board may be called by the
president or chairman of the board on three days' prior notice to each director,
either personally or by mail or by telegram; special meetings shall be called by
the president or secretary in like manner and on like notice on the written
request of two directors.
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Section 8. At all meetings of the board one-half of the board of
directors shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the board of directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the board of directors, the
directors present thereat may adjourn the meeting form time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the certificate of
incorporation or these by-laws, any action required or permitted to be taken at
any meeting of the board of directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
COMMITTEES OF DIRECTORS
Section 10. The board of directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member of any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the board of directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided
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in the resolution of the board of directors, shall have and may exercise all the
powers and authority of the board of directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to amending the certificate of
incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders of sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders of a
dissolution, or amending the by-laws of the corporation; and, unless the
resolution or the certificate of incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as may be determined from time to time by resolution adopted by
the board of directors.
Section 11. Each committee shall keep regular minutes of its
meetings and report the same to the board of directors.
COMPENSATION OF DIRECTORS
Section 12. Unless otherwise restricted by the certificate of
incorporation, the board of directors shall have the authority to fix the
compensation of directors. The directors may be paid their expenses, if any, of
attendance at each meeting of the board of directors and may be paid a fixed sum
for attendance at each meeting of the board of directors or a stated salary as
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
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ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
certificate of incorporation or of these by-laws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telephone.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the certificate of incorporation or of these
by-laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the
board of directors and shall be a chairman of the board of directors, a
president, one or more vice-presidents, a secretary and a treasurer. The board
of directors may also choose additional vice-presidents, and one or more
assistant secretaries and assistant treasurers. Any number of offices may be
held by the same person, unless the certificate of incorporation or these
by-laws otherwise provide.
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Section 2. The board of directors at its first meeting after each
annual meeting of stockholders shall choose a chairman of the board of
directors, a president, one or more vice-presidents, a secretary and a
treasurer.
Section 3. The board of directors may appoint such other officers
and agents as it shall deem necessary who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
Section 4. The salaries of all officers and agents of the
corporation shall be fixed by the board of directors.
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by the
board of directors may be removed at any time by the affirmative vote of a
majority of the board of directors. Any vacancy occurring in any office of the
corporation shall be filled by the board of directors.
CHAIRMAN OF THE BOARD
Section 6. The chairman of the board of directors shall preside at
all meetings of stockholders and directors. Except where by law the signature of
the president is required, the chairman of the board of directors shall possess
the same power as the president to sign all certificates, contracts, and other
instruments of the corporation which may be authorized by the board of
directors. During the absence or disability of the president, he shall exercise
all powers and discharge all duties of the president.
THE PRESIDENT
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Section 7. The president shall be the chief executive officer of the
corporation. In the absence of the chairman of the board of directors, the
president shall preside at all meetings of the stockholders and the board of
directors, shall have general and active management of the business of the
corporation and shall see that all orders and resolutions of the board of
directors are carried into effect.
The president shall execute bonds, mortgages and other contracts
requiring a seal, under the seal of the corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the board of
directors to some other officer or agent of the corporation.
THE VICE PRESIDENTS
Section 8. In the absence of the chairman of the board of directors
or the president or in the event of his inability or refusal to act, the vice
president (or in the event there be more than one vice president, the vice
presidents in the order designated, or in the absence of any designation, first
any vice presidents in the order of their election and then the remaining vice
presidents in the order of their election) shall perform the duties of the
chairman of the board of directors or the president, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the chairman
of the board of directors or the president. The vice presidents shall perform
such other duties and shall have other powers as the board of directors may from
time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
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Section 9. The secretary shall attend all meetings of the board of
directors and all meetings of the stockholders and record all proceedings of the
meetings of the corporation and of the board of directors in a book to be kept
for that purpose and shall perform like duties for the standing committees when
required. He shall give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the board of directors, and shall perform
such other duties as may be prescribed by the board of directors, the chairman
of the board of directors or the president, under whose supervision he shall be.
He shall have custody of the corporate seal of the corporation and he, or an
assistant secretary, shall have authority to affix the same to any instrument
requiring it and when so affixed, it may be attested by his signature or by the
signature of such assistant secretary. The board of directors may give general
authority to any other officer to affix the seal of the corporation and to
attest the affixing by his signature.
Section 10. The assistant secretary, or if there be more than one,
the assistant secretaries, in the order determined by the board of directors (or
if there be no such determination, then in the order of their election), shall,
in the absence of the secretary or in the event of his inability or refusal to
act, perform the duties and exercise the powers of the secretary and shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe.
TREASURER AND ASSISTANT TREASURER
Section 11. The treasurer shall be the chief financial officer of
the corporation and shall have the custody of the corporate funds and securities
and shall keep full and accurate accounts of receipts and disbursements in books
belonging to the corporation and shall deposit all
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monies and other valuable effects in the name and to the credit of the
corporation in such depositories as may be designated by the board of directors.
Section 12. He shall disburse the funds of the corporation as may be
ordered by the board of directors, taking proper vouchers for such
disbursements, and shall render to the chairman of the board of directors and
the president and board of directors, at its regular meetings, or when the board
of directors so requires, an account of all his transactions as treasurer and of
the financial condition of the corporation.
Section 13. If required by the board of directors, he shall give the
corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the board of directors for
the faithful performance of the duties of his office and for the restoration to
the corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 14. The assistant treasurer, of if there shall be more than
one, the assistant treasurers in the order determined by the board of directors
(or if there be no such determination, then in the order of their election),
shall, in the absence of the treasurer or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the treasurer and
shall perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
INDEMNIFICATION PROVISION
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Section 15. Each person who at any time is or shall have been a
director or officer of the Corporation and is threatened to be or is made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he is, or he or his testator or intestate was, a director, officer,
employee or agent of the Corporation, or served at the request of the
Corporation as a director, officer, employee, trustee or agent of another
corporation, partnership, joint, venture, trust or other enterprise, shall be
indemnified against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with any such threatened, pending or completed action, suit or proceeding to the
full extent authorized under Section 145 of the General Corporation Law of the
State of Delaware. The foregoing right of indemnification shall in no way be
exclusive of any other rights of indemnification to which such director,
officer, employee or agent may be entitled under the certificate of
incorporation, agreement, vote of stockholders or disinterested directors, or
otherwise.
The foregoing provisions of this Article shall be deemed to be a
contract between the corporation and each director, officer, employee or agent
who serves in such capacity at any time while this Article, and the relevant
provisions of the General Corporation Law of the State of Delaware and other
applicable law, if any, are in effect, and any repeal or modification thereof
shall not affect any rights or obligations then existing with respect to any
state of facts then or theretofore existing or any action, suit or proceeding
theretofore existing or any action, suit or proceeding theretofore or thereafter
brought or threatened based in whole or in part upon any such state of facts.
ARTICLE VI
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CERTIFICATES OF STOCK
Section 1. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the corporation by
the chairman of the board of directors, the president or a vice president and
the treasurer or an assistant treasurer, or the secretary or an assistant
secretary of the corporation, certifying the number of shares owned by him in
the corporation.
Certificates may be issued for partly paid shares and in such case
upon the face or back of the certificates issued to represent any such partly
paid shares, the total amount of the consideration to be paid therefor, and the
amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one class
of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitation or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the corporation shall
issue to represent such class or series of stock; provided that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the corporation shall issue to represent such class or
series of stock, a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.
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Section 2. Where a certificate is countersigned (1) by a transfer
agent other than the corporation or its employee, or (2) by a registrar other
than the corporation or its employee, any other signature on the certificate may
be a facsimile. In case any officer, transfer agent or registrar who has signed
or whose facsimile signature has been placed upon a certificate shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued, it may be issued by the corporation with the same effect as if he
were such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The board of directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the board of directors may, in its
discretion and as a condition precedent to the issuance hereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall required
and/or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
TRANSFERS OF STOCK
Section 4. Upon surrender to the corporation or the transfer agent
of the corporation of a certificate for shares duly endorsed or accompanied by
proper evidence of
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succession, assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
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ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation,
subject to the provisions of the certificate of incorporation, if any, may be
declared by the board of directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
Section 2. Before payment of any dividend, there may be set aside
out of any funds of the corporation available for dividends such sum or sums as
the directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining property of the corporation, or for such other purpose
as the directors shall think conducive to the interest of the corporation, and
the directors may modify or abolish any such reserve in the manner in which it
was created.
ANNUAL STATEMENT
Section 3. The board of directors shall present at each annual
meeting, and at any special meeting of the stockholders when called for by vote
of the stockholders, a full and clear statement of the business and condition of
the corporation.
CHECKS
Section 4. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the board of directors may from time to time designate.
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FISCAL YEAR
Section 5. The fiscal year of the corporation shall be fixed by
resolution of the board of directors.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name
of the corporation, the year of its organization and the words, "Corporate Seal,
Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE VIII
AMENDMENTS
Section 1. These by-laws may be altered, amended, repealed or new
by-laws may be adopted by the stockholders or by the board of directors, when
such power is conferred upon the board of directors by the certificate of
incorporation, at any regular meeting of the stockholders or of the board of
directors or at any special meeting of the stockholders or of the board of
directors if notice of such alteration, amendment, repeal or adoption of new
by-laws be contained in the notice of such special meeting.
-22-
<PAGE> 1
Exhibit 4.1
Softworks, Inc.
SW
COMMON STOCK
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE PAR VALUE OF $.001 EACH OF THE
COMMON STOCK OF
SOFTWORKS, INC.
(hereinafter called the "Corporation") transferable on the books of the
Corporation in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed. This Certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Certificate of Incorporation and By-laws of the Corporation and the amendments
from time to time made thereto, copies of which are or will be on file at the
principal office of the Corporation, to all of which the holder by acceptance
hereof assents.
This Certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and
the facsimile signatures of its duly authorized officers.
Dated:
SECRETARY
PRESIDENT
COUNTERSIGNED AND REGISTERED:
MANHATTAN TRANSFER REGISTRAR COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
(REVERSE OF STOCK CERTIFICATE)
The Corporation will furnish without charge to each stockholder who so requests
a copy of the provisions setting forth the powers,
designations, preferences and relative, participating, optional, or other
special rights of each class of stock or series thereof which the Corporation is
authorized to issue and the qualifications, limitations or restrictions of such
preferences and/or rights. Such requests shall be made to the Corporation's
Secretary at the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM
TEN ENT
JT TEN
as tenants in common
<PAGE> 2
as tenants by the entireties
as joint tenants with right
of survivorship and not as tenants
in common
UNIF GIFT MIN ACTD Custodian
(Cust)
(Minor)
under Uniform Gifts to Minors
Act
(State)
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE)
Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated
NOTICE:
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM) PURSUANT TO
S.E.C. RULE 17Ad-15.
TRANSFER AGENT:
Manhattan Transfer Registrar Co.
P.O. Box 361
Holbrook, New York 11741
(516) 585-7341
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, MUTILATED OR
DESTROYED, THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITIONTO THE
ISSUANCE OF A REPLACEMENT CERTIFICATE.
<PAGE> 1
Exhibit 5.1
[BLAU, KRAMER,WACTLAR & LIEBERMAN, P.C. LETTERHEAD]
July 9, 1998
Securities and Exchange Commission
450 Fifth Avenue
Washington, D.C. 20549
RE: SOFTWORKS, INC.
REGISTRATION STATEMENT ON FORM S-1
Gentlemen:
Reference is made to the filing by Softworks, Inc. (the "Company") of a
Registration Statement on Form S-1 (the "Registration Statement") with the
Securities and Exchange Commission pursuant to the provisions of the Securities
Act of 1933, as amended, covering the registration of 4,200,000 shares of Common
Stock of the Company, par value $.001 per share (the "Common Stock").
As counsel for the Company, we have examined its corporate records,
including its Certificate of Incorporation, By-Laws, its corporate minutes, the
form of its Common Stock certificate and such other documents as we have deemed
necessary or relevant under the circumstances.
Based upon our examination, we are of the opinion that:
1. The Company is duly organized and validly existing under the laws of
the State of Delaware.
2. The shares of Common Stock subject to the Registration Statement
have been duly authorized and, when issued will be legally issued, fully paid
and non-assessable.
3. The 2,500,000 previously issued shares of Common Stock covered by
the Registration Statement to be sold by the Selling Stockholders have been
legally issued, fully paid and are non-assessable.
We hereby consent to be named in the Registration Statement and in the
prospectus which constitutes a part thereof as counsel to the Company, and we
hereby consent to the filing of this opinion as Exhibit 5 to the Registration
Statement.
Very truly yours,
BLAU, KRAMER, WACTLAR
& LIEBERMAN, P.C.
<PAGE> 1
Exhibit 9
VOTING TRUST AGREEMENT
AGREEMENT made as of the ___ day of ________, 1998, by and among Daniel
DelGiorno, Jr., James Cannavino and Robert Devine (hereinafter sometimes
collectively referred to, together with any successor trustees, as the
"Trustees"); Softworks, Inc., a Delaware corporation (the "Company"); and
Computer Concepts Corp. (the "Parent" and, together with each "affiliate,"
within the meaning of Rule 405 promulgated under the Securities Act of 1933
(each, an "Affiliate"), of the Parent, other than the Company, that becomes a
Holder (as defined in Section 3) as provided herein, the "Stockholders").
WHEREAS, the Company is currently a majority-owned subsidiary of the
Parent;
WHEREAS, the Company and the Parent intend to conduct a public offering
(the "Public Offering") of a portion of the Company's common stock, par value
$.001 per share (the "Common Stock");
WHEREAS, immediately following the Public Offering, the Parent is expected
to continue to hold ________ shares or ______% of the outstanding shares of
Common Stock (all shares of Common Stock now or hereafter owned by the
Stockholders, to the extent that the certificates for such shares are required
to be deposited with the Trustees pursuant to this Agreement, are referred to
herein as the "Trust Shares");
WHEREAS, the Parent believes that the interests of the Company and its
interests as a holder of the Common Stock can best be served if specific
arrangements are established whereby voting power over the Trust Shares is
granted to the Trustees;
WHEREAS, for this purpose the Parent is hereby requesting the Trustees to
take and hold legal title to the Trust Shares for the purpose of creating a
voting trust; and
WHEREAS, the Trustees have consented to act under this Agreement for the
purposes hereinafter provided.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and for other good, valuable and sufficient consideration, the receipt and
adequacy of which is hereby acknowledged by all parties hereto, the parties
hereto promise, covenant, undertake and agree as follows:
1. TRANSFER OF STOCK TO TRUSTEE. The Parent, upon execution of this
Agreement, hereby assigns and transfers to the Trustees and deposits with the
Trustees all the certificates for all Trust Shares currently held by the Parent
for the purpose of vesting in the Trustees the right to vote and act and to
exercise other rights pertaining to the Trust Shares, as and to the extent, and
upon the terms and conditions and for the period set forth, in this Agreement.
The Parent hereby represents that the Trust Shares deposited by it hereunder
represent all of the shares of Common Stock of which the Parent is the record or
beneficial owner and that the Parent is the sole record, legal and beneficial
owner of all Trust Shares deposited by it hereunder. The Parent agrees to cause
any Affiliate of the Parent other than the
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<PAGE> 2
Company (each, a "Parent Affiliate") that becomes the holder of Common Stock or
other voting securities of the Company, other than shares of Common Stock issued
upon the exercise of stock options granted to Parent Affiliates in accordance
with the Company's employee stock option plans, to deposit the certificates for
such securities with the Trustees. In the event that any Stockholder or Parent
Affiliate becomes the holder of additional Trust Shares after the date hereof,
it shall, within five business days of becoming the holder of such additional
Trust Shares, deposit with the Trustees certificates representing such
additional Trust Shares or shall direct the Company to issue such Trust Shares
directly to the Trustees which Trust Shares shall thereupon be subject to the
terms of this Agreement. All such stock certificates, unless issued by the
Company directly to the Trustees, shall be so endorsed, or accompanied by such
instruments of transfer as to enable the Trustees to cause such certificates to
be transferred into the name of the Trustees and to enable the Trustees to
become the record owner of the Trust Shares represented thereby in accordance
with the terms and provisions hereof, which the Trustees shall forthwith cause
to be done as hereinafter provided. Upon receipt by the Trustees of the
certificates for any such Trust Shares and, if necessary, the transfer of the
same into the name of the Trustees, the Trustees shall hold the same subject to
the terms of this Agreement and shall thereupon issue and deliver to the
Stockholder depositing Common Stock hereunder, or for whose benefit such Common
Stock was deposited, Voting Trust Certificates representing such Stockholders'
respective interests in the Common Stock deposited pursuant to this Agreement.
All certificates for the Company's capital stock transferred and delivered to
the Trustees pursuant hereto (unless issued directly to the Trustees as set
forth above) shall be surrendered by the Trustees to the Company and cancelled
and new certificates therefor shall be issued to and held by the Trustees in
their own names "As Trustees". The Trustees may designate a bank or trust
company as custodian to hold possession of any certificate delivered to the
Trustees pursuant hereto. The Parent hereby agrees and covenants that during the
term of this Agreement, it shall remain the sole beneficial owner within the
meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), of all shares of Common Stock or other securities
deposited or to be deposited by it hereunder and all Voting Trust Certificates
issued hereunder.
2. AGREEMENT. Copies of this Agreement and of every amendment or
supplement hereto shall be provided to each person depositing stock with the
Trustees under this Agreement and to the Company, and shall be filed in the
registered office of the Company in the State of Delaware, and shall be open to
inspection by any beneficiary of the trust under this Voting Trust, daily during
business hours. All Voting Trust Certificates shall be issued, received and held
subject to all of the terms of this Agreement. All persons, firms, corporations,
trusts, or organizations for whose benefit stock is deposited hereunder who
accept a Voting Trust Certificate issued hereunder, and their transferees and
assigns, shall be bound by the provisions of this Agreement with the same effect
as if they had executed this Agreement.
3. VOTING TRUST CERTIFICATES. Each Voting Trust Certificate to be issued
and delivered by the Trustees, as hereinbefore provided, shall state the number
of Trust Shares which it represents, shall be signed by the Trustees and shall
be in substantially the same form as EXHIBIT I hereto. The Trustee shall
maintain a Voting Trust Certificate register which will identify each holder of
a Voting Trust Certificate issued under this Agreement (each such person, a
"Holder") and the number of Trust Shares represented by each Voting Trust
Certificate.
2
<PAGE> 3
4. TRANSFER OF CERTIFICATES.
(a) Transfer of any Voting Trust Certificate shall be subject to any
restrictions, provisions and conditions applicable to the Common Stock which it
represents, whether imposed by law, specified on such stock certificates or
specified in this Agreement or in any other agreement. Subject to the foregoing,
the Voting Trust Certificates shall be freely transferable on the books of the
Trustees, at such office as the Trustees may designate, by the registered owner
thereof, either in person or by attorney duly authorized, upon surrender
thereof, according to the rules established for that purpose by the Trustees. If
a transfer of Voting Trust Certificates is so permitted, the Holder shall notify
the Trustee of the details of such transfer, including the name, address and
social security or tax identification number of the transferee and number of
Voting Trust Certificates being transferred, and shall surrender to the Trustee
the Voting Trust Certificate or Voting Trust Certificates being transferred,
properly endorsed for transfer. The Trustee, upon receipt of such notice and
Voting Trust Certificate(s), shall transfer the Voting Trust Certificate(s) on
the Voting Trust Certificate registry and issue a new Voting Trust Certificate
to the transferee. Until so transferred, the Trustee may treat the record Holder
as the owner of each Voting Trust Certificate for all purposes, notwithstanding
any notice to the contrary. As a condition to making any transfer or delivery of
Voting Trust Certificates, the Trustee may require compliance by the transferee
with any applicable federal or state statute and the payment of a sum sufficient
to pay for any stamp tax or other governmental charge in connection therewith.
Except as otherwise provided in this Agreement, no transfer of a Voting Trust
Certificate shall in any way remove the Trust Shares represented by such Voting
Trust Certificate from being held by the Trustee under this Agreement and any
transferee, by accepting such transfer, hereby consents to be bound by the terms
of this Agreement, and upon becoming a Holder shall be deemed to be a party
hereto as though an original signatory hereto. The Trustee shall not be required
to recognize any transfer of a Voting Trust Certificate not made in accordance
with the provisions hereof, unless the person claiming such ownership shall have
produced indicia of title satisfactory to the Trustee, and shall in addition
deposit with the Trustee indemnity satisfactory to the Trustees. Nothing set
forth herein shall be deemed to limit the ability of the Stockholders to grant a
pledge of the Voting Trust Certificates to any person.
(b) If a Voting Trust Certificate is lost, stolen, mutilated or
destroyed, the Trustees, in their discretion, may issue a duplicate of such
certificate upon receipt of: (a) evidence of such fact satisfactory to the
Trustees; (b) indemnity satisfactory to the Trustees; (c) the existing
certificate, if mutilated; and (d) the Trustees' reasonable fees and expenses in
connection with the issuance of a new trust certificate. The Trustees shall not
be required to recognize any transfer of a Voting Trust Certificate not made in
accordance with the provisions hereof, unless the person claiming such ownership
shall have produced indicia of title satisfactory to the Trustees and shall, in
addition, deposit with the Trustees indemnity satisfactory to them.
5. WITHDRAWAL OF COMMON STOCK IN ORDER TO EFFECT A SALE. Under the limited
circumstances set forth in this Section 5, shares of Common Stock represented by
Voting Trust Certificates may be withdrawn from this Voting Trust in order to
permit such shares to be sold (i) through NASDAQ or the principal national
securities exchange or automated quotation system upon which or through which
shares of Common Stock are then listed or quoted or (ii) in a private
transaction to a person or entity which is not a Parent Affiliate. At any
3
<PAGE> 4
time after the earlier of (i) one year after the closing of the Public Offering
or (ii) the date that SoundView Financial Group, Inc., the representative of the
underwriters of the Public Offering, releases such Holder from its "lock-up"
restrictions, such Holder who desires to sell shares of Common Stock represented
by its Voting Trust Certificates in accordance with the preceding sentence shall
direct the Trustees in writing to make such a sale on its behalf ("Sale
Notice"). The Trustees shall thereafter obtain a stock certificate for Common
Stock from the Company in the appropriate denomination and shall sell the shares
represented by such certificate, subject to any conditions relating to minimum
sales price or other matters which shall be set forth in the Sale Notice. If any
such conditions cannot be satisfied, the Holder shall be so advised, and the
Trustees shall be under no further obligation to make such a sale until a
subsequent Sale Notice is received. If the Trustees are successful in making the
requested sale, all net sale proceeds shall be remitted to the Holder upon
presentation and surrender of the Voting Trust Certificate or portion thereof
representing an interest in such sold shares, accompanied by properly executed
assignments thereof to the Trustees. Such sold shares shall no longer be
considered Trust Shares and shall no longer be subject to this Voting Trust,
except to the extent that such shares are acquired by Parent Affiliates.
6. TERMINATION PROCEDURE. Upon the termination of the Voting Trust at any
time as provided in Section 15, the Trustees shall mail within five business
days of such termination written notice of such termination to the registered
Holders at the addresses appearing on the transfer books of the Trustees. From
the date specified in any such notice (which date shall be fixed by the Trustees
in accordance with the provisions of this Agreement) the Voting Trust
Certificates shall cease to have any effect, and the Holders shall have no
further rights under this Voting Trust other than to receive certificates for
Trust Shares of stock of the Company or other property distributable under the
terms hereof upon the surrender of such Voting Trust Certificates. Within ten
business days after surrender for cancellation of Voting Trust Certificates by a
registered Holder, properly endorsed or accompanied by properly endorsed
instruments of transfer, if appropriate, at the place designated by the
Trustees, the Trustees shall deliver to such Holder, stock certificates for the
number of shares of such class or classes of the Company's capital stock or
other securities represented thereby as to which such Holder shall be entitled.
