<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 20, 1998
REGISTRATION NO. 333-56657
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ACCPAC INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 7372 77-0469911
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer Identification
of incorporation or Classification Code Number) No.)
organization)
</TABLE>
------------------------
2525 AUGUSTINE DRIVE
SANTA CLARA, CALIFORNIA 95054
(408) 562-8400
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------------
FREDERICK S. WYSOCKI
CHIEF EXECUTIVE OFFICER AND PRESIDENT
2525 AUGUSTINE DRIVE
SANTA CLARA, CALIFORNIA 95054
(408) 562-8400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
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<S> <C>
SCOTT F. SMITH, ESQ. GERALD S. TANENBAUM, ESQ.
STEPHEN A. INFANTE, ESQ. CAHILL GORDON & REINDEL
HOWARD, SMITH & LEVIN LLP 80 PINE STREET
1330 AVENUE OF THE AMERICAS NEW YORK, NEW YORK 10005
NEW YORK, NEW YORK 10019 (212) 701-3000
(212) 841-1000
</TABLE>
------------------------
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, check
the following box. / /
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / / ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) 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(d) under
the Securities Act, check the following box and list the Securities Act
registration 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. / /
------------------------------
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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.
<PAGE>
SUBJECT TO COMPLETION
DATED AUGUST 20, 1998
PROSPECTUS
SHARES
[LOGO]
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
All of the shares of Common Stock (the "Common Stock") offered hereby (the
"Offering") are being offered by ACCPAC INTERNATIONAL, INC. ("ACCPAC" or the
"Company"), a subsidiary of Computer Associates International, Inc. ("Computer
Associates"). Upon completion of the Offering, Computer Associates will
beneficially own approximately % of the outstanding Common Stock ( % if the
Underwriters' over-allotment option is exercised in full). See "Risk
Factors--Control by and Relationship with Computer Associates; Potential
Conflicts of Interest."
Prior to the Offering, there has been no public market for the Common Stock. It
is currently anticipated that the initial public offering price will be between
$ and $ per share. See "Underwriting" for information relating
to the factors to be considered in determining the initial public offering price
of the Common Stock. The Common Stock has been approved for listing on both the
New York Stock Exchange, Inc. ("NYSE") under the symbol "ACT" and the Nasdaq
National Market under the symbol "ACPI," subject to official notice of issuance.
The determination of where the Common Stock will be listed will be made at the
time of the Offering.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................................ $ $ $
- -------------------------------------------------------------------------------------------
Total(3)......................................... $ $ $
- -------------------------------------------------------------------------------------------
</TABLE>
(1) The Company and Computer Associates have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
at $ .
(3) The Company has granted the Underwriters an option to purchase up to an
additional shares of Common Stock, on the same terms as set forth above,
solely to cover over-allotments, if any. If such option is exercised in full,
the total Price to Public, Underwriting Discount and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
The shares of Common Stock being offered by this Prospectus are being offered by
the Underwriters, subject to prior sale, when, as and if delivered to and
accepted by the Underwriters, and subject to approval of certain legal matters
by Cahill Gordon & Reindel, counsel for the Underwriters. It is expected that
delivery of the shares of Common Stock will be made against payment therefor on
or about , 1998 at the offices of J.P. Morgan Securities Inc., 60
Wall Street, New York, New York.
J.P. MORGAN & CO. SG COWEN
, 1998
<PAGE>
DESCRIPTION OF INSIDE FRONT COVER
A pyramidal depiction of the markets in which the Company sells its products,
identifying the Company's major product offerings in each market: small
office/home office -- Simply Accounting; small business -- ACCPAC for Windows
Small Business Series; and corporate -- ACCPAC for Windows Corporate Series, and
offsetting the enterprise market, in which the Company does not compete. Above
the depiction is the heading "ACCPAC INTERNATIONAL Total Financial & Business
Management Solutions."
2
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
No person has been authorized to give any information or make any
representations not contained in this Prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or any Underwriter. This Prospectus does not constitute an offer
to sell, or a solicitation of an offer to buy, the Common Stock in any
jurisdiction 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 any implication that there has
been no change in the affairs of the Company subsequent to the date hereof.
No action has been or will be taken in any jurisdiction by the Company or any
Underwriter that would permit a public offering of the Common Stock or
possession or distribution of this Prospectus in any jurisdiction where action
for that purpose is required, other than in the United States. Persons into
whose possession this Prospectus comes are required by the Company and the
Underwriters to inform themselves about and to observe any restrictions as to
the offering of the Common Stock and the distribution of this Prospectus.
In this Prospectus, unless the context otherwise requires, references to
"Dollars" and to "$" are to United States dollars.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary............................. 4
Risk Factors................................... 9
Special Note Regarding Forward-Looking
Statements................................... 17
Use of Proceeds................................ 17
Dividend Policy................................ 17
Capitalization................................. 18
Dilution....................................... 19
Selected Consolidated Financial Data........... 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 22
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PAGE
<S> <C>
Business....................................... 34
Arrangements Between the Company and Computer
Associates................................... 48
Management..................................... 51
Ownership of Common Stock...................... 57
Description of Capital Stock................... 59
Shares Available for Future Sale............... 62
Underwriting................................... 64
Legal Matters.................................. 65
Experts........................................ 65
Available Information.......................... 65
Index to Financial Statements.................. F-1
</TABLE>
Until , 1998 (25 days after the date of this Prospectus), all dealers
effecting transactions in the Common Stock, whether or not participating in the
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.
"ACCPAC," "ACCPAC for Windows," "ACCPAC for Windows Corporate Series," "ACCPAC
for Windows Small Business Series," "ACCPAC for Windows Plus Series," "ACCPAC
Plus Accounting," "BPI Accounting II," "Simply Accounting," "SupportPlus,"
"CA-ACCPAC/2000," "e.Advantage Suite," "e.PR/US.Inquiry," "e.PR/ CDN.Inquiry,"
"e.OE.Inquiry," "e.OE.Order," "e.PO.Requisition," and "e.PO.Inquiry" are
trademarks or service marks of the Company. All other trademarks, service marks
or brand names appearing in this Prospectus are the property of their respective
holders.
The Company intends to furnish its stockholders with annual reports containing
audited consolidated financial statements certified by an independent public
accounting firm and quarterly reports containing interim unaudited financial
statements for each of the first three quarters of each fiscal year.
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO,
APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT FOR THE HISTORICAL INFORMATION
CONTAINED IN THIS PROSPECTUS, THE MATTERS DISCUSSED HEREIN (INCLUDING, IN
PARTICULAR, THOSE DISCUSSED IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS") ARE FORWARD
LOOKING IN NATURE AND INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL
RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN FORWARD-LOOKING
STATEMENTS. UNLESS THE CONTEXT OTHERWISE REQUIRES, (I) "ACCPAC" OR THE "COMPANY"
MEANS ACCPAC INTERNATIONAL, INC. AND ITS SUBSIDIARIES OR THE ACCPAC DIVISION OF
COMPUTER ASSOCIATES, THE PREDECESSOR OF ACCPAC INTERNATIONAL, INC., (II)
"COMPUTER ASSOCIATES" MEANS COMPUTER ASSOCIATES INTERNATIONAL, INC. AND ITS
SUBSIDIARIES (OTHER THAN THE COMPANY), (III) THE COMPANY'S "ACCPAC FOR WINDOWS"
AND "ACCPAC FOR WINDOWS PLUS SERIES" PRODUCT LINES ARE BEING RENAMED IN
CONNECTION WITH THE RELEASE OF THE NEXT VERSIONS THEREOF AND ARE RESPECTIVELY
REFERRED TO IN THIS PROSPECTUS BY THEIR NEW NAMES "ACCPAC FOR WINDOWS CORPORATE
SERIES" AND "ACCPAC FOR WINDOWS SMALL BUSINESS SERIES," RESPECTIVELY, AND
TOGETHER, AS "ACCPAC FOR WINDOWS," (IV) "DISTRIBUPRO" MEANS DISTRIBUPRO, INC., A
WHOLLY OWNED SUBSIDIARY OF ACCPAC, (V) A "REGISTERED CLIENT" IS A PERSON OR
ENTITY FROM WHOM THE COMPANY HAS RECEIVED NAME, ADDRESS OR CONTACT INFORMATION
BY ELECTRONIC REGISTRATION OR THROUGH A REGISTRATION CARD AND WHO PURCHASED AT
LEAST ONE OF THE COMPANY'S PRODUCTS; ALTHOUGH SUCH "REGISTERED CLIENT" IS UNDER
NO CONTRACTUAL OBLIGATION TO PURCHASE ADDITIONAL PRODUCTS OR SERVICES FROM THE
COMPANY, AND (VI) THE INFORMATION CONTAINED IN THIS PROSPECTUS (A) ASSUMES THAT
THE PRICE TO PUBLIC OF THE COMMON STOCK OFFERED HEREBY WILL BE $ PER
SHARE (THE MIDPOINT OF THE RANGE SET FORTH ON THE COVER OF THIS PROSPECTUS) AND
THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED AND (B) REFLECTS A
2,000-FOR-1 STOCK SPLIT OF, AND AN INCREASE TO 25,000,000 IN THE NUMBER OF
AUTHORIZED SHARES OF, THE COMMON STOCK WHICH BECAME EFFECTIVE ON AUGUST 17,
1998. UNLESS OTHERWISE DEFINED HEREIN, CAPITALIZED TERMS USED IN THIS SUMMARY
HAVE THE RESPECTIVE MEANINGS ASCRIBED TO THEM ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
ACCPAC is a leading provider of financial accounting and business management
software solutions to the corporate, small business and small office/home office
markets. The Company's products automate essential accounting functions and
enhance the strategic value of financial and business information. As of June
30, 1998, the Company had an installed client base consisting of over 350,000
registered clients in the United States and Canada and additional registered
clients in more than 100 other countries. ACCPAC and its predecessors have been
providing financial accounting software solutions since 1979.
In today's competitive markets, companies of all sizes are dedicating
substantial resources towards software solutions that streamline and reduce
costs associated with key business functions (such as financial accounting,
operations management and other business processes) while providing robust
functionality, flexibility and reliability. International Data Corporation
("IDC"), an independent provider of information technology data, estimates that
the total worldwide market for financial accounting software will grow from
approximately $5.3 billion in 1997 to approximately $10.4 billion in 2002.
The Company's software solutions are tailored to meet the specific needs of
businesses in three markets: the mid-sized business or corporate (Corporate),
small business (Small Business) and small office/home office (SOHO) markets.
Companies in these markets generally have from less than $1 million up to $500
million in sales and from one to several thousand employees. The Company's
ACCPAC for Windows Corporate Series and ACCPAC for Windows Small Business Series
are targeted at the Corporate and Small Business markets, respectively. The
Company also offers a DOS-based product, ACCPAC Plus Accounting, for these
markets. Simply Accounting is the Company's Windows-based product offering for
the SOHO market. The Company believes that its products provide substantial
value in the form of robust functionality, ease of implementation, accounting
integrity and compatibility with market-leading technologies.
ACCPAC for Windows Corporate Series and ACCPAC for Windows Small Business Series
include suites of applications ranging from financial management (general
ledger, accounts receivable and accounts payable) to
4
<PAGE>
operations management (order processing, purchasing, inventory management,
payroll, analysis and reporting and sales force automation) to software
development and interface customization. Users of the ACCPAC for Windows
Corporate Series also have the option to install ACCPAC's e.Advantage Server,
which enables secure online access to any aspect of the ACCPAC for Windows
business logic and Internet-based inquiry and transaction processing
capabilities. ACCPAC has spent considerable time and effort developing the
object-oriented, layered and multi-tier architecture incorporated in these
products. The Company believes that this architecture allows it to quickly adapt
to existing and emerging operating systems, databases and user interfaces and
rapidly develop increased functionality for ACCPAC for Windows products. Simply
Accounting is a comprehensive, off-the-shelf solution that simplifies
bookkeeping and ensures accounting integrity by providing an automated audit
trail. To date, the vast majority of Simply Accounting sales have been in
Canada.
The Company markets and sells its products and services to the Corporate and
Small Business markets primarily through its experienced and well-trained
network of business partners ( "Business Partners"), which consists of
approximately 3,000 value added resellers ("VARs") and qualified installers
("QIs"), including systems integrators, regional distributors, Big 5 and other
accounting firms, professional organizations, software vendors and specialized
software consultants. ACCPAC offers its Business Partners, among other things,
extensive, hands-on training in the installation, implementation and maintenance
of the Company's products, technical support and presales consulting. The
Company distributes its products, as well as third-party products, to its
Business Partners in the United States, Canada and the Caribbean through its
DistribuPro subsidiary. The Company markets and sells Simply Accounting through
mass merchandise retail channels, primarily in Canada.
ACCPAC plans to extend its position as a leading provider of financial
accounting and business management software for the Corporate, Small Business
and SOHO markets. Key elements of the Company's strategy are outlined below.
- - In addition to aggressively pursuing new clients, the Company intends to
leverage its large installed client base to generate future sales of its
products. Through focused direct marketing campaigns and financial incentives,
the Company intends to encourage its existing DOS-based clients to migrate to
the Company's Windows-based products and to encourage all of its existing
clients to purchase upgrades, add-on modules, additional user seats and
support and maintenance services.
- - The Company plans to strengthen and expand its network of Business Partners by
continuing to provide them with extensive hands-on training, expanding the
distribution infrastructure in existing territories and adding new Business
Partners in under-served geographic areas.
- - The Company plans to increase its investment in sales and marketing to create
greater awareness of and brand recognition for the ACCPAC family of products.
- - The Company intends to extend its technology leadership by continuing to
devote significant resources to its research and development efforts, forming
strategic alliances and continuing to encourage the Company's more than 200
independent software development partners to create applications for use with
the Company's products.
- - The Company plans to leverage the increased use of the Internet and
open-system architectures by working with its electronic business
("e-Business") development partners to offer a wide array of products that
enable electronic information delivery, electronic document workflow, Web
self-service applications, electronic data interchange ("EDI") transactions
processing and Web-based business-to-business and business-to-consumer
transactions.
The Company's principal executive offices are located at 2525 Augustine Drive,
Santa Clara, California 95054. The Company intends to move its principal
executive offices to 6700 Koll Center Parkway, Suite 300, Bernal Corporate Plaza
I, Pleasanton, California 94566 in September 1998. See "Business--Properties."
The Company's telephone number is (408) 562-8400, and its World Wide Web home
site is at http://www.accpac.com. Information contained in the Company's World
Wide Web home site shall not be deemed to be a part of this Prospectus.
5
<PAGE>
RELATIONSHIP WITH COMPUTER ASSOCIATES
The predecessors to ACCPAC's current products, as well as the DistribuPro
business, were acquired by Computer Associates as part of a series of unrelated
business acquisitions between 1985 and 1989. ACCPAC became an independent
business unit ("iBU") of Computer Associates in April 1996, was incorporated in
Delaware in October 1997 and became a subsidiary of Computer Associates
effective January 1998. Computer Associates is a publicly owned company engaged
in the design, development, marketing, sale and support of standardized computer
software products for use with a broad range of desktop, midrange and mainframe
computers. Immediately after the Offering, Computer Associates will own
5,250,000 shares of Common Stock, which will represent approximately % of the
outstanding Common Stock ( % if the Underwriters' over-allotment option is
exercised in full). After the Offering, through its ownership of such shares of
Common Stock, Computer Associates will have the ability to elect all directors
of the Company and, thus, will be in a position to control all matters affecting
the Company. Computer Associates has advised the Company that its current intent
is to continue to hold all such Common Stock owned by it. However, Computer
Associates is not subject to any contractual obligation to retain any such
Common Stock, except that Computer Associates has agreed not to sell or
otherwise dispose of any shares of Common Stock for a period of 180 days after
the date of this Prospectus without the prior written consent of J.P. Morgan
Securities Inc. See "Risk Factors--Control by and Relationship with Computer
Associates; Potential Conflicts of Interest" and "--Possible Future Sales of
Common Stock by Computer Associates; Shares Eligible for Future Sale,"
"Arrangements Between the Company and Computer Associates" and "Underwriting."
In anticipation of the Offering, the Company and Computer Associates have
entered into, or will enter into, a number of agreements relating to the
contribution and transfer by Computer Associates to the Company of the assets
constituting the ACCPAC division and governing the future relationship between
the parties, including a Contribution Agreement, a Registration Rights Agreement
and a Real Estate Agreement. The Contribution Agreement sets forth the agreement
pursuant to which the assets of the ACCPAC division were contributed and
transferred by Computer Associates to the Company in exchange for (i) the
assumption of liabilities associated with such assets, (ii) 5,250,000 newly
issued shares of Common Stock, (iii) a promissory note in the principal amount
of $5.0 million (the "Computer Associates Note") and (iv) a worldwide,
perpetual, fully paid license for the internal use by Computer Associates of all
present and future software products of the Company. The Contribution Agreement
also provides generally that the Company shall indemnify Computer Associates for
liabilities associated with the Company's assets and operations and that
Computer Associates shall indemnify the Company for liabilities associated with
Computer Associates' operations. In addition, the Contribution Agreement
provides for the filing of consolidated or combined tax returns and for the
Company to pay Computer Associates an amount equal to 37.5% of the positive
income (before income taxes) of ACCPAC and its subsidiaries for the fiscal year
ended March 31, 1998 and the fiscal period beginning April 1, 1998 and ending on
the date the Offering is consummated, in order to compensate Computer Associates
for ACCPAC's share of any consolidated or combined taxes to be paid by Computer
Associates. For its fiscal year ended March 31, 1998, the Company incurred an
income tax expense of approximately $2.5 million. Pursuant to the Contribution
Agreement, any amount owed to Computer Associates for fiscal 1998 is included in
the $5.0 million principal amount of the Computer Associates Note. The
Registration Rights Agreement will give Computer Associates certain rights to
require the Company to effect registrations under the Securities Act of 1933, as
amended (the "Securities Act"), of the Common Stock owned by Computer Associates
and to bear the expenses of such registrations. The Real Estate Agreement
contains the terms upon which, among other things, certain co-occupied offices
and facilities will be shared by Computer Associates and the Company for a
period of time. For a summary of the terms of these agreements, see
"Arrangements Between the Company and Computer Associates."
6
<PAGE>
THE OFFERING
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<S> <C>
COMMON STOCK OFFERED............................ shares
COMMON STOCK OUTSTANDING
AFTER THE OFFERING(1)......................... shares
USE OF PROCEEDS................................. The net proceeds to the Company from the
Offering, after the deduction of
estimated underwriting discounts and
expenses payable by the Company, are
estimated to be approximately $
million ($ million if the
Underwriters' over-allotment option is
exercised in full). The Company intends
to use $5.0 million of the net proceeds
to pay in full the Computer Associates
Note and the balance for working capital
and other general corporate purposes,
including increased investment in sales
and marketing, expansion of the Company's
Business Partner network, further
development of products and technology
and possible acquisitions of, or
investments in, complementary businesses,
technologies or products. See "Use of
Proceeds."
DIVIDEND POLICY................................. The Company intends to retain its
earnings to fund development of its
business and does not anticipate paying
dividends in the foreseeable future. See
"Dividend Policy."
CONTROLLING STOCKHOLDER......................... For information regarding the Company's
controlling stockholder, see
"Arrangements Between the Company and
Computer Associates."
RISK FACTORS.................................... For a discussion of certain
considerations relevant to an investment
in the Common Stock, see "Risk Factors."
LISTING......................................... The Common Stock has been approved for
listing on both the NYSE under the symbol
"ACT" and the Nasdaq National Market
under the symbol "ACPI," subject to
official notice of issuance. The
determination of where the Common Stock
will be listed will be made at the time
of the Offering.
</TABLE>
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(1) Excludes 500,000 shares of Common Stock issuable upon the exercise of stock
options outstanding, none of which were exercisable, as of July 1, 1998. See
"Management--1998 Stock Incentive Plan."
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth summary financial data derived from the
consolidated financial statements of the Company. The data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
other financial information included elsewhere in this Prospectus.
<TABLE>
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<S> <C> <C> <C> <C> <C> <C> <C>
THREE MONTHS
YEAR ENDED MARCH 31 ENDED JUNE 30
IN THOUSANDS, EXCEPT PER SHARE DATA 1994 1995 1996 1997 1998 1997 1998
--------- --------- --------- --------- --------- --------- ---------
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA
Revenue:
License................................ $23,050 $26,789 $23,955 $19,709 $24,820 $4,105 $6,610
Service................................ 11,479 6,979 10,593 7,985 7,495 1,785 1,924
Third-party products................... 9,143 13,424 31,267 17,234 16,623 4,224 3,796
--------- --------- --------- --------- --------- --------- ---------
Total revenue............................ 43,672 47,192 65,815 44,928 48,938 10,114 12,330
Cost of revenue:
License................................ 6,721 5,437 4,011 4,452 4,675 859 1,417
Service................................ 2,249 1,853 2,238 1,799 1,937 409 684
Third-party products................... 8,137 11,947 27,682 15,106 14,670 3,767 3,362
--------- --------- --------- --------- --------- --------- ---------
Total cost of revenue.................... 17,107 19,237 33,931 21,357 21,282 5,035 5,463
--------- --------- --------- --------- --------- --------- ---------
Gross profit............................. 26,565 27,955 31,884 23,571 27,656 5,079 6,867
Operating expenses:
Sales and marketing.................... 16,919 11,348 10,014 7,916 9,428 2,141 2,486
Research and development............... 7,052 7,130 5,340 3,733 3,916 922 950
General and administrative............. 8,635 5,971 4,734 4,808 4,885 1,096 1,231
Compensation related to issuance of
Common Stock(1)...................... -- -- -- -- 2,800 -- --
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses................. 32,606 24,449 20,088 16,457 21,029 4,159 4,667
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations............ (6,041) 3,506 11,796 7,114 6,627 920 2,200
Other income (expense), net.............. (82) 2 (43) (31) (18) (7) 26
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes........ (6,123) 3,508 11,753 7,083 6,609 913 2,226
Provision (benefit) for income taxes..... (2,296) 1,315 4,407 2,656 2,478 342 835
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)........................ $(3,827) $2,193 $7,346 $4,427 $4,131 $571 $1,391
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Basic and diluted earnings per
share(2)............................... $(0.73) $0.42 $1.40 $0.84 $ $ $
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Shares used in computing basic and
diluted earnings per share............. 5,250 5,250 5,250 5,250
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
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AT JUNE 30, 1998
AS
DOLLARS IN THOUSANDS ACTUAL ADJUSTED(3)
------------ ------------
CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents.............................................................. $4,898
Working capital........................................................................ 4,222
Total assets........................................................................... 13,928
Note payable to Computer Associates.................................................... 5,000
Total stockholders' equity............................................................. 456
</TABLE>
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(1) Relates to the January 1998 issuance of 150,000 shares of Common Stock (net
of 100,000 shares repurchased for tax withholding purposes) to certain executive
officers and key employees of the Company. See "Management--Restricted Stock
Grant" and Note (4) of Notes to Consolidated Financial Statements.
(2) See Note (1) of Notes to Consolidated Financial Statements for information
concerning the computation of earnings per share.
(3) As adjusted to reflect the sale of shares of Common Stock offered
hereby and the payment in full of the Computer Associates Note.
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RISK FACTORS
THE FOLLOWING FACTORS SHOULD BE CAREFULLY CONSIDERED, TOGETHER WITH THE
INFORMATION PROVIDED ELSEWHERE IN THIS PROSPECTUS, IN EVALUATING AN INVESTMENT
IN THE COMMON STOCK OFFERED HEREBY.
LACK OF INDEPENDENT OPERATING HISTORY; RISKS ASSOCIATED WITH REDUCED OWNERSHIP
INTEREST IN THE COMPANY BY COMPUTER ASSOCIATES
Prior to the consummation of the Offering, the Company was operated as a
division or iBU of Computer Associates. Accordingly, no financial or operating
history of the Company as an independent entity is available for a potential
investor to evaluate. After the Offering, the Company will operate as a
stand-alone entity and will no longer benefit from the direct operational,
financial and other support previously provided by Computer Associates to the
Company and, thus, the Company will be expected, among other things, to fund its
own working capital requirements and to incur additional general and
administrative expenses and will be responsible for obtaining on its own all
administrative, support and other services previously provided by Computer
Associates. In addition, certain of the Company's agreements are between third
parties and Computer Associates and will require the consent of such third
parties to the assignment of Computer Associates' rights thereunder to the
Company. Although the Company's management believes that it can perform such
services or obtain them on acceptable terms and obtain such necessary consents,
if the Company is unable to accomplish any of the foregoing, the Company's
business, financial condition and results of operations could be materially
adversely affected. See "Arrangements Between the Company and Computer
Associates."
The Company believes that the quality and breadth of its product distribution
and its ability to seek new Business Partners currently benefit from its
relationship with Computer Associates. The Company could lose some of its
Business Partners as a result of the reduced percentage ownership interest of
Computer Associates in the Company. The Company will seek to replace any
Business Partners that it loses due to the reduced percentage ownership interest
of Computer Associates in the Company. Should the Company fail to replace any
such Business Partners with equal or better quality Business Partners, the
losses could have a material adverse effect on the Company's business, financial
condition and results of operations.
CONTROL BY AND RELATIONSHIP WITH COMPUTER ASSOCIATES; POTENTIAL CONFLICTS OF
INTEREST
The Company is a subsidiary and, prior to January 1998, was an iBU, of Computer
Associates. Following the Offering, Computer Associates will own approximately
% of the outstanding Common Stock ( % if the Underwriters' over-allotment
option is exercised in full). After the Offering, through its ownership of
shares of Common Stock, Computer Associates will have the ability to elect all
directors of the Company and, thus, will be in a position to control all matters
affecting the Company, including any determination with respect to acquisition
or disposition of Company assets, future issuance of Common Stock or other
securities of the Company, the Company's incurrence of debt and any dividends
payable on Common Stock. Conflicts of interest may arise in the future between
the Company and Computer Associates in a number of areas relating to their past
and ongoing relationship, including allocation of capital, dividends, incurrence
of indebtedness, tax matters, financial commitments, registration rights,
administration of benefit plans, service arrangements, potential acquisitions of
businesses and other corporate opportunities, the issuance and sale of capital
stock of the Company and the election of directors. The Company has also granted
Computer Associates certain "demand" and "piggyback" registration rights with
respect to the Common Stock owned by Computer Associates. In addition, the
Company's Amended and Restated Certificate of Incorporation will include certain
provisions relating to the allocation of business opportunities that may be
suitable for both the Company and Computer Associates. See "Arrangements Between
the Company and Computer Associates."
Charles P. McWade and Robert H. Toth are directors of the Company. Each of such
persons is an officer and employee of Computer Associates. See "Management." The
Company and Computer Associates have entered into a number of agreements for the
purpose of defining their ongoing relationship. As a result of Computer
Associates' ownership interest in the Company, the terms of such agreements were
not, and the terms of any
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future agreements may not be, the result of arm's-length negotiations. For
example, under the Contribution Agreement, the Company has agreed to bear the
economic risk that the conveyance of assets of Computer Associates comprising
the ACCPAC iBU may be insufficient to vest the Company with good and marketable
title to such assets, free and clear of any security interest. The Company is
not aware of any reason why it might lack good and marketable title, free and
clear of any security interest, to any ACCPAC iBU asset. In the event that any
ACCPAC iBU asset is encumbered by the security interest of another entity, such
asset could be subject to foreclosure by the security interest holder if there
is a default on the underlying obligation secured by the asset. In addition,
several of Computer Associates' divisions engage in the development, marketing,
sale or support of financial management software for the enterprise market that
could compete with the Company's products. Although the Company believes that
its products currently do not directly compete with Computer Associates'
products, there are no restrictions, contractual or otherwise, on Computer
Associates' competing with the Company in the Company's markets. Accordingly, if
Computer Associates changes its current strategy, or makes an acquisition, it
may compete directly with the Company. Such competition could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Arrangements Between the Company and Computer Associates."
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; SEASONALITY
The Company has experienced, and is likely to continue to experience,
fluctuations in quarterly operating results caused by many factors, including,
without limitation, (i) variations in the demand for the Company's products and
services, (ii) timing of introductions of new products or enhancements to
existing products by the Company or its competitors, (iii) increased
competition, (iv) timing and composition of orders from the Company's clients,
(v) variations in the mix of sales, (vi) changes in the pricing policies of the
Company or its competitors and (vii) the publication of opinions about the
products of the Company or its competitors by industry analysts or others.
The Company has experienced, and expects to continue to experience, seasonality.
In recent years, the Company has recognized a proportionately greater percentage
of its revenue and operating income in its third and fourth fiscal quarters. Due
to the effects of such seasonality, the Company may experience relatively lower
net income in the first and second fiscal quarters than in the third and fourth
fiscal quarters of any fiscal year.
Due to the foregoing factors as well as the lack of an independent operating
history, the Company believes that its quarterly operating results are likely to
vary significantly in the future. In addition, if for any particular period
revenue from sales of third-party software through DistribuPro were to represent
an increased percentage of the Company's total revenue, the Company would
experience reduced gross profits as a percentage of total revenue due to the
significantly lower margins associated with third-party software sales.
Furthermore, in some future quarter, the Company's results of operations may
fall below the expectations of the Company, securities analysts and investors.
In such event, the trading price of the Company's Common Stock would likely be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
PRODUCT MIGRATION FROM DOS TO WINDOWS
Prior to fiscal 1995, substantially all of the Company's revenue from sales of
its financial accounting software was derived from DOS-based versions of those
products. Beginning in fiscal 1995, the Company shifted its focus from products
based on DOS and local area network (LAN) technologies (ACCPAC Plus Accounting,
BPI Accounting II and earlier versions of Simply Accounting) to products based
on Windows and multi-tier technologies. In connection with this shift, the
Company is actively promoting the migration of its DOS-based product clients to
its Windows-based products, ACCPAC for Windows and Simply Accounting. There can
be no assurance that a significant percentage of the Company's installed base of
DOS clients will migrate to the Company's Windows-based products. In particular,
the Company believes that smaller clients may be less likely to migrate because
the cost of migrating may be high relative to their needs and because, in many
cases, the DOS-based products adequately meet their needs. If a significant
number of the Company's DOS clients elect not
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to migrate to the Company's Windows-based products, purchase competitive
products or encounter problems in implementing the Company's Windows-based
products, the Company's business, financial condition and results of operations
could be materially adversely affected. In addition, as a result of the decrease
in general demand for DOS-based products and the Company's shift in focus to
Windows-based products, the Company's revenue from new product sales of its
DOS-based products have been declining and are expected to continue to decline.
There can be no assurance that the decline in revenue from new product sales of
the Company's DOS-based products will not have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
In fiscal 1998, the Company derived approximately 32.7% of its total revenue
from sales in Canada and the vast majority of Simply Accounting sales have been
made in Canada. Product sales in Canada are denominated in Canadian Dollars and
then translated into U.S. Dollars for accounting purposes. As a result, a
decline in the value of the Canadian Dollar relative to the value of the U.S.
Dollar may decrease the amount of revenue reported from Canadian operations. The
value of the Canadian Dollar has, in recent years, declined in value relative to
the value of the U.S. Dollar. In addition, over the past several years, there
has been a movement in the Province of Quebec for Quebec to separate from the
rest of Canada. The Company believes that the possible separation by Quebec may
have a negative impact on the Canadian economy. A decline in the value of the
Canadian Dollar relative to the value of the U.S. Dollar or a downturn in the
Canadian economy could have a material adverse effect on the Company's business,
financial condition and results of operations. Conversely, because a significant
amount of the Company's operating expenses are payable in Canadian Dollars, an
increase in the value of the Canadian Dollar relative to the value of the U.S.
Dollar could have the effect of increasing the Company's expenses in Canada when
translated into U.S. Dollars, which could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
does not currently hedge its exposure to fluctuations in currency exchange
rates.
In fiscal 1998, approximately 14.2% of the Company's total revenue was derived
from sales outside of the United States and Canada. There can be no assurance
that the Company will be able to maintain and expand its activities in
international markets. In addition, there are certain risks inherent in doing
business in international markets, such as unexpected changes in regulatory
requirements, export controls relating to encryption technology and other export
restrictions, tariffs and other trade barriers, difficulties in staffing and
managing foreign operations, political instability, fluctuations in currency
exchange rates, reduced protection for intellectual property rights in some
countries combined with a greater incidence and acceptance of software piracy,
potentially adverse tax consequences and potential liability associated with
possible errors that may occur in the translation and localization of the
Company's products for specific countries. There can be no assurance that one or
more of such factors will not have a material adverse effect on the Company's
current or future international operations and, consequently, on the Company's
business, financial condition and results of operations.
RAPIDLY EVOLVING MARKETS; TECHNOLOGICAL CHANGE
The computer software business in which the Company competes is rapidly evolving
and can be expected to further evolve in the future as a result of changing
technology, industry standards, product innovations and client requirements.
There can be no assurance that the Company's technology will meet, or be
adaptable to meet, these standards. The Company's ability to compete effectively
will depend upon its ability to anticipate and react to changes in its markets
in a timely manner. There can be no assurance that substantial resources in
product development and enhancement will not be required in the future, that the
Company will be able to successfully develop and bring to market new products
and services in a timely and cost-effective manner or that products, services or
technologies developed by others will not render the Company's products,
services and technologies non-competitive or obsolete. Companies involved in the
development and manufacture of new products that contain complex new
technologies often encounter difficulties in performance and reliability and
encounter delays in introducing, or implementing, their products. If such
problems were to occur at a significant level with respect
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to the Company's products or services, the Company could experience increased
costs, cancellations of contracts and negative publicity, any of which could
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, there may be reluctance in certain
marketplaces to accept these new technologies, making it difficult for the
Company to sell its products. See "Business--Products" and
"--Competition."
COMPETITION
The Company's business is extremely competitive. The Company's products are
targeted towards businesses in the Corporate, Small Business and SOHO markets.
The Company has experienced competition to date from both established and
emerging software companies that offer similar products targeted at businesses
within the Company's markets. The Company also faces additional competition in
individual countries from local competitors. The Company believes it currently
competes on the basis of (i) the ease of use, features, performance and price of
its products, (ii) the quality of its Business Partners, (iii) the quality of
its service and technical support for its clients and Business Partners, (iv)
technology and (v) new product introductions. While the Company believes that it
currently competes favorably overall with respect to these factors, there can be
no assurance that the Company will be able to continue to do so.
The Company's products compete with those from several vendors servicing a range
of markets, from the Corporate, Small Business and SOHO markets. The Company
currently competes in the Corporate market with J.D. Edwards & Company, Great
Plains Software, Inc., Lawson Associates, Inc., Platinum Software Corporation,
The Sage Group Plc. and Solomon Software, Inc., among others. In addition, the
Company believes that products may be introduced to these markets by other
vendors who traditionally compete in the enterprise market. Such potential
competitors include Baan Company N.V., Oracle Corporation, PeopleSoft, Inc. and
SAP AG. In the Small Business market, the Company's primary competitors include
Great Plains Software, Inc., Platinum Software Corporation, The Sage Group Plc.,
Solomon Software, Inc. and Systems Union Group Ltd., among others. The Company
currently faces competition in the SOHO market from Automatic Data Processing,
Inc.'s Peachtree unit and Intuit Inc., among others. Currently, several of
Computer Associates' iBUs engage in the development, marketing, sale or support
of financial management software for the enterprise market. Although the Company
believes that its products do not directly compete with Computer Associates'
products, there are no restrictions, contractual or otherwise, on Computer
Associates competing with the Company in the Company's markets. Such competition
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Competition" and
"Arrangements Between the Company and Computer Associates."
Certain competitors may have greater financial, technical and marketing
resources and name recognition than the Company. Competitors may bundle their
software with other software or enter into agreements whereby third parties sell
their software thereby decreasing the attractiveness of the Company's products.
In addition, competitors may lower their prices, which may force the Company to
match price cuts and thereby decrease the Company's profitability. Accordingly,
there can be no assurance that the Company will be able to design new products
or improve existing ones to maintain its competitive position in the industry.
Increased competitive pressures from current and future competitors could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, if one of the Company's competitors is
acquired by a well-capitalized company, the Company could face increased
competition that could have a material adverse effect on the Company's business,
financial condition and results of operations.
RELIANCE ON BUSINESS PARTNERS
The Company has no direct sales force. The Company relies exclusively upon its
Business Partner network to sell, install and service its products (other than
Simply Accounting and BPI Accounting II). The Company's Business Partners are
not contractually required to exclusively sell the Company's products and may
sell competing products. Accordingly, there can be no assurance that the
Company's Business Partners will aggressively market the Company's products or
will maintain their relationships with the Company. The failure of the Company
to maintain its existing Business Partner relationships, or to establish new
Business Partner
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relationships in the future, could have a material adverse effect on the
Company's business, financial condition and results of operations. In addition,
although the Company believes that it has adequate procedures in place to assure
that its Business Partners are adequately trained and qualified to sell,
install, implement and support the Company's products, there can be no assurance
that its Business Partners are so trained or qualified. Furthermore, there can
be no assurance that the Company's Business Partners will sell customers the
financial accounting software product that suits the customer's needs, or that
its Business Partners will properly install, implement or support the Company's
products. There have been instances in the past where the Company has been named
as a defendant in litigation brought by customers claiming that a Business
Partner sold the client an inappropriate product or did not correctly install
and implement a product. Although the Company has not previously been required
to pay significant monetary compensation in connection with such litigation,
there can be no assurance that any adverse judgment in connection with any
similar future litigation or the negative publicity resulting from similar
litigation would not have a material adverse effect on the Company's business,
financial condition and results of operations.