At any time subsequent to 30 days after the termination of this Agreement, the
Trustees may deposit certificates with Company representing the number of shares
of such class or classes of the Company's capital stock or other securities
represented by the Voting Trust Certificates then outstanding, with authority in
writing to Company to deliver such certificates in exchange for Voting Trust
Certificates. Upon such deposit all further liability of the Trustee for the
delivery of such certificates and the delivery or payment of dividends upon
surrender of the Voting Trust Certificates shall cease, and the Trustee shall
not be required to take any further action hereunder.
7. DIVIDENDS.
(a) If any dividend or distribution in respect of the Trust Shares
or other securities deposited with the Trustees is paid, in whole or in part, in
securities of the Company having voting powers of any nature, the Trustees shall
likewise hold, subject to the terms of this Agreement, the securities which are
received by it on account of such dividend or distribution (such securities,
together with the Trust Shares, the "Trust Securities"), and the Holder of each
Voting Trust Certificate representing securities on which such dividend or
distribution has been
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<PAGE> 5
paid shall be entitled to receive a Voting Trust Certificate issued under this
Agreement representing such Trust Securities. Holders entitled to receive the
dividends or distributions referred to above shall be those registered as such
on the transfer books of the Trustees at the close of business on the day fixed
by the Company or by law for the taking of a record to determine those holders
of the Company's stock entitled to receive such dividends or distributions.
(b) If any dividend or distribution in respect of the Trust
Securities is paid other than in securities of the Company having voting powers
of any nature, then the Trustees shall promptly distribute the same among the
Holders registered as such at the close of business on the day fixed by the
Company or by law for the taking of a record to determine the holders of stock
entitled to receive such dividend or distribution. Such distribution shall be
made to such Holders ratably, in accordance with the number of Trust Securities
represented by their respective Voting Trust Certificates.
(c) Until the termination of this Agreement, each Holder shall be
entitled to receive from the Trustees payments equal to all cash dividends or
distributions upon the Trust Securities. In lieu of receiving such cash
dividends or distributions and paying the same to the Holders pursuant to the
provisions of this Agreement, the Trustees may instruct the Company in writing
to pay such dividends or distributions directly to the Holders of the Voting
Trust Certificates specified by the Trustees. Upon receipt of such written
instructions, the Company shall pay such dividends or distributions directly to
the Holders. The Trustees may at any time before such payment revoke such
instructions and by written notice to the Company direct it to make dividend or
distribution payments to the Trustees. The Company shall not be liable to any
Holder or any person claiming to be entitled to any such dividends or
distributions by reason of adhering to any written instructions by the Trustees.
8. SUBSCRIPTION RIGHTS. If any stock or other securities of the Company
are offered for subscription to the Holders of the Trust Securities, the
Trustees promptly, upon receipt of notice of such offer, shall mail a copy
thereof to each of the Holders. Upon receipt by the Trustees, at least three
days prior to the last day fixed by the Company for subscription and payment
(but in no event affording the Holder less than 10 days to consider such
subscription offer), of a request from any such Holder to subscribe in his
behalf (accompanied when due in accordance with the terms of the subscription
offer by the sum of money required to pay for such stock or securities), the
Trustees shall make such subscription and payment, and upon receipt from the
Company of the certificates for Trust Shares or securities so subscribed for,
shall issue to such Holder a Voting Trust Certificate in respect thereof if the
same be stock having voting powers of any nature, but if the same be securities
other than stock having voting powers of any nature, the Trustees shall mail or
deliver such securities to the Holder in whose behalf the subscription was made,
or may instruct the Company to make delivery directly to the Holder entitled
thereto.
9. DISSOLUTION OF THE COMPANY. In the event of the dissolution or total or
partial liquidation of the Company, whether voluntary or involuntary, the
Trustees shall receive the moneys, securities, rights, or property to which the
Holders are entitled, and shall distribute the same among the Holders in
proportion to their interests, as shown by the transfer books of the Trustees,
or the Trustees may in its discretion deposit such moneys, securities, rights,
or property
5
<PAGE> 6
with any bank or trust company as the Trustees may select, with authority and
instructions to distribute the same as above provided, and upon such deposit,
all further obligations or liabilities of the Trustees in respect of such
moneys, securities, rights, or property so deposited shall cease.
10. REORGANIZATION OR RECAPITALIZATION OF COMPANY. In the event Company is
merged into or consolidated with another corporation, or all or substantially
all of the assets of Company are transferred to another corporation pursuant to
a plan requiring Company's assets to be distributed in liquidation, or all the
Common Stock of Company is to be exchanged in connection with a reorganization
or recapitalization of Company, then in connection with such transaction or
series of transactions the term "Company" for all purposes of this Agreement
shall be taken to include any successor entity, and the Trustees shall receive
and hold under this Agreement any stock of, or other interests in, such
successor entity received on account of the ownership, as Trustees hereunder, of
the Trust Securities held hereunder prior to such merger, consolidation,
transfer, reorganization or recapitalization. Voting Trust Certificates issued
and outstanding under this Agreement at the time of such merger, consolidation,
transfer, reorganization or recapitalization may remain outstanding, or the
Trustee shall have the discretion to substitute for such Voting Trust
Certificates new Voting Trust Certificates in appropriate form, and the terms
"stock," "Common Stock" and "capital stock" as used herein shall be taken to
include any stock or evidence of an interest which may be received by the
Trustees in lieu of all or any part of the capital stock of Company.
In case any reduction of the Trust Shares or reorganization affecting
Trust Shares shall have been duly authorized, the Trustees are hereby authorized
to make such surrender of Trust Shares held by the Trustees hereunder, pro rata
on behalf of all Holders, as may be required under the terms pursuant to which
such reduction or reorganization is to be effected, and to receive and hold any
and all Common Stock or other securities of Company issued in exchange for such
surrendered Trust Shares. Following any such action, the Voting Trust
Certificates issued and outstanding pursuant hereto shall be deemed to represent
proportionately the number of Trust Securities resulting from such reduction or
reorganization.
11. RIGHTS, POWERS AND DUTIES OF TRUSTEES.
(a) Until the actual delivery to the Holders of stock certificates
in exchange for Voting Trust Certificates, and until the surrender of the Voting
Trust Certificates for cancellation, title to all the Company's stock deposited
hereunder shall be vested in the Trustees, and the Trustees shall have the
right, acting as hereinafter provided, to exercise, in person or by their
nominees or proxies, all stockholders' rights and powers in respect of all stock
deposited hereunder, including the right to vote thereon and to take part in or
consent to any corporate or stockholders' action of any kind whatsoever, whether
ordinary or extraordinary, to the extent they relate to any of the Approval
Actions (as defined below). The Holders, and not the Trustees, will have the
right to vote for the election of directors and all other matters submitted for
stockholder vote except for the Approval Actions, except that, if an independent
Trustee leaves office for any reason (including upon the expiration of his or
her term of office as a director) or is required to resign as a director of the
Company in accordance with Section 12 hereof due to such Trustee's failure to
remain "independent" (as such term is defined in Section 12(a) hereof), the
remaining independent Trustee or Trustees will have the right to vote for the
election of a successor director, which Trustee or Trustees will take direction
from the holders of
6
<PAGE> 7
a majority of the shares of the Common Stock not held by the Stockholders.
(b) The Company agrees that the following actions (the "Approval
Actions") will not be taken without the approval of the Trustees:
(i) the sale, lease, encumbrance, assignment, transfer or
conveyance of all or substantially all (i.e. 51% or more) of the assets or
capital stock of the Company to an acquiring party, or the merger or
consolidation of the Company into or with another corporation, if the Parent or
a Parent Affiliate is a party to such transaction;
(ii) any filing by the Company or a subsidiary for relief as a
debtor under any bankruptcy, insolvency, reorganization or similar law, any
application by the Company or a subsidiary for the appointment of a receiver,
trustee, custodian or similar fiduciary for a substantial portion of the
consolidated assets of the Company and its subsidiaries, or the consent by the
Company or a subsidiary to any petition or application seeking similar relief
which is filed against the Company or the subsidiary, or the voluntary
liquidation, dissolution or winding up of the Company;
(iii) the declaration or payment of any dividends on any
capital stock of the Company;
(iv) the incurrence of any lien upon any property or
properties of the Company which, individually or in the aggregate, are material
to the operations of the Company, except (a) liens for taxes or (b) any
statutory lien;
(v) the acquisition of any equity security, or any right to
acquire any equity security, of any other corporation, other than the Company's
formation of one or more wholly-owned subsidiaries (or subsidiaries in which a
de minimis number of shares are held by a third party in order to comply with
local law), if such other corporation is the Parent or a Parent Affiliate;
(vi) the acquisition of assets from the Parent or a Parent
Affiliate;
(vii) any transaction or proposed transaction between the
Company and any "person," as such term is used in Sections 13(d) and 14(d) of
the Exchange Act (other than a Trustee, the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, or
any corporation owned directly or indirectly by the stockholders of the Company
in substantially the same proportion as their ownership of stock of the
Company), pursuant to which such person becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing 50% or more of the combined voting power
of the Company's then outstanding securities;
(viii) any transaction or proposed transaction between the
Company and an Affiliate or any transaction or proposed transaction between the
Company and the Parent for an aggregate consideration in excess of $1 million
unless a fairness opinion is obtained from SoundView Financial Group, Inc. or
any other independent investment banking institution of national standing
appointed by the Company; or
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<PAGE> 8
(ix) any other transaction which requires stockholder approval
under Delaware law to the extent that any of the parties hereto have been
advised in writing by counsel that the transaction presents an actual conflict
of interest between the Stockholders and the other holders of the Common Stock.
(c) The Trustees shall not be responsible with respect to any action
taken pursuant to, or act committed or omitted to be done under this Agreement,
including without limitation, voting or giving written consents with respect to
the Trust Shares of stock held by it hereunder, provided such action or
commission or omission does not amount to gross negligence or willful misconduct
on their part. No Trustee shall be responsible for any vote or act committed or
omitted to be done by any predecessor or successor Trustee or otherwise except
for his own individual gross negligence or willful misconduct. No Trustee shall
be responsible for (i) management of the Company or (ii) any actions taken by
any person elected as a director of the Company or by the Company pursuant to
any vote cast or consent given by the Trustees. The Trustees may, in their
discretion, consult with legal counsel, who may also be legal counsel to the
Company, and any action taken in good faith by the Trustees in reliance upon the
advice of legal counsel shall be conclusive in favor of the Trustees against all
Holders and all other interested parties.
(d) Unless otherwise agreed by the Trustees, action by the Trustees
shall be taken at a meeting of Trustees or by a unanimous written consent in
lieu of a meeting. Meetings of the Trustees shall be held whenever called by any
Trustee. Any Trustee may participate in any meeting of the Trustees, be counted
for the purpose of determining a quorum thereof and exercise all rights and
privileges to which such Trustee might be entitled if such Trustee was
personally in attendance, including the right to vote, or any other rights
attendant to presence in person at such meeting, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other. A majority of the Trustees
shall be necessary to constitute a quorum for the transaction of business and,
subject to the next paragraph, the acts of a majority of the Trustees shall be
the acts of the Trustees under this Voting Trust Agreement.
(e) A certificate signed by the Trustees shall be conclusive
evidence to all persons as to who are then serving as Trustees and as to any
action taken by the Trustees.
12. SUCCESSOR TRUSTEES.
(a) Any Trustee may resign effective 30 days after delivery of
written notice to all Holders and the Company. In the event of the death, legal
incapacity or resignation of [Parent trustee] or his successor, the Parent may
select and appoint a successor Trustee. If a successor is not selected within 20
days following the delivery of the notice referred to in the first sentence of
this Section 12 or the death or determination of legal incapacity of a Trustee,
as the case may be, a majority of the independent directors of the Company shall
select and appoint a successor Trustee. All Trustees selected and appointed
pursuant to this Section 12 must be directors of the Company. "Independent"
means any director of the Company who does not derive in excess of $60,000 of
compensation from the Parent or any Parent Affiliate. The Company covenants that
it will use is best efforts to insure that there are at least two independent
directors at any given time.
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(b) If at any time either James Cannavino or Robert Devine or a
successor to either of them ceases to be independent, any such Trustee shall
resign as a Trustee and as a director of the Company. To the extent that any
such resignation is not tendered, a majority of any remaining independent
directors of the Company shall remove such Trustee in its capacity as Trustee.
In addition, a majority of any remaining independent directors of the Company
shall appoint a successor Trustee to replace any such Trustee who has resigned,
been removed, died or been declared legally incapable. The removal of a Trustee
and appointment of a successor Trustee shall each be effective 30 days after
delivery of written notice to all Holders and the Company.
(c) Each Trustee shall affix his or her signature to this Agreement
and each successor Trustee shall accept appointment or election hereunder by
affixing his or her signature to this Agreement, or a counterpart hereof, within
the 30-day period referred to in subsection (a) or (b), as applicable, of this
Section 12. By affixing its signatures to this Agreement, the Trustees and each
successor Trustee agree to be bound by the terms hereof.
13. INDEMNIFICATION OF TRUSTEE. The Trustees shall be entitled to be fully
indemnified by the Company to the fullest extent permitted by law, against all
costs, charges, expenses, loss, liability and damage (other than those for which
it is responsible under Section 13 hereof) incurred by it in the administration
of the Voting Trust or in the exercise of any power conferred upon the Trustees
by this Agreement. The Stockholders, and each of them, hereby covenant with the
Trustees that in the event that the assets of the Company or the proceeds of
insurance policies then in effect, if any, are insufficient to indemnify the
Trustees in accordance with the preceding sentence, the Stockholders, and each
of them, will in proportion to the amount of their respective Trust Shares of
capital stock subject to this Agreement, hold harmless and keep indemnified the
Trustees of and from all loss or damage which the Trustees may sustain or be put
to by reason of anything it may lawfully do in the execution of this Trust other
than as a result of its gross negligence or willful misconduct.
14. COMPENSATION AND REIMBURSEMENT OF TRUSTEE. The Trustee shall serve
without compensation, but it is expressly agreed that the Trustee shall have the
right to incur and pay such reasonable expenses and charges, to employ and pay
such agents, attorneys, and counsel as the Trustee may deem necessary and proper
with respect to the Trustee carrying out any of the Trustee's anticipated
activities or duties under this Agreement or interpreting or exercising any of
the Trustee's powers under this Agreement. Any such expenses or charges incurred
by and due to the Trustee that are paid by Company, where Company deems it
appropriate to its interests, may be deducted pro rata in the discretion of the
Trustee from the dividends or other moneys or property received by the Trustee
on the stock deposited hereunder. Nothing herein contained shall disqualify the
Trustee or successor Trustees, or incapacitate any of them from serving the
Company or any of its subsidiaries as officer or director, or in any other
capacity, and in any such capacity receiving compensation.
15. TERMINATION. This Agreement shall terminate upon the first to occur
of:
(i) the Stockholders ceasing to collectively hold 25% or more of the
Common Stock or other voting capital stock of the Company;
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<PAGE> 10
(ii) any person other than the Stockholders or their Affiliates acquiring
a greater percentage of the Common Stock or other voting capital
stock of the Company than is then held by the Stockholders; or
(iii) the date that is 10 years after the date hereof.
16. SALE AND TRANSFER OF COMPANY'S STOCK. Except as otherwise provided in
this Agreement, the Trustees shall not sell, hypothecate, pledge, assign or
otherwise transfer the stock of the Company, or any interest whatsoever therein,
held pursuant to this Agreement.
17. NOTICES; DISTRIBUTIONS. Unless otherwise specifically provided in this
Agreement, any notice to or communication with the Holders hereunder shall be
deemed to be sufficiently given or made if (i) personally delivered or mailed,
postage prepaid, to such Holders at their respective addresses appearing on the
Voting Trust Certificate registry, which shall in all cases be deemed to be the
addresses of Holders for all purposes under this Agreement or (ii) sent by
facsimile to the facsimile number set forth on the Voting Trust Certificate
registry and confirmed by letter sent to the appropriate address set forth in
clause (i) above.
Any notice to the Trustees or Company hereunder shall be sufficient if
personally delivered or mailed, postage prepaid, by certified or registered
mail, at the following addresses, or sent by facsimile to the following
facsimile numbers and confirmed by letter:
The Trustees:
The Company:
Any party to this Agreement may change his or its address or facsimile
number for the giving of notices by giving notice of such changed address or
facsimile number in the manner set forth above. All notices given hereunder
shall be deemed given as of the date of personal delivery or two days after the
date of mailing, as the case may be, except that any notice of change of address
or any notice delivered by facsimile shall be deemed given when received.
All distributions of cash, securities, or other property hereunder by the
Trustees to the Holders may be made, in the discretion of the Trustees, by mail
(regular, registered or certified mail, as the Trustees may deem advisable), in
the same manner as hereinabove provided for the giving of notices to the
Holders.
18. MISCELLANEOUS.
(a) BINDING NATURE OF AGREEMENT; NO ASSIGNMENT. This Agreement shall
be binding upon and inure to the benefit of the parties hereto, including future
Holders, and their respective heirs, personal representatives, successors and
assigns. No party may sell, assign, transfer or encumber such party's rights or
obligations under this Agreement, the Voting Trust Certificates or the Trust
Securities represented thereby, without the prior written consent of the other
parties hereto, except to the extent expressly permitted in this Agreement.
Neither the death, disability nor incapacity of a Holder shall in any way remove
the Trust Securities represented by such Holder's Voting Trust Certificate from
the Voting Trust or the
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<PAGE> 11
terms of this Agreement.
(b) ENTIRE AGREEMENT. This Agreement contains the entire
understanding among the parties and supersedes any prior understanding and
agreements between them respecting the subject matter hereof. There are no
representations, agreements, arrangements, or understandings, oral or written,
between or among the parties hereto relating to the subject matter of this
Agreement which are not fully expressed herein.
(c) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, and such
counterparts shall together constitute one and the same instrument. The
execution by any one party of any counterpart shall be sufficient execution by
that party, whether or not the same counterpart has been executed by any other
party.
(d) GOVERNING LAW. The validity of this Agreement or any part
hereof, and the interpretation and enforcement of all provisions hereof, shall
be governed by and construed and enforced in accordance with the laws of the
State of Delaware.
(e) INVALIDITY. The invalidity of any term or provision of this
Agreement shall not affect the validity of the remainder of this Agreement and
this Agreement shall be enforced to the greatest extend permitted by law.
IN WITNESS WHEREOF, the parties hereof have executed this Agreement under
seal, all as of the day and year first above written.
-----------------------------
Daniel DelGiorno, Jr.
-----------------------------
James Cannavino
-----------------------------
Robert Devine
SOFTWORKS, INC.
By:
--------------------------
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[Name]
[Title]
COMPUTER CONCEPTS CORP.
By:
--------------------------
[Name]
[Title]
12
<PAGE> 13
EXHIBIT I
FORM OF VOTING TRUST CERTIFICATE
SOFTWORKS, INC.
VOTING TRUST CERTIFICATE NUMBER ____
_____________Shares
This certifies that the undersigned Trustees have received a certificate
or certificates in the name of ____________________ evidencing ownership of
________ shares of the Common Stock, $.001 par value per share, of SOFTWORKS,
INC. (the "Company "), a Delaware corporation, and that said shares are held
subject to all of the terms and conditions of a certain Voting Trust Agreement
dated as of the __ day of __________, 1998, by and among the Company, Daniel
DelGiorno, Jr., James Cannavino and Robert Devine (hereinafter sometimes
collectively referred to, together with any successor trustees, as the
"Trustees") and certain stockholders of the Company (the "Agreement") and are
entitled to all of the benefits set forth in the Agreement. Copies of the
Agreement and of every amendment and supplement thereto are on file at the
office of the Company and shall be available for the inspection of every
beneficiary thereof during normal business hours. The holder of this
certificate, which is issued, received and held under the Agreement, by
acceptance hereof, assents to and is bound by the Agreement.
This Voting Trust Certificate has not been registered under the Securities
Act of 1933, as amended, and may not be sold or otherwise transferred unless (a)
covered by an effective registration statement under the Securities Act of 1933,
as amended, or (b) the Trustees and the Company have been furnished with an
opinion of counsel satisfactory to them to the effect that no registration is
legally required for such transfer.
Subject to the provisions of the foregoing, this certificate is
transferable only on the books of the Trustees, by the registered holder in
person or his duly authorized attorney, and the holder hereof, by accepting this
certificate, manifests his consent that the Trustees may treat the registered
holder hereof as the true owner for all purposes, except the delivery of stock
certificates, which delivery shall not be made without the surrender of this
certificate or otherwise pursuant to the aforesaid Voting Trust Agreement.
IN WITNESS WHEREOF, the Trustees have hereunto executed this certificate
as of the _____ day of ________, 1998.
---------------------------------
Daniel DelGiorno, Jr., as Trustee
---------------------------------
James Cannavino, as Trustee
---------------------------------
Robert Devine, as Trustee
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<PAGE> 1
Exhibit 10.4
SOFTWORKS, Inc.
1998 Long-Term Incentive Plan
1. PURPOSE.
The purpose of the 1998 Long-Term Incentive Plan (the "Plan") is to
advance the interests of SOFTWORKS, Inc. a Delaware corporation (the "Company"),
and its shareholders by providing incentives to certain key employees of the
Company and its affiliates and to certain other key individuals who perform
services for these entities, including those who contribute significantly to the
strategic and long-term performance objectives and growth of the Company and its
affiliates.
2. ADMINISTRATION.
(a) The Plan shall be interpreted solely by the Long-Term Incentive Plan
Administrative Committee (the "Committee") of the Board of Directors (the
"Board") of the Company, as such Committee is from time to time constituted, or
any successor committee the Board may designate to administer the Plan; provided
that if at any time Rule 16b-3 or any successor rule ("Rule 16b-3") under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), so permits
without adversely affecting the ability of the Plan to comply with the
conditions for exemption from Section 16 of the Exchange Act (or any successor
provision) provided by Rule 16b-3, the Committee may delegate the administration
of the Plan in whole or in part, on such terms and conditions, and to such
person or persons as it may determine in its discretion. The membership of the
Committee or such successor committee shall be constituted so as to comply at
all times with the applicable requirements of Rule 16b-3. No member of the
Committee shall be eligible or have been eligible within one year prior to his
appointment to receive awards under the Plan ("Awards") or to receive awards
under any other plan, program or arrangement of the Company or any of its
affiliates if such eligibility would cause such member to cease to be a
"Non-employee director" under Rule 16b-3; provided that if at any time Rule
16b-3 so permits without adversely affecting the ability of the Plan to comply
with the conditions for exemption from Section 16 of the Exchange Act (or any
successor provision) provided by Rule 16b-3, one or more members of the
Committee may cease to be "Non-employee directors."