RELIANCE ON MARKET-LEADING TECHNOLOGIES; RELIANCE ON THIRD-PARTY SUPPLIERS
The Company's software products are designed to work with market-leading
technologies including those from Microsoft, such as Windows NT, Windows 95 and
SQL Server. Although the Company believes that these market-leading technologies
are and will be widely utilized by Corporate, Small Business and SOHO market
businesses, no assurance can be given that these businesses will actually adopt
such technologies as anticipated or will not in the future migrate to other
computing technologies that the Company does not support. Moreover, for the
Company to be successful, the Company's products and technology must be
compatible with new developments in these market-leading technologies.
The Company's products utilize certain software licensed to it by third-party
software developers. Although the Company believes that there are alternatives
for these products, any significant interruption in the supply of such
third-party software could have a material adverse impact on the Company's sales
unless and until the Company can replace the functionality provided by these
products. In addition, the Company is to a certain extent dependent upon such
third parties' abilities to enhance their current products, to develop new
products on a timely and cost-effective basis and to respond to emerging
industry standards and other technological changes. There can be no assurance
that the Company would be able to replace the functionality provided by the
third-party software currently offered in conjunction with the Company's
products in the event that such software becomes obsolete or incompatible with
future versions of the Company's products or is otherwise not adequately
maintained or updated. The absence of or any significant delay in the
replacement of that functionality could have a material adverse effect on the
Company's business, financial condition and results of operations.
RISKS ASSOCIATED WITH FAILURE TO TIMELY RELEASE PERIODIC SOFTWARE UPDATES
The Company's financial accounting software products are affected by changes in
laws, regulations and generally accepted accounting principles, and generally
must be updated periodically to maintain their accuracy and competitiveness.
There can be no assurance that the Company will be able to release these
periodic updates on a timely basis in the future. Failure to do so could have a
material adverse effect on market acceptance of the Company's products, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, significant changes in tax
laws and regulations or other regulatory provisions or in generally accepted
accounting principles applicable to the Company's products could require the
Company to make a significant investment in product modifications, which could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Products."
RISKS ASSOCIATED WITH NEW PRODUCT OFFERINGS; POTENTIAL FOR UNDETECTED ERRORS
Products as complex as the Company's software systems may contain undetected
errors or failures when first introduced, as upgrades are added or adapted to
different projects. There can be no assurance that, despite significant testing
by the Company, errors will not be found in the Company's products after
commercial
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introduction. In many cases, the Company's products integrate with third-party
applications, and any errors in such third-party applications deemed critical to
the use of the Company's products could adversely impact the marketability of
the Company's products. Although the Company has not experienced material
adverse effects resulting from any such errors or defects to date, there can be
no assurance that errors or defects will not be discovered in the future,
causing delays in product introduction and shipments or requiring design
modifications that could materially adversely affect the Company's business,
financial condition and results of operations.
MANAGEMENT OF GROWTH; RISK OF ACQUISITIONS
The Company's growth, as well as its transition towards becoming a stand-alone
entity, have resulted in an increase in responsibilities placed upon the
Company's management and has placed added pressures on the Company's operating
and other systems. To effectively manage its growth and its independence from
Computer Associates, the Company will be required to continue to implement
additional systems and controls, and to expand, train and manage its employee
base. There can be no assurance that the management skills and systems currently
in place will be adequate for the Company to operate on a stand-alone basis,
that they will be sufficient if the Company continues to grow, or that the
Company will be able to implement additional systems successfully and in a
timely manner as required. In addition, the Company from time to time may seek
acquisitions of businesses, products and technologies that are complementary to
those of the Company, or that allow the Company to enter new markets. Any such
acquisition would place additional strains upon the Company's management
resources. There also can be no assurance that any such acquisition will be
successful or will not be dilutive to the Company's earnings per share. See
"Business--Employees" and "Management."
YEAR 2000 COMPLIANCE
Although the Company believes that all of the current versions of its products
are year 2000 compliant, the Company could face decreased revenue due to the
year 2000 problem. Businesses typically budget fixed amounts for Management
Information Systems ("MIS"). Because many businesses' systems are not year 2000
compliant, businesses will be forced to divert MIS resources to fix their year
2000 problems instead of purchasing other hardware or software. Such a diversion
of resources could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, even if the
Company's products are year 2000 compliant, other systems or software used by
the Company's clients, including software bundled with the Company's products
and other software provided to the Company's clients by its Business Partners in
connection with a sale of the Company's products and other products distributed
through DistribuPro, may not be year 2000 compliant. The failure of such
noncompliant third-party software or systems could affect the perceived
performance of the Company's products, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
Certain older versions of the Company's products were not year 2000 compliant.
The Company believes that certain software companies whose products were not
year 2000 compliant have been sued based upon a claim that the failure of their
product to be year 2000 compliant constitutes a breach of warranty, a design
defect or similar claims. Suits have been structured as class actions. If the
Company were sued based upon a similar claim, there can be no assurance that the
Company would prevail in such litigation or that any adverse judgment or the
cost of defending a class action suit or suits would not have a material adverse
effect on the Company's business, financial condition and results of operations.
DEPENDENCE ON KEY PERSONNEL
The Company's performance is substantially dependent on its executive officers
and key sales, support and technical personnel, all of whom are employed at will
and are not bound by an employment agreement to continue in the employ of the
Company. The loss of any such executive officer or personnel could have a
material adverse effect on the Company. The Company does not maintain "key man"
life insurance for the benefit of the Company on any of its employees. The
market for technologically skilled and managerial employees in the software
industry is extremely competitive. The Company's ability to attract, hire,
train, assimilate and retain such employees is instrumental to its success, and
there can be no assurance that the Company will be able to
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do so. The failure to do so would have a material adverse effect on the
Company's business, financial condition and results of operations.
LIMITED PROTECTION OF PROPRIETARY TECHNOLOGY; RISK OF THIRD-PARTY CLAIMS OF
INFRINGEMENT
The Company's ability to compete successfully and achieve future revenue growth
will depend, in part, on its ability to protect its proprietary technology and
operate without infringing upon the rights of others. There can be no assurance
that the Company will be able to successfully protect its intellectual property
or that the Company's intellectual property or proprietary technology will not
otherwise become known or be independently developed by competitors. The
inability of the Company to protect its intellectual property and proprietary
technology could have a material adverse effect on the Company's business,
financial condition and results of operations.
To establish and protect its proprietary rights in its products, the Company
relies on a combination of copyright, trademark and trade secret laws, a
mandatory software registration mechanism on certain products, confidentiality
and non-disclosure agreements with its employees, licensing arrangements with
its clients and limitations on access to and distribution of its proprietary
information. Although it does not do so for its ACCPAC for Windows or Simply
Accounting products, the Company has in the past made source code for ACCPAC
Plus Accounting available to certain of its Business Partners and clients. This
availability may increase the likelihood of misappropriation or other misuse of
the Company's intellectual property. The Company has no patents or patent
applications pending, and existing trade secret and copyright laws provide only
limited protection of the Company's proprietary rights. The Company currently
licenses its products under "shrink wrap" licenses that are not signed by its
licensees. These shrink wrap licenses may be unenforceable under the laws of
certain jurisdictions. In addition, the laws of certain countries in which the
Company's products are sold do not protect the Company's intellectual property
rights to the same extent as the laws of the United States and Canada.
As the number of patents, copyrights and other intellectual property rights in
the Company's industry increases, and as the coverage of these rights and the
functionality of these products in the market further overlap, the Company
believes that software developers or distributors may increasingly become the
subject of infringement claims or litigation arising therefrom. For example, in
May 1998, DistribuPro was named as a third-party defendant in connection with a
copyright and trademark infringement claim against an unrelated third party
relating to certain networking products sold through DistribuPro. Furthermore,
the Company may in the future be notified that it is infringing upon certain
patent or other intellectual property rights of others. Although the Company has
never been directly involved in any material intellectual property dispute and
does not believe that it is infringing on any third party's intellectual
property rights, there can be no assurance that such infringement claims, or
litigation relating thereto, will not occur in the future. Such claims or
litigation could result in substantial costs and diversion of resources and
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Legal Proceedings."
POSSIBLE FUTURE SALES OF COMMON STOCK BY COMPUTER ASSOCIATES; SHARES ELIGIBLE
FOR FUTURE SALE
Subject to applicable federal securities laws and the restrictions set forth
below, after completion of the Offering, Computer Associates may sell some or
all of the shares of Common Stock beneficially owned by it or distribute any or
all of such shares of Common Stock to its stockholders. The sale or distribution
of such shares in the public market or to its stockholders, or the perception
that such sale or divestment by Computer Associates could occur, could
negatively affect the prevailing market price for the Company's Common Stock.
Computer Associates has advised the Company that it currently intends to
continue to hold all of the Common Stock owned by it. However, Computer
Associates is not subject to any contractual obligation to retain any of such
Common Stock, except that Computer Associates has agreed not to, directly or
indirectly, offer, sell, offer to sell, contract or sell or otherwise dispose of
any shares of Common Stock or securities convertible into Common Stock or
register for sale under the Securities Act any shares of Common Stock for a
period of 180 days after the date of this Prospectus without the prior written
consent of J.P. Morgan Securities Inc. See "Underwriting." As a result, there
can be no assurance that Computer Associates will continue to maintain
beneficial ownership of any of the
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Common Stock owned by it following the Offering. Computer Associates will have
registration rights with respect to the shares of the Common Stock owned by it
following the Offering, which would facilitate any future disposition. See
"Arrangements Between the Company and Computer Associates."
NO PRIOR PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; POSSIBLE VOLATILITY
There has been no prior public market for the Common Stock, and there can be no
assurance that an active public market for the Common Stock will develop or be
sustained after the Offering. The initial public offering price has been
determined by negotiations among representatives of the Company, representatives
of Computer Associates and representatives of the Underwriters and may not be
indicative of future market prices. See "Underwriting" for information related
to the method of determining the initial public offering price. The trading
price of the Common Stock could be subject to wide fluctuations in response to
quarter-to-quarter variations in operating results, changes in earnings
estimates by analysts, announcements of technological innovations or new
products by the Company or its competitors, general conditions in the software
and computer industries and other events or factors. In addition, in recent
years the stock market in general, and the shares of technology companies in
particular, have experienced extreme price fluctuations. This volatility has had
a substantial effect on the market prices of securities issued by many companies
for reasons unrelated to the operating performance of the specific companies.
These broad market fluctuations may adversely affect the market price of the
Common Stock. See "Underwriting."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Amended and Restated Certificate of
Incorporation and Amended and Restated By-laws and Delaware General Corporation
Law Section 203 may render more difficult, or have the effect of discouraging,
unsolicited takeover bids from third parties or the removal of incumbent
management of the Company. In addition, the Company's Amended and Restated
Certificate of Incorporation authorizes the Board of Directors to issue, without
stockholder approval, 1,000,000 shares of Preferred Stock with voting,
conversion and other rights and preferences that could adversely affect the
voting power or other rights of the holders of Common Stock. Although the
Company has no current plans to issue any shares of Preferred Stock, the
issuance of Preferred Stock or rights to purchase Preferred Stock could render
more difficult, or have the effect of discouraging, unsolicited takeover bids
from third parties or the removal of incumbent management of the Company, or
otherwise adversely affect the market price for the Common Stock. See
"Description of Capital Stock--Preferred Stock," "--Certain Certificate of
Incorporation and By-law Provisions" and "--Section 203 of the Delaware General
Corporation Law." Although such provisions do not have a substantial practical
significance to investors while Computer Associates, through its ownership of
Common Stock, is in a position to effectively control all matters affecting the
Company, such provisions could have the effect of depriving stockholders of an
opportunity to sell their shares at a premium over prevailing market prices
should Computer Associates no longer be in such control.
DILUTION
Investors in the Offering will suffer an immediate and substantial dilution in
net tangible book value (i.e., the amount of total tangible assets reduced by
the amount of its total liabilities) of $ per share from the initial public
offering price. Upon the exercise of outstanding options to purchase the Common
Stock, investors will incur additional dilution. See "Dilution."
16
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business" and elsewhere herein including, without limitation,
those concerning (i) the Company's strategy (including, without limitation, the
Company's plans to leverage its installed client base to generate future sales
growth), (ii) the Company's plans for its business, (iii) the Company's
liquidity and capital expenditures, (iv) the Company's plans for new product
introductions and future releases of new versions of its existing products
(including, without limitation, the planned introduction of the Company's
SupportPlus Maintenance program) and (v) the ability of the Company to continue
to rely on its Business Partners, contain certain forward-looking statements
concerning the Company's operations, economic performance and financial
condition. Because such statements involve risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause such differences include,
but are not limited to, those discussed under "Risk Factors."
USE OF PROCEEDS
The net proceeds to the Company from the Offering, after the deduction of
estimated underwriting discounts and expenses payable by the Company, are
estimated to be approximately $ million ($ million if the Underwriters'
over-allotment option is exercised in full). The Company intends to use $5.0
million of the net proceeds to pay in full the Computer Associates Note and the
balance for working capital and other general corporate purposes, including
increased investment in sales and marketing, expansion of the Company's Business
Partner network and further development of products and technology. In addition,
the Company may seek to make acquisitions of, or investments in, businesses,
technologies or products that are complementary to the Company's business. The
Company has no present understandings, commitments or agreements with respect to
any material acquisitions of other businesses, products or technologies. Pending
such uses, the Company intends to invest the proceeds from the Offering in
interest-bearing, investment grade securities.
The Computer Associates Note is an unsecured, general obligation of the Company,
is due and payable in full on the earlier of the consummation of the Offering
and December 31, 1999, and bears no interest if paid in full on or prior to
December 31, 1998. If the Computer Associates Note is not paid in full at such
time, it will bear interest at a rate of 9% per annum. See "Arrangements Between
the Company and Computer Associates."
DIVIDEND POLICY
The Company has never declared or paid any dividends, nor does it presently
expect to declare or pay any dividends in the foreseeable future. The
declaration and payment of dividends by the Company are subject to the
discretion of its Board of Directors. Any determination as to the payment of
dividends will depend upon, among other things, general business conditions, the
Company's financial results, contractual, legal and regulatory restrictions
regarding the payment of dividends by the Company's subsidiaries, credit and
loan agreement restrictions in effect from time to time and such other factors
as the Board of Directors may consider to be relevant. See "Use of Proceeds."
17
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the Company as
of June 30, 1998 (i) on an actual basis and (ii) as adjusted to give effect to
the sale of shares of Common Stock hereby and the application of a portion
of the net proceeds therefrom to pay in full the Computer Associates Note. This
table should be read in conjunction with the Consolidated Financial Statements
of the Company, including the Notes thereto, appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
----------------------
<S> <C> <C>
AS OF JUNE 30, 1998
<CAPTION>
AS
ACTUAL ADJUSTED
---------- ----------
DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA
<S> <C> <C>
Note payable to Computer Associates................................. $5,000 --
---------- ----------
Stockholders' Equity:
Preferred Stock, $.01 par value, no shares authorized (Actual),
1,000,000 shares authorized (As Adjusted), no shares outstanding
(Actual and As Adjusted).......................................... -- --
Common Stock, $.01 par value, 25,000,000 shares authorized (Actual
and As Adjusted), 5,400,000 shares issued and outstanding
(Actual), and shares issued and outstanding (As Adjusted)
(1)............................................................... 54
Additional paid-in capital.......................................... --
Retained earnings................................................... 759
Accumulated other comprehensive income (loss)....................... (357)
---------- ----------
Total stockholders' equity.......................................... 456
---------- ----------
Total capitalization................................................ $5,456 $
---------- ----------
---------- ----------
</TABLE>
- ------------------------
(1) Excludes 500,000 shares of Common Stock issuable upon the exercise of stock
options outstanding, none of which were exercisable, as of July 1, 1998. See
"Management--1998 Stock Incentive Plan."
18
<PAGE>
DILUTION
The net tangible book value of the Company as of June 30, 1998 was $456,000, or
$0.08 per share of Common Stock. Net tangible book value per share represents
the amount of total tangible assets of the Company reduced by the amount of its
total liabilities and divided by the number of shares of Common Stock
outstanding. After giving effect to (i) the sale of shares of Common Stock
hereby and, (ii) the deduction of estimated underwriting discounts and expenses
of the Offering, the pro forma net tangible book value of the Company as of June
30, 1998 would have been $ , or $ per share of Common Stock. This
represents an immediate dilution of $ per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<CAPTION>
----------------------
<S> <C> <C>
Assumed initial public offering price per share of Common Stock..... $
Net tangible book value per share of Common Stock as of June 30,
1998.............................................................. $
Increase in net tangible book value per share of Common Stock
attributable to new investors.....................................
----------
Pro forma net tangible book value per share of Common Stock after
the Offering......................................................
----------
Dilution per share to new investors................................. $
----------
----------
</TABLE>
The following table summarizes as of June 30, 1998, after giving effect to the
sale of shares of Common Stock hereby: (i) the number of shares of Common
Stock purchased by existing stockholders from the Company and the total
consideration and average price per share paid to the Company for such shares,
(ii) the number of shares of Common Stock to be purchased by new investors in
the Offering and the total consideration and the price per share paid by them
for such shares and (iii) the percentage of shares purchased from the Company by
existing stockholders and the new investors and the percentages of the
consideration paid to the Company for such shares by existing stockholders and
new investors.
<TABLE>
<CAPTION>
----------------------------------------------------------
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------
AVERAGE
PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Existing Stockholders...........% $% $
New Investors...................
---------- ---------- ---------- ----------
Total........................... 100.0% $ 100.0%
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The foregoing tables assume no exercise of outstanding options and no exercise
of any options that may be granted in the future under the 1998 Stock Incentive
Plan. As of July 1, 1998, there were outstanding options to purchase 500,000
shares of Common Stock at an exercise price of $11.20 per share, none of which
were exercisable. Based on the pro forma net tangible book value of $
per share after the Offering, dilution to new investors would be $ per
share if all of the outstanding stock options were exercised. See
"Management--1998 Stock Incentive Plan" and Note (4) of Notes to Consolidated
Financial Statements.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated income statement data for each of the years in the
three-year period ended March 31, 1998, and consolidated balance sheet data as
of March 31, 1997 and 1998, presented below were derived from the audited
Consolidated Financial Statements of the Company and the related Notes thereto,
appearing elsewhere in this Prospectus. The consolidated statements of
operations data for each of the years in the two-year period ended March 31,
1995, and consolidated balance sheet data as of March 31, 1994, 1995 and 1996,
presented below were derived from unaudited Consolidated Financial Statements of
the Company not included in this Prospectus and include, in the opinion of the
Company, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the Company's financial position at that
date and the results of operations for those periods. The selected consolidated
income statement data for the three month periods ended June 30, 1997 and June
30, 1998 and consolidated balance sheet data as of June 30, 1998, presented
below were derived from the unaudited Consolidated Financial Statements
appearing elsewhere in this Prospectus. In the opinion of management, the
unaudited Consolidated Financial Statements have been prepared on the same basis
as the audited Consolidated Financial Statements and contain all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the Company's results of operations for such periods and
financial condition at such dates. Operating results for the three months ended
June 30, 1998 are not necessarily indicative of the results to be expected for
the full year. The data set forth below should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
YEAR ENDED MARCH 31 JUNE 30
IN THOUSANDS, EXCEPT PER SHARE DATA 1994 1995 1996 1997 1998 1997 1998
--------- --------- --------- --------- --------- --------- ---------
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Revenue:
License................................ $23,050 $26,789 $23,955 $19,709 $24,820 $4,105 $6,610
Service................................ 11,479 6,979 10,593 7,985 7,495 1,785 1,924
Third-party products................... 9,143 13,424 31,267 17,234 16,623 4,224 3,796
--------- --------- --------- --------- --------- --------- ---------
Total revenue............................ 43,672 47,192 65,815 44,928 48,938 10,114 12,330
Cost of revenue:
License................................ 6,721 5,437 4,011 4,452 4,675 859 1,417
Service................................ 2,249 1,853 2,238 1,799 1,937 409 684
Third-party products................... 8,137 11,947 27,682 15,106 14,670 3,767 3,362
--------- --------- --------- --------- --------- --------- ---------
Total cost of revenue.................... 17,107 19,237 33,931 21,357 21,282 5,035 5,463
--------- --------- --------- --------- --------- --------- ---------
Gross profit............................. 26,565 27,955 31,884 23,571 27,656 5,079 6,867
Operating expenses:
Sales and marketing.................... 16,919 11,348 10,014 7,916 9,428 2,141 2,486
Research and development............... 7,052 7,130 5,340 3,733 3,916 922 950
General and administrative............. 8,635 5,971 4,734 4,808 4,885 1,096 1,231
Compensation related to issuance of
Common Stock (1)..................... -- -- -- -- 2,800 -- --
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses................. 32,606 24,449 20,088 16,457 21,029 4,159 4,667
--------- --------- --------- --------- --------- --------- ---------
Income (loss) from operations............ (6,041) 3,506 11,796 7,114 6,627 920 2,200
Other income (expense), net.............. (82) 2 (43) (31) (18) (7) 26
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes........ (6,123) 3,508 11,753 7,083 6,609 913 2,226
Provision (benefit) for income taxes..... (2,296) 1,315 4,407 2,656 2,478 342 835
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)........................ $(3,827) $2,193 $7,346 $4,427 $4,131 $571 $1,391
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Basic and diluted earnings per share
(2).................................... $(0.73) $0.42 $1.40 $0.84 $ $ $
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Shares used in computing basic and
diluted earnings per share............. 5,250 5,250 5,250 5,250
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AT JUNE
AT MARCH 31 30
<CAPTION>
DOLLARS IN THOUSANDS 1994 1995 1996 1997 1998 1998
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
Cash and cash
equivalents.............. -- -- -- -- $4,013 $4,898
Working capital............ $5,007 $2,474 $4,139 $5,504 3,620 4,222
Total assets............... 16,584 11,232 11,462 10,901 13,990 13,928
Note payable to Computer
Associates............... -- -- -- -- 5,000 5,000
Total
division/stockholders'
equity (deficit)......... 6,035 2,796 4,244 5,697 (798) 456
</TABLE>
- ------------------------
(1) Relates to the January 1998 issuance of 150,000 shares of Common Stock (net
of 100,000 shares repurchased for tax witholding purposes) to certain executive
officers and key employees of the Company. See "Management--Restricted Stock
Grant" and Note (4) of Notes to Consolidated Financial Statements.
(2) See Note (1) of Notes to Consolidated Financial Statements for information
concerning the computation of earnings per share.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operations of
the Company should be read in conjunction with the Company's Consolidated
Financial Statements, including the Notes thereto, and the other financial
information included elsewhere in this Prospectus.
OVERVIEW
ACCPAC is a leading provider of financial accounting and business management
software solutions to the Corporate, Small business and SOHO markets. ACCPAC and
its predecessors have been providing financial accounting software solutions
since 1979.
The predecessors to ACCPAC's current products, as well as the DistribuPro
business, were acquired by Computer Associates as part of a series of unrelated
business acquisitions between 1985 and 1989. ACCPAC became an iBU of Computer
Associates in April 1996, was incorporated in Delaware in October 1997 and
became a subsidiary of Computer Associates effective January 1998.
In fiscal 1997, the Company began transferring a number of key selling and
administrative functions, including accounting, client care and telesales, from
Computer Associates in New York to ACCPAC in Santa Clara, California. In
addition, most of ACCPAC's research and development personnel were relocated
from a number of sites to the Richmond, British Columbia, Canada facility, while
North American technical support was consolidated in Santa Clara and Richmond.
The Company also removed ACCPAC Plus Accounting and ACCPAC for Windows from the
retail distribution channel in Canada in order to consolidate the Company's
North American distribution strategy.
In fiscal 1998, the Company assumed responsibility for its international sales,
which were previously managed by Computer Associates' regional international
operations. The Company also relocated sales and marketing personnel to reduce
reliance on Computer Associates' facilities and completed the transfer of
accounting functions to ACCPAC in Santa Clara. In addition, the Company
consolidated its client care and technical support functions into the Richmond
facility and began providing technical staff to assist its Business Partners
with in-field technical advice and assistance. The Company also created an
in-house Business Partner communication and recruitment group.
In January 1998, the Company issued 150,000 shares of Common Stock (net of
100,000 shares repurchased for tax withholding purposes) to certain executive
officers and key employees of the Company. In connection with such issuance, the
Company recognized compensation expense of $2.8 million in the fourth quarter of
fiscal 1998. There will be no additional charge to the Company's financial
statements in connection with such transaction. See "Management--Restricted
Stock Grant" and Note (4) of Notes to Consolidated Financial Statements.
Historically, the Company derived a substantial percentage of its license
revenue from its DOS-based products. Over the last three fiscal years, the
Company increasingly dedicated sales and marketing and research and development
resources to support its Windows-based product lines. Sales of the Company's
Windows-based products have grown as a percentage of revenue over the last three
fiscal years and represented a majority of the Company's total license and
service revenue for the fiscal years ended March 31, 1997 and 1998. See
"Business-- Strategy--Leverage Installed Base."
Over the last three fiscal years, a substantial majority of service revenue
related to maintenance services. In the past, the Company has offered its
customers optional support and maintenance programs and relied upon its Business
Partner network to provide client support. While the Company will continue to
rely primarily on its Business Partners to provide clients with front-end
support, the Company has introduced a multi-level SupportPlus Maintenance
program that provides clients with automatic product upgrades and a choice of
various levels of technical support. The Company requires its clients to
purchase a one-year SupportPlus Maintenance contract as part of the original
sale of all ACCPAC for Windows products.
22
<PAGE>
ACCPAC employs a distribution model that includes mass merchandise retail
channels for its Simply Accounting products and a network of Business Partners
for its ACCPAC for Windows and ACCPAC Plus Accounting product lines. The Company
also uses a system of distributors for sales outside the United States, Canada
and the Caribbean. The Company's DistribuPro subsidiary acts as the distribution
arm for ACCPAC for Windows and ACCPAC Plus Accounting in the United States,
Canada and the Caribbean. In addition to distributing the Company's products,
DistribuPro sells third-party products. DistribuPro's revenue from sales of
third-party products have significantly lower margins than software license and
service revenue from the Company's products. See "Risk Factors--Potential
Fluctuations in Quarterly Results; Seasonality."
The Company has made and expects to continue to make substantial expenditures
for research and development. The Company's research and development operations
are located in Richmond. As of July 1, 1998, the Company had 69 full time
employees in research and development, including programming, documentation and
quality assurance testing. Between fiscal 1992 and 1994, the Company made
significant expenditures in developing its object-oriented and layered
architecture for its ACCPAC for Windows products. The Company's research and
development costs have been expensed as incurred.
The Consolidated Financial Statements of the Company, including the Notes
thereto, which are discussed below, reflect the consolidated financial position,
results of operations, and cash flows of the business transferred to the Company
from Computer Associates pursuant to the Contribution Agreement. The
Consolidated Financial Statements include expenses which have been allocated to
the Company by Computer Associates on a direct basis, based upon a specific
identification of the expenses. Allocations of expenses from Computer Associates
to the Company on an indirect basis have been made primarily on a proportional
cost allocation method based on the number of employees. Management believes
these allocations are reasonable and that such expenses would not differ
materially had the Company operated on a stand-alone basis for all the periods
presented.
The financial information included herein may not necessarily reflect the
consolidated financial position, results of operation, and cash flows of the
Company in the future.
23
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for each of the periods indicated, certain
consolidated statements of income data as a percentage of total revenue:
<TABLE>
<CAPTION>
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
YEAR ENDED MARCH 31 JUNE 30
1996 1997 1998 1997 1998
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
Revenue:
License....................... 36.4% 43.9% 50.7% 40.6% 53.6%
Service....................... 16.1 17.8 15.3 17.6 15.6
Third-party products.......... 47.5 38.3 34.0 41.8 30.8
---------- ---------- ---------- ---------- ----------
Total revenue................... 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
License....................... 6.1 9.9 9.5 8.5 11.5
Service....................... 3.4 4.0 4.0 4.0 5.5
Third-party products.......... 42.1 33.6 30.0 37.3 27.3
---------- ---------- ---------- ---------- ----------
Total cost of revenue........... 51.6 47.5 43.5 49.8 44.3
---------- ---------- ---------- ---------- ----------
Gross profit.................... 48.4 52.5 56.5 50.2 55.7
Operating expenses:
Sales and marketing........... 15.2 17.6 19.3 21.2 20.2
Research and development...... 8.1 8.3 8.0 9.1 7.7
General and administrative.... 7.2 10.7 10.0 10.8 10.0
Compensation related to
issuance of common stock.... -- -- 5.7 -- --
---------- ---------- ---------- ---------- ----------
Total operating expenses........ 30.5 36.6 43.0 41.1 37.9
---------- ---------- ---------- ---------- ----------
Income from operations.......... 17.9 15.9 13.5 9.1 17.8
Other income (expense), net..... 0.0 (0.1) 0.0 (0.1) 0.2
---------- ---------- ---------- ---------- ----------
Income before income taxes...... 17.9 15.8 13.5 9.0 18.0
Provision for income taxes...... 6.7 5.9 5.1 3.4 6.7
---------- ---------- ---------- ---------- ----------
Net income...................... 11.2% 9.9% 8.4% 5.6% 11.3%
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
24
<PAGE>
THREE MONTHS ENDED JUNE 30, 1998 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1997
REVENUE
Total revenue for the three months ended June 30, 1998 increased 21.9% to $12.3
million over revenue of $10.1 million for the three months ended June 30, 1997.
License revenue and service revenue increased 61.0% and 7.8%, respectively.
These increases were partially offset by a 10.1% decline in third-party revenue.
Price changes did not have a material impact in either three month period.
LICENSE. License revenue increased to $6.6 million for the three months ended
June 30, 1998 from $4.1 million for the three months ended June 30, 1997.
License revenue as a percentage of total revenue increased from 40.6% for the
three months ended June 30, 1997 to 53.6% for the three months ended June 30,
1998. The increase in license revenue was attributable to increased sales of
ACCPAC for Windows and a substantial increase in sales of Simply Accounting. New
versions of Simply Accounting were released during the three months ended June
30, 1998 and June 30, 1997.
SERVICE. Service revenue increased to $1.9 million for the three months ended
June 30, 1998 from $1.8 million for the three months ended June 30, 1997.
Service revenue as a percentage of total revenue decreased from 17.6% for the
three months ended June 30, 1997 to 15.6% for the three months ended June 30,
1998. The decrease in service revenue as a percentage of total revenue resulted
from license revenue growing faster than service revenue.
THIRD-PARTY PRODUCTS. Third-party products revenue decreased 10.1% to $3.8
million for the three months ended June 30, 1998 from $4.2 million for the three
months ended June 30, 1997. The decrease in revenue resulted from lower sales
volume as the Company reduced the number of lower margin third-party products
sold by DistribuPro.
COST OF REVENUE
Total cost of revenue was $5.5 million or 44.3% of total revenue for the three
months ended June 30, 1998, compared to $5.0 million, or 49.8% of total revenue
for the three months ended June 30, 1997. The decrease in total cost of revenue
as a percentage of total revenue resulted from an increased proportion of higher
margin license revenue relative to third-party products revenue.
COST OF LICENSE. The cost of license revenue consists primarily of media,
product manuals, shipping and fulfillment and royalties paid to third parties.
The cost of license revenue was $1.4 million, or 21.4% of license revenue for
the three months ended June 30, 1998, compared to $0.9 million, or 20.9% of
license revenue, for the three months ended June 30, 1997. The increase in the
cost of license revenue as a percentage of license revenue resulted from
increased sales of Simply Accounting, which carries a lower gross margin than
the Company's other Windows based products.
COST OF SERVICE. The cost of service revenue consists primarily of personnel
costs, telephone charges related to providing telephone support training and
consulting services. The cost of service revenue was $0.7 million, or 35.6% of
service revenue for the three months ended June 30, 1998, as compared to $0.4
million, or 22.9% of revenue, for the three months ended June 30, 1997. The
increase in cost of service revenue as a percentage of service revenue resulted
from hiring additional personnel to support the new mandatory SupportPlus
Maintenance Program.
COST OF THIRD-PARTY PRODUCTS. The cost of third-party products revenue consists
of the cost of products purchased from third parties that are sold through
DistribuPro, including materials and freight costs. The cost of third-party
products revenue decreased to $3.4 million, or 88.6% of third-party products
revenue for the three months ended June 30, 1998, from $3.8 million, or 89.2% of
third-party products revenue, for the three months ended June 30, 1997. The
decrease in the cost of third-party products as a percentage of third-party
products revenue resulted from the Company's focus on selling higher margin
third-party products through DistribuPro.
25
<PAGE>
SALES AND MARKETING
Sales and marketing expenses consist primarily of advertising, marketing
programs, tradeshow participation, public relations and other promotional
expenses, personnel costs, commissions and travel costs. Sales and marketing
expenses increased 16.1% to $2.5 million for the three months ended June 30,
1998 from $2.1 million for the three months ended June 30, 1997. The increase in
sales and marketing expenditure resulted from the Company's hiring of additional
personnel and its strategy to increase awareness of its products through
increased advertising, tradeshow participation, and direct mail activity and
increased emphasis on encouraging its installed client base of DOS users to
migrate to the Company's Windows based products. As a percentage of total
revenue, sales and marketing expenses decreased to 20.2% for the three months
ended June 30, 1998 from 21.2% for the three months ended June 30, 1997 because
total revenue increased more than the additional expenditures in sales and
marketing.
RESEARCH AND DEVELOPMENT
Research and development expenses consist primarily of personnel costs and fees
paid to outside consultants. Research and development expenses increased 3.0% to
$1.0 million for the three months ended June 30, 1998 from $0.9 million for the
three months ended June 30, 1997. The increase in research and development
expenditure resulted from the Company adding additional employees in its
research and development group. As a percentage of total revenue, research and
development expenses decreased to 7.7% for the three months ended June 30, 1998
from 9.1% for the three months ended June 30, 1997 because total revenue
increased faster than the additional investment in research and development
along with the foreign exchange effects of a declining Canadian dollar.
GENERAL AND ADMINISTRATIVE
General and administrative expenses include the costs of corporate operations,
costs for financial, administrative and management personnel and related travel
expenses, finance and accounting costs, human resources, occupancy and equipment
costs and other general operations. General and administrative expenses
increased 12.3% to $1.2 million for the three months ended June 30, 1998 from
$1.1 million for the three months ended June 30, 1997. As a percentage of total
revenue, general and administrative expenses decreased to 10.0% for the three
months ended June 30, 1998 from 10.8% for the three months ended June 30, 1997.
The decrease in general and administrative expenses as a percentage of total
revenue occurred as the Company's general administrative costs increased
marginally compared to a larger increase in revenue.
PROVISION FOR INCOME TAXES
The provision for income taxes increased 144.2% to $0.8 million for the three
months ended June 30, 1998 from $0.3 million for the three months ended June 30,
1997. This increase is a result of higher pre-tax income for the three months
ended June 30, 1998 relative to the three months ended June 30, 1997. The
Company's results have been, and until consummation of the Offering will be,
included in the consolidated income tax returns filed by Computer Associates.
The Company's provision for income taxes has been calculated using Computer
Associates' effective tax rate of 37.5%, which approximates the provision for
income taxes for the Company on a separate return basis. However, there can be
no assurance that the Company's effective income tax rate for future periods
will not be greater than 37.5%. See "Arrangements Between the Company and
Computer Associates" and Note (1) of Notes to Consolidated Financial Statements.
NET INCOME
Net income increased 143.6% to $1.4 million for the three months ended June 30,
1998 from $0.6 million for the three months ended June 30, 1997. As a percentage
of total revenue, net income increased to 11.3% for the three months ended June
30, 1998 from 5.6% for the three months ended June 30, 1997.
26
<PAGE>
FISCAL YEAR ENDED MARCH 31, 1998 COMPARED WITH FISCAL YEAR ENDED MARCH 31, 1997
REVENUE
Total revenue increased 8.9% to $48.9 million in 1998 from $44.9 million in
1997. License revenue increased 25.9% to $24.8 million in 1998 from $19.7
million in 1997. Decreases in service revenue of 6.1% and revenue from
third-party products of 3.5% partially offset this increase. Price changes did
not have a material impact in either year.
LICENSE. License revenue increased to $24.8 million in 1998 from $19.7 million
in 1997 and accounted for 50.7% of total revenue in 1998 up from 43.9% in 1997.
This increase in license revenue was primarily attributable to a substantial
increase in sales of ACCPAC for Windows after the 1997 fiscal third quarter
release of ACCPAC for Windows Corporate Series (Version 3.0) and ACCPAC for
Windows Small Business Series. Also contributing to the increase were additional
international sales of the Company's DOS-based ACCPAC Plus Accounting products.
These increases were partially offset by slightly lower revenue from Simply
Accounting and BPI Accounting II.
SERVICE. Service revenue decreased to $7.5 million in 1998 from $8.0 million in
1997 and represented 15.3% of total revenue in 1998 as compared to 17.8% in
1997. In 1996, ACCPAC implemented a program to shift maintenance and support
services from ACCPAC to the Company's Business Partner network. As a result,
revenue derived from these services has declined each year since 1996.
THIRD-PARTY PRODUCTS. Third-party products revenue decreased to $16.6 million
in 1998 from $17.2 million in 1997 and represented 34.0% of total revenue in
1998 as compared to 38.3% in 1997. The decrease in third-party products revenue
was primarily due to lower sales volume as the Company reduced the total number
of third-party products sold by DistribuPro.
COST OF REVENUE
Total cost of revenue was $21.3 million, or 43.5% of total revenue, in 1998, as
compared to $21.4 million, or 47.5% of total revenue, in 1997. The decrease in
total cost of revenue as a percentage of total revenue resulted from an
increased proportion of higher margin license revenue relative to third-party
products revenue.