(b) The Committee has all the powers vested in it by the terms of the Plan
set forth herein, such powers to include exclusive authority (except as may be
delegated as permitted herein) to select the key employees and other key
individuals to be granted Awards under the Plan, to determine the type, size and
terms of the Award to be made to each individual selected, to modify the terms
of any Award that has been granted, to determine the time when awards will be
granted,
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<PAGE> 2
to establish performance objectives, to make any adjustments necessary or
desirable as a result of the granting of Awards to eligible individuals located
outside the United States and to prescribe the form of the instruments embodying
Awards made under the Plan. The Committee is authorized to interpret the Plan
and the Awards granted under the Plan, to establish, amend and rescind any rules
and regulations relating to the Plan, and to make any other determination, which
it deems necessary or desirable for the administration of the Plan. The
Committee (or its delegate as permitted herein) may correct any defect or supply
any omission or reconcile any inconsistency in the Plan or in any Award in the
manner and to the extent the Committee deems necessary or desirable to carry it
into effect. any decision of the Committee (or its delegate as permitted herein)
in the interpretation and administration of the Plan, as described herein, shall
lie within its sole and absolute discretion and shall be final, conclusive and
binding on all parties concerned. The Committee may act only by a majority of
its members in office, except that the members thereof may authorize any one or
more of their members or any officer of the Company to execute and deliver
documents or to take any other ministerial action on behalf of the Committee
with respect to Awards made or to be made to Plan participants. No member of the
Committee and no officer of the Company shall be liable for anything done or
omitted to be done by him, by any other member of the Committee or by any
officer of the Company in connection with the performance of duties under the
Plan, except for his own willful misconduct or as expressly provided by statute.
Determinations to be made by the Committee under the Plan may be made by its
delegates.
3. PARTICIPATION.
(a) Affiliates. If an Affiliate (as hereinafter defined) of the
Company wishes to participate in the Plan and its participation shall have been
approved by the Board upon the recommendation of the Committee, the board of
directors or other governing body of the Affiliate shall adopt a resolution in
form and substance satisfactory to the Committee authorizing participation by
the Affiliate in the Plan with respect to its key employees or other key
individuals performing services for it. As used herein, the term "Affiliate"
means any entity in which the Company has a substantial direct or indirect
equity interest or which has a substantial direct or indirect equity interest in
the Company, as determined by the Committee in its discretion.
An Affiliate participating in the Plan may cease to be a
participating company at any time by action of the Board or by action of the
board of directors or other governing body of such Affiliate, which latter
action shall be effective not earlier than the date of delivery to the Secretary
of the Company of a certified copy of a resolution of the Affiliate's board of
directors or other governing body taking such action. If the participation in
the Plan of an Affiliate shall terminate, such termination shall not relieve it
of any obligations theretofore incurred by it, except as may be approved by the
Committee in its discretion.
(b) Participants. Consistent with the purposes of the Plan, the
Committee shall have exclusive power (except as may be delegated as permitted
herein) to select the key employees and other key individuals performing
services for the Company, including consultants or independent contractors and
others who perform services for the Company and its Affiliates who
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<PAGE> 3
may participate in the Plan and be granted Awards under the Plan. Eligible
individuals may be selected individually or by groups or categories, as
determined by the Committee in its discretion. In no event may a corporation be
eligible to receive an Award of incentive stock options under the Plan.
4. AWARDS UNDER THE PLAN.
(a) Types of Awards. Awards under the Plan may include, but need not
be limited to, one or more of the following types, either alone or in any
combination thereof: (i) "Stock Options," (ii) "Stock Appreciation Rights,"
(iii) "Restricted Stock," (iv) "Performance Grants" and (v) any other type of
Award deemed by the Committee in its discretion to be consistent with the
purposes of the Plan (including but not limited to, Awards of or options or
similar rights granted with respect to unbundled stock units or components
thereof, and Awards to be made to participants who are foreign nationals or are
employed or performing services outside the United States). Stock Options, which
include "Non-Qualified Stock Options" and "Incentive Stock Options" or
combinations thereof, are rights to purchase common shares of the Company and
stock of any other class into which such shares may thereafter be changed (the
"Common Shares"). Non-Qualified Stock Options and Incentive Stock Options are
subject to the terms, conditions and restrictions specified in Paragraph 5.
Stock Appreciation Rights are rights to receive (without payment to the Company)
cash, Common Shares, other Company securities (which may include, but need not
be limited to, unbundled stock units or components thereof, debentures,
preferred stock, warrants, securities convertible into Common Shares or other
property, and other types of securities including, but not limited to, those of
the Company or an Affiliate, or any combination thereof ("Other Company
Securities") or property, or other forms of payment, or any combination thereof,
as determined by the Committee, based on the increase in the value of the number
of Common Shares specified in the Stock Appreciation Right. Stock Appreciation
Rights are subject to the terms, conditions and restrictions specified in
Paragraph 6. Shares of Restricted Stock are Common Shares which are issued
subject to certain restrictions pursuant to Paragraph 7. Performance Grants are
contingent awards subject to the terms, conditions and restrictions described in
Paragraph 8, pursuant to which the participant may become entitled to receive
cash, Common Shares, Other Company Securities or property, or other forms of
payment, or any combination thereof, as determined by the Committee.
(b) Maximum Number of Shares that May Be Issued. There may be issued
under the Plan (as Restricted Stock, in payment of Performance Grants, pursuant
to the exercise of Stock Options or Stock Appreciation Rights, or in payment of
or pursuant to the exercise of such other Awards as the Committee, in its
discretion, may determine) an aggregate of not more than 3,727,000 Common
Shares, subject to adjustment as provided in Paragraph 15. Common Shares issued
pursuant to the Plan may be either authorized but unissued shares, treasury
shares, reacquired shares, or any combination thereof. If any Common Shares
issued as Restricted Stock or otherwise subject to repurchase or forfeiture
rights are reacquired by the Company pursuant to such rights, or
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<PAGE> 4
if any Award is cancelled, terminates or expires unexercised, any Common Shares
that would otherwise have been issuable pursuant thereto will be available for
issuance under new Awards.
(C) Rights with Respect to
Common Shares and Other Securities.
(i) Unless otherwise determined by the Committee in its
discretion, a participant to whom an Award of Restricted Stock has been
made (and any person succeeding to such a participant's rights pursuant to
the Plan) shall have, after issuance of a certificate or copy thereof for
the number of Common Shares awarded and prior to the expiration of the
Restricted Period or the earlier repurchase of such Common Shares as
herein provided, ownership of such Common Shares, including the right to
vote the same and to receive dividends or other distributions made or paid
with respect to such Common Shares (provided that such Common Shares, and
any new, additional or different shares, or Other Company Securities or
property, or other forms of consideration which the participant may be
entitled to receive with respect to such Common Shares as a result of a
stock split, stock dividend or any other change in the corporate or
capital structure of the Company, shall be subject to the restrictions
hereinafter described as determined by the Committee in its discretion),
subject, however, to the options, restrictions and limitations imposed
thereon pursuant to the Plan. Notwithstanding the foregoing, unless
otherwise determined by the Committee in its discretion, a participant
with whom an Award agreement is made to issue Common Shares in the future
shall have no rights as a shareholder with respect to Common Shares
related to such agreement until issuance of a certificate to him.
(ii) Unless otherwise determined by the Committee in its
discretion, a participant to whom a grant of Stock Options, Stock
Appreciation Rights, Performance Grants or any other Award is made (and
any person succeeding to such a participant's rights pursuant to the Plan)
shall have no rights as a stockholder with respect to any Common Shares or
as a holder with respect to other securities, if any, issuable pursuant to
any such Award until the date of the issuance of a stock certificate to
him for such Common Shares or other instrument of ownership, if any.
Except as provided in Paragraph 15, no adjustment shall be made for
dividends, distributions or other rights (whether ordinary or
extraordinary, and whether in cash, securities, other property or other
forms of consideration, or any combination thereof) for which the record
date is prior to the date such stock certificate or other instrument of
ownership, if any, is issued.
5. STOCK OPTIONS.
The Committee may grant Stock Options either alone, or in
conjunction with Stock Appreciation Rights, Performance Grants or other Awards,
either at the time of grant or by amendment thereafter, provided that an
Incentive Stock Option may be granted only to an eligible
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<PAGE> 5
employee of the Company or its parent or subsidiary corporation. Each Stock
Option (referred to herein as an "Option") granted under the Plan shall be
evidenced by an instrument in such form as the Committee shall prescribe from
time to time in accordance with the Plan and shall comply with the following
terms and conditions, and with such other terms and conditions, including, but
not limited to, restrictions upon the Option or the Common Shares issuable upon
exercise thereof, as the Committee, in its discretion, shall establish:
(a) The option price may be less than, equal to, or greater than,
the fair market value of the Common Shares subject to such Option at the time
the Option is granted, as determined by the Committee, but in no event will such
option price be less than 85% of the fair market value of the underlying Common
Shares at the time the Option is granted; provided, however, that in the case of
an Incentive Stock Option granted to such an employee, the option price shall
not be less than the fair market value of the Common Shares subject to such
Option at the time the Option is granted, or if granted to such an employee who
owns stock representing more than ten percent of the voting power of all classes
of stock of the Company or of its parent or subsidiary (a "Ten Percent
Employee"), such option price shall be not less than 110% of such fair market
value at the time the Option is granted; provided, further that in no event will
such option price be less than the par value of such Common Shares.
(b) The Committee shall determine the number of Common Shares to be
subject to each option. The number of Common Shares subject to an outstanding
Option may be reduced on a share-for-share or other appropriate basis, as
determined by the Committee, to the extent that Common Shares under such Option
are used to calculate the cash, Common Shares, Other Company Securities or
property, or other forms of payment, or any combination thereof, received
pursuant to exercise of a Stock Appreciation Right attached to such Option, or
to the extent that any other Award granted in conjunction with such Option is
paid.
(c) The Option may not be sold, assigned, transferred, pledged,
hypothecated or otherwise disposed of, except by will or the laws of descent and
distribution, and shall be exercisable during the grantee's lifetime only by
him. Unless the Committee determines otherwise, one-half of the Option shall not
be exercisable for at least twelve months after the date of grant, unless the
grantee ceases employment or performance of services before the expiration of
such twelve-month period by reason of his disability as defined in Paragraph 12
or his death.
(d) The Option shall not be exercisable:
(i) in the case of any Incentive Stock Option granted to a Ten
Percent Employee, after the expiration of five years from the date it is
granted, and, in the case of any other Option, after the expiration of ten
years from the date it is granted. Any Option may be exercised during such
period only at such time or times and in such installments as the
Committee may establish;
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<PAGE> 6
(ii) unless payment in full is made for the shares being
acquired thereunder at the time of exercise, such payment shall be made in
such form (including, but not limited to, cash, Common Shares, promissory
notes of which 80% of the required payment, excluding interest, may be
non-recourse, or the surrender of another outstanding Award under the
Plan, or any combination thereof) as the Committee may determine in its
discretion; and
(iii) unless the person exercising the Option has been, at all
times during the period beginning with the date of the grant of the Option
and ending on the date of such exercise, employed by or otherwise
performing services for the Company or an Affiliate, or a corporation, or
a parent or subsidiary of a corporation, substituting or assuming the
Option in a transaction to which Section 424(a) of the Internal Revenue
Code of 1986, as amended, or any successor statutory provisions thereto
(the "Code"), is applicable, except that:
(A) in the case of any Non-Qualified Stock Option, if
such person shall cease to be employed by or otherwise performing
services for the Company or an Affiliate solely by reason of a
period of related Employment as defined in Paragraph 14, he may,
during such period of Related Employment, exercise the Non-Qualified
Stock Option as if he continued such employment or performance of
service; or
(B) if such person shall cease such employment or
performance of services by reason of his disability as defined in
Paragraph 12 or early, normal or deferred retirement under an
approved retirement program of the Company or an Affiliate (or such
other plan or arrangement as may be approved by the Committee, in
its discretion, for this purpose) while holding an option which has
not expired and has not been fully exercised, such person, at any
time within three months (or such other period determined by the
Committee) after the date he ceased such employment or performance
of services (but in no event after the Option has expired), may
exercise the Option with respect to any shares as to which he could
have exercised the Option on the date he ceased such employment or
performance of services, or with respect to such greater number of
shares as determined by the Committee; or
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<PAGE> 7
(C) if such person shall cease such employment or
performance of services for reasons other than Related Employment,
disability, early, normal or deferred retirement or death (as
provided elsewhere) while holding an Option which has not expired
and has not been fully exercised, such person may exercise the
Option at any time within three months (or such other period
determined by the Committee) after the date he ceased such
employment or performance of services (but in no event after the
Option has expired), but only to the extent such Option is
exercisable on the date of such termination, or with respect to such
greater number of shares as determined by the Committee; or
(D) if any person to whom an Option has been granted
shall die holding an Option which has not expired and has not been
fully exercised, his executors, administrators, heirs or
distributees, as the case may be, may, at any time within one year
(or such other period determined by the Committee) after the date of
death (but in no event after the Option has expired), exercise the
Option with respect to any shares as to which the decedent could
have exercised the Option at the time of his death, or with respect
to such greater number of shares as determined by the Committee.
(E) In the case of an Incentive Stock Option, the amount
of aggregate fair market value of Common Shares (determined at the
time of grant of the Option pursuant to subparagraph 5(a) of the
Plan) with respect to which incentive stock options are exercisable
for the first time by an employee during any calendar year (under
all such plans of his employer corporation any calendar year (under
all such plans of his employer corporation and its parent and its
parent and subsidiary corporations) shall not exceed $100,000.
(F) It is the intent of the Company that Non-Qualified
Stock Options granted under the Plan not be classified as Incentive
Stock Options, that the Incentive Stock Options granted under the
Plan be consistent with and contain or be deemed to contain all
provisions required under Section 422(b) and other appropriate
provisions of the Code and any implementing regulations (and any
successor provisions thereof), and that any ambiguities in
construction shall be interpreted in order to effectuate such
intent. The Agreements providing Non-Qualified Stock Options shall
provide that such Options are not "incentive stock options" for the
purposes of Section 422(b) of the Code.
6. STOCK APPRECIATION RIGHTS.
The Committee may grant Stock Appreciation Rights either alone, or
in conjunction with Stock Options, Performance Grants or other Awards, either at
the time of grant or by amendment thereafter. Each Award of Stock Appreciation
Rights granted under the Plan shall be evidenced by an instrument in such form
as the Committee shall prescribe from time to time in accordance with the Plan
and shall comply with the following terms and conditions, and with such
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<PAGE> 8
other terms and conditions, including, but not limited to, restrictions upon the
Award of Stock Appreciation Rights or the Common Shares issuable upon exercise
thereof, as the Committee in its discretion shall establish:
(a) The Committee shall determine the number of Common Shares to be
subject to each Award of Stock Appreciation Rights. The number of Common Shares
subject to an outstanding Award of Stock Appreciation Rights may be reduced on a
share-for-share or other appropriate basis, as determined by the Committee, to
the extent that Common Shares under such Award of Stock Appreciation Rights are
used to calculate the cash, Common Shares, Other Company Securities or property,
or other forms of payment, or any combination thereof, received pursuant to
exercise of an Option attached to such Award of Stock Appreciation Rights, or to
the extent that any other Award granted in conjunction with such Award of Stock
Appreciation Rights is paid.
(b) The Award of Stock Appreciation Rights may not be sold,
assigned, transferred, pledged, hypothecated or otherwise disposed of, except by
will or the laws of the descent and distribution, and shall be exercisable
during the grantee's lifetime only by him. Unless the Committee determines
otherwise, the Award of Stock Appreciation Rights shall not be exercisable for
at least six months after the date of grant, unless the grantee ceases
employment or performance of services before the expiration of such six-month
period by reason of his disability as defined in Paragraph 12 or his death.
(c) The Award of Stock Appreciation Rights shall not be exercisable:
(i) in the case of any Award of Stock Appreciation Rights that
are attached to an Incentive Stock Option granted to a Ten Percent Employee,
after the expiration of five years from the date it is granted, and, in the case
of any other award of Stock Appreciation Rights, after the expiration of ten
years from the date it is granted. Any Award of Stock Appreciation Rights may be
exercised during such period only at such time or times and in such installments
as the Committee may establish;
(ii) unless the Option or other Award to which the Award of
Stock Appreciation Rights is attached is at the time exercisable; and
(iii) unless the person exercising the Award of Stock
Appreciation Rights has been, at all times during the period beginning with the
date of the grant thereof and ending on the date of such exercise, employed by
or otherwise performing services for the Company or an Affiliate, except that
(A) in the case of any Award of Stock Appreciation Rights
(other than those attached to an Incentive Stock Option), if such
person shall cease to be employed by or otherwise performing
services for the Company or an Affiliate solely by reason of a
period of Related Employment as defined in Paragraph 14,
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<PAGE> 9
he may, during such period of Related Employment, exercise the Award
of Stock Appreciation Rights as if he continued such employment or
performance of services; or
(B) if such person shall cease such employment or performance
of services by reason of his disability as defined in Paragraph 12
or early, normal or deferred retirement under an approved retirement
program of the Company or an Affiliate (or such other plan or
arrangement as may be approved by the Committee, in its discretion,
for this purpose) while holding an Award of Stock Appreciation
Rights which has not expired and has not been fully exercised, such
person may, at any time within three years (or such other period
determined by the Committee) after the date he ceased such
employment or performance of services (but in no event after the
Award of Stock Appreciation Rights has expired), exercise the Award
of Stock Appreciation Rights with respect to any shares as to which
he could have exercised the Award of Stock Appreciation Rights on
the date he ceased such employment or performance of services, or
with respect to such greater number of shares as determined by the
Committee; or
(C) if such person shall cease such employment or performance
of services for reasons other than Related Employment, disability,
early, normal or deferred retirement or death (as provided
elsewhere) while holding an Award of Stock Appreciation Rights which
has not expired and has not been fully exercised, such person may
exercise the Award of Stock Appreciation Rights at any time during
the period, if any, which the Committee approves (but in no event
after the Award of Stock Appreciation Rights expires) following the
date he ceased such employment or performance of services with
respect to any shares as to which he could have exercised the Award
of Stock Appreciation Rights on the date he ceased such employment
or performance of services or as otherwise permitted in the
Committee's discretion; or
(D) if any person to whom an Award of Stock Appreciation
Rights has been granted shall die holding an Award of Stock
Appreciation Rights which has not expired and has not been fully
exercised, his executors, administrators, heirs or distributees, as
the case may be, may, at any time within one year (or such other
period determined by the Committee) after the date of death (but in
no event after the Award of Stock Appreciation Rights has expired),
exercise the Award of Stock Appreciation Rights with respect to any
shares as to which the decedent could have exercised the Award of
Stock Appreciation Rights at the time of his death, or with respect
to such greater number of shares as determined by the Committee.
(d) An Award of Stock Appreciation Rights shall entitle the holder
(or any person entitled to act under the provisions of subparagraph 6(c)(iii)(D)
hereof) to exercise such Award or
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<PAGE> 10
to surrender unexercised the option (or other Award) to which the Stock
Appreciation Rights is attached (or any portion of such Option or other Award)
to the Company and to receive from the Company in exchange therefor, without
payment to the Company, that number of Common Shares having an aggregate value
equal to the excess of the fair market value of one share, at the time of such
exercise, over the exercise price (or Option Price, as the case may be) per
share, times the number of shares subject to the Award or the Option (or other
Award), or portion thereof, which is so exercised or surrendered, as the case
may be. The Committee shall be entitled in its discretion to elect to settle the
obligation arising out of the exercise of a Stock Appreciation Right by the
payment of cash or Other Company Securities or property, or other forms of
payment, or any combination thereof, as determined by the Committee, equal to
the aggregate value of the Common Shares it would otherwise be obligated to
deliver. Any such election by the Committee shall be made as soon as practicable
after the receipt by the Committee of written notice of the exercise of the
Stock Appreciation Right. The value of a Common Share, Other Company Securities
or property, or other forms of payment determined by the Committee for this
purpose shall be the fair market value thereof on the last business day next
preceding the date of the election to exercise the Stock Appreciation Right,
unless the Committee, in its discretion, determines otherwise.
(e) A Stock Appreciation Right may provide that it shall be deemed
to have been exercised at the close of business on the business day preceding
the expiration date of the Stock Appreciation Right or of the related Option (or
other Award), or such other date as specified by the Committee, if at such time
such Stock Appreciation Right has a positive value. Such deemed exercise shall
be settled or paid in the same manner as a regular exercise thereof as provided
in subparagraph 6(d) hereof.
(f) No fractional shares may be delivered under this Paragraph 6,
but in lieu thereof a cash or other adjustment shall be made as determined by
the Committee in its discretion.
7. RESTRICTED STOCK.
Each Award of Restricted Stock under the Plan shall be evidenced by an
instrument in such form as the Committee shall prescribe from time to time in
accordance with the Plan and shall comply with the following terms and
conditions, and with such other terms and conditions as the Committee, in its
discretion, shall establish:
(a) The Committee shall determine the number of Common Shares to be
issued to a participant pursuant to the Award, and the extent, if any, to which
they shall be issued in exchange for cash, other consideration, or both.
(b) Common Shares issued to a participant in accordance with the
Award may not be sold, assigned, transferred, pledged, hypothecated or otherwise
disposed of, except by will or the laws of descent and distribution, or as
otherwise determined by the Committee, for such period as the Committee shall
determine, from the date on which the Award is granted (the "Restricted
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<PAGE> 11
Period"). The Company will have the option, at the Committee's discretion, to
repurchase the shares subject to the Award at such price as the Committee shall
have fixed or to provide for forfeiture to the Company of the shares subject to
the Award, which option or forfeiture may be exercisable (i) if the
participant's continuous employment or performance of services for the Company
and its Affiliates shall terminate for any reason, except solely by reason of a
period of Related Employment as defined in Paragraph 14, or except as otherwise
provided in subparagraph 7(c), prior to the expiration of the Restricted Period,
(ii) if, on or prior to the expiration of the Restricted Period or the earlier
lapse of such forfeiture option, the participant has not paid to the Company an
amount equal to any federal, state, local or foreign income or other taxes which
the Company determines is required to be withheld in respect of such shares, or
(iii) under such other circumstances as determined by the Committee in its
discretion. Such repurchase option or forfeiture shall be exercisable on such
terms, in such manner and during such period as shall be determined by the
Committee when the Award is made or as amended thereafter, except as otherwise
determined in the Committee's discretion. Each certificate for Common Shares
issued pursuant to a Restricted Stock Award shall bear an appropriate legend
referring to the foregoing repurchase option or forfeiture and other
restrictions and to the fact that the shares are partly paid, shall be deposited
by the award holder with the Company, together with a stock power endorsed in
blank, or shall be evidenced in such other manner permitted by applicable law as
determined by the Committee in its discretion. Any attempt to dispose of any
such Common Shares in contravention of the foregoing repurchase and forfeiture
options and other restrictions shall be null and void and without effect. If
Common Shares issued pursuant to a Restricted Stock Award shall be repurchased
or forfeited pursuant to the repurchase option described above, the participant,
or in the event of his death, his personal representative, shall forthwith
deliver to the Secretary of the Company the certificates for the Common Shares
awarded to the participant, accompanied by such instrument of transfer, if any,
as may reasonably be required by the Secretary of the Company.
(c) If a participant who has been in continuous employment or
performance of services for the Company or an Affiliate since the date on which
a Restricted Stock Award was granted to him shall, while in such employment or
performance of services, die, or terminate such employment or performance of
services by reason of disability as defined in Paragraph 12 or by reason of
early normal or deferred retirement under an approved retirement program of the
Company or an Affiliate (or such other plan or arrangement as may be approved by
the Committee in its discretion, for this purpose) and any of such events shall
occur after the date on which the Award was granted to him and prior to the end
of the Restricted Period of such Award, the Committee may determine to cancel
the repurchase option or forfeiture (and any and all other restrictions) on any
or all of the Common Shares subject to such Award; and the repurchase option or
forfeiture shall become exercisable at such time as to the remaining shares, if
any.
8. PERFORMANCE GRANTS.
The Award of a Performance Grant ("Performance Grant") to a
participant will entitle him to receive a specified amount determined by the
Committee (the "Actual Value"), if the
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terms and conditions specified herein and in the Award are satisfied. Each Award
of a Performance Grant shall be subject to the following terms and conditions,
and to such other terms and conditions, including but not limited to,
restrictions upon any cash, Common Shares, Other Company Securities or property,
or other forms of payment, or any combination thereof, issued in respect of the
Performance Grant, as the Committee, in its discretion, shall establish, and
shall be embodied in an instrument in such form and substance as is determined
by the Committee.
(a) The Committee shall determine the value or range of values of a
Performance Grant to be awarded to each participant selected for an award and
whether or not such a Performance Grant is granted in conjunction with an Award
of Options, Stock Appreciation Rights, Restricted Stock or other Award, or any
combination thereof, under the Plan (which may include, but need not be limited
to, deferred Awards) concurrently or subsequently granted to the participant
(the "Associated Award"). As determined by the Committee, the maximum value of
each Performance Grant (the "Maximum Value") shall be: (i) an amount fixed by
the Committee at the time the award is made or amended thereafter, (ii) an
amount which varies from time to time based in whole or in part on the then
current value of a Common Share, Other Company Securities or property, or other
securities or property, or any combination thereof, or (iii) an amount that is
determinable from criteria specified by the Committee. Performance Grants may be
issued in different classes or series having different names, terms and
conditions. In the case of a Performance Grant awarded in conjunction with an
Associated Award, the Performance Grant may be reduced on an appropriate basis
to the extent that the Associated Award has been exercised, paid to or otherwise
received by the participant, as determined by the Committee.
(b) The award period ("Award Period") in respect of any Performance
Grant shall be a period determined by the Committee. At the time each Award is
made, the Committee shall establish performance objectives to be attained within
the Award Period as the means of determining the Actual Value of such a
Performance Grant. The performance objectives shall be based on such measure or
measures of performance, which may include, but need not be limited to, the
performance of the participant, the Company, one or more of its subsidiaries or
one or more of their divisions or units, or any combination of the foregoing, as
the Committee shall determine, and may be applied on an absolute basis or be
relative to industry or other indices, or any combination thereof. The Actual
Value of a Performance Grant shall be equal to its Maximum Value only if the
performance objectives are attained in full, but the Committee shall specify the
manner in which the Actual Value of Performance Grants shall be determined if
the performance objectives are met in part. Such performance measures, the
Actual Value or the Maximum Value, or any combination thereof, may be adjusted
in any manner by the Committee in its discretion at any time and from time to
time during or as soon as practicable after the Award Period, if it determines
that such performance measures, the Actual Value or the Maximum Value, or any
combination thereof, are not appropriate under the circumstances.
(c) The rights of a participant in Performance Grants awarded to him
shall be provisional and may be cancelled or paid in whole or in part, all as
determined by the Committee, if the participant's continuous employment or
performance of services for the Company and its
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<PAGE> 13
Affiliates shall terminate for any reason prior to the end of the Award Period,
except solely by reason of a period of Related Employment as defined in
Paragraph 14.
(d) The Committee shall determine whether the conditions of
subparagraph 8(b) or 8(c) hereof have been met and, if so, shall ascertain the
Actual Value of the Performance Grants. If the Performance Grants have no Actual
Value, the Award and such Performance Grants shall be deemed to have been
cancelled and the Associated Award, if any, may be cancelled or permitted to
continue in effect in accordance with its terms. If the Performance Grants have
any Actual Value and:
(i) were not awarded in conjunction with an Associated Award, the
Committee shall cause an amount equal to the actual Value of the Performance
Grants earned by the participant to be paid to him or his beneficiary as
provided below; or
(ii) were awarded in conjunction with an Associated Award, the Committee
shall determine, in accordance with criteria specified by the Committee (A) to
cancel the Performance Grants, in which event no amount in respect thereof shall
be paid to the participant or his beneficiary, and the Associated Award may be
permitted to continue in effect in accordance with its terms, (B) to pay the
Actual Value of the Performance Grants to the participant or his beneficiary as
provided below, in which event the Associated Award may be cancelled or (C) to
pay to the participant or his beneficiary as provided below, the Actual Value of
only a portion of the Performance Grants, in which a complimentary portion of
the Associated Award may be permitted to continue in effect in accordance with
its terms or be cancelled, as determined by the Committee.
Such determination by the Committee shall be made as promptly as
practicable following the end of the Award Period or upon the earlier
termination of employment or performance of services, or at such other time or
times as the Committee shall determine, and shall be made pursuant to criteria
specified by the Committee.
Payment of any amount in respect of the Performance Grants which the
Committee determines to pay as provided above shall be made by the Company as
promptly as practicable after the end of the Award Period or at such other time
or times as the Committee shall determine, and may be made in cash, Common
Shares, Other Company Securities or property, or other forms of payment, or any
combination thereof or in such other manner, as determined by the Committee in
its discretion. Notwithstanding anything in this Paragraph 8 to the contrary,
the Committee may, in its discretion, determine and pay out the Actual Value of
the Performance Grants at any time during the Award Period.
9. DEFERRAL OF COMPENSATION.
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<PAGE> 14
The Committee shall determine whether or not an Award shall be made
in conjunction with deferral of the participant's salary, bonus or other
compensation, or any combination thereof, and whether or not such deferred
amounts may be
(i) forfeited to the Company or to other participants, or any
combination thereof, under certain circumstances (which may include, but
need not be limited to, certain types of termination of employment or
performance of services for the Company and its Affiliates),
(ii) subject to increase or decrease in value based upon the
attainment of or failure to attain, respectively, certain performance
measures and/or
(iii) credited with income equivalents (which may include, but need
not be limited to, interest, dividends or other rates of return) until the
date or dates of payment of the Award, if any.
10. DEFERRED PAYMENT OF AWARDS.
The Committee may specify that the payment of all or any portion of
cash, Common Shares, Other Company Securities or property, or any other form of
payment, or any combination thereof, under an Award shall be deferred until a
later date. Deferrals shall be for such periods or until the occurrence of such
events, and upon such terms, as the Committee shall determine in its discretion.
Deferred payments of Awards may be made by undertaking to make payment in the
future based upon the performance of certain investment equivalents (which may
include, but need not be limited to, government securities, Common Shares, other
securities, property or consideration, or any combination thereof), together
with such additional amounts of income equivalents (which may be compounded and
may include, but need not be limited to, interest, dividends or other rates of
return, or any combination thereof) as may accrue thereon until the date or
dates of payment, such investment equivalents and such additional amounts of
income equivalents to be determined by the Committee in its discretion.
11. AMENDMENT OR SUBSTITUTION OF AWARDS UNDER THE PLAN.
The terms of any outstanding Award under the Plan may be amended
from time to time by the Committee in its discretion in any manner that it deems
appropriate (including, but not limited to, acceleration of the date of exercise
of any Award and/or payments thereunder, or reduction of the Option Price of an
Option or exercise price of an Award of Stock Appreciation Rights); provided,
that no such amendment shall adversely affect in a material manner any right of
a participant under the Award without his written consent, unless the Committee
determines in its discretion that there have occurred or are about to occur
significant changes in the participant's position, duties or responsibilities,
or significant changes in economic, legislative, regulatory, tax,
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<PAGE> 15
accounting or cost/benefit conditions which are determined by the Committee in
its discretion to have or to be expected to have a substantial effect on the
performance of the Company, or any subsidiary, affiliate, division or department
thereof, on the Plan or an any Award under the Plan. The Committee may, in its
discretion, permit holders of Awards to surrender outstanding Awards as a
condition precedent to the grant of new Awards under the Plan.
12. DISABILITY.
For the purposes of this Plan, a participant shall be deemed to have
terminated his employment or performance of services for the Company and its
Affiliates by reason of disability if the Committee shall determine that the
physical or mental condition of the participant by reason of which such
employment or performance of services terminated was such at that time as would
entitle him to payment of monthly disability benefits under any disability plan
of the Company or an Affiliate in which he is a participant. If the participant
is not eligible for benefits under any disability plan of the Company or an
Affiliate, he shall be deemed to have terminated such employment or performance
of services by reason of disability if the Committee shall determine that he is
permanently and totally disabled within the meaning of Section 22(e)(3) of the
Code.
13. TERMINATION OF A PARTICIPANT.
For all purposes under the Plan, the Committee shall determine
whether a participant has terminated employment by or the performance of
services for the Company or an Affiliate, provided that transfers between the
Company and an Affiliate or between Affiliates, and approved leaves of absence
shall not be deemed such a termination.
14. RELATED EMPLOYMENT.
For the purposes of this Plan, Related Employment shall mean the
employment or performance of services by an individual for an employer that is
neither the Company nor an Affiliate, provided that (i) such employment or
performance of services is undertaken by the individual at the request of the
Company or an Affiliate, (ii) immediately prior to undertaking such employment
or performance of services, the individual was employed by or performing
services for the Company or an Affiliate or was engaged in Related Employment as
herein defined, and (iii) such employment or performance of services is in the
best interests of the Company and is recognized by the Committee, in its
discretion, as Related Employment for purposes of this Paragraph 14. The death
or disability of an individual during a period of Related Employment as herein
defined shall be treated, for purposes of this Plan, as if the death or onset of
disability had occurred while the individual was employed by or performing
services for the Company or an Affiliate.
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<PAGE> 16
15. DILUTION AND OTHER ADJUSTMENTS.
In the event of any change in the outstanding Common Shares of the
Company by reason of any stock split, stock dividend, split-up, split-off,
spin-off, recapitalization, merger, consolidation, rights offering, share
offering, reorganization, combination or exchange of shares, a sale by the
Company of all or part of its assets, any distribution to shareholders other
than a normal cash dividend, or other extraordinary or unusual event, if the
Committee shall determine, in its discretion, that such change equitably
requires an adjustment in the terms of any Award or the number of Common Shares
available for Awards, such adjustment may be made by the Committee and shall be
final, conclusive and binding for all purposes of the Plan.
16. DESIGNATION OF BENEFICIARY BY PARTICIPANT.
A participant may name a beneficiary to receive any payment to which
he may be entitled in respect of any Award under the Plan in the event of his
death, on a written form to be provided by and filed with the Committee, and in
a manner determined by the Committee in its discretion. The Committee reserves
the right to review and approve beneficiary designations. A participant may
change his beneficiary from time to time in the same manner, unless such
participant has made an irrevocable designation. Any designation of beneficiary
under the Plan (to the extent it is valid and enforceable under applicable law)
shall be controlling over any other disposition, testamentary or otherwise, as
determined by the Committee in its discretion. If no designated beneficiary
survives the participant and is living on the date on which any amount becomes
payable to such participant's beneficiary, such payment will be made to the
legal representatives of the participant's estate, and the term "beneficiary" as
used in the Plan shall be deemed to include such person or persons. If there is
any question as to the legal right of any beneficiary to receive a distribution
under the Plan, the Committee in its discretion may determine that the amount in
question be paid to the legal representatives of the estate of the participant,
in which event the Company, the Board and the Committee and the members thereof
will have no further liability to anyone with respect to such amount.
17. CHANGE IN CONTROL.
(a) Upon any Change in Control:
(i) each Stock Option and Stock Appreciation Right that is
outstanding on the date of such Change in Control shall be exercisable in
full immediately;
(ii) all restrictions with respect to Restricted Stock shall
lapse immediately, and the Company's right to repurchase or forfeit any
Restricted Stock outstanding on the date of such Change in Control shall
thereupon terminate and the
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<PAGE> 17
certificates representing such Restricted Stock and the related stock
powers shall be promptly delivered to the participants entitled thereto;
and
(iii) All Award Periods for the purposes of determining the
amounts of Awards of Performance Grants shall end as of the end of the
calendar quarter immediately preceding the date of such Change in Control,
and the amount of the Award payable shall be the portion of the maximum
possible Award allocable to the portion of the Award Period that had
elapsed and the results achieved during such portion of the Award Period.
(b) For this purpose, a Change in Control shall be deemed to occur
when and only when any of the following events first occurs:
(i) any person who is not currently such becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the Company's
then outstanding voting securities; or
(ii) three or more directors, whose election or nomination for
election is not approved by a majority of the Incumbent Board (as
hereinafter defined), are elected within any single 24-month period to
serve on the Board of Directors; or
(iii) members of the Incumbent Board cease to constitute a
majority of the Board of Directors without the approval of the remaining
members of the Incumbent Board; or
(iv) any merger (other than a merger where the Company is the
survivor and there is no accompanying Change in Control under
subparagraphs (i), (ii) or (iii) of this paragraph (b)), consolidation,
liquidation or dissolution of the Company, or the sale of all or
substantially all of the assets of the Company.
Notwithstanding the foregoing, a Change in Control shall not be deemed to
occur pursuant to subparagraph (i) of this paragraph (b) solely because 25% or
more of the combined voting power of the Company's outstanding securities is
acquired by one or more employee benefit plans maintained by the Company or by
any other employer, the majority interest in which is held, directly or
indirectly, by the Company. For purposes of this Section 17, the terms "person"
and "beneficial owner" shall have the meaning set forth in Sections 3(a) and
13(d) of the Exchange Act, and in the regulations promulgated thereunder, as in
effect on _______________; and the term "Incumbent Board" shall mean (A) the
members of the Board of Directors of the Company on _______________, to the
extent that they continue to serve as members of the Board of Directors, and (B)
any individual who becomes a member of the Board of Directors after
________________, if his election or nomination for election as a director was
approved by a vote of at least three-quarters of the then Incumbent Board.
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<PAGE> 18
18. MISCELLANEOUS PROVISIONS.
(a) No employee or other person shall have any claim or right to be
granted an Award under the Plan. Determinations made by the Committee under the
Plan need not be uniform and may be made selectively among eligible individuals
under the Plan, whether or not such eligible individuals are similarly situated.
Neither the Plan nor any action taken hereunder shall be construed as giving any
employee or other person any right to continue to be employed by or perform
services for the Company or any Affiliate, and the right to terminate the
employment of or performance of services by any participant at any time and for
any reason is specifically reserved.
(b) No participant or other person shall have any right with respect
to the Plan, the Common Shares reserved for issuance under the Plan or in any
Award, contingent or otherwise, until written evidence of the Award shall have
been delivered to the recipient and all the terms, conditions and provisions of
the Plan and the Award applicable to such recipient (and each person claiming
under or through him) have been met.
(c) Except as may be approved by the Committee where such approval
shall not adversely affect compliance of the Plan with Rule 16b-3 under the
Exchange Act, a participant's rights and interest under the Plan may not be
assigned or transferred, hypothecated or encumbered in whole or in part either
directly or by operation of law or otherwise (except in the event of a
participant's death) including, but not by way of limitation, execution, levy,
garnishment, attachment, pledge, bankruptcy or in any other manner; provided,
however, that any Option or similar right (including, but not limited to, a
Stock Appreciation Right) offered pursuant to the Plan shall not be transferable
other than by will or the laws of descent and distribution and shall be
exercisable during the participant's lifetime only by him.
(d) No Common Shares, Other Company Securities or property, other
securities or property, or other forms of payment shall be issued hereunder with
respect to any Award unless counsel for the Company shall be satisfied that such
issuance will be in compliance with applicable federal, state, local and foreign
legal, securities exchange and other applicable requirements.
(e) It is the intent of the Company that the Plan comply in all
respects with Rule 16b-3 under the Exchange Act, that any ambiguities or
inconsistencies in construction of the Plan be interpreted to give effect to
such intention and that if any provision of the Plan is found not to be in
compliance with Rule 16b-3, such provision shall be deemed null and void to the
extent required to permit the Plan to comply with Rule 16b-3.
(f) The Company and its Affiliates shall have the right to deduct
from any payment made under the Plan, any federal, state, local or foreign
income or other taxes required by law to be withheld with respect to such
payment. It shall be a condition to the obligation of the Company to issue
Common Shares, Other Company Securities or property, other securities or
property, or other forms of payment, or any combination thereof, upon exercise,
settlement or
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<PAGE> 19
payment of any Award under the Plan, that the participant (or any beneficiary or
person entitled to act) pay to the Company, upon its demand, such amount as may
be requested by the Company for the purpose of satisfying any liability to
withhold federal, state, local or foreign income or other taxes. If the amount
requested is not paid, the Company may refuse to issue Common Shares, Other
Company Securities or property, other securities or property, or other forms of
payment, or any combination thereof. Notwithstanding anything in the Plan to the
contrary, the Committee may, in its discretion, permit an eligible participant
(or any beneficiary or person entitled to act) to elect to pay a portion or all
of the amount requested by the Company for such taxes with respect to such
Award, at such time and in such manner as the Committee shall deem to be
appropriate including, but not limited to, by authorizing the Company to
withhold, or agreeing to surrender to the Company on or about the date such tax
liability is determinable, Common Shares, Other Company Securities or property,
other securities or property, or other forms of payment, or any combination
thereof, owned by such person or a portion of such forms of payment that would
otherwise be distributed, or have been distributed, as the case may be, pursuant
to such Award to such person, having a fair market value equal to the amount of
such taxes.
(g) The expenses of the Plan shall be borne by the Company. However,
if an Award is made to an individual employed by or performing services for an
Affiliate:
(i) if such Award results in payment of cash to the
participant, such Affiliate shall pay to the Company an amount equal to
such cash payment unless the Committee shall otherwise determine in its
discretion;
(ii) if the Award results in the issuance by the Company to
the participant of Common Shares, Other Company Securities or property,
other securities or property, or other forms of payment, or any
combination thereof, such Affiliate shall, unless the Committee shall
otherwise determine in its discretion, pay to the Company an amount equal
to the fair market value thereof, as determined by the Committee, on the
date such Common Shares, other Company Securities or property, other
securities or property, or other forms of payment, or any combination
thereof, are issued (or in the case of the issuance of Restricted Stock or
of Common Shares, Other Company Securities or property, or other
securities or property, or other forms of payment subject to transfer and
forfeiture conditions, equal to the fair market value thereof on the date
on which they are no longer subject to applicable restrictions), minus the
amount, if any, received by the Company in respect of the purchase of such
Common Shares, Other Company Securities or property, other securities or
property or other forms of payment, or any combination thereof, all as the
Committee shall determine in its discretion; and
(iii) the foregoing obligations of any such Affiliate entity
shall survive and remain in effect and binding on such entity even if its
status as an Affiliate of the Company should subsequently cease, except as
otherwise agreed by the Company and the entity.
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<PAGE> 20
(h) The Plan shall be unfunded. The Company shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Award under the Plan, and rights to the
payment of Awards shall be no greater than the rights of the Company's general
creditors.
(i) By accepting any Award or other benefit under the Plan, each
participant and each person claiming under or through him shall be conclusively
deemed to have indicated his acceptance and ratification of, and consent to, any
action taken by the Company, the Board or the Committee or its delegates.
(j) Fair market value in relation to Common Shares, Other Company
Securities or property, other securities or property or other forms of payment
of Awards under the Plan or any combination thereof, as of any specific time
shall mean such value as determined by the Committee in accordance with
applicable law.
(k) The masculine pronoun includes the feminine and the singular
includes the plural wherever appropriate.
(l) The appropriate officers of the Company shall cause to be filed
any reports, returns or other information regarding Awards hereunder or any
Common Shares issued pursuant hereto as may be required by Section 13 or 15(d)
of the Exchange Act (or any successor provision) or any other applicable
statute, rule or regulation.
(m) The validity, construction, interpretation, administration and
effect of the Plan, and of its rules and regulations, and rights relating to the
Plan and to Awards granted under the Plan, shall be governed by the substantive
laws, but not the choice of law rules, of the State of Delaware.
19. PLAN AMENDMENT OR SUSPENSION.
The Plan may be amended or suspended in whole or in part at any time
and from time to time by the Board, but no amendment shall be effective unless
and until the same is approved by shareholders of the Company where the failure
to obtain such approval would adversely affect the compliance of the Plan with
Rule 16b-3 under the Exchange Act and with other applicable law. No amendment of
the Plan shall adversely affect in a material manner any right of any
participant with respect to any Award theretofore granted without such
participant's written consent, except as permitted under Paragraph 11.
20. PLAN TERMINATION.
-20-
<PAGE> 21
This Plan shall terminate upon the earlier of the following dates or
events to occur:
(a) upon the adoption of a resolution of the Board terminating the
Plan; or
(b) ten years from the date the Plan is initially approved and
adopted by the shareholders of the Company in accordance with Paragraph 21
hereof; provided, however, that the Board may, prior to the expiration of such
ten-year period, extend the term of the Plan for an additional period of up to
five years for the grant of Awards other than Incentive Stock Options. No
termination of the Plan shall materially alter or impair any of the rights or
obligations of any person, without his consent, under any Award theretofore
granted under the Plan except that subsequent to termination of the Plan, the
Committee may make amendments permitted under Paragraph 11.
-21-
<PAGE> 1
Exhibit 10.5
April 14, 1998
Mr. James A. Cannavino
1 Robledo Drive
Dallas, TX 75230
Dear Jim:
This letter will set forth the understanding pursuant to which you will
serve as chairman and a director of Softworks, Inc., a Delaware corporation
("Softworks" or the "Company"). Subject to your acceptance you were elected
chairman and director on April 13, 1998.
You will serve as chairman of the Company and as such be an employee of
the Company. We will use our best efforts to cause you to be elected as a
director of the Company. As chairman, you will chair meetings of the board of
Softworks, assist and provide guidance in the long-range strategy of Softworks
and help promote Softworks. You will perform such further duties as commonly
performed by chairman in similar companies in similar capacities.
We recognize that you are the chief executive officer of another
company and, in addition, have other commitments. Accordingly, we recognize that
you will provide such time and attention to serving as chairman as is reasonably
necessary in your good faith judgment and with due recognition of your other
time commitments. We will enter into with you indemnity agreements that protect
you to the fullest extent permitted by applicable law. The forms of these
agreements are annexed as Exhibit A. In addition, we will obtain directors' and
officers' insurance protecting you from any claims with regard to actions or
inactions as chairman and a director. This will be in reasonable amount
considering the Company's status and business, and be not less than that
maintained for other officers and directors and we will continue such coverage,
even after you cease to serve in such capacities, so long as you have any
potential liability for actions or inactions with regard to Softworks.
We will grant to you when we make an initial public offering or
otherwise go public, options on one million two hundred thousand shares of
voting common stock of Softworks. The grants will be made under a stock option
and restricted stock plan adopted by the Company with standard provisions
protecting your grants, including with regard to future recapitalizations, and
we will file and maintain an S-8 with regard to the plan and grants and file
S-3's, as reasonably requested by you, with regard to both the stock and option
grants, subject to IPO lock-up agreements, if applicable. The option grant shall
be made at the time of the pricing meeting for the initial public offering or,
if the Company becomes public without an initial public offering, at the time of
becoming public, and shall be at the price fixed at the pricing meeting or fair
market value when we become public, as the case may be. The above grants assume
a capital structure as we discussed and is subject to your approval. In
addition, with regard to the grants, you and your permitted transferees shall
have at least the same registration rights (contractual or actual) of any
executive of the Company.