COST OF LICENSE. The cost of license revenue was $4.7 million, or 18.8% of
license revenue in 1998, compared to $4.5 million, or 22.6% of license revenue,
in 1997. The decrease in the cost of license revenue as a percentage of license
revenue resulted from reduced costs of packaging of the ACCPAC for Windows
products, which were redesigned in the third quarter of 1998 and from the
reduction of royalty rates paid to the Company's independent software
development partners.
COST OF SERVICE. The cost of service revenue was $1.9 million, or 25.8% of
service revenue in 1998, as compared to $1.8 million, or 22.5% of revenue, in
1997. The increase in cost of service revenue as a percentage of service revenue
resulted from a decrease in maintenance revenue without a corresponding decrease
in fixed maintenance costs.
COST OF THIRD-PARTY PRODUCTS. The cost of third-party products revenue
decreased to $14.7 million, or 88.3% of third-party products revenue, in 1998,
from $15.1 million, or 87.7% of third-party products revenue, in 1997. The
increase in the cost of third-party products as a percentage of the third-party
products revenue resulted from an overall increase in third-party vendors'
pricing schedules which could not be passed on to customers.
SALES AND MARKETING
Sales and marketing expenses increased 19.1% to $9.4 million in 1998 from $7.9
million in 1997. As a percentage of total revenue, sales and marketing expenses
increased to 19.3% in 1998 from 17.6% in 1997. The increase in sales and
marketing expenses as a percentage of total revenue was primarily attributable
to the
27
<PAGE>
establishment of a telesales group and a strategic accounts group as well as an
increase in the size of the Company's client care operations.
RESEARCH AND DEVELOPMENT
Research and development expenses increased 4.9% to $3.9 million in 1998 from
$3.7 million in 1997. As a percentage of total revenue, research and development
expenses decreased to 8.0% in 1998 from 8.3% in 1997. The research and
development expenses decreased as a percentage of total revenue due to the
continuation of a cost consolidation program initiated in 1997 pursuant to which
the Company relocated and consolidated its research and development personnel in
Richmond.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased 1.6% to $4.9 million in 1998 from
$4.8 million in 1997. As a percentage of total revenue, general and
administrative expenses decreased to 10.0% in 1998 from 10.7% in 1997. The
decrease in general and administrative expenses as a percentage of total revenue
occurred as the Company's general administrative costs remained generally
constant while revenue increased.
COMPENSATION RELATED TO ISSUANCE OF COMMON STOCK
The Company incurred a non-cash charge of $2.8 million, or 5.7% of total
revenue, in 1998 relating to the January 1998 issuance of Common Stock to
certain executive officers and key employees. There was no similar charge in
1997.
PROVISION FOR INCOME TAXES
The provision for income taxes decreased 6.7% to $2.5 million in 1998 from $2.7
million in 1997 as a result of lower pre-tax income for 1998 relative to 1997.
The Company's results have been, and until consummation of the Offering will be,
included in the consolidated income tax returns filed by Computer Associates.
The Company's provision for income taxes has been calculated using Computer
Associates' effective tax rate of 37.5%, which approximates the provision for
income taxes for the Company on a separate return basis. However, there can be
no assurance that the Company's effective income tax rate for future periods
will not be greater than 37.5%. See "Arrangements Between the Company and
Computer Associates" and Note (1) of Notes to Consolidated Financial Statements.
NET INCOME
Net income decreased 6.7% to $4.1 million in 1998 from $4.4 million in 1997. As
a percentage of total revenue, net income decreased to 8.4% in 1998 from 9.9% in
1997.
28
<PAGE>
FISCAL YEAR ENDED MARCH 31, 1997 COMPARED WITH FISCAL YEAR ENDED MARCH 31, 1996
REVENUE
Total revenue decreased 31.7% to $44.9 million in 1997 from $65.8 million in
1996. A decrease in third-party products revenue accounted for a majority of the
decline, decreasing 44.9% to $17.2 million in 1997 from $31.3 million in 1996.
In addition, license revenue declined 17.7% to $19.7 million in 1997 from $24.0
million in 1996 and service revenue declined 24.6% to $8.0 million in 1997 from
$10.6 million in 1996. Price changes did not have a material impact in either
year.
LICENSE. License revenue decreased to $19.7 million in 1997 from $24.0 million
in 1996 and accounted for 43.9% of total revenue in 1997, up from 36.4% in 1996.
During 1997, license revenue decreased as the Company sold inventory of older
versions of Simply Accounting at reduced prices. As a result, the Company
experienced reduced license revenue in the first two quarters of 1997. In
addition, sales of ACCPAC for Windows and ACCPAC Plus Accounting were negatively
affected due to the discontinued use of retail distribution channels in Canada
for sales of such products.
SERVICE. Service revenue decreased to $8.0 million in 1997 from $10.6 million
in 1996 and represented 17.8% of total revenue in 1997, as compared to 16.1% in
1996. In 1996, ACCPAC implemented a program to shift maintenance and support
services from the Company to its Business Partner network, resulting in a
decline in 1997 service revenue derived from these services.
THIRD-PARTY PRODUCTS. Third-party products revenue decreased to $17.2 million
in 1997 from $31.3 million in 1996 and represented 38.3% of total revenue in
1997, as compared to 47.5% in 1996. During 1996, the Company sold approximately
$16.2 million of software products from Microdyne Corporation in connection with
an upgrade of Novell NetWare. This revenue did not recur in 1997.
COST OF REVENUE
Total cost of revenue was $21.4 million, or 47.5% of total revenue, in 1997, as
compared to $33.9 million, or 51.6% of total revenue, in 1996. The decrease in
total cost of revenue as a percentage of total revenue resulted from an
increased proportion of higher margin Company software products sold relative to
third-party products.
COST OF LICENSE. The cost of license revenue was $4.5 million, or 22.6% of
license revenue, in 1997, compared to $4.0 million, or 16.7% of license revenue,
in 1996. The increase in the cost of license revenue as a percentage of license
revenue resulted from new royalty agreements which had higher royalty rates
payable to third-party development suppliers during the initial stages of the
contracts.
COST OF SERVICE. Cost of service revenue was $1.8 million, or 22.5% of service
revenue, in 1997, as compared to $2.2 million, or 21.1% of service revenue, in
1996. The increase in the cost of service revenue as a percentage of service
revenue resulted primarily from a decrease in maintenance revenue without a
corresponding decrease in fixed maintenance costs.
COST OF THIRD-PARTY PRODUCTS. The cost of third-party products revenue
decreased to $15.1 million, or 87.7% of third-party products revenue, in 1997,
from $27.7 million, or 88.5% of third-party products revenue, in 1996. This
decrease in the cost of third-party products revenue as a percentage of
third-party products revenue resulted from the lower costs associated with sales
made during 1997 relative to the costs associated with software sales from
Microdyne Corporation in 1996.
SALES AND MARKETING
Sales and marketing expenses decreased 21.0% to $7.9 million in 1997 from $10.0
million in 1996. As a percentage of total revenue, sales and marketing expenses
increased to 17.6% in 1997 from 15.2% in 1996. The increase in sales and
marketing expenses as a percentage of total revenue occurred as expenses,
including personnel costs, failed to decline at the same rate as revenue. The
absolute decrease in expenses was primarily
29
<PAGE>
attributable to the Company's consolidation of its sales channels. In
particular, during 1997, the Company removed ACCPAC Plus Accounting and ACCPAC
for Windows products from the retail distribution channel in Canada in order to
consolidate its North American distribution strategy. As a result, the Company
was able to reduce levels of marketing and retail channel sales incentives.
RESEARCH AND DEVELOPMENT
Research and development expenses decreased 30.1% to $3.7 million in 1997 from
$5.3 million in 1996. As a percentage of total revenue, research and development
expenses increased to 8.3% in 1997 from 8.1% in 1996. The increase in research
and development expenses as a percentage of total revenue occurred as research
and development expenses, including personnel costs, failed to decline at the
same rate as total revenue. The absolute decrease in research and development
expenses resulted from a cost consolidation program initiated in 1997 pursuant
to which the Company relocated and consolidated its research and development
personnel primarily in Richmond.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased 1.6% to $4.8 million in 1997 from
$4.7 million in 1996. As a percentage of total revenue, general and
administrative expenses increased to 10.7% in 1997 from 7.2% in 1996. General
and administrative costs as a percentage of total revenue increased as general
and administrative costs remained stable while revenue declined.
PROVISION FOR INCOME TAXES
The provision for income taxes decreased 39.7% to $2.7 million in 1997 from $4.4
million in 1996 as a result of lower pre-tax income for 1997 relative to 1996.
The Company's results have been, and until consummation of the Offering will be,
included in the consolidated income tax returns filed by Computer Associates.
The Company's provision for income taxes has been calculated using Computer
Associates' effective tax rate of 37.5%, which approximates the provision for
income taxes for the Company on a separate return basis. However, there can be
no assurance that the Company's effective income tax rate for future periods
will not be greater than 37.5%. See "Arrangements Between the Company and
Computer Associates" and Note (1) of Notes to Consolidated Financial Statements.
NET INCOME
Net income decreased 39.7% to $4.4 million in 1997 from $7.3 million in 1996. As
a percentage of total revenue, net income decreased to 9.9% in 1997 from 11.2%
in 1996.
30
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly statements of
operations data for each of the eight quarters of fiscal 1997 and 1998 and the
first quarter of fiscal 1999, as well as the percentage of the Company's
revenue. The information for each of these quarters is derived from unaudited
consolidated financial statements and, in the opinion of management, includes
all adjustments, consisting of only normal and recurring adjustments, necessary
for a fair presentation of that information. The results of operations for any
quarter and any quarter-to-quarter trends are not necessarily indicative of the
results to be expected for any future period.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
QUARTER ENDED
JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
1996 1996 1996 1997 1997 1997 1997
----------- ----------- ----------- ----------- ----------- ----------- -----------
DOLLARS IN THOUSANDS
Revenue:
License...................... $4,457 $3,209 $5,644 $6,399 $4,105 $5,568 $8,250
Service...................... 2,209 2,178 1,869 1,729 1,785 1,929 1,839
Third-party products......... 4,594 4,446 4,336 3,858 4,224 3,883 4,651
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenue.................. 11,260 9,833 11,849 11,986 10,114 11,380 14,740
Cost of revenue:
License...................... 1,058 757 1,231 1,406 859 1,006 1,364
Service...................... 394 433 460 512 409 475 526
Third-party products......... 4,033 3,917 3,683 3,473 3,767 3,447 4,084
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total cost of revenue.......... 5,485 5,107 5,374 5,391 5,035 4,928 5,974
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit................... 5,775 4,726 6,475 6,595 5,079 6,452 8,766
Operating expenses:
Sales and marketing.......... 1,869 1,843 2,055 2,149 2,141 2,116 2,336
Research and development..... 1,051 927 873 882 922 990 1,010
General and administrative... 1,064 1,213 1,222 1,309 1,096 1,113 1,275
Compensation related to
issuance of Common Stock... -- -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses....... 3,984 3,983 4,150 4,340 4,159 4,219 4,621
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income from operations......... 1,791 743 2,325 2,255 920 2,233 4,145
Other income (expense), net.... (41) (37) (19) 66 (7) (10) (8)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes........................ 1,750 706 2,306 2,321 913 2,223 4,137
Provision (benefit) for income
taxes........................ 656 265 865 870 342 834 1,551
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income..................... $1,094 $441 $1,441 $1,451 $571 $1,389 $2,586
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
<S> <C> <C>
MARCH 31 JUNE 30
1998 1998
----------- -----------
DOLLARS IN THOUSANDS
Revenue:
License...................... $6,897 $6,610
Service...................... 1,942 1,924
Third-party products......... 3,865 3,796
----------- -----------
Total revenue.................. 12,704 12,330
Cost of revenue:
License...................... 1,446 1,417
Service...................... 527 684
Third-party products......... 3,372 3,362
----------- -----------
Total cost of revenue.......... 5,345 5,463
----------- -----------
Gross profit................... 7,359 6,867
Operating expenses:
Sales and marketing.......... 2,835 2,486
Research and development..... 994 950
General and administrative... 1,401 1,231
Compensation related to
issuance of Common Stock... 2,800 --
----------- -----------
Total operating expenses....... 8,030 4,667
----------- -----------
Income from operations......... (671) 2,200
Other income (expense), net.... 7 26
----------- -----------
Income (loss) before income
taxes........................ (664) 2,226
Provision (benefit) for income
taxes........................ (249) 835
----------- -----------
Net income..................... $(415) $1,391
----------- -----------
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
QUARTER ENDED
JUNE 30 SEPT.30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31
1996 1996 1996 1997 1997 1997 1997
----------- ----------- ----------- ----------- ----------- ----------- -----------
Revenue:
License...................... 39.6% 32.6% 47.6% 53.4% 40.6% 48.9% 56.0%
Service...................... 19.6 22.2 15.8 14.4 17.6 17.0 12.4
Third-party products......... 40.8 45.2 36.6 32.2 41.8 34.1 31.6
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenue.................. 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
License...................... 9.4 7.7 10.4 11.7 8.5 8.8 9.2
Service...................... 3.5 4.4 3.9 4.3 4.0 4.2 3.6
Third-party products......... 35.8 39.8 31.1 29.0 37.3 30.3 27.7
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total cost of revenue.......... 48.7 51.9 45.4 45.0 49.8 43.3 40.5
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit................... 51.3 48.1 54.6 55.0 50.2 56.7 59.5
Operating expenses:
Sales and marketing.......... 16.6 18.8 17.3 17.9 21.2 18.6 15.8
Research and development..... 9.3 9.4 7.4 7.4 9.1 8.7 6.9
General and administrative... 9.5 12.3 10.3 10.9 10.8 9.8 8.7
Compensation related to
issuance of Common Stock... -- -- -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses....... 35.4 40.5 35.0 36.2 41.1 37.1 31.4
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income from operations......... 15.9 7.6 19.6 18.8 9.1 19.6 28.1
Other income (expense), net.... (0.4) (0.4) (0.1) 0.6 (0.1) (0.1) --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes........................ 15.5 7.2 19.5 19.4 9.0 19.5 28.1
Provision (benefit) for income
taxes........................ 5.8 2.7 7.3 7.3 3.4 7.3 10.6
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income..................... 9.7% 4.5% 12.2% 12.1% 5.6% 12.2% 17.5%
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
<S> <C> <C>
MARCH 31 JUNE 30
1998 1998
----------- -----------
Revenue:
License...................... 54.3% 53.6%
Service...................... 15.3 15.6
Third-party products......... 30.4 30.8
----------- -----------
Total revenue.................. 100.0 100.0
Cost of revenue:
License...................... 11.4 11.5
Service...................... 4.2 5.5
Third-party products......... 26.5 27.3
----------- -----------
Total cost of revenue.......... 42.1 44.3
----------- -----------
Gross profit................... 57.9 55.7
Operating expenses:
Sales and marketing.......... 22.3 20.2
Research and development..... 7.8 7.7
General and administrative... 11.0 10.0
Compensation related to
issuance of Common Stock... 22.1 --
----------- -----------
Total operating expenses....... 63.2 37.9
----------- -----------
Income from operations......... (5.3) 17.8
Other income (expense), net.... 0.1 0.2
----------- -----------
Income (loss) before income
taxes........................ (5.2) 18.0
Provision (benefit) for income
taxes........................ (1.9) 6.7
----------- -----------
Net income..................... (3.3%) 11.3%
----------- -----------
----------- -----------
</TABLE>
31
<PAGE>
The Company has experienced, and is likely to continue to experience,
fluctuations in quarterly operating results caused by many factors, including,
without limitation, (i) variations in the demand for the Company's products and
services, (ii) timing of introductions of new products or enhancements to
existing products by the Company or its competitors, (iii) increased
competition, (iv) timing and composition of orders from the Company's clients,
(v) variations in the mix of revenue, (vi) changes in the pricing policies of
the Company or its competitors and (vii) the publication of opinions about the
products of the Company or its competitors by industry analysts or others.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through internally generated
cash flow and extensions of intercompany credit from Computer Associates. The
Company had working capital of $4.2 million at June 30, 1998. As of June 30,
1998, the Company had cash and cash equivalents of $4.9 million.
Cash provided by operating activities was $6.1 million, $3.1 million and $11.6
million for fiscal 1996, 1997 and 1998, respectively, and $2.0 million and $1.0
million during the three months ended June 30, 1997 and June 30, 1998,
respectively. The decrease in cash provided by operations in fiscal 1997 as
compared with fiscal 1996 was primarily due to lower net income. The increase in
cash provided by operations in fiscal 1998 as compared with fiscal 1997 was
primarily due to an increase in net income (after adjusting for non-cash
compensation charges), a decrease in accounts receivable and an increase in
accounts payable. Despite an increase in revenue during fiscal 1998 as compared
to fiscal 1997, accounts receivable declined due to increased collection efforts
on current receivables, an increase in customer credit monitoring activities,
and an increase in cash sales. The allowance for doubtful accounts remained
consistent at approximately 12% of total accounts receivable at March 31, 1997
and 1998 and June 30, 1998. Accounts payable increased from $1.3 million at
March 31, 1997 to $4.0 million at March 31, 1998, primarily due to the timing of
payments to vendors. At June 30, 1998, accounts payable declined to $1.8
million.
Cash used in investing activities was $121,000, $138,000 and $377,000 during
fiscal 1996, 1997 and 1998, respectively, and $20,000 and $16,000 during the
three months ended June 30, 1997 and June 30, 1998, respectively. The use of
cash in investing activities was for purchases of property and equipment.
Cash used in financing activities was $5.9 million, $3.0 million and $7.3
million during fiscal 1996, 1997 and 1998, respectively, and $2.0 million in the
three months ended June 30, 1997 and relates to net cash transfers to Computer
Associates. The Company had no cash used in financing activities during the
three months ended June 30, 1998.
In the first quarter of fiscal 1999, the Company made a payment of $1.1 million
for tax withholdings on behalf of certain employees in connection with the
issuance of shares of Common Stock to certain executive officers and key
employees of the Company. See "Management--Restricted Stock Grant."
In connection with the contribution and transfer by Computer Associates to the
Company of the assets of the ACCPAC division, the Company, among other things,
issued to Computer Associates the Computer Associates Note in the principal
amount of $5.0 million. The Computer Associates Note is an unsecured, general
obligation of the Company, is due and payable in full on the earlier of the
consummation of the Offering and December 31, 1999 and bears no interest if paid
in full on or prior to December 31, 1998. If the Computer Associates Note is not
paid in full at such time, the remaining amount will bear interest at a rate of
9% per annum. The Computer Associates Note will be repaid upon consummation of
the Offering using $5.0 million of the proceeds thereof.
The Company believes that the net proceeds from the Offering, together with its
current cash balances and cash provided by future operations, will be sufficient
to meet its working capital and anticipated capital expenditure requirements for
at least the next 12 months. Although operating activities may provide cash in
certain periods, to the extent the Company experiences growth in the future its
operating and investing activities may require significant cash. Consequently,
any such future growth may require the Company to obtain additional equity or
debt financing.
32
<PAGE>
The Company recognizes the significance of the year 2000 problem as it relates
to its internal systems. The Company expects to fully implement an overall plan
and a systematic process to make its internal financial and administrative
systems year 2000 compliant by the second half of 1999. The cost of this
exercise is not expected to have a material effect on the Company's results of
operations or liquidity. Contingency plans have also been developed such that
any failure to convert will not adversely affect overall performance. The
Company is also actively working with critical suppliers of products and
services to determine that the suppliers' operations and the products and
services they provide are year 2000 compliant or to monitor their progress
toward year 2000 compliance. There can be no assurance that the failure to
ensure year 2000 capability by a supplier or another third party would not have
a material adverse effect on the Company's business, financial condition and
results of operations.
NEW ACCOUNTING PRONOUNCEMENTS
In October 1997, the American Institute of Certified Public Accountants issued
Statement of Position No. 97-2 ("SOP 97-2"), "Software Revenue Recognition", as
amended by Statement of Position 98-4, which the Company adopted for
transactions entered into in the fiscal year beginning April 1, 1998. SOP 97-2
provides guidance on recognizing revenue on software transactions and supersedes
SOP 91-1. The adoption of SOP 97-2 did not have a significant impact on the
Company's revenue recognition practices.
The Company has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") as of the first quarter of fiscal
1999. SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its components, however, it had no impact on the
Company's net income or stockholders' equity. Comprehensive income consists of
foreign currency translation adjustments.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 requires the Company
use the "management approach" in disclosing segment information. The statement
is effective for the Company during the year ending March 31, 1999. The Company
does not believe that the adoption of SFAS 131 will have a material impact on
the Company's consolidated financial position, results of operations or cash
flows.
33
<PAGE>
BUSINESS
ACCPAC is a leading provider of financial accounting and business management
software solutions to the Corporate, Small Business and SOHO markets. The
Company's products automate essential accounting functions and enhance the
strategic value of financial and business information. As of June 30, 1998, the
Company had an installed client base consisting of over 350,000 registered
clients in the United States and Canada and additional registered clients in
more than 100 other countries. ACCPAC and its predecessors have been providing
financial accounting software solutions since 1979.
INDUSTRY OVERVIEW
In today's competitive markets, companies of all sizes use computers to help
improve performance and efficiency in their businesses. Many businesses are
dedicating substantial resources towards software solutions that streamline and
reduce costs associated with key business functions (such as financial
accounting, operations management and other business processes) while providing
robust functionality, flexibility and reliability. According to International
Data Corporation ("IDC"), an independent provider of information technology
data, financial accounting software is one of the largest market segments within
the business applications software market. IDC estimates that the total
worldwide market for financial accounting software will grow from approximately
$5.3 billion in 1997 to approximately $10.4 billion in 2002.
The Company believes that there are three primary factors driving change in the
financial accounting software market: (1) the continuing advancement of
high-powered, low-cost personal computers ("PCs") which are easier to use and
maintain; (2) the replacement of older systems, driven by standardization on
Windows platforms, recognition of the year 2000 problem and the changes
anticipated as European countries adopt a single Euro-currency; and (3) the
impact of the Internet and e-Business revolution.
The market for financial accounting software consists of businesses in four
markets: the small office/home office (SOHO), small business (Small Business),
mid-sized business or corporate (Corporate) and the enterprise (Enterprise)
markets. The Company targets clients in the SOHO, Small Business and Corporate
markets. The SOHO market generally consists of businesses that have annual
revenue of $1 million or less and fewer than five employees. The Small Business
market generally includes companies that have between $1 million and $20 million
in annual revenue, 100 or fewer employees and five or fewer concurrent users of
accounting software. The Corporate market generally is composed of companies
with $20 million to $500 million in annual revenue, between 100 and several
thousand employees and more than five concurrent users of accounting software.
Customers in each market have unique requirements for their financial accounting
and business management software.
SOHO MARKET
SOHO businesses are leveraging increasing PC power, declining PC costs and the
availability and ease of use of software applications to manage financial
functions that have traditionally required specialized training or were
delegated to outside professionals. By using accounting software packages, SOHO
businesses can automate daily bookkeeping tasks, reduce costs and improve
business decision-making by providing timely access to critical business
information. In addition, accountants and auditors of SOHO businesses often
support the use of accounting software because it can reduce the time and costs
required to perform audits and prepare tax returns.
SOHO businesses generally factor cost, ease of self-installation, ease of use
and general availability into their decision to acquire business technologies.
SOHO users generally seek packaged solutions that cost less than $250, are
widely available at retail PC outlets and are easy to self-install and use.
According to the United States Small Business Administration ("USSBA"), in 1995,
there were approximately 2.6 million businesses in the United States with 1 to 4
employees. Statistics Canada ("STATSCAN"), a Canadian government department,
estimated that in 1996, there were approximately 565,000 businesses in Canada
with 1 to 4 employees.
34
<PAGE>
SMALL BUSINESS MARKET
Small businesses typically use PCs within simple peer-to-peer or small networked
systems as their primary technology platform. Within the networked systems of
small businesses, information can be shared among multiple users, but most
application functionality resides within the individual PCs. Small businesses
employ accounting software applications to save time, reduce costs and increase
the ability to access and share information in a timely manner. Small businesses
demand more robust functionality than is provided by off-the-shelf software that
is targeted at the SOHO market. In addition, small businesses frequently demand
the flexibility to generate customized reports. They look for software solutions
that can be scaled to meet the needs of a growing company, have an affordable
cost of ownership over the life of the product and can be implemented with ease
and relative speed. These companies typically target price points below $5,000
and require installation times of no longer than several weeks. To satisfy these
requirements, and because they do not usually employ formal management
information systems ("MIS") departments, small businesses often rely on outside
parties, such as VARs or QIs, to help them implement an accounting software
solution.
ACCPAC believes that the Small Business market will be increasingly
characterized by greater adoption of more sophisticated networked systems and
the growth of Internet-related technologies. The Company believes that the
increased use of more sophisticated networked systems will drive the need for
accounting software that is compatible with the most widely used networking
platforms and that provides an open architecture capable of integrating Internet
and other leading technologies.
According to the USSBA, in 1995, there were approximately 2.0 million businesses
in the United States with 5 to 99 employees. STATSCAN estimates that in 1996,
there were approximately 400,000 businesses in Canada with 5 to 99 employees.
CORPORATE MARKET
Corporate users typically have some mix of networked architectures as well as
legacy mainframe or minicomputer technology platforms, and often have distinct
MIS departments to implement, integrate and maintain such systems. Legacy
systems are often difficult to integrate with other corporate systems and,
therefore, do not allow dynamic access to information. As a result, the
accounting software market is characterized by a significant migration towards
client/server- or multi-tier-based applications. Multi-tier systems allow
businesses to maintain records, process transactions and make data available in
a distributed environment so that organizations can more readily share and
access up-to-date, high-integrity data with which to make business decisions.
The Company believes that usage of multi-tier systems is growing rapidly and
represents a significant opportunity for accounting software vendors who support
multi-tier architectures.
Accounting software purchase decisions are typically made by senior corporate
managers. Third parties, like VARs and accountants, frequently influence
purchase decisions and assist with the implementation and maintenance of
accounting software solutions. Corporate clients have high volume processing
requirements and complex financial management needs, and they seek accounting
solutions that are easy to use, flexible, scalable and cost effective over the
life of the application. Corporate users also seek advanced functionality,
features and reporting capabilities as well as customization using industry
standard tools. Additionally, Corporate clients need to integrate accounting
solutions with, or replace, legacy business systems that manage such functions
as inventory, payroll and human resources. Accounting software solutions must
also be compatible with various database languages, such as Pervasive Btrieve
and Microsoft SQL, and must keep pace with industry trends like the increased
adoption of Microsoft operating environments, including Windows NT, Windows 95
and SQL Server. Corporate clients seek accounting software solutions that
generally cost $100,000 or less and require installation times of no more than a
few months.
According to the USSBA, in 1995, there were approximately 92,000 businesses in
the United States with more than 100 employees, approximately 77,000 of which
had between 100 to 4,999 employees. STATSCAN estimates that in 1996, there were
approximately 19,000 businesses in Canada with 100 to 4,999 employees.
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THE ACCPAC SOLUTION
ACCPAC designs, develops, markets, sells and supports a family of financial
accounting and business management software products that target a broad range
of customers from the Corporate to the Small Business and SOHO markets. The
Company's software solutions are tailored to the specific needs of each market
and are designed to:
PROVIDE ROBUST FUNCTIONALITY AND SUPERIOR ACCOUNTING INTEGRITY
ACCPAC products incorporate a range of accounting and business functions
tailored to each target market. In all cases, accounting integrity is a primary
design consideration. For example, the Company's SOHO solution, Simply
Accounting, provides an integrated suite of accounting functions and maintains
an automated audit trail of all transactions. The Company's ACCPAC for Windows
Small Business Series offers more sophisticated accounting functionality,
flexible reporting options and integration with vertical industry software. The
Company's ACCPAC for Windows Corporate Series extends the accounting
functionality even further through Internet-based inquiry and transaction
processing. In addition, ACCPAC regularly updates its products to account for
changes in accounting and tax statutes. The Company's products are also scalable
to accommodate clients' needs as their businesses grow.
DELIVER COST EFFECTIVE PRODUCTS AND EASE OF IMPLEMENTATION
ACCPAC solutions are designed to provide substantial value and ease of
implementation. The Company believes that its products offer a superior value by
combining lower price points with a level of functionality typically found in
more expensive products. In addition, the Company's Investment Protection
Program provides cost savings to the client when trading up within the ACCPAC
family of products. Simply Accounting is designed for self-installation by
non-accountants; ACCPAC for Windows Small Business Series may be installed,
set-up and fully functioning in a simple network environment within days or
weeks; and ACCPAC for Windows Corporate Series may be installed, set-up,
integrated with other Corporate systems and customized within weeks or months.
PROVIDE FLEXIBLE, OPEN ARCHITECTURE
Each ACCPAC solution provides flexibility and functionality suited to the needs
of the markets it serves. ACCPAC for Windows Small Business Series offers an
open, Btrieve database and a selection of powerful, built-in report writers,
Web-based document publishing and a host of tailorable options. ACCPAC for
Windows Corporate Series employs a multi-tiered architecture and provides more
advanced flexibility features such as inherent multiple currency and multiple
language support.
EMBRACE AND ENHANCE MARKET-LEADING TECHNOLOGIES
The Company identifies market-leading technologies and incorporates them into
its product strategy. For example, Simply Accounting is 32-bit, Microsoft Office
integrated and Web-enabled. ACCPAC for Windows Small Business Series is designed
for use with Microsoft's Windows 95, Windows NT and Small Business Server and
incorporates advanced reporting technologies. ACCPAC for Windows Corporate
Series leverages these technologies and extends this approach to include
Microsoft SQL Server and Internet Information Server, among others. The Company
uses industry standard programming languages such as Java, ActiveX, BASIC and C
in developing certain of its products. The Company intends to continue to select
and support proven, leading technologies as they gain market acceptance.
INCORPORATE AND LEVERAGE INTERNET TECHNOLOGIES
The Company believes that the increasing use of the Internet by businesses of
all sizes will drive the need for Internet functionality. Simply Accounting
provides basic Internet capabilities that enable users to quickly access courier
parcel-tracking systems on the Web and send forms such as customer statements
and invoices via the Internet. The ACCPAC for Windows Small Business Series
manages advanced report publishing via the Internet.
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The ACCPAC for Windows Corporate Series supports key components of e-Business:
electronic information delivery, electronic document workflow, Web self-service
applications, EDI transactions processing and Web-based business-to-business and
business-to-consumer transactions.
STRATEGY
The Company's strategy is to extend its position as a leading provider of
financial accounting and business management software for the Corporate, Small
Business and SOHO markets. The following are the key elements of the Company's
strategy:
LEVERAGE INSTALLED BASE
In addition to aggressively pursuing new clients, the Company plans to
aggressively leverage its installed client base to generate future sales of its
various accounting software products. As of June 30, 1998, the Company had an
installed client base consisting of over 350,000 registered clients in the
United States and Canada and has additional registered clients in more than 100
other countries. The Company intends to grow sales through focused direct
marketing campaigns emphasizing to its existing DOS-based clients the benefits
of migrating to the Company's Windows-based products. To encourage this
migration, the Company has developed specific software utilities to facilitate
the conversion of a client's existing data to the ACCPAC for Windows format. In
addition, the Company has developed an Investment Protection Program, which
provides existing DOS-based clients with a financial incentive to migrate to the
Company's Windows-based products. The Company also intends to encourage its
existing clients to purchase upgrades, add-on modules and additional user seats
as well as the Company's SupportPlus Maintenance plan.
STRENGTHEN AND EXPAND GLOBAL BUSINESS PARTNER NETWORK
The Company plans to strengthen and expand its extensive network of Business
Partners, which currently consists of approximately 3,000 VARs and QIs. The
Company plans to continue to invest considerable resources in the professional
development of its Business Partners, ensuring that they have extensive,
hands-on training with the Company's products and are provided with additional
training and technical support when new products are released. The Company also
plans to expand its distribution infrastructure in existing territories and add
new Business Partners in previously under-served geographic areas.
INCREASE INVESTMENT IN SALES AND MARKETING
The Company plans a targeted sales and marketing campaign to create greater
awareness of and brand recognition for the ACCPAC family of products. ACCPAC's
plans include increased direct marketing to its installed customer base
regarding the benefits of upgrades, add-ons, the SuppportPlus Maintenance plan
and, where appropriate, migration from DOS- to Windows-based products. The
Company plans to invest to improve the functionality and communication value of
its Web-site, achieve higher profile involvement at industry trade shows, and
increase print advertising, public relations efforts and end user seminars. The
Company believes that these efforts will properly position its products as among
the most reliable, most robust and lowest cost of ownership financial accounting
and business management solutions available in the marketplace today. In
addition, the Company and its Business Partners will continue to provide
instruction and certification on ACCPAC products at educational institutions,
temporary staffing agencies, accounting firms and professional associations,
increasing the number of professionals that are familiar with the Company's
products. See "--Sales and Marketing."
EXTEND TECHNOLOGY LEADERSHIP
The Company intends to extend its technological leadership and maintain its
record of product innovation by continuing to devote significant resources to
research and development efforts and by forming strategic relationships that
further enhance product functionality and ease of use. The Company believes that
the object-
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oriented and multi-tiered architecture of its newer products provide advantages
which include faster time to market for new products and upgrades, greater
scalability, module expansion, a high level of application stability,
compatibility and ease of integration with a broad range of operating
environments, a comprehensive and affordable e-Business solution and rapid
integration with add-on products developed by third-party independent software
developers. The Company works with over 200 independent software developers who
create applications for use with ACCPAC's Windows-based and ACCPAC Plus
Accounting products. These third-party applications add functionality and
features that extend ACCPAC's core products to better meet the particular needs
of specific vertical industries and end markets, such as manufacturing resource
planning and restaurant management applications.
ESTABLISH E-BUSINESS LEADERSHIP
The Company believes that the increasing penetration of Internet-based
technologies across businesses of all sizes provides vendors with a tremendous
opportunity to sell their core accounting products as a part of a comprehensive
and affordable e-Business solution. The Company and its e-Business development
partners intend to offer a wide array of products that enable electronic
information delivery, electronic document workflow, Web self-service
applications, EDI transactions processing and Web-based business-to-business and
business-to-consumer transactions. The Company believes that clients will
benefit from the Company's accounting software and e-Business solutions by being
better able to access, exchange, manipulate and strategically use information
which can lead to higher sales, improved customer service and increased
management and employee productivity.
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PRODUCTS
With its ACCPAC for Windows and Simply Accounting product lines, the Company's
software solutions serve businesses from the Corporate and Small Business
markets to the SOHO market. ACCPAC for Windows is sold in products suites, which
enable customers to purchase their desired level of functionality. Simply
Accounting is a comprehensive, off-the-shelf offering.
The following table provides selected information relating to the Company's
ACCPAC for Windows, ACCPAC Plus Accounting and Simply Accounting product lines:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
ACCPAC FOR
ACCPAC FOR WINDOWS
WINDOWS SMALL BUSINESS ACCPAC PLUS SIMPLY
CORPORATE SERIES SERIES ACCOUNTING ACCOUNTING
---------------- ---------------- ---------------- ----------------
Target Markets Corporate Small Business Corporate and SOHO
Small Business
Initial Release 1994 1997 1979 1985
Current Version/ 3.0/1997 3.0/1997 6.5/1997 6.0/1998
Release Date
Typical System $13,000-$47,000 $4,000-$6,500 $3,500-$6,000 US$129/C$179
Price (1)
Client Operating Windows NT Windows NT DOS Windows NT
System Windows 95 Windows 95 Windows 95
Windows 3.11 Windows 3.11
Network Windows NT Windows NT Windows NT not applicable
Operating Novell NetWare Novell NetWare Novell NetWare
System Peer-to-Peer Peer-to-Peer
Typical Number 5-100+ 1-5 1-5 1
of Users
Database Btrieve (Client- Btrieve Proprietary Proprietary
Server) (Workstation
MS-SQL Engine)
</TABLE>
- ------------------------
(1) For ACCPAC for Windows Corporate Series, the typical system price range
reflects a system consisting of 3 to 6 modules with 5 to 30 users on a Microsoft
SQL Server database. For ACCPAC for Windows Small Business Series and ACCPAC
Plus Accounting, the typical system price range reflects a system consisting of
3 to 6 modules with 3 to 5 users. The system price specified is the price paid
by the client to a Business Partner or, in the case of Simply Accounting, to the
retail outlet and does not represent sale proceeds to ACCPAC.
WINDOWS-BASED PRODUCTS
ACCPAC FOR WINDOWS CORPORATE SERIES. ACCPAC for Windows Corporate Series is
designed to meet the core accounting needs of mid-sized business clients. The
Corporate Series is year 2000 compliant, is capable of meeting high volume
processing requirements, supports multi-tier architectures, has advanced
reporting and e-Business capabilities, handles multiple currencies and multiple
languages and allows 99 years of history and 45-digit account codes and can be
customized using industry standard tools. ACCPAC for Windows Corporate Series
has received recognition from certain industry publications. For example, a
survey of VARs by VAR Business magazine (May 1998) rated ACCPAC for Windows as
the leading Windows accounting software product, ranking it first in six of
eight product feature categories; Corporate Controller Magazine (February 1997)
named it
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Best Value for the three modules reviewed (general ledger, accounts receivable
and accounts payable), Best Multicurrency and Best Built-in Report Writers.
ACCPAC for Windows Corporate Series supports both Microsoft SQL Server and
Pervasive Btrieve databases and runs on Microsoft Windows 95, Windows NT and
Novell NetWare platforms. ACCPAC for Windows Corporate Series is a modular
system that allows each business to purchase and combine those applications that
match its needs.
ACCPAC for Windows Corporate Series is "Web-enabled," extending timely and easy
access to and delivery of financial information to users throughout an
organization and to authorized outside parties. Users of the Corporate Series
have the option to install an e.Advantage Server which, through Java and ActiveX
applets, enables secure online access to any aspect of the software's business
logic and to key accounting data using an Internet Web browser. ACCPAC for
Windows Corporate Series incorporates functionality from Seagate Software
(Crystal Info) and Brio Technologies (BrioQuery) which provide online data
analysis tools that enable users to run queries and publish reports as HTML
pages that can be stored, transmitted or viewed using an Internet Web browser.
In addition to these tools, the Financial Reporter of ACCPAC for Windows
Corporate Series General Ledger can generate reports in Microsoft Excel, which
enable users to publish financial data directly to the Web.
To expand the scope of the ACCPAC for Windows Corporate Series' Internet
solutions, ACCPAC offers the e.Advantage Software Development Kit. The
e.Advantage Software Development Kit allows ACCPAC's Business Partners to
implement additional applications to meet the specialized needs of vertical
industries and others within the Corporate market.
The Company has integrated e-Business functionality into its products through
technology inherent in ACCPAC for Windows Corporate Series, or technologies
provided by the Company's e-Business development partners, such as Brio
Technologies (online analytical processing (OLAP) decision support tools) and
Seagate Software (Web-enabled information delivery solutions). The Company
intends to integrate additional e-Business functionality from JetForm
Corporation (electronic forms management and workflow solutions) and The EC
Company (low-cost EDI transactions processing) into the next version of the
ACCPAC for Windows Corporate Series.
ACCPAC for Windows Corporate Series includes the following product suites:
<TABLE>
<CAPTION>
------------------------------------------------------------
<S> <C>
SUITE DESCRIPTION
- ------------------------------ ------------------------------------------------------------
Financial Management Provides robust functionality, flexibility and ease of use
with reporting and customization options. All modules
provide international features such as multiple currency and
multiple language support. The available modules are General
Ledger, Accounts Receivable and Accounts Payable.
Operations Management Provides solutions that integrate with the Financial
Management Suite for order processing, purchasing, inventory
management, payroll, analysis and reporting and sales force
automation. The available modules are Order Entry, Inventory
Control, Purchase Order, U.S. Payroll, Canadian Payroll,
SmartSales* and BrioQuery*.
e.Advantage Provides self service applications for both traditional
accounting and operations functions. Currently available
modules include e.Advantage Server, e.OE.Order,
e.AR.Inquiry, e.PR/US.Inquiry and e.PR/CDN.Inquiry.
Additionally, the Company offers electronic information
delivery and intends to integrate electronic document
workflows and EDI transaction processing.
Customization and Development Enables clients, Business Partners and other third-party
developers to customize and extend the functionality of the
ACCPAC for Windows Corporate Series. The available modules
are Software Development Kit, e.Advantage Software
Development Kit and Customization Kit.
</TABLE>
- ------------------------
* Products licensed from third parties.
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Initially released in 1994 as CA-ACCPAC/2000, the current version (3.0) of the
ACCPAC for Windows Corporate Series was released in 1997 under the name "ACCPAC
for Windows." ACCPAC for Windows Corporate Series is marketed and sold through
the Company's Business Partners. The price to the client typically ranges from
$13,000 to $47,000 depending on the number of modules purchased and the database
being supported.
ACCPAC FOR WINDOWS SMALL BUSINESS SERIES. ACCPAC for Windows Small Business
Series is the Company's financial accounting solution for small businesses that
require a Windows solution that is year 2000 compliant, flexible and
cost-effective, but does not require information technology personnel dedicated
to database administration. It has the same core technology as ACCPAC for
Windows Corporate Series and supports up to five concurrent users in a Windows
environment.
ACCPAC for Windows Small Business Series includes the following product suites:
<TABLE>
<CAPTION>
------------------------------------------------------------
<S> <C>
SUITE DESCRIPTION
- ------------------------------ ------------------------------------------------------------
Financial Management Provides robust functionality, flexibility and ease of use.
The available modules are General Ledger, Accounts
Receivable and Accounts Payable.
Operations Management Provides solutions that integrate with the Financial
Management Suite. The available modules are Order Entry and
Inventory Control, as well as the following ACCPAC for
Windows Corporate Series modules: Purchase Order, U.S.
Payroll, Canadian Payroll, SmartSales* and BrioQuery*.
</TABLE>
- ------------------------
* Products licensed from third parties.
The current version (3.0) of the ACCPAC for Windows Small Business Series was
released in 1997 under the name "ACCPAC for Windows Plus Series." ACCPAC for
Windows Small Business Series is marketed and sold through the Company's
Business Partners. The price to the client typically ranges from $4,000 to
$6,500 depending on the number of modules purchased.
SIMPLY ACCOUNTING. Simply Accounting provides SOHO businesses with a
comprehensive set of accounting functions that simplifies bookkeeping and
improves business processes in an easy-to-use package suitable for the
non-accountant. The accounting and business functions of this comprehensive,
single user package include general ledger, accounts receivable, accounts
payable, inventory, sales orders, purchase orders, payroll, project costing,
bank reconciliation, financial reporting and forms management. Simply Accounting
integrates with Microsoft Office to provide business owners with reporting
flexibility and is Internet-enabled to improve typical business processes such
as delivery of customer statements and other business forms.
Initially released in 1985, the current version (6.0) was released in April
1998. Version 6.0 runs on Windows 95 and Windows NT and is year 2000 compliant.
The Company is authorized to use the "Designed for Microsoft Windows NT/Windows
95 logo" on the current version of its Simply Accounting product. Simply
Accounting is marketed and sold through mass merchandise retail channels
primarily in Canada at a suggested retail price of US$129/C$179. To date, the
vast majority of Simply Accounting sales have been in Canada.
DOS-BASED PRODUCTS
ACCPAC PLUS ACCOUNTING. ACCPAC Plus Accounting provides highly flexible,
reliable and cost-effective accounting functionality for Corporate and Small
Business clients using the DOS operating environment on a single station or in a
networked configuration. ACCPAC Plus Accounting functions are provided as
separate modules which include general ledger, accounts receivable, accounts
payable, inventory control, order entry, job cost and payroll, among others. A
number of third-party, independent software vendors have developed specialized
software for the ACCPAC Plus Accounting line providing clients with specialized
vertical industry applications such as manufacturing resource planning and
restaurant management applications, among others.
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Initially released in 1979, the current version (6.5) was released in 1997 and
is year 2000 compliant. ACCPAC Plus Accounting is marketed and sold through the
Company's Business Partners. The price to the client typically ranges from
$3,000 to $6,000 depending on the number of modules purchased.
BPI ACCOUNTING II. BPI Accounting II is a DOS-based accounting solution for
small businesses that combines general ledger, accounts receivable, accounts
payable, order entry, inventory control and payroll functions. Clients have the
ability to run BPI Accounting II on LANs.
Initially released in 1986, the current version (5.0) was released in 1997 and
is year 2000 compliant. BPI Accounting II is marketed and sold direct and
through distributors at a suggested U.S. retail price of $225. The Company does
not currently plan to release any new versions of this product.
ACCPAC FOR WINDOWS ARCHITECTURE
In designing its ACCPAC for Windows products, the Company has employed the
following product architecture:
[Graphic depicting five layers of ACCPAC for Windows architecture: user
interface, user interface layers, modules containing application/business logic,
database layer, database]
OBJECT-ORIENTED FRAMEWORK
ACCPAC for Windows code is written within an object-oriented framework. In this
framework, ACCPAC's business processing logic is segmented into objects which
are program entities that contain both data and procedures that drive the
operation of the product. For example, when a person enters an order into the
order entry module and wants to verify if the order should be accepted, object
code is activated which checks if there is inventory in stock, the price the
product should be sold at and whether the customer has available credit.
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<PAGE>
This object-oriented framework is executed in a layered design that insulates
the business processing object code from the technical complexities of operating
systems, hardware platforms, network requirements and end-user interface
preferences. By layering the object code, core business logic code can be
deployed by clients on a LAN, wide area network (WAN) or the Internet, without
the need to rewrite the code for each implementation. In addition, the
object-oriented framework coupled with the ACCPAC XAPI (external application
programming interface) is well-suited to the integration of non-ACCPAC software
with ACCPAC for Windows, increasing the attractiveness of ACCPAC for Windows as
a core financial management system for third-party software developers.
The Company has invested significant resources in the development of the
object-oriented framework for its ACCPAC for Windows product family. The Company
believes that its object-oriented technology will allow it to quickly adapt to
existing and emerging operating systems, databases and user interfaces and
develop increased functionality for ACCPAC for Windows family products.
MULTI-TIER PROCESSING
ACCPAC's object-oriented and layered architecture supports multi-tier
environments, which enhance processing flexibility and efficiency. Multi-tier
processing is the ability to have parts of an application run on two or more
distinct central processing units ("CPUs"), whether they are the desktop
computer, the application server or the database server. Specifically,
multi-tier-processing capabilities are an advancement over simple client-server
two-tier designs and enhance scalability and deployment capabilities over WANs
and the Internet. ACCPAC for Windows Corporate Series with the ACCPAC
e.Advantage Server is a three-tier system that separates processing on the
database server, the application server and the Internet-based user's CPU.
CLIENT SERVICES
The Company believes that prompt and effective service and technical support is
an important component of a complete financial accounting system and is critical
to the long-term satisfaction of its clients and Business Partners. The Company
provided service and technical support through a service organization consisting
of 33 technical support employees, 20 client care employees and 10 Business
Partner service employees as of July 1, 1998.
To supplement the primary support provided by its Business Partners, the Company
offers its clients a multi-level SupportPlus Maintenance program that provides
automatic product upgrades and a choice of various levels of technical support.
The options range from the most basic plan, which consists solely of product
upgrades, to the most extensive package, which includes product upgrades,
technical support, online access to the product's technical library and
quarterly conference calls with Company technicians to optimize the
functionality of the product. The Company charges an annual fee for the
SupportPlus Maintenance program ranging from 15% to 40% of the suggested retail
price of the supported products depending upon the selected level of service.
The Company requires the purchase of a one-year SupportPlus Maintenance contract
with the original sale of all ACCPAC for Windows products.
SALES AND MARKETING
SALES
The Corporate, Small Business and SOHO markets that the Company targets are
characterized by different sales dynamics. Accordingly, each market is served by
different distribution channels. The Company sells its Corporate and Small
Business products in the United States, Canada and the Caribbean through
DistribuPro (the Company's internal distributor, see "--DistribuPro") and in
other regions through distributors who then resell the products to the Company's
Business Partners, which then sell, install, implement and train their clients
on the product. The Company's Business Partners include approximately 3,000 VARs
and QIs worldwide, including systems integrators, regional distributors, Big 5
and other accounting firms, professional organizations, software vendors and
specialized software consultants. The extensive use of Business Partners by the
Company allows for an industry specific and geographically diverse indirect
sales force. The Company is working to enlist additional distributors in
international markets that it considers under-served. The Company sells its SOHO
product, Simply
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Accounting, through mass merchandise wholesale distributors that resell the
product to retail stores and other retail outlets.
The Company recruits Business Partners using a three-pronged approach that
focuses on the particular needs of the various types of Business Partners. The
Company's Strategic Accounts Group recruits Big 5 accounting firms and large
system integrators which sell to large multinational Corporate clients. Using a
direct sales approach comprised of one-on-one meetings, product demonstrations,
product launch planning and product training, the Company's regionally-oriented
outside sales force recruits system integrators and regional distributors which
sell to smaller Corporate clients. The Company uses telemarketing and seminars
to recruit small accounting firms, software consultants and QIs which sell to
the Small Business market.
The Company believes that having qualified and knowledgeable Business Partners
is critical to the success of selling and supporting the Company's products. The
Company invests considerable resources in the professional development of its
Business Partners. Newly recruited Business Partners undertake up to 12 days of
intensive, hands-on training in the installation, implementation and maintenance
of the Company's products and are required to pass a certification exam before
being permitted to implement the Company's products. The Company offers its
Business Partners technical support, presales consulting, monthly conference
calls with senior trainers and technical support people, and access to a private
section of the Company's Web-site which contains a knowledge base of the
Company's products and technical discussion groups.
MARKETING
The Company's marketing efforts are focused on creating greater awareness and
brand recognition for the ACCPAC family of products. In addition, the Company
provides marketing support for its Business Partners to enable them to
successfully market, sell and install the Company's products.
The Company promotes its products worldwide through a combination of
advertisements in financial and technical publications, links from its Business
Partners' and industry-focused Web-sites, a public relations program and a
presence at industry tradeshows. The Company's direct marketing efforts to its
installed base include a combination of direct mail and telemarketing designed
to create client interest in upgrading their accounting software, purchasing
add-on modules and additional user seats, and, where appropriate, migrating from
the Company's DOS-based products to its Windows-based products. The Company
engages in cooperative marketing efforts with its Business Partners to support
their local marketing efforts. In addition, the Company hosts annual conferences
for its Business Partners to provide them with information and training on the
Company's products.
EDUCATION COMMUNITY
The Company currently licenses its accounting software to more than 2,000
secondary and post-secondary educational institutions in North America,
resulting in the training of many students on the Company's products. The
Company believes that relationships with educational institutions and
professional associations are instrumental in increasing awareness of the
Company's products and in developing a base of experienced users who may be
available to the Company as future clients, business partners and employees. The
Company actively promotes its products in the educational community and among
professional organizations, including the Certified General Accountants
Association which trains accountants in Canada, China, including Hong Kong, the
Caribbean and Bermuda.
The Company works with several book publishers including Prentice-Hall, Houghton
Mifflin, McGraw-Hill, Addison-Wesley-Longman and Nelson Canada to produce
teacher and student accounting workbooks. Several book publishers have produced
general accounting textbooks, which use the Company's products to emphasize
accounting concepts. The Company markets and sells the educational versions of
the products through specialty education distributors such as Nacscorp in the
United States and Ingram Education and Merisel Education in Canada.
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DISTRIBUPRO
The DistribuPro business was acquired by Computer Associates in 1988 and was
made a part of the ACCPAC division. The Company's DistribuPro subsidiary sells
the Company's products, as well as products developed for use with ACCPAC
products by the Company's development partners and other third-party products,
to the Company's Business Partners and other resellers in the United States,
Canada and the Caribbean. DistribuPro's account managers are trained on the
Company's products as well as complementary products and can make product
recommendations to the Company's Business Partners. The Company believes that
DistribuPro provides the Company's Business Partners with certain benefits,
including one-stop procurement of ACCPAC and related or complementary
third-party products. The Company further believes that DistribuPro encourages
third parties to develop products for the ACCPAC platform by offering them an
established distribution channel.
CUSTOMERS
Through its Business Partners, the Company sells its ACCPAC for Windows and
ACCPAC Plus Accounting products to a wide range of small and mid-sized
businesses, including divisions of large enterprises, and, through mass
merchandise retail channels, it sells Simply Accounting to a wide range of SOHO
businesses. As of June 30, 1998, the Company had over 350,000 registered clients
in the United States and Canada and additional registered clients in more than
100 other countries.
RESEARCH AND DEVELOPMENT
Since its inception, the Company has made substantial investments in research
and development. During fiscal 1996, 1997 and 1998, software development
expenditures were approximately $5.3 million, $3.7 million and $3.9 million,
respectively. All of such research and development expenditures were expensed as
incurred. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Results of Operations." As of July 1, 1998, the Company
had a total of 69 employees engaged in research and development, quality
assurance and documentation.
The Company's research and development efforts employ a standard development
process to guide software development through stages of product concept, market
requirements analysis, product definition, design specification, coding, testing
and release. These efforts are also focused on identifying, developing and
integrating leading technologies into its products to better meet client needs.
INTELLECTUAL PROPERTY RIGHTS AND LICENSES
The Company regards certain features of its internal operations, software and
documentation as its intellectual property. The Company relies on a combination
of copyright, trademark and trade secret laws, a mandatory software registration
mechanism for certain products, confidentiality and non-disclosure agreements
with its employees, licensing arrangements with its clients and limitations on
access to and distribution of its proprietary information. The Company has no
patents or patent applications pending. The Company believes that, because of
the rapid pace of technological change in the computer software industry, trade
secret and copyright protection are less significant than factors such as the
knowledge, ability and experience of the Company's employees, frequent product
enhancements and the timeliness and quality of support services. It is the
Company's policy to file for protection of its basic trademarks and service
marks in countries in which the Company sells its products either directly or
through its international Business Partners and in which protection is available
and advisable. The Company currently licenses all of its products under "shrink
wrap" licenses that are not signed by its licensees. These shrink wrap licenses
may be unenforceable under the laws of certain jurisdictions. In addition, the
laws of certain countries in which the Company's products are sold do not
protect the Company's intellectual property rights to the same extent as the
laws of the United States and Canada. Despite these measures, there can be no
assurance that the Company will be able to fully protect its intellectual
property. See "Risk Factors-- Limited Protection of Proprietary Technology; Risk
of Third-Party Claims of Infringement."
45
<PAGE>
COMPETITION
The Company's business is extremely competitive. The Company's products are
targeted towards businesses in the Corporate, Small Business and SOHO markets.
The Company has experienced competition to date from both established and
emerging software companies that offer similar products targeted at businesses
within the Company's markets. The Company also faces additional competition in
individual countries from local competitors. The Company believes it currently
competes on the basis of (i) the ease of use, features, performance and price of
its products, (ii) the quality of its Business Partners, (iii) the quality of
its service and technical support for its clients and Business Partners, (iv)
technology and (v) new product introductions. While the Company believes that it
currently competes favorably overall with respect to these factors, there can be
no assurance that the Company will be able to continue to do so.
The Company's products compete with those from several vendors servicing a range
of markets, from the Corporate markets to the Small Business markets to the SOHO
Business markets. The Company currently competes in the Corporate market with
J.D. Edwards & Company, Great Plains Software, Inc., Lawson Associates, Inc.,
Platinum Software Corporation, The Sage Group Plc. and Solomon Software, Inc.,
among others. In addition, the Company believes that products may be introduced
to these markets by other vendors who traditionally compete in the enterprise
market. Such potential competitors include Baan Company N.V., Oracle
Corporation, PeopleSoft, Inc. and SAP AG. In the Small Business market, the
Company's primary competitors include Great Plains Software, Inc., Platinum
Software Corporation, The Sage Group Plc., Solomon Software, Inc. and Systems
Union Group Ltd., among others. The Company currently faces competition in the
SOHO market from Automatic Data Processing, Inc.'s Peachtree unit and Intuit
Inc., among others. Currently, several of Computer Associates' iBUs engage in
the development, marketing, sale or support of financial management software for
the enterprise market. Although the Company believes that its products do not
directly compete with Computer Associates' products, there are no restrictions,
contractual or otherwise, on Computer Associates' competing with the Company in
the Company's markets. Such competition could have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Arrangements Between the Company and Computer Associates."
Certain competitors may have greater financial, technical and marketing
resources and name recognition than the Company. Competitors may bundle their
software with other software or enter into agreements whereby third parties sell
their software thereby decreasing the attractiveness of the Company's products.
In addition, competitors may lower their prices, which may force the Company to
match price cuts and thereby decrease the Company's profitability. Accordingly,
there can be no assurance that the Company will be able to design new products
or improve existing ones to maintain its competitive position in the industry.
Increased competitive pressures from current and future competitors could have a
material adverse effect on the Company's business, financial condition and
results of operations. In addition, if one of the Company's competitors is
acquired by a well-capitalized company, the Company could face increased
competition that could have a material adverse effect on the Company's business,
financial condition and results of operations.
EMPLOYEES
As of July 1, 1998, the Company had a total of 245 full time equivalent
employees ("FTEs"). Of such FTEs, 92 were based in the United States, 145 were
based in Canada and 8 were based in other countries. None of the Company's
employees are represented by a labor union. Management believes that its
relations with the Company's employees are good.
LEGAL PROCEEDINGS
In May 1998, the Company's DistribuPro subsidiary was named as a third-party
defendant in connection with a copyright and trademark infringement claim
relating to certain networking products it distributed. The matter is being
litigated in the United States District Court for the Northern District of
California. The third-party complaint alleges that DistribuPro should be liable
for any amounts for which the third-party plaintiffs are found to be liable. On
June 9, 1998, DistribuPro filed a motion to dismiss the third-party claim. While
the third-party complaint seeks to hold DistribuPro responsible for potentially
significant amounts, the Company does not believe
46
<PAGE>
the third-party claim has merit and will vigorously defend against it.
Accordingly, the Company does not expect the thirty-party claim to have a
material adverse effect on the Company's business, financial condition and
results of operations.
In addition to the foregoing, from time to time, the Company is involved in
litigation arising out of operations in the normal course of business. As of the
date of this Prospectus, except as described above, the Company is not a party
to any legal proceedings the adverse outcome of which, individually or in the
aggregate, could reasonably be expected to have a material adverse effect on the
Company's business, financial condition and results of operations.
PROPERTIES
The Company's principal executive, administrative, sales and marketing and
operations facility is located at 2525 Augustine Drive, Santa Clara, California
95054, where the Company occupies approximately 30,000 square feet of space. The
Santa Clara facility is owned by Computer Associates. Pursuant to the Real
Estate Agreement between the Company and Computer Associates, Computer
Associates will permit the Company to remain in that portion of the facility
that it currently occupies until the Company is able to relocate its operations
to a new facility. Computer Associates will charge the Company $62,000 per month
for such continued use. See "Arrangements Between the Company and Computer
Associates." In September 1998, the Company intends to relocate all of its Santa
Clara operations to a 30,000 square foot facility located in Pleasanton,
California, for which the Company has executed a lease agreement with the
prospective landlord. The lease provides for annual rent of approximately
$800,000 throughout its five-year term. The Company does not anticipate
difficulty in renewing this lease or finding equally suitable alternate
facilities on acceptable terms.
The lease for the Company's 43,000 square foot Richmond, British Columbia
facility, which houses the Company's research and development operations, client
care and technical support functions, is between Computer Associates and a
third-party landlord. Pursuant to the Real Estate Agreement, Computer Associates
will either assign the Richmond lease, or sublet the Richmond facility, to the
Company. Pursuant to the Real Estate Agreement, Computer Associates will have
the right to occupy and use that portion of the Richmond facility that Computer
Associates currently occupies. For such continued occupancy, Computer Associates
will pay the Company an annual amount equal to C$18.50 per square foot plus
Computer Associates' proportionate share of facility operating expenses
including real estate taxes. The Company also occupies space at 13 other
Computer Associates' offices located in the United States, Canada, Australia,
China and Singapore. Total rental expense for the Company was $800,000, $800,000
and $1,100,000 during fiscal 1996, 1997 and 1998, respectively. The Company
anticipates that it may lease additional space during the next 12 months as it
transitions out of Computer Associates' office space.
47
<PAGE>
ARRANGEMENTS BETWEEN THE COMPANY AND COMPUTER ASSOCIATES
The predecessors to ACCPAC's current products, as well as the DistribuPro
business, were acquired by Computer Associates as part of a series of unrelated
business acquisitions between 1985 and 1989. ACCPAC became an iBU of Computer
Associates in April 1996, was incorporated in Delaware in October 1997 and
became a subsidiary of Computer Associates effective January 1998. Computer
Associates is a publicly owned company engaged in the design, development,
marketing, sale and support of standardized computer software products for use
with a broad range of desktop, midrange and mainframe computers. Immediately
after the Offering, Computer Associates will own 5,250,000 shares of Common
Stock, which will represent approximately % of the outstanding Common Stock
( % if the Underwriters' over-allotment option is exercised in full). After
the Offering, as the owner of such shares, Computer Associates will have the
ability to elect all directors of the Company and, thus, will be in a position
to control all matters affecting the Company. Computer Associates has advised
the Company that its current intent is to continue to hold all of the Common
Stock beneficially owned by it. However, Computer Associates is not subject to
any contractual obligation to retain any of such Common Stock, except that
Computer Associates has agreed not to sell or otherwise dispose of any shares of
Common Stock for a period of 180 days after the date of this Prospectus without
the prior written consent of J.P. Morgan Securities Inc. See "Risk
Factors--Control by and Relationship with Computer Associates; Potential
Conflict of Interest" and "--Possible Future Sales of Common Stock by Computer
Associates; Shares Eligible for Future Sale" and "Underwriting."
The following is a summary of certain agreements between the Company and
Computer Associates that have been, or will be, entered into in contemplation of
the Offering. Each such summary is qualified in its entirety by reference to the
forms of such agreements, which are filed as exhibits to the Registration
Statement of which this Prospectus is a part.
CONTRIBUTION AGREEMENT
The following is a summary of the contribution agreement that has been entered
into in contemplation of the Offering (the "Contribution Agreement"). The
Contribution Agreement sets forth the agreement between the Company and Computer
Associates with respect to the transfer and contribution (the "Contribution") by
Computer Associates to the Company of the assets (the "Company Assets")
constituting the ACCPAC division of Computer Associates (including, without
limitation, certain intellectual property rights, accounts receivable, contract
rights, certain fixed assets and all of the outstanding capital stock of
DistribuPro). Pursuant to the Contribution Agreement, the Contribution was made
effective as of January 1, 1998 (the "Contribution Date").
In connection with the Contribution, Computer Associates received 5,250,000
newly issued shares of Common Stock and the Computer Associates Note. The
Computer Associates Note is an unsecured, general obligation of the Company, is
due and payable in full on the earlier of the consummation of the Offering and
December 31, 1999 and bears no interest if paid in full on or prior to December
31, 1998. If the Computer Associates Note is not paid in full at such time, it
will bear interest at a rate of 9% per annum. In addition, pursuant to the
Contribution Agreement, the Company assumed all of the liabilities and
obligations (whether absolute, accrued, contingent or otherwise and whether due
or to become due) relating to or arising out of the Company Assets and the
operation of the ACCPAC business, as conducted at any time prior to, on or after
the Contribution Date, regardless of where or against whom such liabilities are
asserted or determined and regardless of whether arising from, or alleged to
arise from negligence, recklessness, violation of law, fraud or
misrepresentation by CA or its directors, officers, employees or agents (the
"Assumed Liabilities"). The Company also granted Computer Associates a
worldwide, perpetual, fully-paid license (including maintenance) for the
internal use by Computer Associates of all present and future Company software
products (including, without limitation, products acquired after the
Contribution Date); provided that if the Company is required to pay royalties to
any third-party resulting from the use by Computer Associates of any such
Company software, Computer Associates will reimburse the Company therefor.
Except as expressly set forth therein, neither Computer Associates nor the
Company has made any representation or warranty as to the assets, business or
liabilities contributed, transferred or assumed as part of the Contribution, as
to any consents or approvals required in connection therewith, as to the value
or freedom
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from any security interest of any of the Company Assets contributed, as to the
absence of any defenses or freedom from counterclaim with respect to any claim
of any party or as to the legal sufficiency of any assignment, document or
instrument delivered to convey title to any Company Assets contributed. The
Contribution Agreement expressly provides that the Contributed Assets were being
contributed and transferred on an "as is," "where is" basis, and the Company
agreed to bear the economic and legal risks that the conveyance is insufficient
to vest in the Company good and marketable title, free and clear of any security
interest.
Pursuant to the Contribution Agreement, the Company has agreed to indemnify,
defend and hold Computer Associates harmless from and against any and all costs
or liabilities relating to or resulting from (i) the failure of the Company to
pay, perform or otherwise promptly discharge any Assumed Liabilities or (ii) the
Company Assets and the Company's business and operations, including any
litigation pending or threatened or that arises in the future and primarily or
exclusively involving the Company Assets, the Assumed Liabilities or the ACCPAC
business. In the Contribution Agreement, Computer Associates has granted the
Company the benefits of any applicable insurance coverage. The Contribution
Agreement provides that Computer Associates agrees to indemnify, defend and hold
the Company harmless from and against any costs or liabilities relating to
Computer Associates' operations (other than those attributable to the Company's
operations). The Contribution Agreement also specifies certain procedures with
respect to claims subject to indemnification and related matters.
In addition, the Contribution Agreement provides that ACCPAC will make a payment
to Computer Associates in an amount equal to 37.5% of the positive income
(before income taxes) of ACCPAC and its subsidiaries for the fiscal year ending
March 31, 1998 and the fiscal period beginning April 1, 1998 and ending on the
date the Offering is consummated, in order to compensate Computer Associates for
ACCPAC's share of any consolidated or combined taxes. In the event that ACCPAC
generates a net loss for such period and such loss results in a tax benefit to
Computer Associates, the Contribution Agreement requires Computer Associates to
compensate ACCPAC for such tax benefit when such benefit is realized. For its
fiscal year ended March 31, 1998, the Company incurred an income tax expense of
approximately $2.5 million. Pursuant to the Contribution Agreement, any amount
owed to Computer Associates for fiscal 1998 is included in the $5.0 million
principal amount of the Computer Associates Note. See "Use of Proceeds."
REGISTRATION RIGHTS AGREEMENT
The following is a summary of the Registration Rights Agreements between the
Company and Computer Associates that will be entered into in contemplation of
the Offering (the "Registration Rights Agreement"). Pursuant to the Registration
Rights Agreement, Computer Associates will have the right to require the Company
to effect three registrations under the Securities Act of all or any part of the
Common Stock owned by Computer Associates, subject to certain limitations, and
to bear the expenses of such registrations (other than underwriting discounts
and commissions, if any). No such registration may be required by Computer
Associates prior to the expiration of the 180-day period following the date of
the consummation of the Offering without the prior written consent of J.P.
Morgan Securities Inc. See "Underwriting." In addition, the Registration Rights
Agreement gives Computer Associates the right to include its shares of Common
Stock in any registration of shares of Common Stock initiated by the Company
following the Offering, subject to certain limitations. The Registration Rights
Agreement also contains provisions whereby the Company and Computer Associates
agree to indemnify each other and their respective subsidiaries as well as their
respective directors, officers, employees, agents and representatives for
certain costs and liabilities relating to violations of federal and state
securities laws in connection with any such registration of Common Stock owned
by Computer Associates.
REAL ESTATE AGREEMENT
The following is a summary of the Real Estate Agreement between the Company and
Computer Associates that has been entered into in contemplation of the Offering
(the "Real Estate Agreement"). The Real Estate Agreement sets forth the
agreements with respect to the facilities in which both the Company and Computer
Associates to some extent conduct operations of their respective businesses. The
Company's Santa Clara facility is owned by Computer Associates. Pursuant to the
Real Estate Agreement, Computer Associates will permit the Company to remain in
that portion of the Santa Clara facility that it currently occupies until such
time as the
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<PAGE>
Company is able to relocate its Santa Clara operations to a new facility.
Computer Associates will charge the Company $62,000 per month for such continued
use. The lease for the Richmond, British Columbia facility is between a
subsidiary of Computer Associates and a third-party landlord. Pursuant to the
Real Estate Agreement, Computer Associates will either assign the Richmond
lease, or sublet the Richmond facility, to the Company. Computer Associates
currently occupies space in the Richmond facility and, pursuant to the Real
Estate Agreement, Computer Associates will have the right to occupy and use that
portion of the Richmond facility that it currently occupies and, for such right,
will pay the Company an amount equal to C$18.50 per square foot plus Computer
Associates' proportionate share of facility operating expenses including real
estate taxes. In addition, the Company currently conducts a portion of its
business operations in 13 other office locations where Computer Associates is
the primary tenant. The Real Estate Agreement specifies that at 11 of those
locations, Computer Associates will allow the Company's employees to remain
rent-free until September 30, 1998 at which time they will be required to
relocate. In one of the remaining offices, the Company will be allowed to occupy
that portion of the office in which it currently occupies space for an aggregate
of approximately C$6,000 per month plus the Company's proportionate share of
office operating expenses, including real estate taxes. In the other remaining
office, the Company will be allowed to occupy that portion of the office in
which it currently occupies space and, for such right, will pay a proportionate
share of rent and office operating expenses, including real estate taxes. All
rights will be co-terminous with the primary leases and may be terminated at any
time by either party upon six months' prior notice.
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MANAGEMENT
The following table sets forth certain information with respect to the executive
officers, key employees and directors of the Company, and their ages as of July
1, 1998:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
NAME AGE POSITION AND OFFICE
- ---------------------------- --- --------------------------------------------------------
Frederick S. Wysocki 48 Chairman, Director, Chief Executive Officer and
President
John (Don) Thomson 48 Vice President, Research and Development
John Schoutsen 42 Vice President, Sales (Canada)
David A. Carlson 33 Vice President, Sales
Donnat Lettman 37 Vice President, Chief Financial Officer and Treasurer
William E. Copeland, Jr. 51 Vice President, Marketing
Gee Sing Low 42 Vice President, Sales (Asia-Pacific)
Rajiv Katira 34 Vice President, Operations
Julie DeMaria 40 Vice President, DistribuPro
Karen A. Hagewood 52 Vice President, General Counsel and Secretary
Charles P. McWade 53 Director
Robert H. Toth 41 Director
</TABLE>
FREDERICK S. WYSOCKI has served as Chairman, President, Chief Executive Officer
and a director of the Company since January 1998. From April 1996 to December
1997, Mr. Wysocki served as General Manager of the ACCPAC iBU. From April 1993
through March 1996, he was General Manager of DistribuPro. From 1986 to March
1993, Mr. Wysocki was responsible for sales and marketing for Computer
Associates' MicroProducts division first for Canada, then for the United States
and then worldwide. In October 1983, he joined Basic Software Group ("BSG"), a
predecessor to ACCPAC where he served as Manager of Sales and Marketing until it
was acquired by Computer Associates in 1985. Prior to joining BSG, Mr. Wysocki
founded two software companies. Mr. Wysocki earned a Bachelor of Commerce in
Marketing from the University of British Columbia.
JOHN (DON) THOMSON has served as Vice President, Research and Development of the
Company since January 1998 and of the ACCPAC iBU since April 1996. From January
1986 to April 1996, Mr. Thomson served as President of Donald Thomson Ltd., a
small software development company. Mr. Thomson co-founded BSG. Mr. Thomson
earned a B.S. in Mathematics and a M.S. in Computer Science from the University
of British Columbia.
JOHN SCHOUTSEN has served as Vice President, Sales (Canada) of the Company since
January 1998 and of the ACCPAC iBU since April 1997. From April 1996 to April
1997, Mr. Schoutsen served as Assistant Vice President, Sales and Marketing of
the ACCPAC iBU for Canada. From April 1995 to April 1996, Mr. Schoutsen served
as Assistant Vice President, Marketing for Computer Associates Canada, Ltd. and
was Director of Marketing from April 1992 to March 1995. Mr. Schoutsen earned a
B.A. in Writing from York University and an M.F.A. in Creative Writing from the
University of British Columbia.
DAVID A. CARLSON has served as a Vice President, Sales of the Company since
January 1998 and of the ACCPAC iBU since April 1997. From April 1996 to March
1997, Mr. Carlson served as Business Development Manager for the ACCPAC iBU.
From September 1993 to March 1996, Mr. Carlson served in various technical
consulting positions for Computer Associates. From June 1991 through September
1993, Mr. Carlson was manager of ACCPAC training services. From December 1987 to
May 1991, Mr. Carlson was a QI for the Company's products. Mr. Carlson attended
the University of Evansville where he studied Computer Engineering.
DONNAT LETTMAN has served as Vice President, Chief Financial Officer and
Treasurer of the Company since January 1998 and of the ACCPAC iBU since November
1997. From April 1996 to November 1997, Mr. Lettman served as Treasurer for
Infresco Corporation, a data integration software company and a wholly owned
subsidiary of Computer Associates. From April 1994 to March 1996, Mr. Lettman
served as Assistant Vice President, Finance for Computer Associates. From April
1993 to March 1994, Mr. Lettman was Controller for Computer
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Associates Canada Limited, a wholly owned Canadian subsidiary of Computer
Associates. Mr. Lettman earned a B.S. in Finance and an M.B.A. in Finance from
New York Institute of Technology.
WILLIAM E. COPELAND, JR. has served as Vice President, Marketing of the Company
since January 1998. From June 1995 to September 1997, Mr. Copeland served as
Vice President, Marketing for Edge Software, Inc., a process improvement
software company. From December 1993 to April 1995, Mr. Copeland was Vice
President, Marketing for Sherpa Corporation, a product data management software
company. From February 1991 to August 1993, Mr. Copeland served as Vice
President, Marketing for ASK/Ingres, Inc., a relational database company. Mr.
Copeland previously worked in various levels of brand management at General
Mills, Inc., Ralston-Purina Company, Rayovac Corporation and Lego AS and was in
charge of industry marketing at Hewlett-Packard Company. Mr. Copeland earned a
B.S. in Industrial Management from University of Illinois and an M.B.A. from
Northwestern University.
GEE SING LOW has served as Vice President, Sales (Asia-Pacific) of the Company
since January 1998 and of the ACCPAC iBU since May 1997. From October 1996 to
April 1997, Mr. Low was Vice President, General Manager of the MicroProducts
Division for Asia for Computer Associates and was Assistant Vice President,
Country Manager from October 1994 to September 1996. From April 1991 to
September 1994, Mr. Low was an Account Manager of the MicroProducts Division for
Asia for Computer Associates. He earned a B.S. from the Universiti Malaya,
Malaysia and an M.B.A. from the Asian Institute of Management, Philippines.
RAJIV KATIRA has served as Vice President, Operations of the Company since
January 1998 and of the ACCPAC iBU since April 1996. From April 1994 to March
1996, Mr. Katira served as a Vice President, Research and Development for
Computer Associates and was Assistant Vice President of Marketing Services from
April 1993 to March 1994. Mr. Katira earned a Bachelor of Engineering in
Industrial and Production from Manipal Institute of Technology, India and an
M.S. in Industrial Engineering from Oklahoma State University.