<PAGE> 2
Mr. James A. Cannavino
April 14, 1998
Page 2 of 4
The options shall have a six year term and be fully transferrable by
you to a member of your family or a trust, family limited partnership or similar
estate planning vehicle primarily for members of your family. Six hundred
thousand shares of the option (the "Time Vesting Options") shall vest on the
following schedule, provided that at such time you are still employed by the
Company or an affiliate or serving as a director or consultant to it or an
affiliate:
300,000 shares on the earlier of: 1) the closing date of the IPO; or 2)
December 31, 1998
300,000 shares on December 31, 1998
The other six hundred thousand shares (the "Performance Vesting
Options") shall vest on the earlier of five years after their grant or, if the
EBITDA for the fiscal year ending December 31, 2001 is at least $14,000,000, on
December 31, 2001, but shall vest earlier (but not prior to six months after
grant except upon an acceleration as provided below) at the end of the
applicable fiscal year if the following performance targets are met by Softworks
based on EBITDA on the fiscal years ending as set forth below; provided that if
you terminate your employment and other relationships with the Company and its
affiliates prior to December 31, 2000, other than for Good Reason or death, or
the Company terminates you for Cause prior to that date, to the extent the
options have not already vested, they shall cease to be exercisable. The vesting
targets are as follows:
<TABLE>
<CAPTION>
Date Target Shares Vesting
<S> <C> <C> <C>
December 31, 1998 EBITDA $ 6,000,000 200,000
December 31, 1999 EBITDA 11,500,000 200,000
December 31, 2000 EBITDA 14,000,000 200,000
</TABLE>
In addition, if the combined EBITDA for any period of years on an
aggregate basis satisfies the cumulative EBITDA for those years, the tranches
for all such periods, to the extent not previously vested, shall vest.
All options, not then vested, from both grants shall fully vest upon
your Termination without Cause or Termination for Good Reason prior to January
1, 2002, or a Change in Control. Cause shall be limited to (i) your willful
misconduct or fraud with regard to the Company that has a material adverse
economic impact on the Company, or (ii) your continued wilful failure to
substantially perform your duties under Paragraphs 2 and 3 hereof (other than
such failure resulting from a material breach of the obligations of Softworks or
Computer Concepts Corp. hereunder) for a period of sixty (60) days after receipt
by you of written demand for substantial performance has been delivered by the
Board of Directors of Softworks to you, which written demand specifically
identifies in reasonable detail the manner in which Softworks believes that you
have not substantially performed your duties hereunder. Notwithstanding the
foregoing, a termination for Cause shall not be effective unless and until you
have received reasonable notice setting forth the reasons for Softworks'
intention to terminate you for Cause, you have had an opportunity, together with
counsel, to be heard before the full Board of Directors of Softworks and to
submit any materials or information to the Board of Directors that you view
appropriate,
<PAGE> 3
Mr. James A. Cannavino
April 14, 1998
Page 3 of 4
and the Board of Directors has issued a finding that, in the good faith opinion
of a majority of the Board of Directors, your conduct has established a
sufficient basis for a termination for Cause. The foregoing is a procedural
requirement only and the determination of the Board may be challenged by you in
an appropriate forum. Any alleged termination for Cause by the Board which is
not correctly a termination for Cause shall be deemed a termination without
Cause. Good Reason shall mean a diminution in your title, authority or duties,
any material breach by the Company of this agreement, any failure to elect you
as a director or any removal of you as a director (other than for cause). Upon
your death, the next tranche of the Time Vesting Options shall vest and the
Performance Vesting Options shall continue to vest as set forth above if the
applicable performance criteria are satisfied, but shall not vest purely on a
time basis. Change in Control is defined on Exhibit C.
In addition, subject to the continuation of your services through the
completion date of the "Initial Public Offering" for Softworks, Inc., we will
make to you a full recourse loan for $500,000 for relocation or other purposes
upon Softworks, Inc. becoming a publicly traded entity. Such loan shall bear
interest, payable annually, at the applicable federal rate as defined in
Internal Revenue Code Section 1274(d) at the time of the loan. The loan shall be
unsecured. The principal and any unpaid accrued interest shall be due on
December 1, 2000, but you shall pay it down earlier to the extent of 100 percent
of any after tax profits you make upon sale of any shares of Softworks stock you
received from Softworks, Inc. or sale of any options of stock in Softworks you
receive. You will execute a promissory note in standard form for the loan.
We will pay you (subject to applicable withholding) a monthly salary of
$2000 as employee Chairman. You will, of course, serve as a director as an
independent contractor and not an employee. To the extent, if any, you become
subject to the excise tax under Internal Revenue Code Section 280G, as a result
of a "change in ownership," as defined in Internal Revenue Code Section
28OG(b)(2) in connection with the Company, we will pay you an amount such that
after payment of the excise tax and all taxes of any kind on the excise tax and
the amounts paid under this provision, you will have no after tax cost for the
excise tax on these amounts.
We will also provide upon your request a research assistant approved by
you and employed or retained by Softworks (at a cost of no more than $2,000 per
month) to assist you on a part-time basis as reasonably necessary in
coordinating your activities as chairman and providing you necessary information
in connection therewith.
You may retain your office as Chairman in such location as you select
and we will pay the costs of such office (this includes if you elect to maintain
it in your home).
We will also provide you, at your request, with a secretary at such
location, an automobile of a model as mutually agreed (with insurance,
maintenance and, if appropriate, garaging, subject to your being taxable on any
allocated personal use), club of your choice for business entertainment purposes
(which to the extent the Company is not required to treat as income to you, it
shall not) and reimburse your travel and entertainment expenses in connection
with furthering Softworks' business activities as you reasonably deem necessary,
but subject to presentation of receipts and other documentation.
<PAGE> 4
Mr. James A. Cannavino
April 14, 1998
Page 4 of 4
Your service as chairman and director is, of course, at will on both
sides and may be terminated by either party at any time, provided, however, that
if we terminate the arrangement Without Cause or you do so for Good Reason, as
defined above, we will continue to pay the costs of office and staff for six (6)
additional months.
You agree to treat as confidential and not use or disclose, except as
you believe in good faith to be in the best interest of the Company, any
confidential information of the Company while it is not generally known in the
industry. Of course, you may make disclosures if necessary to comply with legal
process. Furthermore, while you are Chairman or director of the Company and for
one (1) year thereafter, you will not directly provide services to the part of
another entity which directly competes in a material mariner with a material
portion of the business of the Company; the foregoing shall, of course, not
limit your activities or relationship with any other portion of such a business
or from being involved at a more senior level where the material competing
activities are not significantly material to the overall business of the entity.
Please acknowledge your agreement to the foregoing by signing below.
Sincerely,
/s/ Judy G. Carter
------------------
Judy G. Carter,
President
Agreed:
/s/ James A. Cannavino
- -------------------------
James A. Cannavino
<PAGE> 1
Exhibit 10.6
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 6th day of July, 1998 by and between
SOFTWORKS, Inc., a Delaware corporation (hereinafter the "Company") and CLAUDE
R. KINSEY, III, residing at 109 Swan Creek Road, Fort Washington, Maryland 20744
(hereinafter called the "Employee").
W I T N E S S E T H:
WHEREAS, the Company and the Employee desire to enter into an
Employment Agreement relating to the Company's employment of the Employee; and
WHEREAS, this Agreement is intended to supersede and replace
all prior agreements, understandings and arrangements between the Company and
the Employee, including any and all royalty agreements, relating to such
employment.
NOW, THEREFORE, it is agreed as follows:
1. Retention of Services. The Company hereby retains the
services of Employee, and Employee agrees to furnish such services, upon the
terms and conditions hereinafter set forth.
2. Term. Subject to earlier termination on the terms and
conditions hereinafter provided, and further subject to certain provisions
hereof which survive the term hereof, the term of this Agreement shall be
comprised of a period of employment commencing on the date on which the Company
completes an initial public offering (the "IPO") of its capital stock and
terminating December 31, 2002. The term of this Agreement shall automatically be
extended for additional one (1) year periods unless and until the Company or the
Employee shall deliver written notice to the other party hereto no less than
ninety (90) days prior to the end of any renewal term of its desire to terminate
this Agreement.
3. Duties and Extent of Services During Period of Employment.
During the term of employment, Employee shall be employed on a full-time basis
as a Vice President and Chief Technology Officer of the Company. In such
capacity, Employee agrees that he shall serve the Company under the direction of
the President and Chief Executive Officer of the Company to the best of his
ability, shall perform all duties incident to his offices on behalf of the
Company and shall perform such other duties as may from time to time be assigned
to him by the President and Chief Executive Officer of the Company. Employee
shall also serve in similar capacities of such of the subsidiary corporations of
the Company as may be selected by the Board of Directors and shall be entitled
to such additional compensation therefor as may be determined by the Board of
Directors of the Company. Notwithstanding the foregoing, it is understood and
agreed that during the term hereof the duties of Employee during the period of
active employment shall not be inconsistent with (i) his position and title as a
Vice President and Chief Technology Officer or (ii) with those duties ordinarily
performed by a Vice President and Chief Technology Officer, and that Employee
shall
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<PAGE> 2
not be relocated outside of the metropolitan Washington, D C area in order to
fulfill his obligations pursuant to the Agreement unless Employee is relocated
due to the relocation of the Company.
4. Remuneration. During the period of employment, Employee
shall be entitled to receive the following compensation for his services:
(a) The Company shall pay to Employee a salary at the
rate of $200,000 per annum, payable in equal bi-weekly installments, or in such
other manner as shall be agreeable to the Company and Employee.
(b) In the event that the Company meets or exceeds
the quarterly targets established by the Board of Directors of the Company, the
Company shall pay to Employee, as incentive compensation, at the rate of
$150,000 per annum in 1998 and $200,000 per annum in each of 1999, 2000, 2001
and 2002. The Company shall pay one-eighth of such incentive compensation on a
quarterly basis not later than thirty (30) days after the end of each fiscal
quarter and shall pay one-half of such incentive compensation not later than
ninety (90) days after the end of each fiscal year of the Company. The Company
agrees to furnish to Employee a copy of such financial statements not later than
thirty (30) days after the end of each fiscal quarter and ninety (90) days after
the end of each fiscal year of the Company during the term hereof.
5. Employee Benefits; Expenses.
(a) During the period of employment, the Company will
provide at its expense, life insurance to Employee in the face amount of up to
$1,000,000, with Employee having the right to name the beneficiary and
disability insurance in an amount equal to two-thirds of Employee's base salary
as established under paragraph 4(a) and shall pay the premium for a standard
risk non-smoker. Employee shall pay any difference in the event that the policy
is other than a standard risk non- smoker. Employee shall have the right to
acquire the policy on termination of Employment provided Employee has sole
responsibility upon such transfer for all future payments , thereunder.
(b) During the period of employment, Employee shall
be eligible to participate in the Company's stock option plans, stock purchase
plans or other employee incentive plans (including without limitation its 1998
Stock Option Plan) to the extent determined in the sole discretion of the Board
of Directors of the Company or a committee thereof.
(c) During the period of employment, Employee shall
be furnished with office space and facilities commensurate with his position and
adequate for the performance of his duties; he shall be provided with the
perquisites customarily associated with the position of the Chief Technology
Officer of the Company; including, but not limited to, an automobile allowance
equal to $1200 per month; and he shall be entitled to regular vacations during
each year of four (4) weeks
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<PAGE> 3
in the aggregate.
(d) It is contemplated that during the period of
employment, Employee may be required to incur out-of-pocket expenses in
connection with the performance of his services hereunder, including expenses
incurred for travel and business entertainment. Accordingly, the Company shall
reimburse Employee for all reasonable out-of-pocket expenses incurred by
Employee in the performance of his duties hereunder upon submission of
reasonable documentation therefore in accordance with the Company's policies.
(e) All benefits to Employee specifically provided
for herein shall be in addition to, and shall not diminish any rights which
Employee may have or may acquire under any hospitalization, life insurance,
pension, profit sharing or other present or future employee benefit plan or
plans of the Company.
6. Disability. If Employee, during the period of employment,
becomes unable for three consecutive months or more, or any 180 days in any
twelve-month period, due to ill health or other physical or mental incapacity,
to perform his services hereunder, the Company may thereafter, upon at least 45
days' written notice to Employee, place him on disability status. After such
action by the Company, Employee shall only be entitled to the disability
benefits under his insurance policy during the disability period.
7. Confidential Information.
(a) In the course of Employee's employment by the
Company, Employee will have access to and possession of valuable and important
confidential or proprietary data or information of the Company and its
operations. Employee will not during Employee's employment by the Company or at
any time thereafter divulge or communicate to any person nor shall Employee
direct any Company employee, representative or agent to divulge or communicate
to any person or entity or use to the detriment of the Company or for the
benefit of any other person or entity, any of such confidential or proprietary
data or information or make or remove any copies thereof, whether or not marked
or otherwise identified as "confidential" or "secret" (other than to a person or
entity bound by confidentiality obligations similar to those contained herein
and other than as necessary in performing Employee's duties hereunder). Employee
shall take all reasonable precautions in handling the confidential or
proprietary data or information within the Company to a strict need-to-know
basis and shall comply with any and all formally established security systems
and measures adopted from time to time by the Company to protect the
confidentiality of confidential or proprietary data or information.
(b) The term "confidential or proprietary data or
information" as used in this Agreement shall mean information not generally
available to the public, including, without limitation, all database
information, personnel information, financial information, customer lists,
supplier lists, trade secrets, patented or proprietary information, forms,
information regarding
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<PAGE> 4
operations, systems, services, know how, computer and any other processed or
collated data, computer programs, pricing, marketing and advertising data.
(c) Employee will at all times promptly disclose to
the Company in such form and manner as the Company may reasonably require, any
inventions, improvements or procedural or methodological innovations, programs,
methods, forms, systems, services, designs, marketing ideas, products or
processes (whether or not capable of being trademarked, copyrighted or patented)
conceived or developed or created by Employee during or in connection with
Employee's employment hereunder and which relate to the business of the Company
("Intellectual Property"). Employee agrees that all such Intellectual Property
shall be "work-for-hire" and shall be the sole property of the Company. To the
extent any such Intellectual Property does not constitute a "work-for-hire"
under U.S. law, Employee hereby assigns to Company all right, title and interest
in such Intellectual Property. Employee further agrees that Employee will
execute such instruments and perform such acts as may reasonably be requested by
the Company to effectuate such assignment and otherwise to transfer to and
perfect in the Company all rights in such Intellectual Property.
(d) All written materials, records and documents made
by Employee or coming into Employee's possession during Employee's employment by
the Company concerning any products, processes or equipment manufactured, used,
developed, investigated, purchased, sold or considered by the Company or
otherwise concerning the business or affairs of the Company shall be the sole
property of the Company, and upon termination of Employee's employment by the
Company, or upon request of the Company during Employee's employment by the
Company, Employee shall promptly deliver the same to the Company. In addition,
upon termination of Employee's employment by the Company, Employee will deliver
to the Company all other Company property in Employee's possession or under
Employee's control, including, but not limited to, financial statements,
marketing and sales data, customer and supplier lists, database information and
other documents, and any Company credit cards.
(e) The provisions of this Section 7 shall survive
the termination of this Employment Agreement.
8. Non-Competition.
(a) During the term of this Agreement and for one
year thereafter (subject to clause (b) of this Section 8, the "Restricted
Period"), the Employee shall not, without the written consent of the Company,
directly or indirectly,
(i) become associated with, render services to,
invest in, represent, advise or otherwise participate in as an officer,
employee, director, stockholder, partner, promoter, agent of, consultant for or
otherwise, any systems management software business which is conducted in any of
the jurisdictions in which the Company's business is conducted; provided,
however, that nothing contained herein will prevent Employee from owning less
than five percent (5%) of any class of equity or debt securities listed on a
national securities exchange or traded in any established
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<PAGE> 5
over-the-counter securities market, so long as such involvement with the issuer
of any such securities is solely that of a passive investor;
(ii) for his own account or for the account of any
other person or entity (A) interfere with the Company's relationship with any of
its suppliers, customers, representatives or agents or (B) transact any
business, associated with systems management software or services, with any
customer or supplier of the Company which transacts or has transacted business
with the Company at any time during the term of this Agreement; or
(iii) employ or otherwise engage, or solicit, entice
or induce on behalf of himself or any other person or entity, the services,
retention or employment of any person who has been an employee, sales
representative, consultant to or agent of the Company within one year of the
date of such offer or solicitation.
(b) In the event that the Employee terminates his
employment hereunder after a breach hereof by the Company, or if the Company
terminates the Employee's employment hereunder other than for cause (as defined
in Section 9(a) hereof), the covenant contained in Section 8(a) hereof shall
extend for a period of one year beyond the termination of the Employee's
employment only if the Company shall pay to the Employee on a monthly basis with
respect to such period an amount equal to the annual compensation otherwise
provided for hereunder with respect to the immediately preceding year during the
term hereof. This Section 8(b) shall be of no effect, and the Employee shall be
subject to the restrictive covenant contained in Section 8(a) hereof without the
Company being obligated to make the payments referred to in the preceding
sentence, if the Company terminates its employment of the Employee for cause (as
defined in Section 9(a) hereof) or if the Employee terminates his employment
hereunder in the absence of a breach hereof by the Company.
(c) The parties hereto intend that the covenants
contained in this Section 8 shall be deemed a series of separate covenants for
each country, state, county and city. If, in any judicial proceeding, a court
shall refuse to enforce all the separate covenants deemed included in this
Section 8 because, taken together, they cover too extensive a geographic area,
the parties intend that those of such covenants (taken in order of the cities,
counties, states and countries therein which are lease populous) which if
eliminated would permit the remaining separate covenants to be enforced in such
proceeding shall, for the purpose of such proceeding, be deemed eliminated from
the provisions of this Section 8.
(d) With respect to the covenants contained in
Sections 7 and 8 of this Agreement, Employee agrees that any remedy at law for
any breach or threatened or attempted breach of such covenants may be inadequate
and that the Company shall be entitled to specific performance or any other mode
of injunctive and/or other equitable relief to enforce its rights hereunder or
any other relief a court might award without the necessity of showing any actual
damage or irreparable harm or the posting of any bond or furnishing of other
security.
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<PAGE> 6
9. Termination.
(a) The Company recognizes that, for the period
during which Employee has been employed and/or associated with the Company, the
Company has been intimately familiar with the ability, competence and judgment
of Employee, which are acknowledged to be of the highest caliber. Accordingly,
the Company and Employee agree that Employee's services hereunder may be
terminated for "cause" by the Company only (i) for an act of fraud or
embezzlement adversely affecting the financial interest of the Company, (ii) in
the event that the Company places Employee on disability status pursuant to
Section 6 hereof more than once during the term hereof, (iii) in the event of a
conviction of the Employee for any felony that materially affects or negatively
impacts the Company or his ability to perform his required services or, (iv) in
the event of material breach by the Employee of the terms of this Agreement,
following the receipt by the Employee of thirty (30) days notice of such breach
and the Employee's failure to cure such breach within such grace period, (v) in
the event of any willful breach by the Employee of this Agreement. This
Agreement shall also terminate on the death of Employee.
(b) If the Company terminates Employee's employment
hereunder for any reason other than for "cause" as set forth in Section 9(a)
hereof, Employee's compensation shall be paid to him as provided hereunder for
the greater of the (i) remainder of the term of this Agreement or (ii) two
years. If the Company terminates Employee's employment hereunder for "cause" as
set forth in Section 9(a) hereof, Employee shall not be entitled to receive any
further compensation hereunder which has not already been earned pursuant to the
terms hereof. Employee and the Company acknowledge that the foregoing provisions
of this paragraph 9(b) are reasonable and are based upon the facts and
circumstances of the parties at the time of entering into this Agreement, and
with due regard to future expectations.
10. Consolidation or Merger. In the event of any consolidation
or merger of the Company into or with any other corporation during the term of
this Agreement, or the sale of all or substantially all of the assets of the
Company to another corporation, person or entity during the term of this
Agreement, such successor corporation shall assume this Agreement and become
obligated to perform all of the terms and provisions hereof applicable to the
Company, and Employee's obligations hereunder shall continue in favor of such
successor corporation.
11. Notices. Any notice to be given to the Company hereunder
shall be deemed sufficient if addressed to the Company in writing and delivered
or mailed by certified or registered mail to its offices at 5845 Richmond
Highway, Suite 400, Alexandria, Virginia 22303, or such other address as the
Company may hereafter designate, with a copy to David H. Lieberman, Esq., Blau,
Kramer, Wactlar & Lieberman, P.C., 100 Jericho Quadrangle, Jericho, New York
11753. Any notice to be given to Employee hereunder shall be delivered or mailed
by certified or registered mail to him at: 109 Swan Creek Road, Fort Washington,
Maryland 20744 or such other address as he may hereafter designate.
12. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the successors and assigns of the Company, and
unless clearly inapplicable, all
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<PAGE> 7
references herein to the Company shall be deemed to include any such successor.
In addition, this Agreement shall be binding upon and inure to the benefit of
the Employee and his heirs, executors, legal representatives and assigns;
provided, however, that the obligations of Employee hereunder may not be
delegated without the prior written approval of the Board of Directors of the
Company.
13. Amendments. This Agreement may not be altered, modified,
amended or terminated except by a written instrument signed by each of the
parties hereto.
14. Prior Agreements Superseded. This Agreement supersedes any
employment or consulting agreements, oral or written entered into between
Employee and the Company prior to the date of this Agreement.
15. Change of Control.
(a) In the event there shall be a change in the
present control of the Company, as hereinafter defined, and the Employee's
working conditions as contemplated hereby shall have been adversely affected as
a result thereof, Employee shall have the option, exercisable within six (6)
months of his becoming aware of such event, to terminate this Agreement
forthwith. Upon such termination, Employee shall have the right to immediately
receive as a lump sum payment an amount equal to three times the total
compensation paid to Employee during the immediately preceding fiscal year of
the Company, less $1.00.
(b) For purposes of this Agreement, a change in the
present control of the Company shall mean:
(i) if any "person" (as such term is used in Section
13(d) and 14(d) of the Exchange Act) other than Computer Concepts Corp., the
Company or any "person" who on the date of this Agreement is a director or
officer of the Company, becomes the "beneficial owner" (as defined in Rule
13(d)-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing thirty percent (30%) of the voting power of the Company's
then outstanding securities; or
(ii) if during any period of two (2) consecutive
years during the term of this Agreement, individuals who at the beginning of
such period constitute the Board of Directors cease for any reason to constitute
at least a majority thereof, unless the election of each director who is not a
director at the beginning of such period has been approved in advance by
directors representing at least two-thirds (2/3) of the directors then in office
who were directors at the beginning of the period.
16. Applicable Law. This Agreement shall be governed by,
construed and enforced in accordance with the laws of the State of Delaware,
without regard to conflicts of laws.
17. Acknowledgment. Employee acknowledges that he has
carefully read this Agreement and hereby represents and warrants to the Company
that Employee's entering into this
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Agreement, and the obligations and duties undertaken by Employee hereunder, will
not conflict with, constitute a breach of or otherwise violate the terms of any
other agreement to which Employee is a party and that Employee is not required
to obtain the consent of any person, firm, corporation or other entity in order
to enter into and perform his obligations under this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
SOFTWORKS, Inc.
By: /s/ Judy G. Carter
-------------------------------------
Name: Judy G. Carter
Title: President and
Chief Executive Officer
/s/ Claude R. Kinsey, III
-------------------------------------
Name: Claude R. Kinsey, III
Title: Vice President and
Chief Technology Officer
<PAGE> 1
Exhibit 10.7
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 8th day of July 1998 by and between SOFTWORKS,
Inc., a Delaware corporation (hereinafter the "Company") and JUDY G. CARTER,
residing at 11115 Sweetwood Lane, Oakton, Virginia 22124 (hereinafter the
"Employee").