JULIE DEMARIA has served as Vice President, DistribuPro since May 1996. From
August 1995 to May 1996, Ms. DeMaria served as Operations Manager, Sales and
Marketing Manager of DistribuPro and was Purchasing Manager of DistribuPro from
May 1989 to August 1995. Ms. DeMaria attended West Valley College.
KAREN A. HAGEWOOD will serve as Vice President, General Counsel and Secretary of
the Company beginning in September 1998. From July 1998 to the present, Ms.
Hagewood has served as Assistant General Counsel for Mallinckrodt Inc., a
healthcare company. From June 1996 to July 1998, she was Director and Corporate
Counsel, Worldwide Sales and Distribution for Nellcor Puritan Bennett, a
respiratory products manufacturing company, which was acquired by Mallinckrodt
Inc. in August of 1997. From July 1989 to June 1996, Ms. Hagewood served as
Senior Corporate Counsel and Assistant Secretary for Hitachi Data Systems, a
worldwide distributor of information processing solutions manufactured by
Hitachi Ltd. Ms. Hagewood earned a B.A. in Political Science from the University
of California, Santa Barbara and a J.D. from Rutgers University School of Law.
CHARLES P. MCWADE has been a Director of the Company since January 1998. Mr.
McWade has been Senior Vice President--Business Development of Computer
Associates since April 1998, having served from 1983 to March 1998 in various
senior financial positions at Computer Associates, including Senior Vice
President and Treasurer from April 1988 to March 1994. Mr. McWade joined
Computer Associates in 1983.
ROBERT H. TOTH has been a Director of the Company since January 1998. Mr. Toth
has been a Senior Vice President of Computer Associates since April 1992 and
since October 1997 has been responsible for overseeing various iBUs of Computer
Associates including the Company. Mr. Toth previously served as Senior Vice
President of Computer Associates Strategic Alliances, Global Accounts and
various business operations covering Latin America, Africa, the Middle East and
Japan. Mr. Toth joined Computer Associates in 1984.
All directors are elected annually to serve until the next annual meeting of
stockholders and until their successors have been elected and qualified.
Prior to the consummation of the Offering, the Company's Board of Directors
expects to nominate two additional individuals, who are not affiliated with the
Company or Computer Associates, to become directors of the Company
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<PAGE>
after consummation of the Offering (the "Independent Directors"). The Company's
Board of Directors is expected to appoint the Independent Directors to a
compensation committee of the Board of Directors (the "Compensation Committee")
and an audit committee of the Board of Directors (the "Audit Committee"). Both
such committees will be comprised solely of independent directors. The
Compensation Committee will establish remuneration levels for certain officers
of the Company and perform such functions as may be delegated to it under the
Company's employee benefit programs and executive compensation programs. The
Audit Committee will select and engage, on behalf of the Company, the
independent public accountants to audit the Company's annual financial
statements. The Audit Committee also will review and approve the planned scope
of the annual audit.
The Board of Directors may, from time to time, establish certain other
committees to facilitate the management of the Company.
Officers are elected at the annual meeting of the Board of Directors held each
year for a term of one year, and they are elected to serve until the next annual
meeting.
EXECUTIVE COMPENSATION
The following table sets forth certain compensation information with respect to
the President and Chief Executive Officer of the Company and the four other most
highly compensated executive officers of the Company (the "Named Executive
Officers") for services rendered in all capacities to the Company for the fiscal
year ended March 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ALL OTHER
ANNUAL COMPENSATION LONG-TERM COMPENSATION COMPENSATION(8)
---------------------------------------- ---------------------------------------- ------------
OTHER
ANNUAL RESTRICTED COMPUTER
NAME AND COMPEN- STOCK ASSOCIATES ACCPAC
PRINCIPAL POSITION SALARY(1) BONUS(2) SATION(3) AWARD(4) OPTIONS(5) OPTIONS(6)
- -------------------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Frederick S.
Wysocki........... $110,000 $250,000 -- $980,000 2,550 150,000 $12,260
President and
Chief Executive
Officer
John Thomson........ 98,000(7) 56,892(7) -- 252,000 1,260 45,000 5,841
Vice President,
Research and
Development
John Schoutsen...... 66,500(7) 56,441(7) -- 156,800 750 27,500 5,071
Vice President,
Sales (Canada)
David A. Carlson.... 53,000 49,152 -- 252,000 675 36,250 5,841
Vice President,
Sales
Donnat Lettman...... 89,375 11,250 -- 252,000 1,050 36,250 10,148
Vice President,
Chief Financial
Officer and
Treasurer
</TABLE>
- ------------------------
(1) Amounts included consist of salary payments for the respective year and
amounts deferred pursuant to Section 401(k) of the Internal Revenue Code of
1986, as amended (the "Code").
(2) Includes bonuses and commissions earned and paid for the fiscal year ended
March 31, 1998.
(3) Less than 10% of the total of annual salary and bonus.
(4) The following number of shares of Common Stock were granted to the Named
Executive Officers in January 1998: Mr. Wysocki--87,500; Mr. Thomson--22,500;
Mr. Schoutsen--14,000; Mr. Carlson--22,500; Mr. Lettman--22,500. The aggregate
dollar amounts of the stock grants were determined by multiplying the number of
shares granted by $11.20, which the Company's Board of Directors determined was
the per share fair market value of the Common Stock in January 1998, based on
relative market values per share of other software companies of
53
<PAGE>
comparable size and characteristics. A certain number of these shares were
repurchased from each Named Executive Officer for tax withholding purposes. For
a description of the restricted stock grant, see "--Restricted Stock Grant."
(5) The options are options to purchase common stock of Computer Associates
("Computer Associates Common Stock"). See "--Computer Associates Options."
(6) The options are options to purchase Common Stock granted under the Company's
1998 Stock Incentive Plan. See "--1998 Stock Incentive Plan."
(7) Compensation was paid in Canadian Dollars. The specified information has
been converted into US$ at a rate of C$1 equals US$.70. (Source: THE WALL STREET
JOURNAL, April 2, 1998, Page C1)
(8) Represents matching and discretionary contributions under the Computer
Associates Savings Harvest Plan (the "401(k) Plan").
OPTION GRANTS TO EXECUTIVE OFFICERS
The following table sets forth certain information regarding grants of options
to purchase Common Stock during fiscal 1998 to each Named Executive Officer.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INDIVIDUAL GRANTS
----------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE
AT
ASSUMED ANNUAL
NUMBER OF PERCENTAGE RATES OF STOCK PRICE
SECURITIES OF TOTAL APPRECIATION FOR OPTION
UNDERLYING OPTIONS EXERCISE TERM
OPTIONS GRANTED TO PRICE EXPIRATION --------------------------
NAME GRANTED(1) EMPLOYEES PER SHARE DATE 5% 10%
- --------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Frederick S. Wysocki............. 150,000 30.0% $11.20 03/31/08 $1,056,000 $2,677,500
John Thomson..................... 45,000 9.0 11.20 03/31/08 316,800 803,250
John Schoutsen................... 27,500 5.5 11.20 03/31/08 193,600 490,875
David A. Carlson................. 36,250 7.3 11.20 03/31/08 255,200 647,063
Donnat Lettman................... 36,250 7.3 11.20 03/31/08 255,200 647,063
</TABLE>
- ------------------------
(1) Each of these options is exercisable for one share of Common Stock. The
options, which were granted as of March 31, 1998, vest and become exercisable
20% annually over a five-year period.
The following table sets forth certain information regarding grants of options
to purchase Computer Associates Common Stock during fiscal 1998 to each Named
Executive Officer.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INDIVIDUAL GRANTS
----------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE
AT
ASSUMED ANNUAL
NUMBER OF PERCENTAGE RATES OF STOCK PRICE
SECURITIES OF TOTAL APPRECIATION FOR OPTION
UNDERLYING OPTIONS EXERCISE TERM
OPTIONS GRANTED TO PRICE EXPIRATION --------------------------
NAME GRANTED(1) EMPLOYEES(2) PER SHARE DATE 5% 10%
- --------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Frederick S. Wysocki............. 2,550 * $29.33 04/06/07 $47,041 $101,573
John Thomson..................... 1,260 * 29.33 04/06/07 23,244 50,189
John Schoutsen................... 750 * 29.33 04/06/07 13,836 35,062
David A. Carlson................. 675 * 29.33 04/06/07 12,452 31,556
Donnat Lettman................... 1,050 * 29.33 04/06/07 19,370 49,087
</TABLE>
- ------------------------
* Less than 1%.
(1) Each of these options is exercisable for one share of Computer Associates
Common Stock. The options, which were granted as of April 7, 1997, vest and
become exercisable over a five-year period: (i) 10% on the first anniversary of
the date of grant; (ii) 15% on the second anniversary of the date of grant;
(iii) 20% on the third anniversary of the date of grant; (iv) 25% on the fourth
anniversary of the date of grant; and (v) 30% on the fifth anniversary of the
date of grant.
(2) Percent of total options granted based on total options granted to Computer
Associates employees.
54
<PAGE>
FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information regarding Common Stock
options exercised during fiscal 1998 and the fiscal year-end value of
unexercised Common Stock options for each Named Executive Officer.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT MARCH 31, 1998(1) AT MARCH 31, 1998(2)
ACQUIRED VALUE -------------------------- --------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Frederick S. Wysocki............. -- -- -- 150,000 -- --
John Thomson..................... -- -- -- 45,000 -- --
John Schoutsen................... -- -- -- 27,500 -- --
David A. Carlson................. -- -- -- 36,250 -- --
Donnat Lettman................... -- -- -- 36,250 -- --
</TABLE>
- ------------------------
(1) Each of these options is exercisable for one share of Common Stock.
(2) Each of these options was granted as of March 31, 1998 at a per share
exercise price equal to $11.20 per share, which was determined by the Company's
Board of Directors to be the fair market value of one share of Common Stock as
of such date, based on relative market values per share of other software
companies of comparable size and characteristics.
The following table sets forth certain information regarding options to purchase
Computer Associates Common Stock exercised during fiscal 1998 and the fiscal
year-end value of unexercised options to purchase Computer Associates Common
Stock for each Named Executive Officer.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT MARCH 31, 1998(1) AT MARCH 31, 1998
ACQUIRED VALUE -------------------------- --------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------- ------------ ------------ ------------ ------------ ------------ ------------
Frederick S. Wysocki............. 2,500 $107,770 931 10,612 $35,788 $367,970
John Thomson..................... -- -- -- 1,260 -- 35,809
John Schoutsen................... 3,417 162,734 338 4,336 12,986 155,680
David A. Carlson................. -- -- 189 1,636 9,200 47,075
Donnat Lettman................... 792 23,547 3,719 5,033 187,957 186,086
</TABLE>
- ------------------------------
(1) Each of these options is exercisable for one share of Computer Associates
Common Stock.
(2) Value is calculated by subtracting the exercise price per share from the
closing price of Computer Associates Common Stock at March 31, 1998 and
multiplying the result by the number of shares subject to the option.
55
<PAGE>
RESTRICTED STOCK GRANT
In January 1998, the Company's Board of Directors issued (the "Restricted Stock
Grant") certain executive officers and key employees of the Company an aggregate
of 150,000 shares of restricted Common Stock (net of 100,000 shares repurchased
for tax withholding purposes)(the "Restricted Stock"). The Restricted Stock
Grant was made to encourage the recipients to create shareholder value by
providing them with a meaningful, long-term ownership interest in the Company.
The Restricted Stock Grant was fully vested when made and not subject to risk of
forfeiture; provided that, for a period of three years after the effective date
of the Restricted Stock Grant, the recipients may not sell, assign, transfer,
pledge, grant any option for the purchase of, or otherwise dispose of or reduce
one's risk of ownership with respect to, any shares of Restricted Stock, except
by will or the laws of descent and distribution. The Restricted Stock has not
been registered or qualified under the Securities Act or the securities laws of
any state or other jurisdiction and may not be sold, pledged or otherwise
transferred except pursuant to effective registrations or qualifications
relating thereto under the Securities Act and applicable state securities or
blue sky laws or pursuant to exemptions therefrom. See "Shares Available for
Future Sale."
In connection with the Restricted Stock Grant, for federal income tax purposes,
each recipient recognized ordinary income on the effective date of grant, in an
amount equal to the product of the fair market value of a share of Restricted
Stock on such date (which was determined by the Company's Board of Directors to
be $11.20) and the number of shares of Restricted Stock granted to such
recipient. The Company recorded a compensation expense of $2.8 million in the
fourth quarter of fiscal 1998 with respect to the Restricted Stock Grant.
1998 STOCK INCENTIVE PLAN
As of January 1998, the Company adopted the Company's 1998 Stock Incentive Plan
(the "Plan"). The purpose of the Plan is to provide employees of the Company
additional incentive and reward opportunities designed to enhance the profitable
growth of the Company. All employees who are key to the Company's growth and
profitability will be eligible to receive awards under the Plan. The Plan
provides for the granting of incentive stock options intended to qualify under
Section 422 of the Code and options that do not constitute incentive stock
options. The Plan also provides for the granting of stock appreciation rights
("SARs"). To date, the Plan has been administered by the Company's Board of
Directors. Following the Offering, the Plan will be administered by the
Compensation Committee. In general, the Compensation Committee is authorized to
select the recipients of awards and the terms and conditions of those awards;
provided that the per share exercise price of options and SARs granted under the
Plan may not be less than 100% of the fair market value of a share of the Common
Stock on the date of grant. The number of shares of Common Stock that may be
issued under the Plan may not exceed 1,500,000 shares (subject to adjustment to
reflect stock dividends, stock splits, recapitalizations and similar changes in
the Company's capital structure). Shares of Common Stock which are attributable
to awards that have expired, terminated or been canceled or forfeited are
available for issuance or use in connection with future awards.
Effective as of March 31, 1998, the Company granted options under the Plan to
purchase an aggregate of 500,000 shares of Common Stock at $11.20 per share,
none of which are currently exercisable. It is anticipated that further grants
under the Plan will be made from time to time in the future.
COMPUTER ASSOCIATES OPTIONS
Computer Associates has informed the Company that all outstanding options to
purchase shares of Computer Associates Common Stock held by employees of the
Company shall remain outstanding until the earliest of the exercise thereof, the
expiration thereof and the date that the optionholder is no longer an employee
of the Company, and that the unvested options shall continue to vest and become
exercisable pursuant to the terms of grant until the earlier of the expiration
thereof and the date that the optionholder is no longer an employee of the
Company.
56
<PAGE>
401(K) PLAN
Computer Associates has maintained the 401(k) Plan for the benefit of its
employees and the employees of its subsidiaries. The 401(k) Plan is intended to
be a qualified plan under Section 401(a) of the Code, and certain contributions
made thereunder qualify for tax deferral under Section 401(k) of the Code. The
401(k) Plan has been funded through Computer Associates' and participating
employees' contributions and generally provides that employees may contribute,
through payroll deductions, a percentage of their regular salary. Computer
Associates makes matching and discretionary contributions for participants in
the 401(k) Plan. Participants in the 401(k) Plan have received a 50% match of
their contributions, up to a maximum of 5% of annual compensation (subject to
certain Code limitations), and a portion of the Computer Associates'
discretionary contribution for each year generally in proportion to their annual
compensation. Computer Associates' contributions under the 401(k) Plan vest in
incremental amounts over a period of seven years from date of hire and are 100%
vested after seven years. All employees who have been in the employ of Computer
Associates or one of its subsidiaries for at least one year are eligible to
participate. The 401(k) Plan is administered by a committee of officers and
employees of Computer Associates appointed by Computer Associates' Board of
Directors. The Company currently intends to implement its own employee savings
plan similar to the 401(k) Plan, at which time the Company's employees will no
longer participate in the 401(k) Plan.
COMPENSATION OF DIRECTORS
It is anticipated that directors who do not receive compensation as officers or
employees of the Company, Computer Associates or any of their respective
affiliates will be paid an annual board membership fee of $8,000 and an
attendance fee equal to the lesser of (i) $500 for each meeting of the Board of
Directors and committees thereof and (ii) $2,000 per year. The Company does not
pay any additional compensation to directors who receive compensation as
officers or employees of the Company, Computer Associates or any of their
respective affiliates.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company did not for fiscal 1998, and does not currently, have a Compensation
Committee. Following the Offering, the Company intends to form a Compensation
Committee and anticipates naming the two Independent Directors to serve on the
committee.
OWNERSHIP OF COMMON STOCK
Computer Associates owns approximately 97.2% of the Common Stock of the Company
outstanding prior to the Offering. Upon consummation of the Offering, Computer
Associates will beneficially own approximately % of the outstanding Common
Stock ( % if the Underwriters' over-allotment option is exercised in full). See
"Arrangements Between the Company and Computer Associates." The principal
executive offices of Computer Associates are located at One Computer Associates
Plaza, Islandia, New York 11788-7000. Except as described above, the Company is
not aware of any person or group that will beneficially own more than 5% of the
outstanding shares of Common Stock following the Offering.
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock and Computer Associates Common Stock as
of July 1, 1998 (i) by each director (ii) by each Named Executive Officer and
(iii) by all executive officers and directors of the Company as a group. Except
as otherwise noted, the
57
<PAGE>
individual director, director nominee or executive officer or their family
members had sole voting and investment power with respect to such securities.
<TABLE>
<CAPTION>
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
COMMON STOCK
-------------------------------
<CAPTION>
COMPUTER
TO BE OWNED ASSOCIATES
OWNED PRIOR TO AFTER THE COMMON
THE OFFERING(1) OFFERING(1) STOCK(2)(3)
-------------------- -------------------- ----------
NAME NUMBER % NUMBER % NUMBER
- ------------------------------------------- --------- --- --------- --- ----------
<S> <C> <C> <C> <C> <C>
Frederick S. Wysocki....................... 52,500 * 52,500 * 12,489
John Thomson............................... 13,500 * 13,500 * 126
David A. Carlson........................... 13,500 * 13,500 * 3,385
John Schoutsen............................. 8,400 * 8,400 * 5,468
Donnat Lettman............................. 13,500 * 13,500 * 8,215
Charles P. McWade.......................... --(4) -- --(4) -- 99,348
Robert H. Toth............................. --(4) -- --(4) -- 70,886
All directors and executive officers as a
group
(7 persons).............................. 101,400 1.9% 101,400 199,917(5)
</TABLE>
- ------------------------
* Less than 1%
(1) Neither the individuals specified in the table nor the directors and
executive officers as a group have the right to acquire beneficial ownership of
any additional shares of Common Stock within 60 days of July 1, 1998 within the
meaning of Rule 13-3(d)(1) under the Securities Exchange Act of 1934, as
amended.
(2) No individual director or Named Executive Officer beneficially owns 1% or
more of the Computer Associates Common Stock, nor do the directors and executive
officers as a group.
(3) Includes beneficial ownership of the following number of shares of Computer
Associates Common Stock which may be acquired within 60 days of July 1, 1998
pursuant to stock options awarded under the Plan: Mr. Wysocki- 3,391; Mr.
Thomson- 126; Mr. Schoutsen- 1,539; Mr. Lettman- 5,536; Mr. Carlson- 355; Mr.
McWade- 73,826; Mr. Toth- 33,695.
(4) Excludes the 5,250,000 shares of Common Stock held by Computer Associates,
of which Messrs. McWade and Toth disclaim beneficial ownership.
(5) Includes beneficial ownership of 118,468 shares of Computer Associates
Common Stock which may be acquired within 60 days of July 1, 1998 pursuant to
stock options awarded under the Plan.
58
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
Immediately after the Offering, the authorized capital stock of the Company will
consist of (i) 25,000,000 shares of Common Stock, par value $.01 per share (the
"Common Stock"), and (ii) 1,000,000 shares of Preferred Stock, par value $.01
per share (the "Preferred Stock"). Immediately following the Offering,
shares of Common Stock ( shares if the Underwriters' over-allotment
option is exercised in full) will be outstanding. All of the shares of Common
Stock that will be outstanding immediately following the Offering, including the
shares of Common Stock sold in the Offering, will be validly issued, fully paid
and nonassessable. As of the closing date of the Offering, there will be no
Preferred Stock outstanding. A description of the material terms and provisions
of the Company's Restated Certificate of Incorporation (the "Certificate of
Incorporation") and the Company's Amended and Restated By-laws (the "By-laws")
affecting the relative rights of the Common Stock and the Preferred Stock is set
forth below. The following description of the capital stock of the Company is
intended as a summary only and is qualified in its entirety by reference to the
form of the Certificate of Incorporation and By-laws, a copy of each of which is
filed as an exhibit to the Registration Statement.
COMMON STOCK
The holders of Common Stock will be entitled to one vote for each share held of
record on all matters voted upon by stockholders and may not use cumulative
voting for the election of directors. Thus, the owners of a majority of the
Common Stock outstanding will be able to elect all of the directors. Subject to
any preferential rights of any outstanding shares of Preferred Stock created by
the Company's Board of Directors from time to time, each outstanding share of
Common Stock will be entitled to participate equally in any distribution of net
assets made to the stockholders in liquidation, dissolution or winding up of the
Company and will be entitled to participate equally in dividends and other
distributions, if, as and when declared by the Company's Board of Directors.
There will be no redemption, sinking fund, conversion or preemptive rights with
respect to the Common Stock. All shares of Common Stock will have equal rights
and preferences.
PREFERRED STOCK
Pursuant to the Certificate of Incorporation, the Company will be authorized to
issue up to 1,000,000 shares of Preferred Stock which may be issued from time to
time in one or more series upon authorization by the Company's Board of
Directors. The Board of Directors, without further approval of the stockholders,
will be authorized to fix the number of shares constituting any series, dividend
rights and terms, conversion rights and terms, voting rights and terms,
redemption rights and terms, liquidation preferences and any other rights,
preferences, privileges and restrictions applicable to each series of the
Preferred Stock. The issuance of the Preferred Stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes could, among other things, adversely affect the voting power of the
holders of the Common Stock and, under certain circumstances, may render more
difficult, or have the effect of discouraging unsolicited takeover bids from
third parties, or the removal of incumbent management of the Company, or
otherwise adversely affect the market price for the Common Stock. The Company
has no present plans to issue any Preferred Stock.
CERTAIN CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS
CORPORATE OPPORTUNITIES
The Certificate of Incorporation will provide that Computer Associates shall
have no duty to refrain from engaging in the same or similar activities or lines
of business as the Company, and neither Computer Associates nor any officer or
director thereof (except as provided below) shall be liable to the Company or
its stockholders for breach of any fiduciary duty by reason of any such
activities of Computer Associates. In the event that Computer Associates
acquires knowledge of a potential transaction or matter which may be a corporate
opportunity for both Computer Associates and the Company, Computer Associates
shall have no duty to communicate or offer such corporate opportunity to the
Company and shall not be liable to the Company or its stockholders for breach of
any fiduciary duty as a stockholder of the Company by reason of the fact that
Computer Associates pursues or acquires such corporate opportunity for itself,
directs such corporate opportunity to another person, or does not communicate
information regarding such corporate opportunity to the Company.
59
<PAGE>
In the event that a director or officer of the Company who is also a director or
officer of Computer Associates acquires knowledge of a potential transaction or
matter which may be a corporate opportunity for both the Company and Computer
Associates, such director or officer of the Company shall have fully satisfied
and fulfilled the fiduciary duty of such director or officer to the Company and
its stockholders with respect to such corporate opportunity if such director or
officer acts in a manner consistent with the following policy:
(i) a corporate opportunity offered to any person who is an officer of
the Company, and who is also a director but not an officer of Computer
Associates, shall belong to the Company;
(ii) a corporate opportunity offered to any person who is a director but
not an officer of the Company, and who is also a director or officer of
Computer Associates, shall belong to the Company if such opportunity is
expressly offered to such person in writing solely in his or her capacity as
a director of the Company, and otherwise shall belong to Computer
Associates; and
(iii) a corporate opportunity offered to any person who is an officer of
both the Company and Computer Associates shall belong to the Company if such
opportunity is expressly offered to such person in writing solely in his or
her capacity as an officer of the Company, and otherwise shall belong to
Computer Associates.
For purposes of the foregoing:
(i) A director of the Company who is Chairman of the Board of Directors
of the Company or of a committee thereof shall not be deemed to be an
officer of the Company by reason of holding such position (without regard to
whether such position is deemed an officer of the Company under the By-laws
of the Company), unless such person is a full-time employee of the Company;
and
(ii) (A) The term "Company" shall mean the Company and all corporations,
partnerships, joint ventures, associations and other entities in which the
Company beneficially owns (directly or indirectly) 50% or more of the
outstanding voting stock, voting power, partnership interests or similar
voting interests, and (B) the term "Computer Associates" shall mean Computer
Associates and all corporations, partnerships, joint ventures, associations
and other entities (other than the Company, defined in accordance with
clause (A) of this section (ii)) in which Computer Associates beneficially
owns (directly or indirectly) 50% or more of the outstanding voting stock,
voting power, partnership interests or similar voting interests.
The foregoing provisions of the Certificate of Incorporation shall expire on the
date that Computer Associates ceases to own beneficially Common Stock
representing at least 20% of the total voting power of all classes of
outstanding Common Stock and no person who is a director or officer of the
Company is also a director or officer of Computer Associates or any of its
subsidiaries (other than the Company).
In addition to any vote of the stockholders required by the Certificate of
Incorporation, until the time that Computer Associates ceases to own
beneficially Common Stock representing at least 20% of the total voting power of
all classes of outstanding Common Stock, the affirmative vote of the holders of
more than 80% of the total voting power of all classes of outstanding Common
Stock shall be required to alter, amend or repeal the corporate opportunity
provisions described above in a manner adverse to the interests of Computer
Associates and its subsidiaries (other than the Company), or to adopt any
provision that is adverse to the interests of Computer Associates and its
subsidiaries (other than the Company) and inconsistent with such corporate
opportunity provisions. Accordingly, so long as Computer Associates beneficially
owns Common Stock representing at least 20% of the total voting power of all
classes of outstanding Common Stock, it can prevent any such alteration,
amendment, repeal or adoption.
Any person purchasing or otherwise acquiring Common Stock will be deemed to have
notice of, and to have consented to, the foregoing provisions of the Certificate
of Incorporation.
60
<PAGE>
PROVISIONS THAT MAY HAVE AN ANTI-TAKEOVER EFFECT
Certain provisions of the Certificate of Incorporation and By-laws summarized
below may be deemed to have an anti-takeover effect and may delay, deter or
prevent a tender offer or takeover attempt that a stockholder might consider to
be in its best interest, including attempts that might result in a premium being
paid over the market price for the shares held by stockholders.
The Certificate of Incorporation will provide that, subject to any rights of
holders of Preferred Stock to elect additional directors under specified
circumstances, the number of directors of the Company will be fixed by the
By-laws, but shall consist of not more than nine nor less than three directors.
The By-laws will provide that, subject to any rights of holders of Preferred
Stock to elect directors under specified circumstances, the number of directors
will be fixed from time to time exclusively by resolution of the Board of
Directors adopted by the vote of directors constituting a majority of the total
number of directors that the Company would have if there were no vacancies on
the Company's Board of Directors. In addition, the Certificate of Incorporation
and By-laws will provide that, subject to any rights of holders of Preferred
Stock, and unless the Company's Board of Directors otherwise determines, any
vacancies will be filled by the affirmative vote of a majority of the remaining
members of the Board of Directors, though less than a quorum, or by a sole
remaining director; except as otherwise provided by law, any such vacancy may
not be filled by the stockholders.
The By-laws will provide for an advance notice procedure for the nomination,
other than by or at the direction of the Board of Directors, of candidates for
election as directors as well as for other stockholder proposals to be
considered at annual meetings of stockholders. In general, notice of intent to
nominate a director or raise matters at such meetings will have to be received
in writing by the Company not less than 60 nor more than 90 days prior to the
anniversary of the previous year's annual meeting of stockholders, and must
contain certain information concerning the person to be nominated or the matters
to be brought before the meeting and concerning the stockholder submitting the
proposal. The Certificate of Incorporation and By-laws will also provide that
special meetings of stockholders may be called only by certain specified
officers of the Company or by any such officer at the request in writing of the
Board of Directors; special meetings of stockholders cannot be called by
stockholders.
In addition, the Certificate of Incorporation will provide that any action
required or permitted to be taken by stockholders may be effected by written
consent; provided that, on and after the date on which Computer Associates
ceases to beneficially own 50% or more of the total voting power of all classes
of outstanding Common Stock, any action required or permitted to be taken by
stockholders may be effected only at a duly called annual or special meeting of
stockholders and may not be effected by a written consent by stockholders in
lieu of such a meeting.
The Certificate of Incorporation will also provide that the affirmative vote of
the holders of at least 75% of the total voting power of all classes of
outstanding Common Stock, voting together as a single class, is required to
amend, repeal or adopt any provision inconsistent with the foregoing provisions
of the Certificate of Incorporation. The Certificate of Incorporation and
By-laws will further provide that the By-laws may be altered, amended or
repealed by the Company's Board of Directors or by the affirmative vote of the
holders of at least 75% of the total voting power of all classes of outstanding
Common Stock, voting together as a single class.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is a Delaware corporation subject to Section 203 of the Delaware
General Corporation Law (the "Delaware Law"). Section 203 provides that, subject
to certain exceptions specified therein, a corporation shall not engage in any
business combination with any "interested stockholder" for a three-year period
following the time that such stockholder becomes an interested stockholder
unless (i) prior to such time, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder, (ii) upon consummation of
the transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owned at least 85% of the voting stock
of the corporation outstanding at the time the transaction commenced (excluding
certain shares) or (iii) on or
61
<PAGE>
subsequent to such time, the business combination is approved by the board of
directors of the corporation and by the affirmative vote of at least 66 2/3% of
the outstanding voting stock which is not owned by the interested stockholder.
Except as specified in Section 203 of the Delaware Law, an interested
stockholder is defined to include (x) any person that is the owner of 15% or
more of the outstanding voting stock of the corporation, or is an affiliate or
associate of the corporation and was the owner of 15% or more of the outstanding
voting stock of the corporation, at any time within three years immediately
prior to the relevant date and (y) the affiliates and associates of any such
person. Under certain circumstances, Section 203 of the Delaware Law makes it
more difficult for an "interested stockholder" to effect various business
combinations with a corporation for a three-year period, although the
stockholders may elect to exclude a corporation from the restrictions imposed
thereunder. The restrictions of Section 203 will not apply to Computer
Associates, however, because (i) the Company's Board of Directors approved the
transaction which resulted in Computer Associates becoming an "interested
stockholder" prior to the consummation of that transaction and (ii) at the time
Computer Associates became an "interested stockholder," the restrictions of
Section 203 did not apply to the Company because the Company did not have a
class of voting stock (x) listed on a national securities exchange, (y)
authorized for quotation on the Nasdaq Stock Market or (z) held of record by
more than 2,000 stockholders.
LIMITATIONS ON DIRECTORS' LIABILITY
The Certificate of Incorporation provides that no director of the Company shall
be liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) in respect of certain unlawful dividend payments or
stock redemptions or repurchases or (iv) for any transaction from which the
director derived an improper personal benefit. The effect of these provisions
will be to eliminate the rights of the Company and its stockholders (through
stockholders' derivative suits on behalf of the Company) to recover monetary
damages against a director for breach of fiduciary duty as a director (including
breaches resulting from grossly negligent behavior), except in the situations
described above.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock will be ChaseMellon
Shareholder Services, L.L.C.
SHARES AVAILABLE FOR FUTURE SALE
Upon consummation of the Offering, the Company will have shares of Common
Stock issued and outstanding ( shares if the Underwriters' over-allotment
option is exercised in full). Of these shares, the shares of Common Stock to
be sold in the Offering ( shares if the Underwriter's over-allotment option
is exercised in full) will be freely tradeable without restrictions or further
registration under the Securities Act, except for any shares purchased by an
"affiliate" of the Company (as that term is defined in Rule 144 adopted under
the Securities Act ("Rule 144")), which will be subject to the resale
limitations of Rule 144.
The Company, Computer Associates and each of the Company's directors and
officers, who in the aggregate will hold, following the Offering, 5,400,000
shares of Common Stock (plus any shares purchased in the Offering), have agreed
that they will not, directly or indirectly, without the prior written consent of
J.P. Morgan Securities Inc., offer, sell, offer to sell, contract to sell, or
otherwise dispose of any shares of Common Stock or securities convertible into
Common Stock or register for sale under the Securities Act any Common Stock for
a period of 180 days after the date of this Prospectus, except that the Company
may issue, and grant options to purchase, shares of Common Stock under its stock
option plans. See "Underwriting."
Immediately after the Offering, Computer Associates will own 5,250,000 shares of
Common Stock, which will represent approximately % of the outstanding Common
Stock ( % if the Underwriters' over-allotment option is exercised in full).
None of the shares of Common Stock beneficially owned by Computer Associates
will be registered under the Securities Act upon consummation of the Offering
and may not be sold by Computer Associates in the absence of an effective
registration statement under the Securities Act, except in accordance
62
<PAGE>
with Rule 144 or another exemption from registration. However, Computer
Associates has certain demand and piggyback registration rights to require the
Company to effect registration of all of the shares of Common Stock owned by
Computer Associates. See "Arrangements Between the Company and Computer
Associates--Registration Rights Agreement."
Prior to the Offering, there has been no market for the Common Stock, and no
prediction can be made as to the effect, if any, that market sales of
outstanding shares of Common Stock, or the availability of such shares for sale,
will have on the market price of the Common Stock prevailing from time to time.
Nevertheless, sales of substantial amounts of Common Stock beneficially owned by
Computer Associates in the public market, or the perception that such sales
could occur, could adversely affect prevailing market prices for the Common
Stock offered in the Offering.
Although Computer Associates in the future may effect or direct sales or other
dispositions of Common Stock that would reduce its beneficial ownership interest
in the Company, Computer Associates has advised the Company that its current
intent is to continue to hold all of the Common Stock beneficially owned by it.
However, Computer Associates is not subject to any contractual obligation to
retain such Common Stock, except that Computer Associates has agreed not to,
directly or indirectly, offer, sell, offer to sell, contract to sell or
otherwise dispose of any shares of Common Stock or securities convertible into
Common Stock or register for sale under the Securities Act any Common Stock for
a period of 180 days after the date of this Prospectus without the prior written
consent of J.P. Morgan Securities Inc. As a result, there can be no assurance
concerning the period of time during which Computer Associates will maintain its
beneficial ownership of Common Stock owned by it following the Offering. See
"Underwriting."
Effective as of January 14, 1998, the Company issued an aggregate of 150,000
shares of Common Stock (net of 100,000 shares repurchased for tax withholding
purposes) to certain executive officers and key employees of the Company. See
"Management--Restricted Stock Grant." The recipients may not sell, assign,
transfer, pledge, grant any option for the purchase of, or otherwise dispose of
or reduce their risk of ownership with respect to, any shares of Restricted
Stock until January 14, 2001, except by will or the laws of descent and
distribution. The Restricted Stock has not been registered or qualified under
the Securities Act or the securities laws of any state or other jurisdiction and
may not be sold except pursuant to an effective registration under the
Securities Act or pursuant to Rule 144 or another exemption therefrom.
As of March 31, 1998, the Company granted options under the Plan to purchase an
aggregate of 500,000 shares of Common Stock at $11.20 per share. The options
vest according to a fixed five-year schedule beginning on the first anniversary
of the date of the grants. An additional 1,000,000 shares of Common Stock are
available for future grants under the Plan. See "Management--1998 Stock
Incentive Plan." Rule 701 under the Securities Act provides that the shares of
Common Stock acquired on the exercise of currently outstanding options may be
resold by persons, other than "affiliates," beginning 90 days after the date of
this Prospectus, subject only to the manner of sale provisions of Rule 144, and
by "affiliates" under Rule 144 without compliance with its one-year minimum
holding period, subject to certain limitations. The Company intends to file one
or more registration statements on Form S-8 under the Securities Act to register
all shares of Common Stock subject to outstanding stock options and Common Stock
issuable pursuant to the Plan.
In general, under Rule 144, a person (or persons whose shares are required to be
aggregated) who has beneficially owned shares of Common Stock for at least one
year, including a person who may be deemed an "affiliate," is entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of one percent of the total number of outstanding shares of the class of
stock being sold and the average weekly reported trading volume of the class of
stock being sold during the four calendar weeks preceding such sale. A person
who is not deemed an "affiliate" of the Company at any time during the three
months preceding a sale and who has beneficially owned shares for at least two
years is entitled to sell such shares under Rule 144 without regard to the
volume limitations described above. As defined in Rule 144, an "affiliate" of an
issuer is a person that directly or indirectly through the use of one or more
intermediaries controls, is controlled by, or is under common control with, such
issuer. The foregoing summary of Rule 144 is not intended to be a complete
description thereof.
63
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), for whom J.P. Morgan
Securities Inc. and SG Cowen Securities Corporation are acting as
representatives (the "Representatives"), have severally agreed, subject to the
terms and conditions set forth in the underwriting agreement between the Company
and the Representatives (the "Underwriting Agreement"), to purchase from the
Company, and the Company has agreed to sell to the Underwriters, the respective
number of shares of Common Stock set forth opposite their names below.
<TABLE>
<CAPTION>
----------
<S> <C>
NUMBER OF
UNDERWRITERS SHARES
----------
----------
J.P. Morgan Securities Inc......................................................
SG Cowen Securities Corporation.................................................
----------
Total
----------
----------
</TABLE>
The nature of the Underwriters' obligations under the Underwriting Agreement is
such that all of the Common Stock being offered, excluding shares covered by the
over-allotment option granted to the Underwriters, must be purchased if any are
purchased.
The Representatives have advised the Company that the several Underwriters
propose to offer the Common Stock to the public initially at the public offering
price set forth on the cover page of this Prospectus and may offer the Common
Stock to selected dealers at such price less a concession not to exceed $ per
share. The Underwriters may allow, and such dealers may reallow, a concession to
other dealers not to exceed $ per share. After the initial public offering of
the Common Stock, the public offering price and other selling terms may be
changed by the Representatives.
The Company has granted the Underwriters an option, exercisable within 30 days
after the date of this Prospectus, to purchase up to additional shares of
Common Stock from the Company at the same price per share to be paid by the
Underwriters for the other shares offered hereby. If the Underwriters purchase
any such additional shares pursuant to the option, each of the Underwriters will
be committed to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may exercise the
option only to cover over-allotments, if any, made in connection with the
distribution of the Common Stock offered hereby.
Prior to the Offering, there has been no public market for the Common Stock. The
initial public offering price will be determined by negotiations among the
Company, Computer Associates and the Representatives. Among the factors to be
considered in determining the initial public offering price are prevailing
market conditions, the market valuations of certain publicly traded companies,
the Company's past and present financial performance and revenue and earnings of
comparable companies in recent periods, estimates of the business potential and
prospects of the Company, the experience of Company's management and the
position of the Company in the industry.
The Representatives have informed the Company that the Underwriters will not
confirm, without prior specific written approval, sales to their customer
accounts as to which they have discretionary trading power.
The Company, Computer Associates and each of the Company's directors and
officers, who in the aggregate will hold, following the Offering, 5,400,000
shares of Common Stock (plus any shares purchased in the Offering), have agreed
that they will not, directly or indirectly, without the prior written consent of
J.P. Morgan Securities Inc., offer, sell, offer to sell, contract to sell or
otherwise dispose of any shares of Common Stock or securities convertible into
Common Stock or register for sale under the Securities Act any Common Stock for
a period of 180 days after the date of this Prospectus, except that the Company
may issue, and grant options to purchase, shares of Common Stock under the Plan.
See "Shares Available for Future Sale."
The Company and Computer Associates have agreed to indemnify the Underwriters
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payments the Underwriters may be required to
64
<PAGE>
make in respect thereof. However, Computer Associates aggregate liability for
such indemnity and contribution obligations is limited to an aggregate of $7.5
million.
The Common Stock has been approved for listing on both the NYSE under the symbol
"ACT" and the Nasdaq National Market under the symbol "ACPI," subject to
official notice of issuance. The determination of where the Common Stock will be
listed will be made at the time of the Offering.
At the Company's request, the Underwriters have reserved % of the Common Stock
offered for sale at the initial offering price to the Company's employees and
other persons having business relationships with the Company. The number of
shares of Common Stock available for sale to other members of the public will be
reduced to the extent that these persons purchase such reserved shares. Any
reserved shares not purchased will be offered by the Underwriters on the same
basis as the other shares offered hereby.
In connection with the Offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock.
Specifically, the Underwriters may overallot the Offering, creating a syndicate
short position. In addition, the Underwriters may bid for, and purchase, shares
of Common Stock in the open market to cover syndicate shorts or to stabilize the
price of the Common Stock. Finally, the underwriting syndicate may reclaim
selling concessions allowed for distributing shares of Common Stock in the
Offering, if the syndicate repurchases previously distributed Common Stock in
syndicate covering transactions in stabilization transactions or otherwise. Any
of these activities may stabilize or maintain the market price of the shares of
Common Stock above independent market levels. The Underwriters are not required
to engage in these activities, and may end any of these activities at any time.
From time to time in the ordinary course of their respective business, certain
of the Underwriters and their affiliates have engaged in and may in the future
engage in commercial banking and/or investment banking transactions with the
Company and its affiliates.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Howard, Smith & Levin LLP, New York, New York. Cahill Gordon &
Reindel, a partnership including a professional corporation, New York, New York
is acting as counsel for the Underwriters in connection with certain legal
matters relating to the Offer. Howard, Smith & Levin LLP has in the past
provided, and may continue to provide, legal services to Computer Associates and
its affiliates.
EXPERTS
The Consolidated Financial Statements of the Company as of March 31, 1997 and
1998 and for each of the three years in the period ended March 31, 1998,
appearing in this Prospectus and Registration Statement have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, exhibits, schedules and supplements thereto, the "Registration
Statement"), under the Securities Act and the rules and regulations thereunder,
for the registration of the Common Stock offered hereby. This Prospectus, which
forms a part of the Registration Statement, does not contain all the information
set forth in the Registration Statement, certain parts of which have been
omitted as permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement. Statements contained in this
Prospectus as to the contents of any contract or other document referred to
herein are not necessarily
65
<PAGE>
complete and, where such contract or other document is an exhibit to the
Registration Statement, each such statement is qualified in all respects by the
provisions of such exhibit, to which reference is hereby made. The Registration
Statement can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's regional offices at Seven World Trade
Center, 13th Floor, New York, New York 10048 and Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any
portion of the Registration Statement can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, the Registration Statement is publicly available
through the Commission's site on the Internet's World Wide Web, located at
http://www.sec.gov.
66
<PAGE>
ACCPAC INTERNATIONAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors...................................... F-2
Consolidated Balance Sheets............................................................ F-3
Consolidated Statements of Income...................................................... F-4
Consolidated Statements of Division and Stockholders' Equity (Deficit)................. F-5
Consolidated Statements of Cash Flows.................................................. F-6
Notes to Consolidated Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
ACCPAC INTERNATIONAL, INC.
We have audited the accompanying consolidated balance sheets of ACCPAC
INTERNATIONAL, INC. as of March 31, 1997 and 1998, and the related consolidated
statements of income, division and stockholders' equity (deficit), and cash
flows for each of the three years in the period ended March 31, 1998. 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 ACCPAC
INTERNATIONAL, INC. at March 31, 1997 and 1998, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended March 31, 1998, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
San Jose, California
June 5, 1998, except for Note 8
as to which the date is August 17, 1998
F-2
<PAGE>
ACCPAC INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
---------------------------------
MARCH 31 JUNE 30
DOLLARS IN THOUSANDS 1997 1998 1998
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... -- $4,013 $4,898
Accounts receivable, less allowance for doubtful accounts of
$1,078 at March 31, 1997, $711 at March 31, 1998 and $590 at
June 30, 1998............................................... $7,808 5,225 4,351
Inventories................................................... 2,900 3,467 2,297
Deferred income taxes......................................... -- 703 996
Other current assets.......................................... -- -- 152
--------- --------- -----------
Total current assets............................................ 10,708 13,408 12,694
Property and equipment, net..................................... 193 414 376
Deferred financing costs........................................ -- 168 858
--------- --------- -----------
Total assets.................................................... $10,901 $13,990 $13,928
--------- --------- -----------
--------- --------- -----------
LIABILITIES, AND DIVISION AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.............................................. $1,262 $4,025 $1,787
Accrued compensation and related liabilities.................. -- 1,120 --
Deferred revenue.............................................. 2,987 3,296 3,001
Payable to Computer Associates International, Inc............. -- -- 1,748
Other accrued liabilities..................................... 955 1,347 1,936
--------- --------- -----------
Total current liabilities....................................... 5,204 9,788 8,472
Note payable to Computer Associates International, Inc.......... -- 5,000 5,000
Commitments and Contingencies
Division equity................................................. 5,697 -- --
Stockholders' equity (deficit):
Common Stock, $0.01 par value:
Authorized shares -- 25,000,000 at March 31, 1998 and June
30, 1998
Issued and outstanding shares -- 5,400,000 at March 31, 1998
and June 30, 1998........................................... -- 54 54
Additional paid-in capital.................................... -- -- --
Retained earnings (accumulated deficit)....................... -- (632) 759
Accumulated other comprehensive income (loss)................. -- (220) (357)
--------- --------- -----------
Total stockholders' equity (deficit)............................ -- (798) 456
--------- --------- -----------
Total liabilities, and division and stockholders' equity
(deficit)..................................................... $10,901 $13,990 $13,928
--------- --------- -----------
--------- --------- -----------
</TABLE>
See accompanying notes.
F-3
<PAGE>
ACCPAC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
YEARS ENDED MARCH 31 JUNE 30
IN THOUSANDS, EXCEPT PER SHARE DATA 1996 1997 1998 1997 1998
--------- --------- --------- --------- ---------
(UNAUDITED)
Revenue:
License.................................................. $ 23,955 $ 19,709 $ 24,820 $4,105 $6,610
Service.................................................. 10,593 7,985 7,495 1,785 1,924
Third-party products..................................... 31,267 17,234 16,623 4,224 3,796
--------- --------- --------- --------- ---------
Total revenue.............................................. 65,815 44,928 48,938 10,114 12,330
Cost of revenue:
License.................................................. 4,011 4,452 4,675 859 1,417
Service.................................................. 2,238 1,799 1,937 409 684
Third-party products..................................... 27,682 15,106 14,670 3,767 3,362
--------- --------- --------- --------- ---------
Total cost of revenue...................................... 33,931 21,357 21,282 5,035 5,463
--------- --------- --------- --------- ---------
Gross profit............................................... 31,884 23,571 27,656 5,079 6,867
Operating expenses:
Sales and marketing...................................... 10,014 7,916 9,428 2,141 2,486
Research and development................................. 5,340 3,733 3,916 922 950
General and administrative............................... 4,734 4,808 4,885 1,096 1,231
Compensation related to issuance of common stock......... -- -- 2,800 -- --
--------- --------- --------- --------- ---------
Total operating expenses................................. 20,088 16,457 21,029 4,159 4,667
--------- --------- --------- --------- ---------
Income from operations..................................... 11,796 7,114 6,627 920 2,200
Other income (expense), net................................ (43) (31) (18) (7) 26
--------- --------- --------- --------- ---------
Income before income taxes................................. 11,753 7,083 6,609 913 2,226
Provision for income taxes................................. 4,407 2,656 2,478 342 835
--------- --------- --------- --------- ---------
Net income................................................. $7,346 $4,427 $4,131 $571 $1,391
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Basic and diluted earnings per share....................... $1.40 $0.84 $ $ $
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Shares used in computing basic and diluted
earnings per share........................................ 5,250 5,250
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See accompanying notes.
F-4
<PAGE>
ACCPAC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF DIVISION AND
STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Accumulated
Retained Other Total
Common Stock Additional Earnings Comprehensive Stockholders'
Division -------------------- Paid-In (Accumulated Income Equity
DOLLARS AND SHARES IN THOUSANDS Equity Shares Amount Capital Deficit) (Loss) (Deficit)
----------- --------- --------- ----------- ----------- ------------ -----------
Balance at March 31, 1995........ $2,796
Net income..................... 7,346
Foreign currency translation... (2)
-----------
Comprehensive income......... 7,344
-----------
Net transfers to Computer
Associates International,
Inc.......................... (5,897)
-----------
Balance at March 31, 1996........ 4,243
Net income..................... 4,427
Foreign currency translation... (17)
-----------
Comprehensive income......... 4,410
-----------
Net transfers to Computer
Associates International,
Inc.......................... (2,956)
-----------
Balance at March 31, 1996........ 5,697
Net income..................... 4,546
Foreign currency translation... (25)
-----------
Comprehensive income......... 4,521
-----------
Net transfers to Computer
Associates International,
Inc.......................... (3,577)
-----------
Balance at December 31, 1997..... 6,641 -- -- -- -- -- --
Net loss....................... -- -- -- -- $(415) -- $(415)
Foreign currency translation... -- -- -- -- -- $7 7
-----------
Comprehensive income......... (408)
-----------
Incorporation of Company as of
January 1998 and issuance of
note payable to Computer
Associates International,
Inc. in connection with
Contribution Agreement....... (5,000) 5,250 $53 $174 -- $(227) --
Issuance of Common Stock to
employees.................... -- 250 2 2,798 -- -- 2,800
Repurchase of Common Stock from
employees.................... -- (100) (1) (1,119) -- -- (1,120)
Net transfers to Computer
Associates International,
Inc.......................... (1,641) -- -- (1,853) (217) -- (2,070)
----------- --------- --------- ----------- ----------- ------------ -----------
Balance at March 31, 1998........ -- 5,400 54 -- (632) (220) (798)
Net income (unaudited)......... -- -- -- -- 1,391 -- 1,391
Foreign currency translation
(unaudited).................. -- -- -- -- -- (137) (137)
-----------
Comprehensive income
(unaudited)................ -- -- -- -- -- -- 1,254
----------- --------- --------- ----------- ----------- ------------ -----------
Balance at June 30, 1998
(unaudited).................... -- 5,400 $54 -- $759 $(357) $456
----------- --------- --------- ----------- ----------- ------------ -----------
----------- --------- --------- ----------- ----------- ------------ -----------
</TABLE>
See accompanying notes.
F-5
<PAGE>
ACCPAC INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
THREE MONTHS
YEAR ENDED MARCH 31 ENDED JUNE 30
DOLLARS IN THOUSANDS 1996 1997 1998 1997 1998
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
OPERATING ACTIVITIES
Net income...................... $7,346 $4,427 $4,131 $571 $1,391
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and
amortization................ 348 49 156 43 54
Compensation expense related
to issuance of common
stock....................... -- -- 2,800 -- --
Deferred income taxes......... -- -- (703) -- (293)
Changes in operating assets
and liabilities:
Accounts receivable......... 1,606 (745) 2,502 2,123 847
Inventories................. (2,006) 1,378 (567) (530) 1,170
Other current assets........ -- -- -- -- (152)
Accounts payable............ (391) (1,298) 2,595 13 (2,418)
Deferred revenue............ 207 (815) 309 (35) (295)
Payable to Computer
Associates................ -- -- -- -- 1,748
Other accrued liabilities... (1,034) 98 392 (169) (1,041)
---------- ---------- ---------- ---------- ----------
Net cash provided by operating
activities.................... 6,076 3,094 11,615 2,016 1,011
INVESTING ACTIVITIES
Purchases of property and
equipment..................... (121) (138) (377) (20) (16)
FINANCING ACTIVITIES
Net transfers to Computer
Associates International,
Inc........................... (5,897) (2,956) (7,288) (2,001) --
Effect of exchange rate changes
on cash....................... (58) -- 63 5 (110)
---------- ---------- ---------- ---------- ----------
Net increase in cash and cash
equivalents................... -- -- 4,013 -- 885
Cash and cash equivalents at
beginning of period........... -- -- -- -- 4,013
---------- ---------- ---------- ---------- ----------
Cash and cash equivalents at end
of period..................... -- -- $4,013 -- $4,898
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
ACCPAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AT JUNE 30, 1998 AND FOR THE
THREE MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BACKGROUND
ACCPAC INTERNATIONAL, INC. (the "Company") is currently a subsidiary of Computer
Associates International, Inc. ("Computer Associates"). The Company was
incorporated in October 1997. The Company designs, develops, markets and
supports a family of financial management and business management software
products. Prior to January 1, 1998, the Company operated as a division of
Computer Associates. Effective January 1, 1998, pursuant to a contribution
agreement (the "Contribution Agreement") between Computer Associates and the
Company, Computer Associates contributed and transferred to the Company the
assets and liabilities constituting the ACCPAC division of Computer Associates.
In connection with the Contribution Agreement, the Company also granted to
Computer Associates a worldwide, perpetual, fully-paid license, including
service, for the internal use by Computer Associates of all present and future
Company software products (including products acquired after the date of the
Contribution Agreement); provided that if the Company is required to pay
royalties to any third party resulting from the use by Computer Associates of
any such Company software, Computer Associates will reimburse the Company for
the amount of such royalties. In connection with the Contribution Agreement, the
Company issued 5,250,000 shares of Common Stock and issued a note payable to
Computer Associates in the amount of $5,000,000. The note payable to Computer
Associates is due at the earlier of the consummation of the inital public
offering of Common Stock or December 31, 1999. At June 30, 1998, the Company has
5,400,000 shares of Common Stock issued and outstanding. At June 30, 1998,
Computer Associates holds 5,250,000 shares of Common Stock and employees of the
Company hold 150,000 shares of Common Stock.
BASIS OF PRESENTATION
The consolidated financial statements reflect the financial position, results of
operations, changes in division and stockholders' equity (deficit) and cash
flows of the business that was transferred to the Company from Computer
Associates as if the Company were a separate entity for all periods presented.
The consolidated financial statements have been prepared using the historical
basis in the assets and liabilities and historical results of operations related
to the Company's business. Changes in division equity primarily represent the
net income of the Company plus net cash transfers to Computer Associates. The
consolidated financial statements include expenses which have been allocated to
the Company by Computer Associates on a direct basis, based upon a specific
identification of the expenses. Allocations of expenses from Computer Associates
to the Company on an indirect basis have been made primarily on a proportional
cost allocation method based on the number of employees. Management believes
these allocations are reasonable and that such expenses would not differ
materially had the Company operated on a stand-alone basis for all the periods
presented.
The financial information included herein may not necessarily reflect the
consolidated financial position, results of operations, changes in stockholders'
equity (deficit) and cash flows of the Company in the future.
INTERIM FINANCIAL STATEMENTS
The accompanying consolidated balance sheet as of June 30, 1998 and the
consolidated statements of income and cash flows for the three months ended June
30, 1997 and 1998 are unaudited. In the opinion of management, the unaudited
consolidated financial statements have been prepared on the same basis as the
audited consolidated financial statements and include all adjustments,
consisting of normal recurring adjustments, necessary for a fair statement of
the financial position, results of operations, and cash flows for the interim
F-7
<PAGE>
ACCPAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1998 AND FOR THE
THREE MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
periods. The results of operations for the three months ended June 30, 1998 are
not necessarily indicative of operating results to be expected for the full
fiscal year.
CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
FOREIGN CURRENCY TRANSLATIONS
In translating financial statements for operations outside the United States,
all assets and liabilities are translated using the exchange rate in effect at
the balance sheet date. All revenue, costs and expenses are translated using an
average exchange rate. These translation adjustments are included as a separate
component of stockholder's equity (deficit).
CASH AND CASH EQUIVALENTS
All highly liquid investments with maturities of three months or less are
considered to be cash equivalents.
INVENTORIES
Inventories, which consist primarily of finished software products and marketing
and promotional materials, are carried at the lower of cost (first in, first out
method) or market value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the related assets as
follows:
<TABLE>
<S> <C>
Computer equipment............................................... 3 years
Furniture and fixtures........................................... 7 years
</TABLE>
DEFERRED FINANCING COSTS
Deferred financing costs represent costs incurred in connection with the
proposed initial public offering of common stock.
REVENUE RECOGNITION
License and third-party products revenue is recognized upon shipment, net of
estimated returns, when all significant contractual obligations have been
satisfied and the resulting receivable is deemed collectible by
F-8
<PAGE>
ACCPAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1998 AND FOR THE
THREE MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
management. Maintenance revenue is deferred and recognized ratably over the term
of the related agreements, which in most cases is one year. Revenue from
consulting services is recognized as the services are provided. The Company's
revenue recognition policy is in compliance with the provisions of the American
Institute of Certified Public Accountants' Statement of Position 91-1, "Software
Revenue Recognition."
In October 1997, the American Institute of Certified Public Accountants issued
Statement of Position No. 97-2 ("SOP 97-2"), "Software Revenue Recognition," as
amended by Statement of Position 98-4, which the Company adopted for
transactions entered into in the fiscal year beginning April 1, 1998. SOP 97-2
provides guidance on recognizing revenue on software transactions and supersedes
SOP 91-1. The adoption of SOP 97-2 did not have a significant impact on the
Company's revenue recognition practices.
CONCENTRATION OF CREDIT RISK
The principal geographical markets for the Company's products are North America
and Asia/Pacific. Customers include medium and small-sized corporations in a
variety of industries. The Company performs credit evaluations of its customers
and generally does not require collateral. No single customer accounted for 10%
or more of total revenue in the years ended March 31, 1996, 1997 and 1998.
RESEARCH AND DEVELOPMENT
The Company accounts for software development costs in accordance with Statement
of Financial Accounting Standards No. 86, "Accounting for Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed," under which certain
development costs incurred subsequent to the establishment of technological
feasibility are capitalized and amortized over the estimated lives of the
related products. Technological feasibility is established upon completion of a
working model. As of March 31, 1998, such capitalized software development costs
were insignificant, and all software development costs have been charged to
research and development in the accompanying consolidated statements of income.
ADVERTISING COSTS
Advertising costs are expensed as incurred. Such costs were $2,772,000,
$2,184,000 and $3,177,000 in the years ended March 31, 1996, 1997 and 1998,
respectively.
STOCK-BASED COMPENSATION
The Company accounts for employee stock options in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") and has adopted the "disclosure only" alternative described in
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123").
INCOME TAXES
Historically, the Company's results have been included in the consolidated
income tax returns of Computer Associates. Income tax expense in the Company's
consolidated financial statements has been provided using the Computer
Associates effective tax rate of 37.5%, which approximates the provision for
income taxes on a separate return basis.
F-9
<PAGE>
ACCPAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1998 AND FOR THE
THREE MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
The Company follows the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128 requires
presentation of basic and diluted earning per share. Basic earnings per share is
computed by dividing income by the weighted average number of common shares that
were outstanding during the period. Diluted earnings per share is computed by
giving effect to all dilutive potential common shares that were outstanding for
the periods presented. For fiscal 1998 and the three months ended June 30, 1997
and 1998, the calculation of basic and diluted earnings per share will give
effect to the sale of an assumed shares of Common Stock in the initial
public offering, the proceeds of which will be sufficient to repay the note
payable to Computer Associates of $5,000,000. The basic and diluted earnings for
those periods have not been presented because the price of the Common Stock has
not been determined. Options to purchase 500,000 shares of the Company's Common
Stock have not been included because the effect would not be significant.
Earnings per share is calculated as follows (amounts in thousands, except per
share data):
<TABLE>
<CAPTION>
-----------------------------------------------------
THREE MONTHS
YEARS ENDED MARCH 31 ENDED JUNE 30
1996 1997 1998 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Numerator:
Net income........................................ $7,346 $4,427 $4,131 $571 $1,391
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Denominator:
Denominator for basic and diluted earnings per
share --
weighted-average shares......................... 5,250 5,250 5,288 5,250 5,400
Assumed number of shares to be issued in initial
public offering to provide net proceeds to pay
the note payable to Computer Associates......... -- -- --
--------- --------- --------- --------- ---------
Denominator for basic and diluted earnings per
share --
adjusted weighted-average shares................ 5,250 5,250
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Basic and diluted earnings per share................ $1.40 $0.84 $ $ $
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
COMPREHENSIVE INCOME
The Company has adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS 130") as of the first quarter of fiscal
1999. SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its components, however, it had no impact on the
Company's net income or stockholders' equity. Comprehensive income consists of
foreign currency translation adjustments.
NEW ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS 131"). SFAS 131 requires the Company
use the "management approach" in disclosing segment information. This statement
is effective for the Company during the year ending March 31, 1999. The adoption
of SFAS 131 is not expected to have a material impact on the Company's
consolidated financial position, results of operations or cash flows.
F-10
<PAGE>
ACCPAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1998 AND FOR THE
THREE MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
2. NOTE PAYABLE
In connection with the Contribution Agreement, the Company issued a note payable
to Computer Associates in the amount of $5,000,000. The note payable is due at
the earlier of the consummation of the initial public offering of Common Stock
or December 31, 1999 and bears interest at 9% per annum; however, no interest
accrues on the note if the note is paid in full on or prior to December 31,
1998. Pursuant to the Contribution Agreement, any amount owed to Computer
Associates for income taxes for fiscal 1998 is included in the $5.0 million
principal amount of the note.
3. INCOME TAXES
The Contribution Agreement governs the allocation of consolidated or combined
federal and state and local income tax liabilities for the periods before the
consummation of the initial public offering of Common Stock. Computer Associates
will prepare and file all consolidated federal, combined state and local income
tax or franchise tax returns required to be filed for periods during which the
Company is a member of Computer Associates consolidated group. Pursuant to the
Contribution Agreement, the Company will be required to pay to Computer
Associates its tax liability computed at 37.5% of the Company's earnings,
subject to certain modifications.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
----------------------------------
<S> <C> <C> <C>
YEARS ENDED MARCH 31
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Current................................. $4,690 $2,417 $2,235
Deferred................................ (283) 239 243
---------- ---------- ----------
$4,407 $2,656 $2,478
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The Company's tax provision is higher than the 35% statutory rate primarily due
to state and local taxes.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Deferred tax assets at
March 31, 1998 primarily relate to the allowance for doubtful accounts
(approximately $270,000) and accrued costs.
4. STOCKHOLDERS' EQUITY (DEFICIT)
DIVISION EQUITY
The average division equity balance was $3,447,000, $4,897,000, and $6,064,000
for the years ended March 31, 1996 and 1997 and the nine months ended December
31, 1997, respectively. Effective January 1, 1998, pursuant to the Contribution
Agreement, the Company issued a note payable to Computer Associates in the
amount of $5,000,000. Prior to January 1, 1998, the Company participated in
Computer Associates' cash management system, whereby cash payments related to
the Company's operating expenses were made by Computer Associates and cash
generated from the Company's operations were remitted to Computer Associates.
Net cash payments to Computer Associates were $5,897,000, $2,956,000, and
$7,288,000 in the years ended March 31, 1996, 1997, and 1998, respectively. The
Company has treated all net cash payments to Computer Associates as equity
distributions.
F-11
<PAGE>
ACCPAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1998 AND FOR THE
THREE MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
4. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
COMMON STOCK
In January 1998, the Company issued 150,000 shares of Common Stock (net of
100,000 shares repurchased by the Company in exchange for the Company's
agreement to pay the employee withholding taxes up to certain maximums related
to the issuance of the Common Stock) to certain employees for no cash
consideration. At March 31, 1998, included in accrued compensation and related
liabilities is $1,120,000 for employee withholding taxes to be paid by the
Company related to the issuance of the Common Stock to employees. The Company
recognized compensation expense of $2.8 million associated with the issuance of
the shares. The shares are not transferable until three years after the date of
issuance. On March 31, 1998, the Board of Directors approved an amendment to the
Certificate of Incorporation to increase the authorized Common Stock to
25,000,000 shares.
1998 STOCK PLAN
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock awards because, as discussed below, the
alternative fair value accounting provided for under SFAS 123 requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, when the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation is recognized.
The Company's 1998 Stock Incentive Plan (the "Plan") was approved by the Board
of Directors in January 1998. The Plan provides for the grant of incentive stock
options, nonstatutory stock options and stock purchase rights to employees. The
Company has reserved 1,500,000 shares of Common Stock for issuance under the
Plan. The Plan expires in 2008. Pursuant to the Plan, the exercise price may not
be less than the fair market value of common stock on the date of grant. Stock
options expire no later than ten years from the date of grant. In the event of
voluntary or involuntary termination of employment with the Company for any
reason, with or without cause, all unvested options are forfeited and all vested
options must be exercised within a 90-day period. Vesting provisions for options
granted under the Plan are determined by the Board of Directors. Options
generally vest ratably over a five year period. In March 1998, options to
purchase 500,000 shares of Common Stock were granted at an exercise price of
$11.20 per share. At March 31, 1998, 1,000,000 shares of Common Stock remained
available for future grants under the Plan. No options were vested at March 31,
1998.
Pro forma information regarding net income and earnings per share is required by
SFAS 123, which requires that the information be determined as if the Company
had accounted for its employee stock options granted under the fair value
method. The fair value of the options granted was estimated at the date of grant
using the minimum value method with the following weighted-average assumptions:
<TABLE>
<S> <C>
Risk-free interest rate......................................... 5.7%
Dividend yield.................................................. 0%
Volatility...................................................... 0%
Expected life of option in years................................ 5
</TABLE>
The weighted average fair value of options granted during the year ended March
31, 1998 was $2.76. For purposes of pro forma disclosures, the estimated fair
value of options is amortized to expense over the options'
F-12
<PAGE>
ACCPAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1998 AND FOR THE
THREE MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
4. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
vesting period. Because no options had vested through March 31, 1998, there is
no compensation expense for purposes of pro forma disclosures.
The minimum value method differs from other methods designed to estimate the
fair value of options, such as the Black-Scholes options pricing model, because
it does not consider the effect of expected volatility. Because the Company's
employee stock options have characteristics significantly different from those
of traded options and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options.
COMPUTER ASSOCIATES' OPTIONS
Prior to January 1, 1998, options to purchase common stock in Computer
Associates were issued to the Company's employees while the Company was a
division of Computer Associates. The following table summarizes stock option
activity under the Computer Associates plans related to options granted by
Computer Associates to the Company's employees while the Company was a division
of Computer Associates:
<TABLE>
<CAPTION>
----------------------------
<S> <C> <C>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
----------- ---------------
Balance at March 31, 1995....................................... 183,187 $5.76
Granted......................................................... 39,824 $19.33
Exercised....................................................... (28,232) $4.09
-----------
Balance at March 31, 1996....................................... 194,779 $8.78
Granted......................................................... 43,637 $34.96
Exercised....................................................... (34,146) $4.34
-----------
Balance at March 31, 1997....................................... 204,270 $15.11
Granted......................................................... 31,351 $29.41
Exercised....................................................... (53,044) $6.61
-----------
Balance at March 31, 1998....................................... 182,577 $20.04
Exercised....................................................... (24,281) $9.74
-----------
Balance at June 30, 1998........................................ 158,296 $21.62
-----------
-----------
</TABLE>
At June 30, 1998, vested options totaled 60,976. The range of exercise prices
was $2.22 to $44.75 at June 30, 1998.
F-13
<PAGE>
ACCPAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1998 AND FOR THE
THREE MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
4. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
The following table summarizes information concerning currently outstanding and
exercisable options as of June 30, 1998:
<TABLE>
<CAPTION>
-------------------------------------------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- --------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE NUMBER AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICES OUTSTANDING LIFE PRICE AND VESTED PRICE
- ------------ ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$2.22-$4.26 13,429 3.07 $3.15 13,429 $3.15
$7.59-$9.07 39,009 5.56 $8.61 24,496 $8.34
$19.33-$29.33 62,070 7.83 $24.36 12,155 $21.92
$34.95-$44.75 43,788 7.89 $34.99 10,896 $34.95
- ------------ ----------- ----- ------ ----------- ------
$2.22-$44.75 158,296 6.88 $21.62 60,976 $14.66
----------- -----------
----------- -----------
</TABLE>
The fair value of the Computer Associates options granted was estimated at the
date of grant using the Black-Scholes model with the following weighted-average
assumptions:
<TABLE>
<CAPTION>
-------------------------------
YEARS ENDED MARCH 31
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Risk-free interest rate................................................. 6.5% 6.5% 6.8%
Dividend yield.......................................................... .34% .19% .27%
Volatility.............................................................. .50 .50 .50
Expected life of option in years........................................ 6 6 6
</TABLE>
The weighted average fair value of options granted during the years ended March
31, 1996, 1997 and 1998 was $10.52, $19.29 and $16.22, respectively.
For purposes of pro forma disclosure, the estimated fair value of the options to
purchase common stock in Computer Associates is amortized to expense over the
options' vesting periods. The Company's pro forma information follows (amounts
in thousands, except per share data):
<TABLE>
<CAPTION>
-------------------------------
YEARS ENDED MARCH 31
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Pro forma net income................................................ $7,301 $4,283 $3,912
Pro forma basic earning per share................................... $1.39 $0.82
Pro forma diluted earnings per share................................ $1.39 $0.82
</TABLE>
PREFERRED STOCK
On March 31, 1998, the Board of Directors approved an amendment to the
Certificate of Incorporation to allow, upon completion of the initial public
offering, the issuance of 1,000,000 shares of Preferred Stock and to determine
the dividend rights, conversion rights, voting rights, preferences, privileges
and restrictions without any further vote or action by the stockholders.
F-14
<PAGE>
ACCPAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1998 AND FOR THE
THREE MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
5. SAVINGS PLANS
The majority of the Company's employees are eligible to participate in savings
plans sponsored by Computer Associates. The plans allow employees to contribute
a portion of their pre-tax salaries in accordance with specified guidelines. The
Company matches a certain percentage of employee contributions, up to certain
limits. Computer Associates also maintains a profit sharing plan. The Company's
expense related to the Computer Associates savings plans was $545,000, $416,000
and $386,000 in the years ended March 31, 1996, 1997 and 1998, respectively.
6. COMMITMENTS AND CONTINGENCIES
The Company leases or subleases facilities owned or leased by Computer
Associates. Rental expense for these facilities for the years ended March 31,
1996, 1997 and 1998 was $800,000, $800,000 and $1,100,000, respectively. The
Company leases its facilities from Computer Associates on a monthly basis.
In May 1998, the Company's DistribuPro subsidiary was named as a third-party
defendant in connection with a copyright and trademark infringement claim
relating to certain networking products it distributed. The matter is being
litigated in the United States District Court for the Northern District of
California. The third-party complaint alleges that DistribuPro should be liable
for any amounts for which the third-party plaintiffs are found to be liable.
While the third-party claim seeks to hold DistribuPro responsible for
potentially significant amounts, the Company does not believe the third-party
complaint has merit and will vigorously defend against it. Accordingly, the
Company does not expect the third-party claim to have a material adverse effect
on the Company's business, financial condition and results of operations.
7. EXPORT SALES
Revenue from customers outside the United States accounted for 35.6%, 44.0% and
46.9% of revenue in the years ended March 31, 1996, 1997 and 1998, respectively.
Revenue from customers in Canada accounted for 26.9%, 32.7% and 32.7% of revenue
in the years ended March 31, 1996, 1997 and 1998, respectively. No other
geographical area accounted for more than 10% of total revenue.
8. SUBSEQUENT EVENTS
LEASE COMMITMENTS
In June 1998, the Company entered into a lease for the Company's new principal
executive offices. At June 30, 1998, the lease commitments are as follows
(amount in thousands):
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31 AMOUNT
- ------------------------------------------------------------------------------------- -----------
<S> <C>
1999 (remaining nine months)......................................................... $528
2000................................................................................. 793
2001................................................................................. 793
2002................................................................................. 793
2003................................................................................. 793
Thereafter........................................................................... 263
-----------
$ 3,963
-----------
-----------
</TABLE>
F-15
<PAGE>
ACCPAC INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AT JUNE 30, 1998 AND FOR THE
THREE MONTHS ENDED JUNE 30, 1997 AND 1998 IS UNAUDITED)
8. SUBSEQUENT EVENTS (CONTINUED)
STOCK SPLIT
On August 13, 1998, the Board of Directors approved a 2000-for-1 stock split of
issued and outstanding Common Stock which took effect on August 17, 1998. All
share and per share amounts in the accompanying consolidated financial
statements have been retroactively adjusted to reflect the stock split.
F-16
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............................. $15,267
NASD fee........................................................................ 5,675
Listing fee..................................................................... *
Transfer Agent's and Registrar's fees........................................... 10,000
Printing expenses............................................................... 200,000
Legal fees and expenses......................................................... 500,000
Accounting fees and expenses.................................................... 600,000
Other professional fees and expenses............................................ 100,000
Miscellaneous................................................................... *
---------
Total..................................................................... $
---------
---------
</TABLE>
- ------------------------
* To be supplied by amendment. All fees other than the SEC registration fee,
the NASD fee and the listing fee are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of the State of Delaware (the
"Delaware Law") empowers a Delaware corporation to indemnify any persons who
are, or are threatened to be made, parties to any threatened, pending or
completed legal action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of such
corporation), by reason of the fact that such person is or was an officer or
director of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or proceeding, provided that
such officer or director acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the corporation's best interests,
and, for criminal proceedings, had no reasonable cause to believe his or her
conduct was illegal. A Delaware corporation may indemnify officers and directors
against expenses (including attorneys' fees) in connection with the defense or
settlement of an action by or in the right of the corporation under the same
conditions, except that no indemnification is permitted without judicial
approval if the officer or director is adjudged to be liable to the corporation.
Where an officer or director is successful on the merits or otherwise in the
defense of any action referred to above, the corporation must indemnify him or
her against the expenses which such officer or director actually and reasonably
incurred.
In accordance with the Delaware Law, the Company's Amended and Restated
Certificate of Incorporation (the "Certificate of Incorporation") contains a
provision to limit the personal liability of the directors of the Company for
violations of their fiduciary duty. This provision eliminates each director's
liability to the Company or its stockholders for monetary damages except (i) for
any breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware Law providing for liability of directors for unlawful payment of
dividends or unlawful stock purchases or redemptions or (iv) for any transaction
from which a director derived an improper personal benefit. The effect of this
provision will be to eliminate the personal liability of directors for monetary
damages for actions involving a breach of their fiduciary duty of care,
including any such actions involving gross negligence, except in the situations
described above.
Pursuant to the underwriting agreement that will be filed as an exhibits to this
registration statement relating to underwritten Offering of securities, the
underwriters parties thereto have agreed to indemnify each officer and director
of the Company and each person, if any, who controls the Company within the
meaning of the Securities Act of 1933, against certain liabilities, including
liabilities under said Act.
The Certificate of Incorporation provides for indemnification of the officers
and directors of the Company to the full extent permitted by applicable law.
II-1
<PAGE>
The Company intends to enter into a director and officer insurance policy that
will provide for reimbursement or payments for losses arising from claims
against covered directors and officers.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Within the past three years, the Company has issued and sold the following
unregistered securities:
(i) On January 7, 1998, Computer Associates contributed and transferred to
the Company the assets constituting the ACCPAC division in exchange for the
assumption of the liabilities associated with such assets, 2,625 shares
(5,250,000 adjusted for the 2,000-for-1 split effective August 17, 1998) of
its Common Stock and a note in the principal amount of $5.0 million.
(ii) In January 1998, the Company granted and issued to certain of its
executive officers and key employees an aggregate of 75 shares (150,000
shares on a post-split basis) of restricted Common Stock (net of 50 shares
repurchased for tax withholding purposes). In connection with this issuance,
the Company incurred a one-time charge of $2.8 million in the fourth quarter
of fiscal 1998, which the Company's Board of Directors determined was the
aggregate fair market value of the restricted shares on the date of grant.