W I T N E S S E T H:
WHEREAS, the Company and the Employee desire to enter into an
Employment Agreement relating to the Company's employment of the Employee; and
WHEREAS, this Agreement is intended to supersede and replace all prior
agreements, understandings and arrangements between the Company and the
Employee, including any and all royalty agreements, relating to such employment.
NOW, THEREFORE, it is agreed as follows:
1. Retention of Services. The Company hereby retains the services
of Employee, and Employee agrees to furnish such services, upon the terms and
conditions hereinafter set forth.
2. Employment Term.
(a) Subject to earlier termination on the terms and conditions
hereinafter provided, and further subject to certain provisions hereof which
survive the term hereof, the term of this Agreement shall be comprised of a
period of employment commencing on the date on which the company completes an
initial public offering (the "IPO") of its capital stock (the "Effective Date")
and terminating December 31, 2002. The term of this Agreement shall
automatically be extended for additional one (1) year periods unless and until
the Company or the Employee shall deliver written notice to the other party
hereto no less than ninety (90) days prior to the end of any renewal term of its
desire to terminate this Agreement.
(b) In the event that the Company delivers written notice of its
intent not to renew the employment of the Employee for any year after December
31, 2002, the Employee shall be entitled to receive as severance pay all
Remuneration and Employee Benefits in accordance with Sections 4a and 5 of this
Agreement for a period of not less than twelve (12) months from the date that
this Agreement or any extension thereof is terminated.
3. Duties and Extent of Services During Period of Employment.
During the term of employment, Employee shall be employed on a full-time basis
as the President and Chief Executive Officer of the Company. In such capacity,
Employee agrees that she shall serve the Company under the direction of the
Board of Directors of the Company to the best of her ability;
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<PAGE> 2
shall perform all duties incident to her offices on behalf of the Company and
shall perform such other duties as may from time to time be assigned to her by
the Chairman of the Board of the Company. Employee shall also serve in similar
capacities for such subsidiary corporations of the Company as shall be
agreeable to the Board of Directors and the Employee, and Employee shall be
entitled to such additional compensation therefor as shall be agreeable to the
Board of Directors and the Employee. Notwithstanding the foregoing, it is
understood and agreed that during the term of employment, the duties and
authority of Employee shall not be inconsistent with: (i) her position and
titles, or (ii) those duties ordinarily and customarily performed in such
titles. Further, it is understood and agreed that any change in Employee's
title as Chief Executive Officer on or before two years from the Effective Date
or any change in her title as President during the term of this Agreement or
any material diminution in her duties or authority in the title or titles she
holds shall constitute a Good Reason for termination of this Agreement by the
Employee pursuant to Section 9(b) hereunder.
4. Remuneration. For the period of employment, Employee shall be
entitled to receive the following compensation for her services:
(a) The Company shall pay to Employee a salary at the
rate of $200,000 per annum payable in equal bi-weekly installments, or in such
other manner as shall be agreeable to the Company and Employee. Employee's
annual salary shall be reviewed annually by the Board of Directors.
(b) In the event that the Company meets or exceeds the
quarterly targets established by the Board of Directors of the Company, the
Company shall pay to Employee, as incentive compensation, at the rate of
$150,000 per annum in 1998 and $200,000 per annum in each of 1999, 2000, 2001
and 2002. The Company shall pay one-eighth of such incentive compensation on a
quarterly basis not later than thirty (30) days after the end of each fiscal
quarter and shall pay one-half of such incentive compensation not later than
ninety (90) days after the end of each fiscal year of the Company. The Company
agrees to furnish to Employee a copy of such financial statements not later than
thirty (30) days after the end of each fiscal quarter and ninety (90) days after
the end of each fiscal year of the Company during the term hereof.
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<PAGE> 3
5. Employee Benefits; Expenses.
(a) During the period of employment, the Company will provide to
Employee at its expense certain employee benefits, including, but not limited
to, convertible life insurance in the face amount of $1,000,000, long-term
disability insurance coverage continuing until Employee is age 65 in an amount
equal to two-thirds of Employee's Base Salary as established under Section 4(a)
with a premium for a standard risk non-smoker, Directors and Officers liability
insurance in an amount not less than that maintained for other directors and
officers of the Company, and such additional benefits that shall, at a minimum,
include the benefits described on Exhibit A hereto. Any applicable employee
medical policy shall include the right to convert such policy from a corporate
policy to a personal policy at the expense of the Company if the Company ceases
to directly provide such policies to its officers, directors, or employees or at
employee's departure from employment.
(b) During the period of employment, Employee shall be eligible to
participate in the Company's stock option plans, stock purchase plans or other
employee incentive plans (including without limitation its 1998 Stock Option
Plan ) to the extent determined in the sole discretion of the Board of Directors
of the Company or a committee thereof.
(c) During the period of employment, Employee shall be furnished
with office space and facilities commensurate with her position and adequate for
the performance of her duties; she shall be provided with the perquisites
customarily and regularly associated with the position of the President and
Chief Executive Officer of the Company, including, but not limited to, an
automobile allowance equal to $1200 per month and reasonable professional
association memberships; and she shall be entitled to regular vacations during
each year of four (4) weeks in the aggregate.
(d) It is contemplated that during the period of employment,
Employee may incur out-of-pocket expenses in connection with the performance of
her services hereunder, including customary and regular expenses incurred for
travel and business entertainment. Accordingly, the Company shall reimburse
Employee for all reasonable out-of-pocket expenses incurred by Employee in the
performance of her duties hereunder upon submission of reasonable documentation
therefore in accordance with the Company's policies.
(e) All benefits to Employee specifically provided for herein
shall be in addition to, and shall not diminish any rights which Employee may
have or may acquire under any hospitalization, life insurance, pension, profit
sharing or other present or future employee benefit plan or plans of the
Company.
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<PAGE> 4
6. Disability. If Employee, during the period of employment, due
to ill health or other physical or mental incapacity becomes unable to perform
substantially all of her duties and obligations as set forth in this Agreement,
which ill health or other physical or mental incapacity will have existed
continuously for a period of six (6) consecutive months or more, the Company may
thereafter, upon at least forty-five (45) days' written notice to Employee,
specifying in reasonable detail those factors set forth above, place her on
disability status; provided, however, that the Company may not place Employee on
disability status if she would not become eligible for benefits pursuant to the
long-term disability coverage provided to the Employee by the Company, and
further provided that the disability policy does not provide different levels of
benefits for physical and mental disabilities and provides, at a minimum, the
level of benefits described in Section 5(a) of this Agreement.
7. Confidential Information.
(a) In the course of Employee's employment by the
Company, Employee will have access to and possession of valuable and important
confidential or proprietary data or information of the Company and its
operations. Employee will not during Employee's employment by the Company or at
any time thereafter divulge or communicate to any person nor shall Employee
direct any Company employee, representative or agent to divulge or communicate
to any person or entity or use to the detriment of the Company or for the
benefit of any other person or entity, any of such confidential or proprietary
data or information or make or remove any copies thereof, whether or not marked
or otherwise identified as "confidential" or "secret," except to a person or
entity bound by confidentiality obligations similar to those contained herein
and other than as reasonably necessary in performing Employee's duties hereunder
or as may be required by law or as may reasonably be required in connection with
any judicial or administrative proceeding or inquiry. Employee shall take all
reasonable precautions in handling the confidential or proprietary data or
information within the Company to a strict need to know basis and shall comply
with any and all written policies adopted from time to time by the Company to
protect the confidentiality of confidential or proprietary data or information.
(b) The term "confidential or proprietary data or
information" as used in this Agreement shall mean information not generally
available to the public, including, without limitation, all database
information, personnel information, financial information, customer lists,
supplier lists, trade secrets, patented or proprietary information, forms,
information regarding operations, systems, services, know how, computer and any
other processed or collated data, computer programs, pricing, marketing and
advertising data.
(c) Employee will at all times, promptly disclose to the
Company in such form and manner as the Company may reasonably require, any
inventions, improvements or procedural or methodological innovations, programs,
methods, forms, systems, services, designs, marketing ideas, products or
processes (whether or not capable of being trademarked, copyrighted or patented)
conceived or developed or created by Employee during Employee's employment
hereunder and which relate to the business of the Company ("Intellectual
Property"). Employee
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<PAGE> 5
agrees that all such Intellectual Property shall be "work-for-hire" and shall be
the sole property of the Company. To the extent any such Intellectual Property
does not constitute a "work-for-hire" under U.S. law, Employee hereby assigns to
Company all right, title and interest in such Intellectual Property. Employee
further agrees that Employee will execute such instruments and perform such acts
as may reasonably be requested by the Company to effectuate such assignment and
otherwise to transfer to and perfect in the Company all rights in such
Intellectual Property.
(d) All written materials, records and documents made by
Employee or coming into Employee's possession during Employee's employment by
the Company concerning any products, processes or equipment manufactured, used,
developed, investigated, purchased, sold or considered by the Company or
otherwise concerning the business or affairs of the Company shall be the sole
property of the Company, and upon termination of Employee's employment by the
Company, or upon request of the Company during Employee's employment by the
Company, Employee shall promptly deliver the same to the Company. In addition,
upon termination of Employee's employment by the Company, Employee will deliver
to the Company all other Company property in Employee's possession or under
Employee's control, including, but not limited to, financial statements,
marketing and sales data, customer and supplier lists, database information and
other documents, and any Company credit cards.
(e) The provisions of Sections 7(a), 7(b) and 7(d) shall
survive the termination of this Employment Agreement.
8. Non-Competition.
(a) Except as otherwise provided herein, during the term
of employment and for a period of one year thereafter (hereinafter the
"Restricted Period"), the Employee shall not, without the written consent of the
Company, directly or indirectly:
(i) become associated with, render services to, invest
in, represent, advise or otherwise participate in as an officer, employee,
director, stockholder, partner, promoter, agent of, or consultant for any
business engaged in those aspects of the systems management software business
that the Company was engaged in during the term of this Agreement, which are
conducted in any of the geographic areas in which the Company's business is
conducted; provided, however, that nothing contained herein will prevent
Employee from owning less than five percent (5%) of any class of equity or debt
securities listed on a national securities exchange or traded in any established
over-the-counter securities market, so long as such involvement with the issuer
of any such securities is solely that of a passive investor;
(ii) for her own account or for the account of any other
person or entity solicit any business from any person or entity which, during
the twelve-month period preceding the date her employment terminates, was a
customer or client of the Company (a "Restricted Person"); provided, however,
that nothing in this Section 8(a)(ii) shall prohibit the Employee from
soliciting business from a Restricted Person for the provision of services other
than related to those aspects
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<PAGE> 6
of the systems management software business that the Company was engaged in
during the term of this Agreement; or
(iii) employ or otherwise engage, or solicit, entice or
induce on behalf of herself, or any other person or entity, the service,
retention or employment of any person who has been an employee, sales employee,
sales representative, consultant to or agent of the Company within one year of
such offer or solicitation. Provided, however, that a solicitation shall not be
deemed to have occurred based solely upon Employee's giving her new business
address to any person.
(b) In the event that the Employee terminates her
employment hereunder for Good Reason (as defined in Section 9(b) hereunder) or
the Company terminates the Employee's employment hereunder other than for Cause
(as defined in Section 9(a) hereunder), the covenants contained in Section 8(a)
shall not bind the Employee.
(c) The parties hereto intend that the covenants
contained in this Section 8, which pertain only to the geographic areas where
the Company is engaged in business, shall be deemed a series of separate
covenants for each applicable area of the relevant country, state, county and
city. If, in any judicial proceeding, a court shall refuse to enforce all the
separate covenants deemed included in this Section 8 because, taken together,
they cover too extensive a geographic area, the parties intend that those of
such covenants (taken in order of the cities, counties, states and countries
therein which are least populous) which if eliminated would permit the remaining
separate covenants to be enforced in such proceeding shall, for the purpose of
such proceeding, be deemed eliminated from the provisions of this Section 8.
(d) With respect to the covenants contained in Sections 7
and 8 of this Agreement, Employee agrees that any remedy at law for any breach
or threatened or attempted breach of such covenants may be inadequate and that
the Company shall be entitled to specific performance or any other mode of
injunctive and/or other equitable relief to enforce its rights hereunder or any
other relief a court might award without the necessity of showing any actual
damage or irreparable harm or the posting of any bond or furnishing of other
security.
9. Termination.
(a) The Company recognizes that, for the period during
which Employee has been employed and/or associated with the Company, the Company
has been intimately familiar with the ability, competence and judgment of
Employee, which are acknowledged to be of the highest caliber. Accordingly, the
Company and Employee agree that Employee's services hereunder may be terminated
for Cause by the Company. For purposes of this Agreement, Cause shall mean: (i)
an act of fraud or embezzlement of a materially injurious nature that relates to
the performance of the Employee's duties under this Agreement and results in a
material injury to the Company; (ii) conviction of a felony that relates to the
performance of the Employee's duties under this Agreement; and (iii) conduct by
Employee involving willful and deliberate malfeasance or gross negligence in
6
<PAGE> 7
the performance of her material duties hereunder following the receipt by the
Employee of thirty (30) days written notice, specifying in reasonable detail
such malfeasance or gross negligence and the Employee's failure to cure within
such period.
Notwithstanding the foregoing, a termination for Cause shall
not be deemed to have been for Cause unless and until the Employee has first
received written notice specifying in reasonable detail the reasons for the
Company's intention to terminate her for Cause, and she has had an opportunity,
together with counsel, to be heard before the full Board of Directors of the
Company and to submit any materials or information to the Board of Directors
that she may view as appropriate, and a majority of the Board of Directors has
issued a finding that, in its good faith opinion, the Board of Directors
concludes that the Employee's conduct has established a sufficient basis for a
termination for Cause as defined. The foregoing is a procedural requirement only
and the determination of the Board may be challenged by the Employee in an
appropriate forum. Any alleged termination for Cause by the Board, which is not
correctly a termination for Cause, shall be deemed a termination without Cause.
If the Company terminates Employee's employment hereunder for
Cause, or if Employee terminates her employment hereunder for other than Good
Reason (as defined hereunder), Employee shall not be entitled to receive any
further compensation hereunder which has not already been earned pursuant to the
terms hereof. Employee and the Company acknowledge that the foregoing provisions
of this Section 9(a) are reasonable and are based upon the facts and
circumstances of the parties at the time of entering into this Agreement, and
with due regard to future expectations.
(b) The Employee may terminate this Agreement and her
employment hereunder for Good Reason. Said termination shall, at the Employee's
election, be effective immediately upon the giving of written notice of
termination to the Company. For the purposes of this Agreement, Good Reason
means: (i) the Company's failure to comply with Sections 3, 4, 5 and 12 herein,
except with respect to her title as Chief Executive Officer after two years
from the Effective Date, and the continued failure of the Company to cure such
default within thirty (30) days after written demand for performance has been
given to the Company by Employee (which demand shall describe specifically the
nature of such alleged failure); (ii) a material diminution of the Employee's
duties and authority (including, but not limited to, Employee's title as set
forth in Section 3 hereof) and the continued failure of the Company to cure
such default within thirty (30) days after written notice has been given to the
Company by Employee (which notice shall describe specifically the nature of
such diminution); or (iii) the Company's requirement that the Employee relocate
outside of the metropolitan Washington, D.C. area in order to fulfill her
obligations pursuant to this Agreement unless Employee is relocated due to the
relocation of the Company.
(c) If the Company terminates Employee's employment
hereunder other than for Cause, or if Employee terminates her employment
hereunder for Good Reason the Employee shall be entitled to: (i) all
Remuneration, Employee Benefits and Expenses as provided by Sections 4 and 5
herein for the greater of (A) the remainder of the term of her employment
provided for herein or (B) two years; and (ii) the immediate vesting of all
stock options granted to
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<PAGE> 8
Employee pursuant to any stock option plan then in existence except for unvested
stock options which are based on the Company meeting certain performance levels.
(d) The employment term of this Agreement shall
terminate on the death of Employee. In the event of Employee's death during any
term of this Agreement, the Company shall pay to Employee's estate: (i)
Employee's due but unpaid Base Salary up to and including the date of Employee's
death; (ii) any and all unpaid amounts, if any, of additional compensation under
Section 4 hereof due to Employee; and (iii) the monetary value of Employee
Benefits and Expenses due to Employee under Section 5 hereof but unpaid as of
the date of her death. After payment of said amounts, the Company shall have no
further obligations to Employee or her estate.
10. Notices. Any notice to be given to the Company hereunder shall
be deemed sufficient if addressed to the Company in writing and delivered by
certified or registered mail to its offices at 5845 Richmond Highway, Suite 400,
Alexandria, Virginia 22303, or such other address as the Company may hereafter
designate, with a copy to David H. Lieberman, Esq., Blau, Kramer, Wactlar &
Lieberman, P.C., 100 Jericho Quadrangle, Jericho, New York 11753. Any notice to
be given to Employee hereunder shall be delivered by certified or registered
mail to her at: 11115 Sweetwood Lane, Oakton, Virginia 22124 or such other
address as she may hereafter designate, with a copy to Robert J. Smith, Morgan,
Lewis & Bockius LLP, 1800 M Street, N.W., Washington, D.C. 20036.
11. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the successors and assigns of the Company, and
unless clearly inapplicable, all references herein to the Company shall be
deemed to include any successors. In addition, this Agreement shall be binding
upon and inure to the benefit of the Employee and her heirs, executors, legal
representatives and assigns; provided, however, that the obligations of Employee
hereunder may not be delegated without the prior written approval of the Board
of Directors of the Company.
12. Successor Company. The Company shall require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the Company, to
expressly assume and agree to perform this Agreement in the same manner and to
the same extent that the Company would be required to perform as if no such
succession had taken place.
13. Amendments. This Agreement may not be altered, modified,
amended or terminated except by a written instrument signed by each of the
parties hereto.
14. Prior Agreements Superseded. This Agreement supersedes any
employment or consulting agreements, oral or written, entered into between
Employee and the Company prior to the date of this Agreement.
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<PAGE> 9
15. Change of Control.
(a) In the event there shall be a change in the present
control of the Company, as hereinafter defined, and the Employee's working
conditions as contemplated hereby shall have been adversely affected as a result
thereof, Employee shall have the option, exercisable within six (6) months of
his becoming aware of such event, to terminate this Agreement forthwith. Upon
such termination, Employee shall have the right to immediately receive as a lump
sum payment an amount equal to three times the total compensation paid to
Employee during the immediately preceding fiscal year of the Company, less
$1.00.
(b) For purposes of this Agreement, a change in the
present control of the Company shall mean:
(i) if any "person" (as such term is used in
Section 13(d) and 14(d) of the Exchange Act) other than Computer Concepts Corp.,
the Company or any "person" who on the date of this Agreement is a director or
officer of the Company, becomes the "beneficial owner" (as defined in Rule
13(d)-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing thirty percent (30%) of the voting power of the Company's
then outstanding securities; or
(ii) if during any period of two (2) consecutive
years during the term of this Agreement, individuals who at the beginning of
such period constitute the Board of Directors cease for any reason to constitute
at least a majority thereof, unless the election of each director who is not a
director at the beginning of such period has been approved in advance by
directors representing at least two-thirds (2/3) of the directors then in office
who were directors at the beginning of the period.
16. Applicable Law. This Agreement shall be governed by, construed
and enforced in accordance with the laws of the State of Delaware, without
regard to conflicts of laws.
17. Entire Agreement. This Agreement constitutes the entire
understanding and agreement of the parties with respect to the subject matter of
this Agreement. Any other prior agreements, understandings or representations
with respect to the subject matter of this Agreement are hereby superseded,
terminated and canceled in their entirety and are of no force or effect.
18. Authority. The Company represents and warrants that: (i) it is
duly organized and validly existing under the laws of the jurisdiction in which
it was incorporated or formed; (ii) it has full power and authority to enter
into and perform its obligations hereunder; and (iii) this Agreement has been
duly authorized, executed, and delivered on behalf of the Company by
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<PAGE> 10
persons empowered to do so.
19. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together will constitute one and the same
agreement, and any of the parties hereto may execute this Agreement by signing
such counterpart.
20. Acknowledgment. Employee acknowledges that she has carefully
read this Agreement and hereby represents and warrants to the Company that
Employee's entering into this Agreement, and the obligations and duties
undertaken by Employee hereunder, will not conflict with, constitute a breach of
or otherwise violate the terms of any other agreement to which Employee is a
party and that Employee is not required to obtain the consent of any person OR
entity in order to enter into and perform her obligations under this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
SOFTWORKS, Inc.
By: /s/ Robert McLaughlin
-------------------------------
Name: Robert McLaughlin
Title: Chief Financial Officer
EMPLOYEE
========
/s/ Judy G. Carter
----------------------------------
Name: Judy G. Carter
Title: President and Chief Executive Officer
10
<PAGE> 11
Exhibit A
EMPLOYEE BENEFITS TO BE PROVIDED BY THE COMPANY
Life insurance
Health insurance
Long-Term Disability insurance
Directors and Officers insurance
Errors and Omissions insurance
401(k)
Dental/Optical
Stock options
11
<PAGE> 1
Exhibit 10.8
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 6th day of July, 1998 by and between
SOFTWORKS, Inc., a Delaware corporation (hereinafter the "Company") and LISA
WELCH, residing at 6152 Cobbs Road, Alexandria, Virginia 22310 (hereinafter
called the "Employee").
W I T N E S S E T H:
WHEREAS, the Company and the Employee desire to enter into an
Employment Agreement relating to the Company's employment of the Employee; and
WHEREAS, this Agreement is intended to supersede and replace
all prior agreements, understandings and arrangements between the Company and
the Employee, including any and all royalty agreements, relating to such
employment.
NOW, THEREFORE, it is agreed as follows:
1. Retention of Services. The Company hereby retains the
services of Employee, and Employee agrees to furnish such services, upon the
terms and conditions hereinafter set forth.
2. Term. Subject to earlier termination on the terms and
conditions hereinafter provided, and further subject to certain provisions
hereof which survive the term hereof, the term of this Agreement shall be
comprised of a three (3) year period of employment commencing on the date on
which the Company completes an initial public offering (the "IPO") of its
capital stock and terminating three (3) years thereafter. The term of this
Agreement shall automatically be extended for additional one (1) year periods
unless and until the Company or the Employee shall deliver written notice to the
other party hereto no less than ninety (90) days prior to the end of any renewal
term of its desire to terminate this Agreement.
3. Duties and Extent of Services During Period of Employment.
During the term of employment, Employee shall be employed on a full-time basis
as the Vice President of Technology of the Company. In such capacity, Employee
agrees that she shall serve the Company under the direction of the President and
Chief Executive Officer of the Company to the best of her ability, shall perform
all duties incident to her offices on behalf of the Company and shall perform
such other duties as may from time to time be assigned to her by the President
and Chief Executive Officer of the Company. Employee shall also serve in similar
capacities of such of the subsidiary corporations of the Company as may be
selected by the Board of Directors and shall be entitled to such additional
compensation therefor as may be determined by the Board of Directors of the
Company. Notwithstanding the foregoing, it is understood and agreed that during
the term hereof the duties of Employee during the period of active employment
shall not be inconsistent with (i) her position and title as the Vice President
of Technology or (ii) with those duties ordinarily performed by a Vice President
of Technology.
<PAGE> 2
4. Remuneration. During the period of employment, Employee
shall be entitled to receive the following compensation for her services:
(a) The Company shall pay to Employee a salary at the
rate of $130,000 per annum, payable in equal bi-weekly installments, or in such
other manner as shall be agreeable to the Company and Employee.