(iii) As of March 31, 1998, the Company issued to certain of its executive
officers and key employees options to purchase an aggregate of 250 shares
(500,000 shares on a post-split basis) of its Common Stock under the 1998
Stock Incentive Plan at an exercise price per share of $22,400 ($11.20 on a
post-split basis).
The Company believes that these transactions described above were exempt from
registration under Section 4(2) of the Securities Act of 1933 because in each
case the subject securities were sold to a single sophisticated investor who was
purchasing for investment without a view to further distribution.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO.
- -------------
<S> <C> <C>
1.1 -- Form of Underwriting Agreement (2)
3.1 -- Restated Certificate of Incorporation of the Company (2)
3.2 -- Amended and Restated By-Laws of the Company (2)
4.1 -- Specimen Certificate of Common Stock of the Company (2)
5.1 -- Opinion and Consent of Howard, Smith & Levin LLP (3)
10.1 -- Contribution Agreement between the Company and Computer Associates dated as of January 7, 1998 and
related Promissory Note (2)
10.2 -- Form of Registration Rights Agreement between the Company and Computer Associates (2)
10.3 -- Form of Real Estate Agreement between the Company and Computer Associates (2)
10.4 -- ACCPAC 1998 Stock Incentive Plan (2)
10.5 -- Office Lease, dated June 5, 1998, between Patrician Associates, Inc. and the Company (2)
21.1 -- List of Subsidiaries (2)
23.1 -- Consent of Ernst & Young LLP
23.2 -- Consent of Howard, Smith & Levin LLP (included in 5.1)
24.1 -- Power of Attorney(1)
27.1 -- Financial Data Schedule (for SEC use only) (2)
</TABLE>
- ------------------------
(1) Previously filed with this Registration Statement on June 11, 1998.
(2) Filed herewith.
(3) To be filed by amendment.
II-2
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts
Schedules not listed above have been ommitted because the information required
to be set forth therein is not applicable or is shown in the Consolidated
Financial Statements or Notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned hereby undertakes that:
A. The undersigned Company hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters
to permit the prompt delivery to each purchaser.
B. 1. For purposes of determining any liability under the Securities Act of
1933, 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) or (4) or
497(h) under the Securities Act of 1933 shall be deemed to be part of this
registration statement as of the time it was declared effective.
2. 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.
C. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons
of the Company pursuant to the provisions described in Item 14 hereof, or
otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company 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 Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company has duly
caused this Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Santa
Clara, State of California, on the 20th day of August 1998.
ACCPAC INTERNATIONAL, INC.
By: /s/ DONNAT LETTMAN
-----------------------------------------
Name: Donnat Lettman
Title: VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND TREASURER
Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1
to the Registration Statement has been signed by the following persons and
Donnat Lettman as Attorney-in-Fact in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
Chairman, President, Chief
* Executive Officer
- ------------------------------ (Principal Executive August 20, 1998
Frederick S. Wysocki Officer) and Director
Vice President, Chief
/s/ DONNAT LETTMAN Financial Officer and
- ------------------------------ Treasurer (Principal August 20, 1998
Donnat Lettman Financial and Accounting
Officer)
*
- ------------------------------ Director August 20, 1998
Charles P. McWade
*
- ------------------------------ Director August 20, 1998
Robert H. Toth
*By: /s/ DONNAT LETTMAN
-------------------------
Donnat Lettman
ATTORNEY-IN-FACT
II-4
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We have audited the consolidated financial statements of ACCPAC INTERNATIONAL,
INC. as of March 31, 1997 and 1998 (except for Note 8, as to which the date is
August 17, 1998), and for each of the three years in the period ended March 31,
1998, and have issued our report thereon dated June 5, 1998 (included elsewhere
in this Registration Statement.) Our audits also included the financial
statement schedule listed in Item 16(b) of this Registration Statement. This
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
San Jose, California
June 5, 1998
S-1
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DOLLARS IN THOUSANDS OF YEAR EXPENSES DEDUCTIONS(1) PERIOD
----------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
March 31, 1996............................................... $1,260 $849 $412 $1,697
March 31, 1997............................................... 1,697 973 1,592 1,078
March 31, 1998............................................... 1,078 729 1,096 711
June 30, 1998 (unaudited).................................... 711 150 271 590
</TABLE>
- ------------------------
(1) Amounts written off net of recoveries.
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO.
- -----------
<S> <C>
1.1 --Form of Underwriting Agreement (2)
3.1 --Restated Certificate of Incorporation of the Company (2)
3.2 --Amended and Restated By-Laws of the Company (2)
4.1 --Specimen Certificate of Common Stock of the Company (2)
5.1 --Opinion and Consent of Howard, Smith & Levin LLP (3)
10.1 --Contribution Agreement between the Company and Computer Associates dated as of January 7, 1998 and related
Promissory Note (2)
10.2 --Form of Registration Rights Agreement between the Company and Computer Associates (2)
10.3 --Form of Real Estate Agreement between the Company and Computer Associates (2)
10.4 --ACCPAC 1998 Stock Incentive Plan (2)
10.5 --Office Lease, dated June 5, 1998, between Patrician Associates, Inc. and the Company (2)
21.1 --List of Subsidiaries (2)
23.1 --Consent of Ernst & Young LLP
23.2 --Consent of Howard, Smith & Levin LLP (included in 5.1)
24.1 --Power of Attorney (1)
27.1 --Financial Data Schedule (for SEC use only) (2)
</TABLE>
- ------------------------
(1) Previously filed with this Registration Statement on June 11, 1998.
(2) Filed herewith.
(3) To be filed by amendment.
<PAGE>
Exhibit 1.1
ACCPAC INTERNATIONAL, INC.
____ Shares of Common Stock
Underwriting Agreement
__________, 1998
J.P. MORGAN SECURITIES INC.
SG COWEN SECURITIES CORPORATION
As Representatives of several Underwriters
listed in Schedule I hereto
c/o J.P. Morgan Securities Inc.
60 Wall Street
New York, New York 10260
Ladies and Gentlemen:
ACCPAC INTERNATIONAL, INC., a Delaware corporation (the
"Company") and a subsidiary of Computer Associates International, Inc., a
Delaware corporation ("Computer Associates"), proposes to issue and sell to the
several Underwriters listed on Schedule I hereto (the "Underwriters"), for whom
you are acting as representatives (the "Representatives"), an aggregate of _____
shares (the "Underwritten Shares") of common stock, par value $.01 per share, of
the Company (the "Common Stock") and for the sole purpose of covering
over-allotments in connection with the sale of Underwritten Shares, at the
election of the Underwriters, up to _______ additional shares of Common Stock
(the "Option Shares" and, together with the Underwritten Shares, the "Shares").
The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Securities Act"), a registration
statement on Form S-1 (File No. 333-56657), including a prospectus, relating to
the Shares. The registration statement as amended at the time when it became or
shall become effective including, in each case, information (if any) deemed to
be part of the registration statement at the time of effectiveness pursuant to
Rule 430A under the Securities Act, is referred to in this Agreement as the
"Registration Statement," and the prospectus in the form first used to confirm
sales of Shares is referred to in this Agreement as the "Prospectus." If the
Company has filed an abbreviated registration statement pursuant to Rule 462(b)
under the Securities Act (the "Rule 462 Registration Statement"), then any
reference herein to the term "Registration Statement" shall be deemed to include
such Rule 462 Registration Statement.
<PAGE>
-2-
1. The Company agrees to issue and sell the Underwritten
Shares to the several Underwriters as hereinafter provided, and each
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees to purchase,
severally and not jointly, from the Company the respective number of
Underwritten Shares set forth opposite such Underwriter's name on Schedule I
hereto at a purchase price per share of $_____ (the "Purchase Price").
In addition, the Company agrees to sell the Option Shares to
the several Underwriters and the Underwriters shall have the option to purchase
at their election up to _______ Option Shares for the sole purpose of covering
over-allotments (if any) in connection with the sale of the Underwritten Shares.
The Underwriters, on the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, shall have the
option to purchase, severally and not jointly, from the Company at the Purchase
Price, that portion of the number of Option Shares as to which such election
shall have been exercised (to be adjusted by you so as to eliminate fractional
shares) determined by multiplying such number of Option Shares by a fraction the
numerator of which is the maximum number of Option Shares which such Underwriter
is entitled to purchase and the denominator of which is the maximum number of
Option Shares that all of the Underwriters are entitled to purchase hereunder,
for the sole purpose of covering over-allotments (if any) in connection with the
sale of the Underwritten Shares by the several Underwriters. For purposes of the
foregoing, if any Option Shares are to be purchased, each Underwriter, severally
and not jointly, agrees to purchase from the Company the number of Option Shares
which bears the same ratio to the aggregate number of Option Shares being
purchased from the Company by the several Underwriters as the number of
Underwritten Shares set forth opposite the name of such Underwriter on Schedule
I hereto (or such number increased as set forth in Section 9 hereof) bears to
the aggregate number of Underwritten Shares being purchased from the Company by
the several Underwriters.
The Underwriters may exercise the option to purchase the
Option Shares at any time (but not more than once) on or before the thirtieth
day following the date of this Agreement, by written notice from the
Representatives to the Company. Such notice shall set forth the aggregate number
of Option Shares as to which the option is being exercised and the date and time
when the Option Shares are to be delivered and paid for which may be the same
date and time as the Closing Date (as hereinafter defined) but shall not be
earlier than the Closing Date nor later than the tenth full Business Day (as
hereinafter defined) after the date of such notice (unless such time and date
are postponed in accordance with the provisions of Section 9 hereof). Any such
notice shall be given at least two Business Days prior to the date and time of
delivery specified therein.
2. The Company understands that the Underwriters intend (i) to
make a public offering of the Shares as soon after (A) the Registration
Statement has become effec-
<PAGE>
-3-
tive and (B) the parties hereto have executed and delivered this Agreement, as
in the judgment of the Representatives is advisable and (ii) initially to offer
the Shares upon the terms set forth in the Prospectus.
3. Payment for the Shares shall be made by wire transfer in
immediately available funds to the account specified to the Representatives by
the Company, in the case of the Underwritten Shares, on ________, 1998, or at
such other time on the same or such other date, not later than the fifth
Business Day thereafter, as the Representatives and the Company may agree upon
in writing or, in the case of the Option Shares, on the date and time specified
by the Representatives in the written notice of the Underwriters' election to
purchase such Option Shares. The time and date of such payment for the
Underwritten Shares are referred to herein as the "Closing Date" and the time
and date for such payment for the Option Shares, if other than the Closing Date,
are herein referred to as the "Additional Closing Date." As used herein, the
term "Business Day" means any day other than a day on which banks are permitted
or required to be closed in New York City.
Payment for the Shares to be purchased on the Closing Date or
the Additional Closing Date, as the case may be, shall be made against delivery
to the Representatives for the respective accounts of the several Underwriters
of the Shares to be purchased on such date registered in such names and in such
denominations as the Representatives shall request in writing not later than two
full Business Days prior to the Closing Date or the Additional Closing Date, as
the case may be, with any transfer taxes payable in connection with the transfer
to the Underwriters of the Shares duly paid by the Company. The certificates for
the Shares will be made available for inspection and packaging by the
Representatives at the office of J.P. Morgan Securities Inc. set forth above not
later than 1:00 P.M., New York City time, on the Business Day prior to the
Closing Date or the Additional Closing Date, as the case may be.
4A. The Company represents and warrants to each Underwriter
that:
(a) no order preventing or suspending the use of any
preliminary prospectus has been issued by the Commission, and each
preliminary prospectus circulated to the public filed as part of the
Registration Statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Securities Act,
complied when so filed in all material respects with the Securities
Act, and did not contain an 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; provided that this representation and
warranty shall not apply to any statements or omissions made in
reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by such Underwriter
through the Representatives expressly for use therein;
<PAGE>
-4-
(b) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceeding for that
purpose has been instituted or, to the knowledge of the Company,
threatened by the Commission; and the Registration Statement and
Prospectus (as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) comply, or will
comply, as the case may be, in all material respects with the
Securities Act and do not and will not, as of the applicable effective
date as to the Registration Statement and any amendment thereto and as
of the date of the Prospectus and any amendment or supplement thereto,
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 not misleading, and the Prospectus, as amended or
supplemented, if applicable, at the Closing Date or Additional Closing
Date, as the case may be, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; provided that this representation and warranty
shall not apply to statements or omissions in the Registration
Statement or the Prospectus made in reliance upon and in conformity
with information relating to any Underwriter furnished to the Company
in writing by such Underwriter through the Representatives expressly
for use therein;
(c) the consolidated financial statements, and the related
notes thereto, included in the Registration Statement and the
Prospectus, present fairly in all material respects the consolidated
financial position of the Company and its consolidated subsidiaries as
of the dates indicated and the results of their operations and changes
in their consolidated cash flows for the periods specified; said
financial statements have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis, and the
supporting schedules included in the Registration Statement present
fairly the information required to be stated therein;
(d) since the respective dates as of which information is
given in the Registration Statement and the Prospectus, there has not
been any change in the capital stock or long-term debt of the Company
or any of its subsidiaries, or any material adverse change, or any
development involving a prospective material adverse change, in or
affecting the general affairs, business, prospects, management,
financial position, stockholders' equity or results of operations of
the Company and its subsidiaries, taken as a whole (a "Material Adverse
Change"), otherwise than as set forth or contemplated in the
Prospectus; except as set forth or contemplated in the Prospectus,
since the respective dates to which information is given in the
Registration Statement and the Prospectus, neither the Company nor any
of its subsidiaries has entered into any transaction or agreement
(whether or not in the ordi-
<PAGE>
-5-
nary course of business) material to the Company and its subsidiaries,
taken as a whole;
(e) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, with corporate power and authority to
own its properties and conduct its business as described in the
Prospectus, and has been duly qualified as a foreign corporation for
the transaction of business and is in good standing under the laws of
each other jurisdiction in which it owns or leases properties, or
conducts any business, so as to require such qualification, other than
where the failure to be so qualified or in good standing would not have
a material adverse effect on the general affairs, business, prospects,
management, financial position, stockholders' equity or results of
operation of the Company and its subsidiaries, taken as a whole (a
"Material Adverse Effect");
(f) each of the Company's subsidiaries has been duly
incorporated and is validly existing as a corporation under the laws of
its jurisdiction of incorporation, with corporate power and authority
to own its properties and conduct its business as described in the
Prospectus, and has been duly qualified as a foreign corporation for
the transaction of business and is in good standing under the laws of
each jurisdiction in which it owns or leases properties, or conducts
any business, so as to require such qualification, other than where the
failure to be so qualified or in good standing would not have a
Material Adverse Effect; all the outstanding shares of capital stock of
each subsidiary of the Company have been duly authorized and validly
issued, are fully-paid and non-assessable, and are owned by the
Company, directly or indirectly, free and clear of all liens,
encumbrances, security interests and claims; DistribuPro, Inc., a
California corporation ("DistribuPro"), is the only subsidiary of the
Company that satisfies the criteria for a "significant subsidiary" set
forth in Rule 1.02(w) of Regulation S-X under the Securities Act;
(g) this Agreement has been duly authorized, executed and
delivered by the Company;
(h) the Company has an authorized capitalization as set forth
in the Prospectus and such authorized capital stock conforms as to
legal matters to the description thereof set forth in the Prospectus,
and all of the outstanding shares of capital stock of the Company have
been duly authorized and validly issued, are fully-paid and
non-assessable and are not subject to any pre-emptive or similar
rights; and, except as described in or expressly contemplated by the
Prospectus, there are no outstanding rights (including, without
limitation, pre-emptive rights), warrants or options to acquire, or
instruments convertible into or exchangeable for, any shares of capital
stock or other equity interest in the Company or any of its sub-
<PAGE>
-6-
sidiaries, or any contract, commitment, agreement, understanding or
arrangement of any kind relating to the issuance of any capital stock
of the Company or any such subsidiary, any such convertible or
exchangeable securities or any such rights, warrants or options;
except for (i) an aggregate of 150,000 shares of Common Stock (net of
100,000 shares repurchased for tax withholding purposes) (the
"Restricted Common Stock") issued to certain executive officers and
employees of the Company in January 1998 (the "Restricted Stock
Grant") and (ii) the Shares, all issued shares of capital stock of the
Company are owned directly by Computer Associates;
(i) the Shares have been duly authorized, and, when issued and
delivered to and paid for by the Underwriters in accordance with the
terms of this Agreement, will be duly issued and will be fully paid and
non-assessable and will conform to the descriptions thereof in the
Prospectus; the issuance of the Shares is not subject to any preemptive
or similar rights;
(j) neither the Company nor any of its subsidiaries is, or
with the giving of notice or lapse of time or both would be, in
violation of or in default under its Amended and Restated Certificate
of Incorporation (the "Certificate of Incorporation") or its Amended
and Restated By-Laws (the "By-Laws"), in the case of the Company, or
its respective certificate or articles of incorporation or
organization, in the case of its subsidiaries, or any indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any of its subsidiaries is a party
or by which it or any of them or any of their respective properties is
bound, except for violations and defaults which individually or in the
aggregate could not reasonably be expected to have a Material Adverse
Effect; the issue and sale by the Company of the Shares and the
execution of this Agreement and the performance by the Company of its
obligations under this Agreement and the consummation of the
transactions contemplated herein will not in any material respect
conflict with or result in a breach of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other 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 is bound or to which any of the property or
assets of the Company or any of its subsidiaries is subject, nor will
any such action result in any violation of the
provisions of the Certificate of Incorporation or the By-Laws of the
Company nor will any such action result in any violation in any
material respect of any applicable law or statute or any order, rule or
regulation of any court or governmental agency or body having
jurisdiction over the Company, its subsidiaries or any of their
respective properties; no consent, approval, authorization, order,
license, registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of the
Shares to be sold by the Company hereunder or the consummation by the
Company of the trans-
<PAGE>
-7-
actions contemplated by this Agreement, except such consents,
approvals, authorizations, orders, licenses, registrations or
qualifications as have been obtained or made under the Securities Act
and the Exchange Act (as hereinafter defined) and as may be required
under state securities or Blue Sky laws in connection with the purchase
and distribution of the Shares by the Underwriters;
(k) other than as set forth or contemplated in the Prospectus,
there are no legal or governmental investigations, actions, suits or
proceedings pending or, to the knowledge of the Company, threatened
against or affecting the Company or any of its subsidiaries or any of
their respective properties or to which the Company or any of its
subsidiaries is or may be a party or to which any property of the
Company or any of its subsidiaries is or may be the subject which, if
determined adversely to the Company or any of its subsidiaries, could
individually or in the aggregate have, or reasonably be expected to
have, a Material Adverse Effect, and, to the best of the Company's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others; and there are no
statutes, regulations, contracts or other documents that are required
to be described in the Registration Statement or Prospectus or to be
filed as exhibits to the Registration Statement that are not described
or filed as required;
(l) the Company and its subsidiaries have good and marketable
title in fee simple to all items of real property and good and
marketable title to all personal property owned by them, in each case
free and clear of all liens, encumbrances and defects, except liens for
taxes not yet due and payable and except such as are described or
referred to in the Prospectus or such as do not materially affect the
value of such property and do not interfere with the use made or
proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under lease by
the Company and its subsidiaries are held by them under valid, existing
and enforceable leases with such exceptions as are not material and do
not interfere with the use made or proposed to be made of such property
and buildings by the Company or its subsidiaries;
(m) no relationship, direct or indirect, exists between or
among the Company or any or its subsidiaries on the one hand, and the
directors, officers, stockholders, customers or suppliers of the
Company or any of its subsidiaries on the other hand, which is required
by the Securities Act to be described in the Registration Statement and
the Prospectus which is not so described;
(n) no person has the right to require the Company to register
any securities for offering and sale under the Securities Act by reason
of the filing of the Registration Statement with the Commission or the
issue and sale of the Shares;
<PAGE>
-8-
(o) the Company is not and, after giving effect to the
offering and sale of the Shares, will not be 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 (the
"Investment Company Act");
(p) Ernst & Young LLP ("Ernst & Young"), who have certified
certain financial statements of the Company and its subsidiaries, are
independent public accountants as required by the Securities Act;
(q) the Company and its subsidiaries have filed all federal,
state, local and foreign tax returns which have been required to be
filed by them and have paid all taxes shown thereon and all assessments
received by them or any of them to the extent that such taxes have
become due and are not being contested in good faith; except as
disclosed in the Registration Statement and the Prospectus, there is no
tax deficiency which has been or might reasonably be expected to be
asserted or threatened against the Company or any subsidiary;
(r) the Company has not taken nor will it take, directly or
indirectly, any action designed to, or that might be reasonably
expected to, cause or result in stabilization or manipulation of the
price of the Common Stock;
(s) except as set forth in the Prospectus, each of the Company
and its subsidiaries owns, possesses or has obtained all licenses,
permits, certificates, consents, orders, approvals and other
authorizations from, and has made all declarations and filings with,
all federal, state, local and other governmental authorities (including
foreign regulatory agencies), all self-regulatory organizations and all
courts and other tribunals, domestic or foreign, necessary to own or
lease, as the case may be, and to operate its properties and to carry
on its business as conducted as of the date hereof, except to the
extent that the failure to so own, possess, obtain, declare or file
would not, individually or in the aggregate, have a Material Adverse
Effect, and neither the Company nor any such subsidiary has received
any actual notice of any proceeding relating to revocation or
modification of any such license, permit, certificate, consent, order,
approval or other authorization; each of the Company and its
subsidiaries is in compliance with all laws and regulations relating to
the conduct of its business as conducted as of the date hereof, except
to the extent that the failure to so comply would not, individually or
in the aggregate, have a Material Adverse Effect;
(t) the statistical and market-related data included in the
Registration Statement and the Prospectus are based on or derived from
sources which are believed by the Company to be reliable;
<PAGE>
-9-
(u) except for compensation to be received by the Underwriters
under this Agreement, the Company does not know of any outstanding
claims for services, either in the nature of a finder's fee or
origination fee, with respect to any of the transactions contemplated
hereby;
(v) the Company owns, is licensed to use or otherwise
possesses adequate rights to use the patents, patent rights, licenses,
inventions, trademarks, service marks, trade names, copyrights and
know-how, including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures (collectively, the "Intellectual Property"), reasonably
necessary to carry on the business conducted by it, except to the
extent that the failure to own, license to use or otherwise possess
adequate rights to use such Intellectual property would not have a
Material Adverse Effect, and, except as described in the Registration
Statement and the Prospectus, the Company has no knowledge of
infringement of or conflict with asserted rights of others with respect
to any Intellectual Property, except for notices the content of which
if accurate would not have a Material Adverse Effect;
(w) there are no existing or, to the best knowledge of the
Company, threatened labor disputes with, or slowdowns, strikes or work
stoppages involving the employees of the Company or any of its
subsidiaries which are likely to have a Material Adverse Effect;
(x) the Company and its subsidiaries (i) are in compliance
with any and all applicable foreign, federal, state and local 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"), (ii) have received all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are
in compliance with all terms and conditions of any such permit, license
or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a
Material Adverse Effect; and
(y) each employee benefit plan, within the meaning of Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), that is maintained, administered or contributed to by the
Company or any of its affiliates for employees or former employees of
the Company and its affiliates has been maintained in compliance with
its terms and the requirements of any applicable statutes, orders,
rules and regulations, including but not limited to ERISA and the
Internal Revenue Code of 1986, as amended ("Code"), except where such
noncompli-
<PAGE>
-10-
ance would not, individually or in the aggregate, have a Material
Adverse Effect. No prohibited transaction, within the meaning of
Section 406 of ERISA or Section 4975 of the Code has occurred with
respect to any such plan excluding transactions effected pursuant to a
statutory or administrative exemption. For each such plan which is
subject to the funding rules of Section 412 of the Code or Section 302
of ERISA no "accumulated funding deficiency" as defined in Section 412
of the Code has been incurred, whether or not waived, and the fair
market value of the assets of each such plan (excluding for these
purposes accrued but unpaid contributions) exceeded the present value
of all benefits accrued under such plan determined using reasonable
actuarial assumptions.
4B. Computer Associates represents and warrants to each
Underwriter that:
(a) Computer Associates has been duly incorporated and is
validly existing and in good standing under the laws of the State of
Delaware;
(b) except for the Restricted Common Stock and the Shares, all
issued shares of capital stock of the Company are owned directly by
Computer Associates, free and clear of all liens, encumbrances,
equities or claims;
(c) this Agreement has been duly authorized, executed and
delivered on behalf of Computer Associates; and
(d) the issue and sale of the Shares by the Company hereunder,
the compliance by the Company and Computer Associates with all of the
provisions of this Agreement and the consummation of the transactions
contemplated herein will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under (in each case material to Computer Associates and its
subsidiaries, considered as a whole), any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which
Computer Associates is a party or by which Computer Associates is bound
or to which any of the property or assets of Computer Associates is
subject, nor will such action result in any violation of the provisions
of the certificate of incorporation or by-laws of Computer Associates,
nor will such action result in any violation (in each case material to
Computer Associates and its subsidiaries, considered as a whole) of any
applicable statute or any applicable order, rule or regulation of any
court or governmental agency or body having jurisdiction over Computer
Associates or any of its properties; no consent, approval,
authorization, order, registration or qualification of or with any such
court or governmental agency or body is required for the issue and sale
of the Shares or the consummation by the Company and Computer
Associates of the transactions contemplated by this Agreement, except
such consents, approvals, authori-
<PAGE>
-11-
zations, orders, licenses, registrations or qualifications as have
been obtained or made under the Securities Act or the Exchange Act and
as may be required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Shares by the
Underwriters.
5A. The Company covenants and agrees with each of the several
Underwriters as follows:
(a) to use its reasonable best efforts to cause the
Registration Statement to become effective (if the Registration
Statement shall not have been declared effective prior to the execution
hereof) at the earliest possible time and, if required, to file the
final Prospectus with the Commission within the time periods specified
by Rule 424(b) and Rule 430A under the Securities Act and to furnish
copies of the Prospectus to the Underwriters in New York City prior to
10:00 a.m., New York City time, on the Business Day next succeeding the
date of this Agreement in such quantities as the Representatives may
reasonably request;
(b) to deliver, at the expense of the Company, to the
Representatives four signed copies of the Registration Statement (as
originally filed) and each amendment thereto, in each case including
exhibits, and to each other Underwriter a conformed copy of the
Registration Statement (as originally filed) and each amendment
thereto, in each case without exhibits and, during the period mentioned
in paragraph (e) below, to each of the Underwriters as many copies of
the Prospectus (including all amendments and supplements thereto) as
the Representatives may reasonably request;
(c) before filing any amendment or supplement to the
Registration Statement or the Prospectus, whether before or after the
time the Registration Statement becomes effective, to furnish to the
Representatives a copy of the proposed amendment or supplement for
review and not to file any such proposed amendment or supplement to
which the Representatives reasonably object;
(d) to advise the Representatives promptly, and to confirm
such advice in writing (i) when the Registration Statement has become
effective (if such Registration Statement has not already become
effective), (ii) when any amendment to the Registration Statement has
been filed or becomes effective, (iii) when any supplement to the
Prospectus or any amended Prospectus has been filed and to furnish the
Representatives with copies thereof, (iv) of any request by the
Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for any additional
information, (v) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of any
order preventing or suspending the use of any preliminary prospectus or
the
<PAGE>
-12-
Prospectus or the initiation or threatening of any proceeding for that
purpose, (vi) of the occurrence of any event, within the period
referenced in paragraph (e) below, as a result of which the Prospectus
as then amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances when
the Prospectus is delivered to a purchaser, not misleading, and (vii)
of the receipt by the Company of any notification with respect to any
suspension of the qualification of the Shares for offer and sale in
any jurisdiction or the initiation or threatening of any proceeding
for such purpose; and to use its reasonable best efforts to prevent
the issuance of any such stop order, or of any order preventing or
suspending the use of any preliminary prospectus or the Prospectus, or
of any order suspending any such qualification of the Shares, or
notification of any such order thereof and, if issued, to obtain as
soon as possible the withdrawal thereof;
(e) if, during such period of time after the first date of the
public offering of the Shares as, in the opinion of counsel for the
Underwriters, a prospectus relating to the Shares is required by law to
be delivered in connection with sales by the Underwriters or any
dealer, any event shall occur as a result of which it is necessary to
amend or supplement the Prospectus in order to make the statements
therein, in light of the circumstances when the Prospectus is delivered
to a purchaser, not misleading, or if it is necessary to amend or
supplement the Prospectus to comply with law, forthwith to prepare and
furnish, at the expense of the Company, to the Underwriters and to the
dealers (whose names and addresses the Representatives will furnish to
the Company) to which Shares may have been sold by the Representatives
on behalf of the Underwriters and to any other dealers upon request,
such amendments or supplements to the Prospectus as may be necessary so
that the statements in the Prospectus as so amended or supplemented
will not, in the light of the circumstances when the Prospectus is
delivered to a purchaser, be misleading or so that the Prospectus will
comply with law;
(f) to endeavor to qualify the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as the
Representatives shall reasonably request and to continue such
qualification in effect so long as reasonably required for distribution
of the Shares; provided that in connection therewith the Company shall
not be required to qualify as a foreign corporation or file a general
consent to service of process in any jurisdiction;
(g) to make generally available to its security holders and to
the Representatives as soon as practicable an earnings statement
covering a period of at least twelve months beginning with the first
fiscal quarter of the Company occurring after the effective date of the
Registration Statement, which shall satisfy the provisions of
<PAGE>
-13-
Section 11(a) of the Securities Act and Rule 158 of the Commission
promulgated thereunder;
(h) during the period of five years after the date of this
Agreement, to furnish to the Representatives copies of all reports or
other communications (financial or other) furnished to holders of the
Shares, and copies of any reports and financial statements furnished to
or filed with the Commission, the National Association of Securities
Dealers, Inc. ("NASD") or any national securities exchange;
(i) for a period of 180 days after the date of the Prospectus,
not to, directly or indirectly (i) offer, sell, offer to sell, contract
to sell or otherwise dispose of any shares of Common Stock or
securities convertible or exchangeable into Common Stock or register
for sale under the Securities Act any Common Stock, (ii) enter into any
swap or other agreement that transfers, in whole or in part, any of the
economic consequences of ownership of the Common Stock or (iii) permit
the sale, assignment, pledge or other transfer of Restricted Common
Stock by the holders thereof, whether any such transaction described in
clause (i), (ii) or (iii) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise without the prior
written consent of J.P. Morgan Securities Inc., other than the Shares
to be sold by the Company hereunder, except the Company may issue, and
grant options to purchase, shares of Common Stock under its 1998 Stock
Incentive Plan;
(j) to use the net proceeds received by the Company from the
sale of the Shares by the Company pursuant to this Agreement in the
manner specified in the Prospectus under caption "Use of Proceeds";
(k) to use its best efforts to list for quotation the Shares
on the [ ];
(l) whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or
cause to be paid all costs and expenses incident to the performance of
its obligations hereunder, including without limiting the generality of
the foregoing, all costs and expenses (i) incident to the preparation,
registration, transfer, execution and delivery of the Shares, (ii)
incident to the preparation, printing and filing under the Securities
Act of the Registration Statement, the Prospectus and any preliminary
prospectus (including in each case all exhibits, amendments and
supplements thereto), (iii) incurred in connection with the
registration or qualification of the Shares under the laws of such
jurisdictions as the Representatives may designate (including
reasonable fees of counsel for the Underwriters and its disbursements),
(iv) in connection with the listing of the Shares on the [ ], (v)
related to the filing with, and clearance of the of-
<PAGE>
-14-
fering by, the NASD, (vi) in connection with the printing (including
word processing and duplication costs) and delivery of this Agreement,
the Preliminary and Supplemental Blue Sky Memoranda and the furnishing
to the Underwriters and dealers of copies of the Registration
Statement and the Prospectus, including mailing and shipping, as
herein provided, (vii) any expenses incurred by the Company in
connection with a "road show" presentation to potential investors,
(viii) the cost of preparing stock certificates and (ix) the cost and
charges of any transfer agent and any registrar.
5B. Computer Associates covenants and agrees with each of the
several Underwriters, for a period of 180 days after the date of this
Prospectus, not to, directly or indirectly, (i) offer, sell, offer to sell,
contract to sell or otherwise dispose of any shares of Common Stock or
securities convertible or exchangeable into Common Stock or cause to be
registered for sale under the Securities Act any Common Stock or (ii) enter into
any swap or other agreement that transfers, in whole or in part, any of the
economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise without the prior
written consent of J.P. Morgan Securities Inc.
6. The several obligations of the Underwriters hereunder to
purchase the Shares on the Closing Date or the Additional Closing Date, as the
case may be, are subject to the performance by each of the Company and Computer
Associates of its obligations hereunder and to the following additional
conditions:
(a) the Registration Statement shall have become effective (or
if a post-effective amendment is required to be filed under the
Securities Act, such post-effective amendment shall have become
effective) not later than 5:00 P.M., New York City time, on the date
hereof; no stop order suspending the effectiveness of the Registration
Statement or any post-effective amendment shall be in effect, and no
proceedings for such purpose shall be pending before or threatened by
the Commission; the Prospectus shall have been filed with the
Commission pursuant to Rule 424(b) within the applicable time period
prescribed for such filing by the rules and regulations under the
Securities Act and in accordance with Section 5(a) hereof; all requests
for additional information by the Commission shall have been complied
with to the reasonable satisfaction of the Representatives;
(b) the respective representations and warranties of the
Company contained herein shall be true and correct on and as of the
Closing Date or the Additional Closing Date, as the case may be, as if
made on and as of the Closing Date or the Additional Closing Date, as
the case may be, and the Company shall have complied with all
agreements and all conditions on its part to be performed or satisfied
<PAGE>
-15-
hereunder at or prior to the Closing Date or the Additional Closing
Date, as the case may be;
(c) the respective representations and warranties of Computer
Associates contained herein shall be true and correct on and as of the
Closing Date or the Additional Closing Date, as the case may be, as if
made on and as of the Closing Date or the Additional Closing Date, as
the case may be, and Computer Associates shall have complied with all
agreements and all conditions on its part to be performed or satisfied
hereunder at or prior to the Closing Date or the Additional Closing
Date, as the case may be;
(d) since the respective dates as of which information is
given in the Prospectus there shall not have been any change in the
capital stock or long-term debt of the Company or any of its
subsidiaries or any Material Adverse Change, or any development
involving a prospective Material Adverse Change, otherwise than as set
forth or contemplated in the Prospectus, the effect of which in the
judgment of the Representatives makes it impracticable or inadvisable
to proceed with the public offering or the delivery of the Shares on
the Closing Date or the Additional Closing Date, as the case may be, on
the terms and in the manner contemplated in the Prospectus; neither the
Company nor any of its subsidiaries has sustained since the date of the
latest audited financial statements included in the Prospectus any
material loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus;
(e) the Representatives shall have received on and as of the
Closing Date or the Additional Closing Date, as the case may be, a
certificate of an executive officer of the Company, with specific
knowledge about the Company's financial matters, satisfactory to the
Representatives to the effect set forth in subsections (a), (b) and (d)
(with respect to the respective representations, warranties, agreements
and conditions of the Company) of this Section and to the further
effect that there has not occurred any Material Adverse Change, or any
development involving a prospective Material Adverse Change from that
set forth or contemplated in the Registration Statement;
(f) the Representatives shall have received on and as of the
Closing Date or the Additional Closing Date, as the case may be, a
certificate of an executive officer of Computer Associates, with
specific knowledge about Computer Associates financial matters,
satisfactory to the Representatives to the effect set forth in
subsection (c) (with respect to the respective representations,
warranties, agreements and conditions of Computer Associates) of this
Section;
<PAGE>
-16-
(g) Howard, Smith & Levin LLP, special counsel for the
Company, shall have furnished to the Representatives their written
opinion, dated the Closing Date or the Additional Closing Date, as the
case may be, in form and substance reasonably satisfactory to the
Representatives, to the effect that:
(i) the Company is a corporation duly incorporated, validly
existing and good standing under the laws of its jurisdiction
of incorporation, with corporate power and authority to own
its properties and conduct its business as described in the
Prospectus;
(ii) to the best of such counsel's knowledge, other than as
set forth or contemplated in the Prospectus, there are no
legal or governmental investigations, actions, suits or
proceedings pending or threatened against the Company or any
of its subsidiaries or any of their respective properties or
to which the Company or any of its subsidiaries is or may be a
party or to which any property of the Company or its
subsidiaries is or may be the subject which, if determined
adversely to the Company or any of its subsidiaries, could
individually or in the aggregate have, or reasonably be
expected to have, a Material Adverse Effect; and such counsel
does not know of any statutes, regulations, contracts or other
documents that are required to be described in the
Registration Statement or Prospectus or to be filed as
exhibits to the Registration Statement that are not described
or filed as required;
(iii) this Agreement has been duly authorized, executed and
delivered by the Company;
(iv) the authorized capital stock of the Company conforms as
to legal matters to the description thereof contained in the
Prospectus;
(v) the shares of capital stock of the Company outstanding
prior to the issuance of the Shares to be sold by the Company
hereunder have been duly authorized and are validly issued,
fully paid and non-assessable;
(vi) the Shares to be issued and sold by the Company
hereunder have been duly authorized, and when delivered to and
paid for by the Underwriters in accordance with the terms of
this Agreement, will be validly issued, fully paid and
non-assessable and the issuance of the Shares is not subject
to any preemptive or similar rights;
(vii) the statements in the Prospectus under "Description of
Capital Stock" and in the Registration Statement in Items 14
and 15, insofar as such statements constitute a summary of the
terms of the Common Stock, docu-
<PAGE>
-17-
ments or proceedings referred to therein, fairly present the
information called for with respect to such terms, documents
or proceedings;
(viii) the issue and sale of the Shares being delivered on
the Closing Date or the Additional Closing Date, as the case
may be, to be sold by the Company hereunder and the
performance by the Company of its obligations under this
Agreement and the consummation of the transactions
contemplated herein will not conflict with or result in a
breach of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument filed as an exhibit
to the Registration Statement, nor will any such action result
in any violation of the provisions of the Certificate of
Incorporation or the By-Laws of the Company or any applicable
law, statute or regulation known to such counsel or, to the
best knowledge of such counsel, any order of any court or
governmental agency or body having jurisdiction over the
Company, its subsidiaries or any of their respective
properties;
(ix) no consent, approval, authorization, order, license,
registration or qualification of or with any United States
Federal, New York or, to the extent required under the General
Corporation Law of the State of Delaware, Delaware court or
governmental agency or body is required for the issuance by
the Company of the Shares to be sold by it hereunder or the
consummation by the Company of the transactions contemplated
by this Agreement, except such consents, approvals,
authorizations, orders, licenses, registrations or
qualifications as have been obtained under the Securities Act
and the Exchange Act and as may be required under state
securities or Blue Sky laws in connection with the purchase
and distribution of the Shares by the Underwriters;
(x) the Company is not and, after giving effect to the
offering and sale of the Shares, will not be an "investment
company" or entity "controlled" by an "investment company," as
such terms are defined in the Investment Company Act; and
(xi) the Registration Statement has been declared effective
under the Securities Act and, to such counsel's knowledge, no
stop order proceedings with respect thereto are pending before
or threatened by the Commission under the Securities Act.