(b) In the event that the Company meets or exceeds
the quarterly targets established by the Board of Directors of the Company the
Company shall pay to Employee, as incentive compensation, an amount to be
determined by the Board of Directors. The Company shall pay one-eighth of such
incentive compensation on a quarterly basis not later than thirty (30) days
after the end of each fiscal quarter and shall pay one-half of such incentive
compensation not later than ninety (90) days after the end of each fiscal year
of the Company. The Company agrees to furnish to Employee a copy of such
financial statements not later than thirty (30) days after the end of each
fiscal quarter and ninety (90) days after the end of each fiscal year of the
Company during the term hereof.
5. Employee Benefits; Expenses.
(a) During the period of employment, the Company will
provide at its expense, life insurance payable to Employee's designated
beneficiary, in the face amount of up to $1,000,000 and disability insurance in
an amount equal to two-thirds of Employee's base salary as established under
paragraph 4(a) and shall pay the premium for a standard risk non-smoker.
Employee shall pay any difference in the event that the policy is other than a
standard risk non-smoker.
(b) During the period of employment, Employee shall
be eligible to participate in the Company's stock option plans, stock purchase
plans or other employee incentive plans (including without limitation its 1998
Stock Option Plan) to the extent determined in the sole discretion of the Board
of Directors of the Company or a committee thereof.
(c) During the period of employment, Employee shall
be furnished with office space and facilities commensurate with her position and
adequate for the performance of her duties; she shall be provided with the
perquisites customarily associated with the position of the Vice President of
Technology of the Company; and she shall be entitled to regular vacations during
each year of four (4) weeks in the aggregate.
(d) It is contemplated that during the period of
employment, Employee may be required to incur out-of-pocket expenses in
connection with the performance of her services hereunder, including expenses
incurred for travel and business entertainment. Accordingly, the Company shall
reimburse Employee for all reasonable out-of-pocket expenses incurred by
Employee
<PAGE> 3
in the performance of her duties hereunder upon submission of reasonable
documentation therefore in accordance with the Company's policies.
(e) All benefits to Employee specifically provided
for herein shall be in addition to, and shall not diminish any rights which
Employee may have or may acquire under any hospitalization, life insurance,
pension, profit sharing or other present or future employee benefit plan or
plans of the Company.
6. Disability. If Employee, during the period of employment,
becomes unable for three consecutive months or more, or any 180 days in any
twelve-month period, due to ill health or other physical or mental incapacity,
to perform her services hereunder, the Company may thereafter, upon at least 45
days' written notice to Employee, place her on disability status. After such
action by the Company, Employee shall only be entitled to the disability
benefits under her insurance policy during the disability period.
7. Confidential Information.
(a) In the course of Employee's employment by the
Company, Employee will have access to and possession of valuable and important
confidential or proprietary data or information of the Company and its
operations. Employee will not during Employee's employment by the Company or at
any time thereafter divulge or communicate to any person nor shall Employee
direct any Company employee, representative or agent to divulge or communicate
to any person or entity (other than to a person or entity bound by
confidentiality obligations similar to those contained herein and other than as
necessary in performing Employee's duties hereunder) or use to the detriment of
the Company or for the benefit of any other person or entity, any of such
confidential or proprietary data or information or make or remove any copies
thereof, whether or not marked or otherwise identified as "confidential" or
"secret." Employee shall take all reasonable precautions in handling the
confidential or proprietary data or information within the Company to a strict
need-to-know basis and shall comply with any and all security systems and
measures adopted from time to time by the Company to protect the confidentiality
of confidential or proprietary data or information.
(b) The term "confidential or proprietary data or
information" as used in this Agreement shall mean information not generally
available to the public, including, without limitation, all database
information, personnel information, financial information, customer lists,
supplier lists, trade secrets, patented or proprietary information, forms,
information regarding operations, systems, services, know how, computer and any
other processed or collated data, computer programs, pricing, marketing and
advertising data.
(c) Employee will at all times promptly disclose to
the Company in such form and manner as the Company may reasonably require, any
inventions, improvements or procedural or methodological innovations, programs,
methods, forms, systems, services, designs,
<PAGE> 4
marketing ideas, products or processes (whether or not capable of being
trademarked, copyrighted or patented) conceived or developed or created by
Employee during or in connection with Employee's employment hereunder and which
relate to the business of the Company ("Intellectual Property"). Employee agrees
that all such Intellectual Property shall be "work-for-hire" and shall be the
sole property of the Company. To the extent any such Intellectual Property does
not constitute a "work-for-hire" under U.S. law, Employee hereby assigns to
Company all right, title and interest in such Intellectual Property. Employee
further agrees that Employee will execute such instruments and perform such acts
as may reasonably be requested by the Company to effectuate such assignment and
otherwise to transfer to and perfect in the Company all rights in such
Intellectual Property.
(d) All written materials, records and documents made
by Employee or coming into Employee's possession during Employee's employment by
the Company concerning any products, processes or equipment manufactured, used,
developed, investigated, purchased, sold or considered by the Company or
otherwise concerning the business or affairs of the Company shall be the sole
property of the Company, and upon termination of Employee's employment by the
Company, or upon request of the Company during Employee's employment by the
Company, Employee shall promptly deliver the same to the Company. In addition,
upon termination of Employee's employment by the Company, Employee will deliver
to the Company all other Company property in Employee's possession or under
Employee's control, including, but not limited to, financial statements,
marketing and sales data, customer and supplier lists, database information and
other documents, and any Company credit cards.
(e) The provisions of this Section 7 shall survive
the termination of this Employment Agreement.
8. Non-Competition.
(a) During the term of this Agreement and for one
year thereafter (subject to clause (b) of this Section 8, the "Restricted
Period"), the Employee shall not, without the written consent of the Company,
directly or indirectly,
(i) become associated with, render services to,
invest in, represent, advise or otherwise participate in as an officer,
employee, director, stockholder, partner, promoter, agent of, consultant for or
otherwise, any business which is in competition with any of the Company's
products or services, conducted in any of the jurisdictions in which the
Company's business is conducted; provided, however, that nothing contained
herein will prevent Employee from owning less than five percent (5%) of any
class of equity or debt securities listed on a national securities exchange or
traded in any established over-the-counter securities market, so long as such
involvement with the issuer of any such securities is solely that of a passive
investor;
(ii) for her own account or for the account of any
other person or entity (A)
<PAGE> 5
interfere with the Company's relationship with any of its suppliers, customers,
representatives or agents or (B) transact any business, which is in competition
with any of the Company's products or services, with any customer or supplier of
the Company which transacts or has transacted business with the Company at any
time during the term of this Agreement; or
(iii) employ or otherwise engage, or solicit, entice
or induce on behalf of herself or any other person or entity, the services,
retention or employment of any person who has been an employee, sales
representative, consultant to or agent of the Company within one year of the
date of such offer or solicitation.
(b) In the event that the Employee terminates her
employment hereunder after a breach hereof by the Company, or if the Company
terminates the Employee's employment hereunder other than for cause (as defined
in Section 9(a) hereof), the covenant contained in Section 8(a) hereof shall
extend for a period of one year beyond the termination of the Employee's
employment only if the Company shall pay to the Employee on a monthly basis with
respect to such period an amount equal to the annual compensation otherwise
provided for hereunder with respect to the immediately preceding year during the
term hereof. This Section 8(b) shall be of no effect, and the Employee shall be
subject to the restrictive covenant contained in Section 8(a) hereof without the
Company being obligated to make the payments referred to in the preceding
sentence, if the Company terminates its employment of the Employee for cause (as
defined in Section 9(a) hereof) or if the Employee terminates her employment
hereunder in the absence of a breach hereof by the Company.
(c) The parties hereto intend that the covenants
contained in this Section 8 shall be deemed a series of separate covenants for
each country, state, county and city. If, in any judicial proceeding, a court
shall refuse to enforce all the separate covenants deemed included in this
Section 8 because, taken together, they cover too extensive a geographic area,
the parties intend that those of such covenants (taken in order of the cities,
counties, states and countries therein which are lease populous) which if
eliminated would permit the remaining separate covenants to be enforced in such
proceeding shall, for the purpose of such proceeding, be deemed eliminated from
the provisions of this Section 8.
(d) With respect to the covenants contained in
Sections 7 and 8 of this Agreement, Employee agrees that any remedy at law for
any breach or threatened or attempted breach of such covenants may be inadequate
and that the Company shall be entitled to specific performance or any other mode
of injunctive and/or other equitable relief to enforce its rights hereunder or
any other relief a court might award without the necessity of showing any actual
damage or irreparable harm or the posting of any bond or furnishing of other
security.
9. Termination.
(a) The Company recognizes that, for the period
during which Employee
<PAGE> 6
has been employed and/or associated with the Company, the Company has been
intimately familiar with the ability, competence and judgment of Employee, which
are acknowledged to be of the highest caliber. Accordingly, the Company and
Employee agree that Employee's services hereunder may be terminated for "cause"
by the Company only (i) for an act of fraud or embezzlement adversely affecting
the financial interest of the Company, (ii) in the event that the Company places
Employee on disability status pursuant to Section 6 hereof more than once during
the term hereof, (iii) in the event of a conviction of the Employee for any
felony, (iv) in the event of material breach by the Employee of the terms of
this Agreement, following the receipt by the Employee of thirty (30) days notice
of such breach and the Employee's failure to cure such breach within such grace
period, (v) in the event of any willful breach by the Employee of this
Agreement, or (vi) in the event that the Employee materially breaches any of her
representations, warranties, covenants or agreements contained in the
underwriting agreement to be executed by the Company, SoundView Financial Group,
Inc. and Raymond James & Associates, Inc. This Agreement shall also terminate on
the death of Employee.
(b) If the Company terminates Employee's employment
hereunder for any reason other than for "cause" as set forth in Section 9(a)
hereof, Employee's compensation shall be paid to her as provided hereunder for
the greater of the (i) remainder of the term of this Agreement or (ii) two
years. If the Company terminates Employee's employment hereunder for "cause" as
set forth in Section 9(a) hereof, Employee shall not be entitled to receive any
further compensation hereunder which has not already been earned pursuant to the
terms hereof. Employee and the Company acknowledge that the foregoing provisions
of this paragraph 9(b) are reasonable and are based upon the facts and
circumstances of the parties at the time of entering into this Agreement, and
with due regard to future expectations.
10. Consolidation or Merger. In the event of any consolidation
or merger of the Company into or with any other corporation during the term of
this Agreement, or the sale of all or substantially all of the assets of the
Company to another corporation, person or entity during the term of this
Agreement, such successor corporation shall assume this Agreement and become
obligated to perform all of the terms and provisions hereof applicable to the
Company, and Employee's obligations hereunder shall continue in favor of such
successor corporation.
11. Notices. Any notice to be given to the Company hereunder
shall be deemed sufficient if addressed to the Company in writing and delivered
or mailed by certified or registered mail to its offices at 5845 Richmond
Highway, Suite 400, Alexandria, Virginia 22303, or such other address as the
Company may hereafter designate, with a copy to David H. Lieberman, Esq., Blau,
Kramer, Wactlar & Lieberman, P.C., 100 Jericho Quadrangle, Jericho, New York
11753. Any notice to be given to Employee hereunder shall be delivered or mailed
by certified or registered mail to her at: 6152 Cobbs Road, Alexandria, Virginia
22310 or such other address as she may hereafter designate.
12. Successors and Assigns. This Agreement shall be binding
upon and inure to
<PAGE> 7
the benefit of the successors and assigns of the Company, and unless clearly
inapplicable, all references herein to the Company shall be deemed to include
any such successor. In addition, this Agreement shall be binding upon and inure
to the benefit of the Employee and her heirs, executors, legal representatives
and assigns; provided, however, that the obligations of Employee hereunder may
not be delegated without the prior written approval of the Board of Directors of
the Company.
13. Amendments. This Agreement may not be altered, modified,
amended or terminated except by a written instrument signed by each of the
parties hereto.
14. Prior Agreements Superseded. This Agreement supersedes any
employment or consulting agreements, oral or written, entered into between
Employee and the Company prior to the date of this Agreement.
15. Change of Control.
(a) In the event there shall be a change in the
present control of the Company, as hereinafter defined, and the Employee's
working conditions as contemplated hereby shall have been adversely affected as
a result thereof, Employee shall have the option, exercisable within six (6)
months of her becoming aware of such event, to terminate this Agreement
forthwith. Upon such termination, Employee shall have the right to immediately
receive as a lump sum payment an amount equal to three times the total
compensation paid to Employee during the immediately preceding fiscal year of
the Company, less $1.00.
(b) For purposes of this Agreement, a change in the
present control of the Company shall mean:
(i) if any "person" (as such term is used in Section
13(d) and 14(d) of the Exchange Act) other than Computer Concepts Corp., the
Company or any "person" who on the date of this Agreement is a director or
officer of the Company, becomes the "beneficial owner" (as defined in Rule
13(d)-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing thirty percent (30%) of the voting power of the Company's
then outstanding securities; or
(ii) if during any period of two (2) consecutive
years during the term of this Agreement, individuals who at the beginning of
such period constitute the Board of Directors cease for any reason to constitute
at least a majority thereof, unless the election of each director who is not a
director at the beginning of such period has been approved in advance by
directors representing at least two-thirds (2/3) of the directors then in office
who were directors at the beginning of the period.
16. Applicable Law. This Agreement shall be governed by,
construed and enforced in accordance with the laws of the State of Delaware,
without regard to conflicts of laws.
<PAGE> 8
17. Acknowledgment. Employee acknowledges that she has
carefully read this Agreement and hereby represents and warrants to the Company
that Employee's entering into this Agreement, and the obligations and duties
undertaken by Employee hereunder, will not conflict with, constitute a breach of
or otherwise violate the terms of any other agreement to which Employee is a
party and that Employee is not required to obtain the consent of any person,
firm, corporation or other entity in order to enter into and perform her
obligations under this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
SOFTWORKS, Inc.
By: /s/ Judy G. Carter
-------------------------------------
Name: Judy G. Carter
Title: President &
Chief Executive Officer
/s/ Lisa Welch
-------------------------------------
Name: Lisa Welch
Title: Vice President of
Technology
<PAGE> 1
Exhibit 10.9
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 6th day of July, 1998 by and between
SOFTWORKS, Inc., a Delaware corporation (hereinafter the "Company") and JOSEPH
MIKSCH, residing at 3801 N. 36th Road, Arlington, Virginia, 22207 (hereinafter
called the "Employee").
W I T N E S S E T H:
WHEREAS, the Company and the Employee desire to enter into an
Employment Agreement relating to the Company's employment of the Employee; and
WHEREAS, this Agreement is intended to supersede and replace
all prior agreements, understandings and arrangements between the Company and
the Employee, including any and all royalty agreements, relating to such
employment.
NOW, THEREFORE, it is agreed as follows:
1. Retention of Services. The Company hereby retains the
services of Employee, and Employee agrees to furnish such services, upon the
terms and conditions hereinafter set forth.
2. Term. Subject to earlier termination on the terms and
conditions hereinafter provided, and further subject to certain provisions
hereof which survive the term hereof, the term of this Agreement shall be
comprised of a three (3) year period of employment commencing on the date on
which the Company completes an initial public offering (the "IPO") of its
capital stock and terminating three (3) years thereafter. The term of this
Agreement shall automatically be extended for additional one (1) year periods
unless and until the Company or the Employee shall deliver written notice to the
other party hereto no less than ninety (90) days prior to the end of any renewal
term of its desire to terminate this Agreement.
3. Duties and Extent of Services During Period of Employment.
During the term of employment, Employee shall be employed on a full-time basis
as the Vice President of Global Sales of the Company. In such capacity, Employee
agrees that he shall serve the Company under the direction of the President and
Chief Executive Officer of the Company to the best of his ability, shall perform
all duties incident to his offices on behalf of the Company and shall perform
such other duties as may from time to time be assigned to him by the President
and Chief Executive Officer of the Company. Employee shall also serve in similar
capacities of such of the subsidiary corporations of the Company as may be
selected by the Board of Directors and shall be entitled to such additional
compensation therefor as may be determined by the Board of Directors of the
Company. Notwithstanding the foregoing, it is understood and agreed that during
the term hereof the duties of Employee during the period of active employment
shall not be inconsistent with (i) his position and title as the Vice President
of Global Sales or (ii) with those duties ordinarily performed
<PAGE> 2
by a Vice President of Global Sales.
4. Remuneration. During the period of employment, Employee
shall be entitled to receive the following compensation for his services:
(a) The Company shall pay to Employee a salary at the
rate of $135,000 per annum, payable in equal bi-weekly installments, or in such
other manner as shall be agreeable to the Company and Employee.
(b) In the event that the Company meets or exceeds
the quarterly targets established by the Board of Directors of the Company the
Company shall pay to Employee, as incentive compensation, an amount to be
determined by the Board of Directors. The Company shall pay one-eighth of such
incentive compensation on a quarterly basis not later than thirty (30) days
after the end of each fiscal quarter and shall pay one-half of such incentive
compensation not later than ninety (90) days after the end of each fiscal year
of the Company. The Company agrees to furnish to Employee a copy of such
financial statements not later than thirty (30) days after the end of each
fiscal quarter and ninety (90) days after the end of each fiscal year of the
Company during the term hereof.
(c) The Company shall pay to Employee commissions
based upon a formula as determined by the Board of Directors of the Company in
its sole discretion in an amount to be determined by the Board of Directors.
5. Employee Benefits; Expenses.
(a) During the period of employment, Employee shall
be eligible to participate in the Company's stock option plans, stock purchase
plans or other employee incentive plans (including without limitation its 1998
Stock Option Plan) to the extent determined in the sole discretion of the Board
of Directors of the Company or a committee thereof. The Company will also
provide at its expense during the period of employment life insurance to
Employee in the face amount of up to $1,000,000 to the extent such coverage is
available to the Company at a reasonable cost through a general corporate
insurance policy.
(b) During the period of employment, Employee shall
be furnished with office space and facilities commensurate with his position and
adequate for the performance of his duties; he shall be provided with the
perquisites customarily associated with the position of the Vice President of
Global Sales of the Company; and he shall be entitled to regular vacations
during each year of four (4) weeks in the aggregate.
(c) It is contemplated that during the period of
employment, Employee
<PAGE> 3
may be required to incur out-of-pocket expenses in connection with the
performance of his services hereunder, including expenses incurred for travel
and business entertainment. Accordingly, the Company shall reimburse Employee
for all reasonable out-of-pocket expenses incurred by Employee in the
performance of his duties hereunder upon submission of reasonable documentation
therefore in accordance with the Company's policies.
(d) All benefits to Employee specifically provided
for herein shall be in addition to, and shall not diminish any rights which
Employee may have or may acquire under any hospitalization, life insurance,
pension, profit sharing or other present or future employee benefit plan or
plans of the Company.
6. Disability. If Employee, during the period of employment,
becomes unable for three consecutive months or more, or any 180 days in any
twelve-month period, due to ill health or other physical or mental incapacity,
to perform his services hereunder, the Company may thereafter, upon at least 45
days' written notice to Employee, place him on disability status. After such
action by the Company, Employee shall only be entitled to the disability
benefits under his insurance policy during the disability period.
7. Confidential Information.
(a) In the course of Employee's employment by the
Company, Employee will have access to and possession of valuable and important
confidential or proprietary data or information of the Company and its
operations. Employee will not during Employee's employment by the Company or at
any time thereafter divulge or communicate to any person nor shall Employee
direct any Company employee, representative or agent to divulge or communicate
to any person or entity (other than to a person or entity bound by
confidentiality obligations similar to those contained herein and other than as
necessary in performing Employee's duties hereunder) or use to the detriment of
the Company or for the benefit of any other person or entity, any of such
confidential or proprietary data or information or make or remove any copies
thereof, whether or not marked or otherwise identified as "confidential" or
"secret." Employee shall take all reasonable precautions in handling the
confidential or proprietary data or information within the Company to a strict
need-to-know basis and shall comply with any and all security systems and
measures adopted from time to time by the Company to protect the confidentiality
of confidential or proprietary data or information.
(b) The term "confidential or proprietary data or
information" as used in this Agreement shall mean information not generally
available to the public, including, without limitation, all database
information, personnel information, financial information, customer lists,
supplier lists, trade secrets, patented or proprietary information, forms,
information regarding operations, systems, services, know how, computer and any
other processed or collated data, computer programs, pricing, marketing and
advertising data.
<PAGE> 4
(c) Employee will at all times promptly disclose to
the Company in such form and manner as the Company may reasonably require, any
inventions, improvements or procedural or methodological innovations, programs,
methods, forms, systems, services, designs, marketing ideas, products or
processes (whether or not capable of being trademarked, copyrighted or patented)
conceived or developed or created by Employee during or in connection with
Employee's employment hereunder and which relate to the business of the Company
("Intellectual Property"). Employee agrees that all such Intellectual Property
shall be "work-for-hire" and shall be the sole property of the Company. To the
extent any such Intellectual Property does not constitute a "work-for-hire"
under U.S. law, Employee hereby assigns to Company all right, title and interest
in such Intellectual Property. Employee further agrees that Employee will
execute such instruments and perform such acts as may reasonably be requested by
the Company to effectuate such assignment and otherwise to transfer to and
perfect in the Company all rights in such Intellectual Property.
(d) All written materials, records and documents made
by Employee or coming into Employee's possession during Employee's employment by
the Company concerning any products, processes or equipment manufactured, used,
developed, investigated, purchased, sold or considered by the Company or
otherwise concerning the business or affairs of the Company shall be the sole
property of the Company, and upon termination of Employee's employment by the
Company, or upon request of the Company during Employee's employment by the
Company, Employee shall promptly deliver the same to the Company. In addition,
upon termination of Employee's employment by the Company, Employee will deliver
to the Company all other Company property in Employee's possession or under
Employee's control, including, but not limited to, financial statements,
marketing and sales data, customer and supplier lists, database information and
other documents, and any Company credit cards.
(e) The provisions of this Section 7 shall survive
the termination of this Employment Agreement.
8. Non-Competition.
(a) During the term of this Agreement and for one
year thereafter (subject to clause (b) of this Section 8, the "Restricted
Period"), the Employee shall not, without the written consent of the Company,
directly or indirectly,
(i) become associated with, render services to,
invest in, represent, advise or otherwise participate in as an officer,
employee, director, stockholder, partner, promoter, agent of, consultant for or
otherwise, any business which is in competition with any of the Company's
products or services, which is conducted in any of the jurisdictions in which
the Company's business is conducted; provided, however, that nothing contained
herein will prevent Employee
<PAGE> 5
from owning less than five percent (5%) of any class of equity or debt
securities listed on a national securities exchange or traded in any established
over-the-counter securities market, so long as such involvement with the issuer
of any such securities is solely that of a passive investor;
(ii) for his own account or for the account of any
other person or entity (A) interfere with the Company's relationship with any of
its suppliers, customers, representatives or agents or (B) transact any
business, which is in competition with any of the Company's products or
services, with any customer or supplier of the Company which transacts or has
transacted business with the Company at any time during the term of this
Agreement; or
(iii) employ or otherwise engage, or solicit, entice
or induce on behalf of himself or any other person or entity, the services,
retention or employment of any person who has been an employee, sales
representative, consultant to or agent of the Company within one year of the
date of such offer or solicitation.
(b) In the event that the Employee terminates his
employment hereunder after a breach hereof by the Company, or if the Company
terminates the Employee's employment hereunder other than for cause (as defined
in Section 9(a) hereof), the covenant contained in Section 8(a) hereof shall
extend for a period of one year beyond the termination of the Employee's
employment only if the Company shall pay to the Employee on a monthly basis with
respect to such period an amount equal to the annual compensation otherwise
provided for hereunder with respect to the immediately preceding year during the
term hereof. This Section 8(b) shall be of no effect, and the Employee shall be
subject to the restrictive covenant contained in Section 8(a) hereof without the
Company being obligated to make the payments referred to in the preceding
sentence, if the Company terminates its employment of the Employee for cause (as
defined in Section 9(a) hereof) or if the Employee terminates his employment
hereunder in the absence of a breach hereof by the Company.
(c) The parties hereto intend that the covenants
contained in this Section 8 shall be deemed a series of separate covenants for
each country, state, county and city. If, in any judicial proceeding, a court
shall refuse to enforce all the separate covenants deemed included in this
Section 8 because, taken together, they cover too extensive a geographic area,
the parties intend that those of such covenants (taken in order of the cities,
counties, states and countries therein which are lease populous) which if
eliminated would permit the remaining separate covenants to be enforced in such
proceeding shall, for the purpose of such proceeding, be deemed eliminated from
the provisions of this Section 8.
(d) With respect to the covenants contained in
Sections 7 and 8 of this Agreement, Employee agrees that any remedy at law for
any breach or threatened or attempted breach of such covenants may be inadequate
and that the Company shall be entitled to specific performance or any other mode
of injunctive and/or other equitable relief to enforce its rights
<PAGE> 6
hereunder or any other relief a court might award without the necessity of
showing any actual damage or irreparable harm or the posting of any bond or
furnishing of other security.
9. Termination.
(a) The Company recognizes that, for the period
during which Employee has been employed and/or associated with the Company, the
Company has been intimately familiar with the ability, competence and judgment
of Employee, which are acknowledged to be of the highest caliber. Accordingly,
the Company and Employee agree that Employee's services hereunder may be
terminated for "cause" by the Company only (i) for an act of fraud or
embezzlement adversely affecting the financial interest of the Company, (ii) in
the event that the Company places Employee on disability status pursuant to
Section 6 hereof more than once during the term hereof, (iii) in the event of a
conviction of the Employee for any felony, (iv) in the event of material breach
by the Employee of the terms of this Agreement, following the receipt by the
Employee of thirty (30) days notice of such breach and the Employee's failure to
cure such breach within such grace period, (v) in the event of any willful
breach by the Employee of this Agreement, or (vi) in the event that the Employee
materially breaches any of his representations, warranties, covenants or
agreements contained in the underwriting agreement to be executed by the
Company, SoundView Financial Group, Inc. and Raymond James & Associates, Inc.
This Agreement shall also terminate on the death of Employee.
(b) If the Company terminates Employee's employment
hereunder for any reason other than for "cause" as set forth in Section 9(a)
hereof, Employee's compensation shall be paid to him as provided hereunder for
the greater of the (i) remainder of the term of this Agreement or (ii) two
years. If the Company terminates Employee's employment hereunder for "cause" as
set forth in Section 9(a) hereof, Employee shall not be entitled to receive any
further compensation hereunder which has not already been earned pursuant to the
terms hereof. Employee and the Company acknowledge that the foregoing provisions
of this paragraph 9(b) are reasonable and are based upon the facts and
circumstances of the parties at the time of entering into this Agreement, and
with due regard to future expectations.
10. Consolidation or Merger. In the event of any consolidation
or merger of the Company into or with any other corporation during the term of
this Agreement, or the sale of all or substantially all of the assets of the
Company to another corporation, person or entity during the term of this
Agreement, such successor corporation shall assume this Agreement and become
obligated to perform all of the terms and provisions hereof applicable to the
Company, and Employee's obligations hereunder shall continue in favor of such
successor corporation.
11. Notices. Any notice to be given to the Company hereunder
shall be deemed sufficient if addressed to the Company in writing and delivered
or mailed by certified or registered mail to its offices at 5845 Richmond
Highway, Suite 400, Alexandria, Virginia 22303, or such
<PAGE> 7
other address as the Company may hereafter designate, with a copy to David H.
Lieberman, Esq., Blau, Kramer, Wactlar & Lieberman, P.C., 100 Jericho
Quadrangle, Jericho, New York 11753. Any notice to be given to Employee
hereunder shall be delivered or mailed by certified or registered mail to him
at: 3801 N. 36th Road, Arlington, Virginia, 22207 (or such other address as he
may hereafter designate.
12. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the successors and assigns of the Company, and
unless clearly inapplicable, all references herein to the Company shall be
deemed to include any such successor. In addition, this Agreement shall be
binding upon and inure to the benefit of the Employee and his heirs, executors,
legal representatives and assigns; provided, however, that the obligations of
Employee hereunder may not be delegated without the prior written approval of
the Board of Directors of the Company.
13. Amendments. This Agreement may not be altered, modified,
amended or terminated except by a written instrument signed by each of the
parties hereto.
14. Prior Agreements Superseded. This Agreement supersedes any
employment or consulting agreements, oral or written, entered into between
Employee and the Company prior to the date of this Agreement.
15. Change of Control.
(a) In the event there shall be a change in the present
control of the Company, as hereinafter defined, and the Employee's working
conditions as contemplated hereby shall have been adversely affected as a result
thereof, Employee shall have the option, exercisable within six (6) months of
his becoming aware of such event, to terminate this Agreement forthwith. Upon
such termination, Employee shall have the right to immediately receive as a lump
sum payment an amount equal to three times the total compensation paid to
Employee during the immediately preceding fiscal year of the Company, less
$1.00.
(b) For purposes of this Agreement, a change in the
present control of the Company shall mean:
(i) if any "person" (as such term is used in Section
13(d) and 14(d) of the Exchange Act) other than Computer Concepts Corp., the
Company or any "person" who on the date of this Agreement is a director or
officer of the Company, becomes the "beneficial owner" (as defined in Rule
13(d)-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing thirty percent (30%) of the voting power of the Company's
then outstanding securities; or
(ii) if during any period of two (2) consecutive
years during the term of this
<PAGE> 8
Agreement, individuals who at the beginning of such period constitute the Board
of Directors cease for any reason to constitute at least a majority thereof,
unless the election of each director who is not a director at the beginning of
such period has been approved in advance by directors representing at least
two-thirds (2/3) of the directors then in office who were directors at the
beginning of the period.
16. Applicable Law. This Agreement shall be governed by,
construed and enforced in accordance with the laws of the State of Delaware,
without regard to conflicts of laws.
17. Acknowledgment. Employee acknowledges that he has
carefully read this Agreement and hereby represents and warrants to the Company
that Employee's entering into this Agreement, and the obligations and duties
undertaken by Employee hereunder, will not conflict with, constitute a breach of
or otherwise violate the terms of any other agreement to which Employee is a
party and that Employee is not required to obtain the consent of any person,
firm, corporation or other entity in order to enter into and perform his
obligations under this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
SOFTWORKS, Inc.
By: /s/ Judy G. Carter
-------------------------------------
Name: Judy G. Carter
Title: President &
Chief Executive Officer
/s/ Joseph Miksch
-------------------------------------
Name: Joseph Miksch
Title: Vice President of
Global Sales
<PAGE> 1
Exhibit 10.10
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 6th day of July, 1998 by and between
SOFTWORKS, Inc., a Delaware corporation (hereinafter the "Company") and ROBERT
MCLAUGHLIN, residing at 7308 Snowden Court, Springfield, Virginia 22150
(hereinafter called the "Employee").
W I T N E S S E T H:
WHEREAS, the Company and the Employee desire to enter into an
Employment Agreement relating to the Company's employment of the Employee; and
WHEREAS, this Agreement is intended to supersede and replace
all prior agreements, understandings and arrangements between the Company and
the Employee, including any and all royalty agreements, relating to such
employment.
NOW, THEREFORE, it is agreed as follows:
1. Retention of Services. The Company hereby retains the
services of Employee, and Employee agrees to furnish such services, upon the
terms and conditions hereinafter set forth.
2. Term. Subject to earlier termination on the terms and
conditions hereinafter provided, and further subject to certain provisions
hereof which survive the term hereof, the term of this Agreement shall be
comprised of a three (3) year period of employment commencing on the date on
which the Company completes an initial public offering (the "IPO") of its
capital stock and terminating three (3) years thereafter. The term of this
Agreement shall automatically be extended for additional one (1) year periods
unless and until the Company or the Employee shall deliver written notice to the
other party hereto no less than ninety (90) days prior to the end of any renewal
term of its desire to terminate this Agreement.
3. Duties and Extent of Services During Period of Employment.
During the term of employment, Employee shall be employed on a full-time basis
as the Chief Financial Officer and Treasurer of the Company. In such capacity,
Employee agrees that he shall serve the Company under the direction of the
President and Chief Executive Officer of the Company to the best of his ability,
shall perform all duties incident to his offices on behalf of the Company and
shall perform such other duties as may from time to time be assigned to him by
the President and Chief Executive Officer of the Company. Employee shall also
serve in similar capacities of such of the subsidiary corporations of the
Company as may be selected by the Board of Directors and shall be entitled to
such additional compensation therefor as may be determined by the Board of
Directors of the Company. Notwithstanding the foregoing, it is understood and
agreed that during the term hereof the duties of Employee during the period of
active employment shall not be inconsistent with (i) his position and title as
the Chief Financial Officer of the Company or (ii) with those duties ordinarily
performed by a Chief Financial Officer.
<PAGE> 2
4. Remuneration. During the period of employment, Employee
shall be entitled to receive the following compensation for his services:
(a) The Company shall pay to Employee a salary at the
rate of $120,000 per annum, payable in equal bi-weekly installments, or in such
other manner as shall be agreeable to the Company and Employee.
(b) In the event that the Company meets or exceeds
the quarterly targets established by the Board of Directors of the Company the
Company shall pay to Employee, as incentive compensation, an amount to be
determined by the Board of Directors. The Company shall pay one-eighth of such
incentive compensation on a quarterly basis not later than thirty (30) days
after the end of each fiscal quarter and shall pay one-half of such incentive
compensation not later than ninety (90) days after the end of each fiscal year
of the Company. The Company agrees to furnish to Employee a copy of such
financial statements not later than thirty (30) days after the end of each
fiscal quarter and ninety (90) days after the end of each fiscal year of the
Company during the term hereof.
5. Employee Benefits; Expenses.
(a) During the period of employment, the Company will
provide at its expense, life insurance to Employee in the face amount of up to
$1,000,000 and disability insurance in an amount equal to two-thirds of
Employee's base salary as established under paragraph 4(a) and shall pay the
premium for a standard risk non-smoker. Employee shall pay any difference in the
event that the policy is other than a standard risk non-smoker.
(b) During the period of employment, Employee shall
be eligible to participate in the Company's stock option plans, stock purchase
plans or other employee incentive plans (including without limitation its 1998
Stock Option Plan) to the extent determined in the sole discretion of the Board
of Directors of the Company or a committee thereof.
(c) During the period of employment, Employee shall
be furnished with office space and facilities commensurate with his position and
adequate for the performance of his duties; he shall be provided with the
perquisites customarily associated with the position of the Chief Financial
Officer of the Company; and he shall be entitled to regular vacations during
each year of four (4) weeks in the aggregate.
(d) It is contemplated that during the period of
employment, Employee may be required to incur out-of-pocket expenses in
connection with the performance of his services hereunder, including expenses
incurred for travel and business entertainment. Accordingly, the Company shall
reimburse Employee for all reasonable out-of-pocket expenses incurred by
Employee in the performance of his duties hereunder upon submission of
reasonable documentation therefore
<PAGE> 3
in accordance with the Company's policies.
(e) All benefits to Employee specifically provided
for herein shall be in addition to, and shall not diminish any rights which
Employee may have or may acquire under any hospitalization, life insurance,
pension, profit sharing or other present or future employee benefit plan or
plans of the Company.
6. Disability. If Employee, during the period of employment,
becomes unable for three consecutive months or more, or any 180 days in any
twelve-month period, due to ill health or other physical or mental incapacity,
to perform his services hereunder, the Company may thereafter, upon at least 45
days' written notice to Employee, place him on disability status. After such
action by the Company, Employee shall only be entitled to the disability
benefits under his insurance policy during the disability period.
7. Confidential Information.
(a) In the course of Employee's employment by the
Company, Employee will have access to and possession of valuable and important
confidential or proprietary data or information of the Company and its
operations. Employee will not during Employee's employment by the Company or at
any time thereafter divulge or communicate to any person nor shall Employee
direct any Company employee, representative or agent to divulge or communicate
to any person or entity (other than to a person or entity bound by
confidentiality obligations similar to those contained herein and other than as
necessary in performing Employee's duties hereunder) or use to the detriment of
the Company or for the benefit of any other person or entity, any of such
confidential or proprietary data or information or make or remove any copies
thereof, whether or not marked or otherwise identified as "confidential" or
"secret." Employee shall take all reasonable precautions in handling the
confidential or proprietary data or information within the Company to a strict
need-to-know basis and shall comply with any and all security systems and
measures adopted from time to time by the Company to protect the confidentiality
of confidential or proprietary data or information.
(b) The term "confidential or proprietary data or
information" as used in this Agreement shall mean information not generally
available to the public, including, without limitation, all database
information, personnel information, financial information, customer lists,
supplier lists, trade secrets, patented or proprietary information, forms,
information regarding operations, systems, services, know how, computer and any
other processed or collated data, computer programs, pricing, marketing and
advertising data.
(c) Employee will at all times promptly disclose to
the Company in such form and manner as the Company may reasonably require, any
inventions, improvements or procedural or methodological innovations, programs,
methods, forms, systems, services, designs, marketing ideas, products or
processes (whether or not capable of being trademarked, copyrighted
<PAGE> 4
or patented) conceived or developed or created by Employee during or in
connection with Employee's employment hereunder and which relate to the business
of the Company ("Intellectual Property"). Employee agrees that all such
Intellectual Property shall be "work-for-hire" and shall be the sole property of
the Company. To the extent any such Intellectual Property does not constitute a
"work-for-hire" under U.S. law, Employee hereby assigns to Company all right,
title and interest in such Intellectual Property. Employee further agrees that
Employee will execute such instruments and perform such acts as may reasonably
be requested by the Company to effectuate such assignment and otherwise to
transfer to and perfect in the Company all rights in such Intellectual Property.
(d) All written materials, records and documents made
by Employee or coming into Employee's possession during Employee's employment by
the Company concerning any products, processes or equipment manufactured, used,
developed, investigated, purchased, sold or considered by the Company or
otherwise concerning the business or affairs of the Company shall be the sole
property of the Company, and upon termination of Employee's employment by the
Company, or upon request of the Company during Employee's employment by the
Company, Employee shall promptly deliver the same to the Company. In addition,
upon termination of Employee's employment by the Company, Employee will deliver
to the Company all other Company property in Employee's possession or under
Employee's control, including, but not limited to, financial statements,
marketing and sales data, customer and supplier lists, database information and
other documents, and any Company credit cards.
(e) The provisions of this Section 7 shall survive
the termination of this Employment Agreement.
8. Non-Competition.
(a) During the term of this Agreement and for one
year thereafter (subject to clause (b) of this Section 8, the "Restricted
Period"), the Employee shall not, without the written consent of the Company,
directly or indirectly,
(i) become associated with, render services to,
invest in, represent, advise or otherwise participate in as an officer,
employee, director, stockholder, partner, promoter, agent of, consultant for or
otherwise, any systems management software business which is conducted in any of
the jurisdictions in which the Company's business is conducted; provided,
however, that nothing contained herein will prevent Employee from owning less
than five percent (5%) of any class of equity or debt securities listed on a
national securities exchange or traded in any established over-the-counter
securities market, so long as such involvement with the issuer of any such
securities is solely that of a passive investor;
(ii) for his own account or for the account of any
other person or entity (A) interfere with the Company's relationship with any of
its suppliers, customers, representatives or
<PAGE> 5
agents or (B) transact any business with any customer or supplier of the Company
which transacts or has transacted business with the Company at any time during
the term of this Agreement; or
(iii) employ or otherwise engage, or solicit, entice
or induce on behalf of himself or any other person or entity, the services,
retention or employment of any person who has been an employee, sales
representative, consultant to or agent of the Company within one year of the
date of such offer or solicitation.
(b) In the event that the Employee terminates his
employment hereunder after a breach hereof by the Company, or if the Company
terminates the Employee's employment hereunder other than for cause (as defined
in Section 9(a) hereof), the covenant contained in Section 8(a) hereof shall
extend for a period of one year beyond the termination of the Employee's
employment only if the Company shall pay to the Employee on a monthly basis with
respect to such period an amount equal to the annual compensation otherwise
provided for hereunder with respect to the immediately preceding year during the
term hereof. This Section 8(b) shall be of no effect, and the Employee shall be
subject to the restrictive covenant contained in Section 8(a) hereof without the
Company being obligated to make the payments referred to in the preceding
sentence, if the Company terminates its employment of the Employee for cause (as
defined in Section 9(a) hereof) or if the Employee terminates his employment
hereunder in the absence of a breach hereof by the Company.
(c) The parties hereto intend that the covenants
contained in this Section 8 shall be deemed a series of separate covenants for
each country, state, county and city. If, in any judicial proceeding, a court
shall refuse to enforce all the separate covenants deemed included in this
Section 8 because, taken together, they cover too extensive a geographic area,
the parties intend that those of such covenants (taken in order of the cities,
counties, states and countries therein which are lease populous) which if
eliminated would permit the remaining separate covenants to be enforced in such
proceeding shall, for the purpose of such proceeding, be deemed eliminated from
the provisions of this Section 8.
(d) With respect to the covenants contained in
Sections 7 and 8 of this Agreement, Employee agrees that any remedy at law for
any breach or threatened or attempted breach of such covenants may be inadequate
and that the Company shall be entitled to specific performance or any other mode
of injunctive and/or other equitable relief to enforce its rights hereunder or
any other relief a court might award without the necessity of showing any actual
damage or irreparable harm or the posting of any bond or furnishing of other
security.
9. Termination.
(a) The Company recognizes that, for the period
during which Employee has been employed and/or associated with the Company, the
Company has been intimately familiar with the ability, competence and judgment
of Employee, which are acknowledged to be of the
<PAGE> 6
highest caliber. Accordingly, the Company and Employee agree that Employee's
services hereunder may be terminated for "cause" by the Company only (i) for an
act of fraud or embezzlement adversely affecting the financial interest of the
Company, (ii) in the event that the Company places Employee on disability status
pursuant to Section 6 hereof more than once during the term hereof, (iii) in the
event of a conviction of the Employee for any felony, (iv) in the event of
material breach by the Employee of the terms of this Agreement, following the
receipt by the Employee of thirty (30) days notice of such breach and the
Employee's failure to cure such breach within such grace period, (v) in the
event of any willful breach by the Employee of this Agreement, or (vi) in the
event that the Employee materially breaches any of his representations,
warranties, covenants or agreements contained in the underwriting agreement to
be executed by the Company, SoundView Financial Group, Inc. and Raymond James &
Associates, Inc. This Agreement shall also terminate on the death of Employee.
(b) If the Company terminates Employee's employment
hereunder for any reason other than for "cause" as set forth in Section 9(a)
hereof, Employee's compensation shall be paid to him as provided hereunder for
the greater of the (i) remainder of the term of this Agreement or (ii) two
years. If the Company terminates Employee's employment hereunder for "cause" as
set forth in Section 9(a) hereof, Employee shall not be entitled to receive any
further compensation hereunder which has not already been earned pursuant to the
terms hereof. Employee and the Company acknowledge that the foregoing provisions
of this paragraph 9(b) are reasonable and are based upon the facts and
circumstances of the parties at the time of entering into this Agreement, and
with due regard to future expectations.
10. Consolidation or Merger. In the event of any consolidation
or merger of the Company into or with any other corporation during the term of
this Agreement, or the sale of all or substantially all of the assets of the
Company to another corporation, person or entity during the term of this
Agreement, such successor corporation shall assume this Agreement and become
obligated to perform all of the terms and provisions hereof applicable to the
Company, and Employee's obligations hereunder shall continue in favor of such
successor corporation.
11. Notices. Any notice to be given to the Company hereunder
shall be deemed sufficient if addressed to the Company in writing and delivered
or mailed by certified or registered mail to its offices at 5845 Richmond
Highway, Suite 400, Alexandria, Virginia 22303, or such other address as the
Company may hereafter designate, with a copy to David H. Lieberman, Esq., Blau,
Kramer, Wactlar & Lieberman, P.C., 100 Jericho Quadrangle, Jericho, New York
11753. Any notice to be given to Employee hereunder shall be delivered or mailed
by certified or registered mail to him at: 7308 Snowden Court, Springfield,
Virginia 22150 or such other address as he may hereafter designate.
12. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the successors and assigns of the Company, and
unless clearly inapplicable, all references herein to the Company shall be
deemed to include any such successor. In addition, this
<PAGE> 7
Agreement shall be binding upon and inure to the benefit of the Employee and his
heirs, executors, legal representatives and assigns; provided, however, that the
obligations of Employee hereunder may not be delegated without the prior written
approval of the Board of Directors of the Company.
13. Amendments. This Agreement may not be altered, modified,
amended or terminated except by a written instrument signed by each of the
parties hereto.
14. Prior Agreements Superseded. This Agreement supersedes any
employment or consulting agreements, oral or written, entered into between
Employee and the Company prior to the date of this Agreement.
15. Change of Control.
(a) In the event there shall be a change in the
present control of the Company, as hereinafter defined, and the Employee's
working conditions as contemplated hereby shall have been adversely affected as
a result thereof, Employee shall have the option, exercisable within six (6)
months of his becoming aware of such event, to terminate this Agreement
forthwith. Upon such termination, Employee shall have the right to immediately
receive as a lump sum payment an amount equal to three times the total
compensation paid to Employee during the immediately preceding fiscal year of
the Company, less $1.00.
(b) For purposes of this Agreement, a change in the
present control of the Company shall mean:
(i) if any "person" (as such term is used in Section
13(d) and 14(d) of the Exchange Act) other than Computer Concepts Corp., the
Company or any "person" who on the date of this Agreement is a director or
officer of the Company, becomes the "beneficial owner" (as defined in Rule
13(d)-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing thirty percent (30%) of the voting power of the Company's
then outstanding securities; or
(ii) if during any period of two (2) consecutive
years during the term of this Agreement, individuals who at the beginning of
such period constitute the Board of Directors cease for any reason to constitute
at least a majority thereof, unless the election of each director who is not a
director at the beginning of such period has been approved in advance by
directors representing at least two-thirds (2/3) of the directors then in office
who were directors at the beginning of the period.
16. Applicable Law. This Agreement shall be governed by,
construed and enforced in accordance with the laws of the State of Delaware,
without regard to conflicts of laws.
17. Acknowledgment. Employee acknowledges that he has
carefully read this
<PAGE> 8
Agreement and hereby represents and warrants to the Company that Employee's
entering into this Agreement, and the obligations and duties undertaken by
Employee hereunder, will not conflict with, constitute a breach of or otherwise
violate the terms of any other agreement to which Employee is a party and that
Employee is not required to obtain the consent of any person, firm, corporation
or other entity in order to enter into and perform his obligations under this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
SOFTWORKS, Inc.
By: /s/ Judy G. Carter
-------------------------------------
Name: Judy G. Carter
Title: President &
Chief Executive Officer
/s/ Robert McLaughlin
-------------------------------------
Name: Robert McLaughlin
Title: Chief Financial Officer
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Washington, D.C.
July 8, 1998
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