Such opinion shall also contain a statement that such counsel
believes that the Registration Statement and the Prospectus and any
amendments and supplements thereto (other than the financial statements
and the notes thereto, and related sched-
<PAGE>
-18-
ules therein and other financial and statistical data therein, as to
which such counsel need express no opinion) comply as to form in all
material respects with the requirements of the Securities Act. In
passing on the form of the Registration Statement and the Prospectus
and any amendments or supplements thereto made by the Company prior to
the Closing Date, such counsel may state that it has not independently
verified the accuracy, completeness or fairness of the statements made
or included therein and takes no responsibility therefor and that such
opinion is based upon such counsel's examination of the Registration
Statement, the Prospectus and any such amendments or supplements, its
investigation made in connection with the preparation of the
Registration Statement, the Prospectus and any such amendments or
supplements and its participation in conferences with certain officers
and employees of the Company, with certain officers and employees of
Computer Associates, with representatives of Ernst & Young and any
others referred to in such opinion; subject to the same
qualifications, such counsel shall also state that they have no
reason to believe that the Registration Statement as of its effective
date contained any untrue statement of a material fact or omitted
to state any material fact required to be stated therein
or necessary in order to make the statements therein not
misleading or that the Prospectus contains or, as of its date,
contained any untrue statement of a material fact or omits or,
as of its date, omitted to state any material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that
in each case, such counsel need not express a belief with respect to
financial statements and the notes thereto, related schedule or other
financial and statistical data.
In rendering such opinions, such counsel may, (A) limit its
opinion to the Federal laws of the United States, the laws of the State
of New York and the General Corporation Law of the State of Delaware;
and (B) rely as to matters of fact, to the extent such counsel deems
proper, on certificates of responsible officers of the Company and
certificates or other written statements of officials of jurisdictions
having custody of documents respecting the corporate existence or good
standing of the Company.
The opinion of Howard Smith & Levin LLP described above shall
be rendered to the Underwriters at the request of the Company and shall
so state therein;
(h) Jay H. Diamond, Esq., Associate Counsel of Computer
Associates, or such counsel satisfactory to the Representatives in
their reasonable judgment, shall have furnished to you his written
opinion, dated the Closing Date or the Additional Closing Date, as the
case may be, in form and substance satisfactory to the Representatives,
to the effect that:
<PAGE>
-19-
(i) Computer Associates has been duly incorporated and is
validly existing and in good standing under the laws of the
State of Delaware;
(ii) the Company has been duly qualified as a foreign
corporation for the transaction of business and is in good
standing under the laws of each other jurisdiction in which it
owns or leases properties, or conducts any business, so as to
require such qualification, other than where the failure to be
so qualified or in good standing would not have a Material
Adverse Effect;
(iii) DistribuPro has been duly incorporated and is validly
existing as a corporation under the laws of California with
corporate power and authority to own its properties and
conduct its business as described in the Prospectus and has
been duly qualified as a foreign corporation for the
transaction of business and is in good standing under the laws
of each other jurisdiction in which it owns or leases
properties, or conducts any business, so as to require such
qualification, other than where the failure to be so qualified
and in good standing would not have a Material Adverse Effect;
all of the outstanding shares of capital stock of DistribuPro
have been duly and validly authorized and issued, are fully
paid and non-assessable, and are owned directly or indirectly
by the Company, free and clear of all liens, encumbrances,
equities or claims;
(iv) except for the Restricted Common Stock and the Shares,
all issued shares of capital stock of the Company are owned
directly or indirectly by Computer Associates, free and clear
of all liens, encumbrances, equities or claims;
(v) this Agreement has been duly authorized, executed and
delivered by Computer Associates;
(vi) the issue and sale of the Shares being delivered at the
Closing Date or the Additional Closing Date, as the case may
be, by the Company, the compliance by the Company and Computer
Associates with all of the provisions of this Agreement and
the consummation of the transactions herein contemplated will
not conflict with or result in a breach or violation of any of
the terms or provisions of, or constitute a default under (in
each case material to Computer Associates and its
subsidiaries, considered as a whole), any indenture, mortgage,
deed of trust, loan agreement, lease or other agreement or
instrument known to such counsel to which Computer Associates
is a party or by which Computer Associates is bound or to
which any of the property or assets of Computer Associates is
subject, nor will such action
<PAGE>
-20-
result in any violation of the provisions of the certificate
of incorporation or by-laws of Computer Associates, nor will
such action result in any violation (in each case material
to Computer Associates and its subsidiaries, considered as a
whole) of any applicable law, statute or regulation known to
such counsel or, to the best knowledge of such counsel, any
applicable order, of any court or governmental agency or
body having jurisdiction over Computer Associates or any of
its properties;
(vii) neither the Company nor any of its subsidiaries is, or
with the giving of notice or lapse of time or both would be,
in violation of or in default under, its Certificate of
Incorporation or By-Laws or any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument filed
as an exhibit to the Registration Statement, except for
violations and defaults which individually and in the
aggregate are not material to the Company and its subsidiaries
taken as a whole;
(viii) to the best of such counsel's knowledge, each of the
Company and its subsidiaries owns, possesses or has obtained
all licenses, permits, certificates, consents, orders,
approvals and other authorizations from, and has made all
declarations and filings with, all federal, state, local and
other governmental authorities (including foreign regulatory
agencies), all self-regulatory organizations and all courts
and other tribunals, domestic or foreign, necessary to own or
lease, as the case may be, and to operate its properties and
to carry on its business as conducted as of the date hereof,
except where failure to obtain or possess such licenses,
permits, certificates, consents, orders, approvals or other
authorizations would not, individually or in the aggregate,
have a Material Adverse Effect, and, to the best of such
counsel's knowledge, neither the Company nor any such
subsidiary has received any actual notice of any proceeding
relating to revocation or modification of any such license,
permit, certificate, consent, order, approval or other
authorization, except as described in the Registration
Statement and the Prospectus; and, to the best of such
counsel's knowledge, each of the Company and its subsidiaries
is in compliance with all laws and regulations relating to the
conduct of its business as conducted as of the date of the
Prospectus; and
(ix) no consent, approval, authorization, order, registration
or qualification of or with any United States Federal, New
York, or, to the extent required under the General Corporation
Law of the State of Delaware, Delaware court or governmental
agency or body is required for the issue and sale of the
Shares or the consummation by the Company and Computer
Associates of the transactions contemplated by this Agreement,
except such
<PAGE>
-21-
consents, approvals, authorizations, orders, licenses,
registrations or qualifications as have been obtained under
the Securities Act and as may be required under state
securities or Blue Sky laws in connection with the purchase
and distribution of the Shares by the Underwriters.
In rendering such opinions, such counsel may (A) limit his
opinion to Federal laws of the United States, the laws of the State of
New York and the General Corporation Law of the State of Delaware; and
(B) rely as to matters of fact, to the extent such counsel deems
proper, on certificates of responsible officers of Computer Associates
and the Company and certificates or other written statements of
officials of jurisdictions having custody of documents respecting the
corporate existence or good standing of the Company;
(i) on the effective date of the Registration Statement and
the effective date of the most recently filed post-effective amendment
to the Registration Statement and also on the Closing Date or
Additional Closing Date, as the case may be, Ernst & Young shall have
furnished to you letters, dated the respective dates of delivery
thereof, in form and substance satisfactory to you, containing
statements and information of the type customarily included in
accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in the
Registration Statement and the Prospectus;
(j) the Representatives shall have received on and as of the
Closing Date or Additional Closing Date, as the case may be, an opinion
of Cahill Gordon & Reindel, counsel to the Underwriters, with respect
to the due authorization and valid issuance of the Shares, the
Registration Statement, the Prospectus and other related matters as the
Representatives may reasonably request, and such counsel shall have
received such papers and information as they may reasonably request to
enable them to pass upon such matters;
(k) each of the transactions contemplated in the Prospectus
under "Arrangements Between the Company and Computer Associates" to be
consummated on or before the Closing Date or the Additional Closing
Date, as the case may be, shall have been so consummated upon the terms
and conditions described in the Prospectus and as set forth in the
exhibits to the Registration Statement;
(l) the Shares to be delivered on the Closing Date or
Additional Closing Date, as the case may be, shall have been approved
for listing on the Nasdaq National Market, subject to official notice
of issuance; and
<PAGE>
-22-
(m) on or prior to the Closing Date or Additional Closing
Date, as the case may be, the Company shall have furnished to the
Representatives such further certificates and documents as the
Representatives shall reasonably request.
7. The Company and Computer Associates, jointly and severally,
agree to indemnify and hold harmless each Underwriter and each person, if any,
who controls any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, damages and liabilities (including, without limitation, the
legal fees and other expenses incurred in connection with any suit, action or
proceeding or any claim asserted) caused by any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement or
the Prospectus (as amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) or any preliminary prospectus, or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with information relating to any Underwriter
furnished to the Company in writing by such Underwriter through the
Representatives expressly for use therein; provided, however, that the foregoing
indemnity shall not inure to the benefit of any Underwriter from whom the person
asserting such losses, claims, damages, liabilities and judgments purchased
Shares, or any person controlling such Underwriter, if a copy of the Prospectus
(including any amendment or supplement thereto) was not sent or given by or on
behalf of such Underwriter to such person at or prior to the written
confirmation of the sale of the Shares to such person, and if the Prospectus
(including any amendment or supplement thereto) would have cured the defect
giving rise to such losses, claims, damages liabilities or judgments, unless
such failure to deliver a copy of the Prospectus was a result of the failure of
the Company to provide as many copies of such Prospectus as such Underwriter may
reasonably request in a timely manner.
Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement and each person who controls the Company within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act
and Computer Associates to the same extent as the foregoing indemnity from the
Company to each Underwriter, but only with reference to information relating to
such Underwriter furnished to the Company and Computer Associates in writing by
such Underwriter through the Representatives expressly for use in the
Registration Statement, the Prospectus, any amendment or supplement thereto, or
any preliminary prospectus.
If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any person in respect of
<PAGE>
-23-
which indemnity may be sought pursuant to the preceding paragraphs of this
Section 7, such person (the "Indemnified Person") shall promptly notify the
person or persons against whom such indemnity may be sought (each an
"Indemnifying Person") in writing, and such Indemnifying Persons, upon request
of the Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Persons may designate in such proceeding and shall pay the
reasonable fees and expenses of such counsel related to such proceeding. In any
such proceeding, any Indemnified Person shall have the right to retain its own
counsel, but the fees and expenses of such counsel shall be at the expense of
such Indemnified Person and not the Indemnifying Persons unless (i) the
Indemnifying Persons and the Indemnified Person shall have mutually agreed to
the contrary, (ii) the Indemnifying Persons have failed within a reasonable time
to retain counsel reasonably satisfactory to the Indemnified Person or (iii) the
named parties in any such proceeding (including any impleaded parties) include
both an Indemnifying Person and the Indemnified Person and representation of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
Indemnifying Persons shall not, in connection with any proceedings or related
proceeding in the same jurisdiction, be liable for the fees and expenses of more
than one separate firm (in addition to any local counsel) for all Indemnified
Persons, and that all such fees and expenses shall be reimbursed as they are
incurred. Any such separate firm for the Underwriters and such control persons
of Underwriters shall be designated in writing by J.P. Morgan Securities Inc.
and any such separate firm for the Company, its directors, its officers who sign
the Registration Statement and such control persons of the Company shall be
designated in writing by the Company and such separate firm for Computer
Associates as may be designated in writing by Computer Associates. No
Indemnifying Person shall be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, each Indemnifying Person agrees to
indemnify any Indemnified Person from and against any loss or liability by
reason of such settlement or judgment. Notwithstanding the foregoing sentence,
if at any time an Indemnified Person shall have requested an Indemnifying Person
to reimburse the Indemnified Person for fees and expenses of counsel as
contemplated by the second and third sentences of this paragraph, such
Indemnifying Person agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such Indemnifying Person of the
aforesaid request and (ii) such Indemnifying Person shall not have reimbursed
the Indemnified Person in accordance with such request prior to the date of such
settlement. No Indemnifying Person shall, without the prior written consent of
the Indemnified Person, effect any settlement of any pending or threatened
proceeding in respect of which any Indemnified Person is or could have been a
party and indemnity could have been sought hereunder by such Indemnified Person,
unless such settlement includes an unconditional release of such Indemnified
Person from all liability on claims that are the subject matter of such
proceeding.
<PAGE>
-24-
If the indemnification provided for in the first three
paragraphs of this Section 7 is unavailable to an Indemnified Person or
insufficient in respect of any losses, claims, damages or liabilities referred
to therein, then each Indemnifying Person under such paragraph, in lieu of
indemnifying such Indemnified Person thereunder, shall contribute to the amount
paid or payable by such Indemnified Person as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company and Computer Associates on the one
hand and the Underwriters on the other hand from the offering of the Shares or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but also the relative fault of
the Company and Computer Associates on the one hand and the Underwriters on the
other hand in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company and Computer
Associates on the one hand and the Underwriters on the other hand shall be
deemed to be in the same respective proportions as the net proceeds from the
offering (before deducting expenses) received by the Company and the total
underwriting discounts and the commissions received by the Underwriters, in each
case as set forth in the table on the cover of the Prospectus, bear to the
aggregate public offering price of the Shares. The relative fault of the Company
and Computer Associates on the one hand and the Underwriters on the other hand
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 and
Computer Associates or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company, Computer Associates and the Underwriters agree
that it would not be just and equitable if contribution pursuant to this Section
7 were determined by pro rata allocation (even if the Underwriters were treated
as one entity for such purposes) or by any other method of allocation that does
not take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an Indemnified Person as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses incurred by such
Indemnified Person in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 7, in no event shall an
Underwriter 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 that
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section ll(f) of the
Securities Act) shall
<PAGE>
-25-
be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 7 are several in proportion to the respective number of
Shares set forth opposite their names in Schedule I hereto, and not joint.
Without limiting either the full extent of the Company's
agreement to indemnify each Underwriter and each person, if any, who controls
such Underwriter within the meaning of either Section 15 of the Securities Act
or Section 20 of the Exchange Act or the extent of the Company's agreement to
contribute to amounts paid or payable by each such Indemnified Person, as herein
provided, Computer Associates' aggregate liability pursuant to this Section 7
shall be limited to $7.5 million.
The remedies provided for in this Section 7 are not exclusive
and shall not limit any rights or remedies which may otherwise be available to
any indemnified party at law or in equity.
The indemnity and contribution agreements contained in this
Section 7 and the representations and warranties of the Company and Computer
Associates set forth in this Agreement shall remain operative and in full force
and effect regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter or by or on behalf of the Company, its officers or directors or
any other person controlling the Company or Computer Associates and (iii)
acceptance of and payment for any of the Shares.
8. Notwithstanding anything herein contained, this Agreement
(or the obligations of the several Underwriters with respect to the Option
Shares) may be terminated in the absolute discretion of the Representatives, by
notice given to the Company, if after the execution and delivery of this
Agreement and prior to the Closing Date (or, in the case of the Option Shares,
prior to the Additional Closing Date), (i) trading generally shall have been
suspended or materially limited on or by, as the case may be, any of the New
York Stock Exchange or the American Stock Exchange or the Nasdaq National
Market, (ii) trading of any securities of or guaranteed by the Company shall
have been suspended on any exchange or in any over-the-counter market, (iii) a
general moratorium on commercial banking activities in New York shall have been
declared by either Federal or New York State authorities, or (iv) there shall
have occurred any outbreak or escalation of hostilities or any change in
financial markets or any calamity or crisis that, in the judgment of the
Representatives, is material and adverse and which, in the judgment of the
Representatives, makes it impracticable to market the Shares being delivered at
the Closing Date or the Additional Closing Date, as the case may be, on the
terms and in the manner contemplated in the Prospectus.
<PAGE>
-26-
9. This Agreement shall become effective upon the later of (x)
execution and delivery hereof by the parties hereto and (y) release of
notification of the effectiveness of the Registration Statement (or, if
applicable, any post-effective amendment) by the Commission.
If on the Closing Date or the Additional Closing Date, as the
case may be, any one or more of the Underwriters shall fail or refuse to
purchase Shares which it or they have agreed to purchase hereunder on such date,
and the aggregate number of Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase is not more than one-tenth
of the aggregate number of Shares to be purchased on such date by all
Underwriters, the other Underwriters shall be obligated severally in the
proportions that the number of Shares set forth opposite their respective names
in Schedule I bears to the aggregate number of Underwritten Shares set forth
opposite the names of all such non-defaulting Underwriters, or in such other
proportions as the Representatives may specify, to purchase the Shares which
such defaulting Underwriter or Underwriters agreed but failed or refused to
purchase on such date; provided that in no event shall the number of Shares that
any Underwriter has agreed to purchase pursuant to Section 1 be increased
pursuant to this Section 9 by an amount in excess of one-ninth of such number of
Shares without the written consent of such Underwriter. If on the Closing Date
or the Additional Closing Date, as the case may be, any Underwriter or
Underwriters shall fail or refuse to purchase Shares which it or they have
agreed to purchase hereunder on such date, and the aggregate number of Shares
with respect to which such default occurs is more than one-tenth of the
aggregate number of Shares to be purchased on such date, and arrangements
satisfactory to the Representatives, the Company and Computer Associates for the
purchase of such Shares are not made within 36 hours after such default, this
Agreement (or the obligations of the several Underwriters to purchase the Option
Shares, as the case may be) shall terminate without liability on the part of any
non-defaulting Underwriter, the Company or Computer Associates. In any such case
either you or the Company shall have the right to postpone the Closing Date (or,
in the case of the Option Shares, the Additional Closing Date), but in no event
for longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
10. If this Agreement shall be terminated by the Underwriters,
or any of them, because of any failure or refusal on the part of the Company or
Computer Associates to comply with the terms or to fulfill any of the conditions
of this Agreement, or if for any reason the Company or Computer Associates shall
be unable to perform its obligations under this Agreement or any condition of
the Underwriters' obligations cannot be fulfilled, the Company agrees to
reimburse the Underwriters or such Underwriters as have so terminated this
Agreement with respect to themselves, severally, for all out-of-pocket expenses
<PAGE>
-27-
(including the fees and expenses of its counsel) reasonably incurred by the
Underwriter in connection with this Agreement or the offering contemplated
hereunder.
11. This Agreement shall inure to the benefit of and be
binding upon the Company, Computer Associates and the Underwriters, any
controlling persons referred to herein and their respective successors and
assigns. Nothing expressed or mentioned in this Agreement is intended or shall
be construed to give any other person, firm or corporation any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision herein contained. No purchaser of Shares from any Underwriter shall be
deemed to be a successor by reason merely of such purchase.
12. Any action by the Underwriters hereunder may be taken by
the Representatives jointly or by J.P. Morgan Securities Inc. alone on behalf of
the Underwriters, and any such action taken by the Representatives jointly or by
J.P. Morgan Securities Inc. alone shall be binding upon the Underwriters. All
notices and other communications hereunder shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be given to the
Representatives, c/o J.P. Morgan Securities Inc., 60 Wall Street, New York, New
York 10260 (telefax: (212-648-5705); Attention: Syndicate Department, copy to
Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005 (telefax:
(212) 269-5420), Attention: Gerald S. Tanenbaum, Esq. Notices to the Company
should be given to it at 2525 Augustine Drive, Santa Clara, California 95054
(telefax: 408-562-8740), Attention: President, copy to Howard, Smith & Levin
LLP, 1330 Avenue of the Americas, New York, New York 10019 (telefax:
212-841-1010), Attention: Stephen A. Infante, Esq. Notices to Computer
Associates should be given to it at One Computer Associates Plaza, Islandia, New
York 11788-7000 (telefax: 516-342-4854), Attention: Associate Counsel.
13. This Agreement may be signed in counterparts, each of
which shall be an original and all of which together shall constitute one and
the same instrument.
14. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE
CONFLICTS OF LAWS PROVISIONS THEREOF.
<PAGE>
-28-
If the foregoing is in accordance with your understanding,
please sign and return four counterparts hereof.
Very truly yours,
ACCPAC INTERNATIONAL, INC.
By:
------------------------------------
Name:
Title:
COMPUTER ASSOCIATES INTERNATIONAL, INC.
By:
------------------------------------
Name:
Title:
Accepted: _________, 199_
J.P. MORGAN SECURITIES INC.
SG COWEN SECURITIES CORPORATION
Acting severally on behalf of
themselves and the several
Underwriters listed in
Schedule I hereto.
By: J.P. MORGAN SECURITIES INC.
By:
----------------------------
Name:
Title:
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Number of Underwritten
Underwriter Shares To Be Purchased
- ----------- ----------------------
<S> <C>
J.P. Morgan Securities Inc..................................................
SG Cowen Securities Corporation.............................................
----------------------
Total
----------------------
----------------------
</TABLE>
<PAGE>
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
ACCPAC INTERNATIONAL, INC.
* * * * *
I. ACCPAC INTERNATIONAL, INC. a Delaware corporation, the original
Certificate of Incorporation of which was filed with the Secretary of State of
the State of Delaware on October 8, 1997 under the name ACCPAC International,
Inc., HEREBY CERTIFIES that this Restated Certificate of Incorporation
restating, integrating and amending its Certificate of Incorporation that was
originally filed with the Secretary of State of the State of Delaware on October
8, 1997, was duly adopted by its Board of Directors and its stockholders in
accordance with Sections 242 and 245 of the General Corporation Law of the State
of Delaware (the "Delaware General Corporation Law").
II. The entire text of ACCPAC INTERNATIONAL, INC.'s Certificate of
Incorporation is hereby amended and restated in its entirety to read as follows:
1. NAME OF CORPORATION. The name of the corporation is ACCPAC
INTERNATIONAL, INC. (the "Corporation").
2. REGISTERED OFFICE AND REGISTERED AGENT. The address of the
Corporation's registered office in the State of Delaware is 1013 Centre Road,
City of Wilmington, County of New Castle. The name of the Corporation's
registered agent at such address is Corporation Service Company.
3. PURPOSE. The purpose of the Corporation is to engage in any lawful
act or activity for which corporations may be organized under the Delaware
General Corporation Law as the same exists or may hereafter be amended.
4. CAPITAL STOCK. (a) The total number of shares of stock that the
Corporation shall have authority to issue is 26,000,000 consisting of (i)
25,000,000 shares of Common Stock, par value $.01 per share (the "Common
Stock"), and (ii) 1,000,000 shares shall be shares of preferred Stock, par value
$.01 per share (the "Preferred Stock").
(b) Shares of Preferred Stock may be issued from time to time in one or
more series. Subject to the limitations set forth in this Restated
Certificate of Incorporation and any limitations prescribed by the law of the
State of Delaware, the Board of Directors is expressly authorized, prior to
issuance of any series of Preferred Stock, to fix by resolution or
resolutions providing for the issue of any series, the number of shares
included in such series and the designation, relative powers, preferences and
participating, optional or other special rights, and the qualifications,
limitations or restrictions of such series. Pursuant to the foregoing
general authority vested in the Board of Directors, but (except as provided
in the proviso to clause (v) of this subsection (b) not in limitation of the
powers conferred on the Board of Directors thereby
<PAGE>
and by the law of the State of Delaware, the Board of Directors is expressly
authorized to determine with respect to each series of Preferred Stock:
(i) the distinctive designation of such series and the number of
shares (which number from time to time may be decreased by the Board of
Directors, but not below the number of such shares then outstanding, or may
be increased by the Board of Directors unless otherwise provided in
creating such series) constituting such series;
(ii) the rate and time at which, and the preferences and conditions
under which, dividends shall be payable on shares of such series, the
status of such dividends as cumulative, or non-cumulative, the date or
dates from which dividends, if cumulative, shall accumulate, and the status
of such shares as participating or non-participating after the payment of
dividends as to which such shares are entitled to any preference;
(iii) the right, if any, of holders of shares of such series to
convert such shares into, or to exchange such shares for, shares of any
other class or classes or of any other series of the same class, the prices
or rates of conversion or exchange, and adjustments thereto, and any other
terms and conditions applicable to such conversion or exchange;
(iv) the rights and preferences, if any, of the holders of shares of
such series upon the liquidation, dissolution or winding up of the affairs
of, or upon any distribution of the assets of, the Corporation, which
amount may vary depending upon whether such liquidation, dissolution, or
winding up is voluntary or involuntary, and, if voluntary, may vary at
different dates, and the status of the shares of such series as
participating or non-participating after the satisfaction of any such
rights and preferences;
(v) the voting powers, if any, of the holders of shares of such
series which may, without limiting the generality of the foregoing, include
(A) the general right to one vote (or more or less than one vote) per share
on every matter (including, without limitation, the election of directors)
voted on by the stockholders without regard to class and (B) the limited
right to vote, as a series by itself or together with other series of
Preferred Stock or together with all series of Preferred Stock as a class,
upon such matters, under such circumstances and upon such conditions as the
Board of Directors may fix, including, without limitation, the right,
voting as a series by itself or together with other series of Preferred
Stock or together with all series of Preferred Stock as a class, to elect
one or more directors of the Corporation in the event there shall have been
a default in the payment of dividends on any one or more series of
Preferred Stock; provided, however, that notwithstanding the provisions of
the preceding subclause (B) or any other provisions of this paragraph (a)
to the contrary, the holders of Preferred Stock, considered in the
aggregate (whether voting by individual series or together with other
series of Preferred Stock or together with all series of Preferred Stock as
a class), shall not have the right to a separate class vote for the
election of one or
-2-
<PAGE>
more directors of the Corporation except in the event there shall
have been a default in the payment of dividends on any one or more
series of Preferred Stock and, in such event, shall not have the right
to a separate class vote for more than a total of two directors;
(vi) the times, terms and conditions, if any, upon which shares
of such series shall be subject to redemption, including the amount
which the holders of shares of such series shall be entitled to
receive upon redemption (which amount may vary under different
conditions or at different redemption dates) and the amount, terms,
conditions and manner of operation of any purchase, retirement or
sinking fund to be provided for the shares of such series;
(vii) the limitations, if any, applicable while shares of such
series are outstanding on the payment of dividends or making of
distributions on, or the acquisition or redemption of Common Stock or
any other class of shares ranking junior, either as to dividends or
upon liquidation, to the shares of such series;
(viii) the conditions or restrictions, if any, upon the
issuance of any additional shares (including additional shares of
such series or any other class) ranking on a parity with or prior to
the shares of such series either as to dividends or upon liquidation;
and
(ix) any other relative powers, preferences and participating,
optional or other special rights, and the qualifications, limitations
or restrictions thereof, of shares of such series;
in each case, so far as not inconsistent with the provisions of this
Restated Certificate of Incorporation or the Delaware General Corporation
Law. Unless otherwise provided by the Board of Directors, all shares of
Preferred Stock shall be identical and of equal rank and, unless otherwise
provided by the Board of Directors, all shares of each series of Preferred
Stock shall be identical and of equal rank except as to the dates from
which cumulative dividends, if any, thereon shall be cumulative.
5. COMPUTATION; USE OF TERMS. (a) In determining the number or the
record holders of outstanding shares of any class of stock of the Corporation
for the purpose of computing or determining the method of computing the vote
or determining the right to vote at any meeting of stockholders or of a class
of stockholders, the original stock ledger of the Corporation as at the close
of business on the record date fixed for such meeting or, if the stock
transfer books of the Corporation shall have been closed for a period
immediately preceding the date of such meeting, then as at the close of
business on the date as of which such stock transfer books were so closed,
shall be conclusive for all purposes, and in determining the number or the
record holders of outstanding shares of any class of stock of the Corporation
for any other purpose, the original stock ledger of the Corporation as at the
close of business on the date as of which the determination is being made,
shall be conclusive for all purposes; all notwithstanding any other provision
of this Restated Certificate of Incorporation.
-3-
<PAGE>
(b) Wherever a term shall be used in the singular in this Restated
Certificate of Incorporation, it shall be deemed in all appropriate
circumstances to include also the plural, and wherever a term shall be so used
in the plural, it shall similarly be deemed to include also the singular.
6. POWERS OF THE BOARD OF DIRECTORS. In furtherance, and not in
limitation, of the powers conferred by statute, the Board of Directors is
expressly authorized to make, alter, amend or repeal the By-Laws of the
Corporation. The Corporation may in its By-Laws confer powers upon its
directors in addition to the foregoing, and in addition to the powers and
authorities expressly conferred upon them by the laws of the State of Delaware.
7. BOARD OF DIRECTORS - NUMBER AND VACANCIES. (a) Subject to any rights
of holders of any outstanding preferred stock to elect additional directors
under specified circumstances, the number of directors of the Corporation shall
be not more than nine (9) nor less than three (3), with the exact number to be
fixed from time to time as provided in the By-laws of the Corporation.
(b) Subject to any rights of holders of Preferred Stock, and unless the
Corporation's Board of Directors otherwise determines, any vacancy occurring in
the Board of Directors caused by death, resignation, increase in number of
directors or otherwise may be filled by the affirmative vote of a majority of
the remaining members of the Board of Directors, though less than a quorum, or
by a sole remaining director. Except as otherwise provided by law, any such
vacancy may not be filled by the stockholders of the Corporation.
(c) Notwithstanding anything contained in this Restated Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
75% of the total voting power of all classes of outstanding capital stock,
voting together as a single class, shall be required to amend, repeal or adopt
any provision inconsistent with this Article 7.
8. CONDUCT OF CERTAIN AFFAIRS OF THE CORPORATION. (a) In recognition
that the Corporation has ceased to be a wholly-owned subsidiary of Computer
Associates International, Inc., a Delaware corporation ("Computer Associates"),
but that Computer Associates will remain a substantial stockholder of the
Corporation, and in anticipation that the Corporation and Computer Associates
may engage in the same or similar activities or lines of business and have an
interest in the same areas of corporate opportunities, and in recognition of the
benefits to be derived by the Corporation through its continued contractual,
corporate and business relations with Computer Associates (including possible
service of officers and directors of Computer Associates as officers and
directors of the Corporation), the provisions of this Article 8 are set forth to
regulate and define the conduct of certain affairs of the Corporation as they
may involve Computer Associates and its officers and directors, and the powers,
rights, duties and liabilities of the Corporation and its officers, directors
and stockholders in connection therewith.
(b) Computer Associates shall have no duty to refrain from engaging in the
same or similar activities or lines of business as the Corporation, and neither
Computer Associates nor any officer or director thereof (except as provided in
paragraph (c) below) shall be liable to the Corporation or its stockholders for
breach of any fiduciary duty by reason of any such activities
-4-
<PAGE>
of Computer Associates. In the event that Computer Associates acquires
knowledge of a potential transaction or matter which may be a corporate
opportunity for both Computer Associates and the Corporation, Computer
Associates shall have no duty to communicate or offer such corporate
opportunity to the Corporation and shall not be liable to the Corporation or
its stockholders for breach of any fiduciary duty as a stockholder of the
Corporation by reason of the fact that Computer Associates pursues or
acquires such corporate opportunity for itself, directs such corporate
opportunity to another person, or does not communicate information regarding
such corporate opportunity to the Corporation.
(c) In the event that a director or officer of the Corporation who is also
a director or officer of Computer Associates acquires knowledge of a potential
transaction or matter which may be a corporate opportunity for both the
Corporation and Computer Associates, such director or officer of the Corporation
shall have fully satisfied and fulfilled the fiduciary duty of such director or
officer to the Corporation and its stockholders with respect to such corporate
opportunity, if such director or officer acts in a manner consistent with the
following policy:
(i) A corporate opportunity offered to any person who is an officer
of the Corporation, and who is also a director but not an officer of
Computer Associates, shall belong to the Corporation;
(ii) A corporate opportunity offered to any person who is a director
but not an officer of the Corporation, and who is also a director or
officer of Computer Associates shall belong to the Corporation if such
opportunity is expressly offered to such person in writing solely in his or
her capacity as a director of the Corporation, and otherwise shall belong
to Computer Associates; and
(iii) A corporate opportunity offered to any person who is an officer
of both the Corporation and Computer Associates shall belong to the
Corporation if such opportunity is expressly offered to such person in
writing solely in his or her capacity as an officer of the Corporation, and
otherwise shall belong to Computer Associates.
(d) Any person purchasing or otherwise acquiring any interest in shares of
the capital stock of the Corporation shall be deemed to have notice of and to
have consented to the provisions of this Article 8.
(e) For purposes of this Article 8 only:
(1) A director of the Corporation who is Chairman of the Board of
Directors of the Corporation or of a committee thereof shall not be deemed
to be an officer of the Corporation by reason of holding such position
(without regard to whether such position is deemed an office of the
Corporation under the By-Laws of the Corporation), unless such person is a
full-time employee of the Corporation; and
(2) (A) The term "Corporation" shall mean the Corporation and all
corporations, partnerships, joint ventures, associations and other entities
in which
-5-
<PAGE>
the Corporation beneficially owns (directly or indirectly) 50% or
more of the outstanding voting stock, voting power, partnership interests
or similar voting interests and (B) the term "Computer Associates" shall
mean Computer Associates and all corporations, partnerships, joint
ventures, associations and other entities (other than the Corporation,
defined in accordance with clause (A) of this paragraph (e)(2)) in which
Computer Associates beneficially owns (directly or indirectly) 50% or more
of the outstanding voting stock, voting power, partnership interests or
similar voting interests.
(f) Notwithstanding anything in this Restated Certificate of Incorporation
to the contrary, (i) the foregoing provisions of this Article 8 shall expire on
the date that Computer Associates ceases to own beneficially Common Stock
representing at least 20% of the total voting power of all classes of
outstanding Common Stock of the Corporation and no person who is a director or
officer of the Corporation is also a director or officer of Computer Associates;
and (ii) in addition to any vote of the stockholders required by this Restated
Certificate of Incorporation, until the time that Computer Associates ceases to
own beneficially Common Stock representing at least 20% of the total voting
power of all classes of outstanding Common Stock of the Corporation, the
affirmative vote of the holders of more than 80% of the total voting power of
all classes of outstanding Common Stock of the Corporation shall be required to
alter, amend or repeal any provision of this Article 8 in a manner adverse to
the interests of Computer Associates, or to adopt any provision adverse to the
interests of Computer Associates and inconsistent with any provision of this
Article 8. Neither the alteration, amendment or repeal of this Article 8 nor
the adoption of any provision of this Restated Certificate of Incorporation
inconsistent with this Article 8 shall eliminate or reduce the effect of this
Article 8 in respect of any matter occurring, or any cause of action, suit or
claim that, but for this Article 8, would accrue or arise, prior to such
alteration, amendment, repeal or adoption.
9. MEETINGS. (a) If the By-Laws so provide, the stockholders and the
directors may hold their meetings, and the Corporation may have one or more
offices, either inside or outside of the State of Delaware. The books and
records of the Corporation (subject to the provisions of the laws of the State
of Delaware) may be kept either inside or outside of the State of Delaware at
such places as from time to time may be determined by the Board of Directors.
(b) Any corporate action required to be taken at any annual or special
meeting of stockholders of the Corporation, or any corporate action which may
be taken at any annual or special meeting of the stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the corporate action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted
and shall be delivered to the Corporation by delivery to its registered
office in Delaware (either by hand or by certified or registered mail, return
receipt requested), its principal place of business, or an officer or agent
of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded; provided that on and after the date on
which Computer Associates ceases to beneficially own 50% or more of the total
voting power of all classes of outstanding Common Stock, any corporate action
required to be taken at any annual or special meeting of the stockholders, or
any corporate action which may be taken at any annual or special meeting of
the stockholders, may
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<PAGE>
be taken only at a duly called annual or special meeting of stockholders and
may not be taken by written consent of the stockholders in lieu of such
meeting.
So long as stockholders are entitled to consent to corporate action in
writing without a meeting in accordance with this paragraph (b), every written
consent shall bear the date of signature of each stockholder who signs the
consent and no written consent shall be effective to take the corporate action
referred to therein unless, within sixty (60) days of the date the earliest
dated consent is delivered to the Corporation, a written consent or consents
signed by a sufficient number of holders to take action are delivered to the
Corporation in the manner prescribed in this paragraph (b).
(c) Unless otherwise prescribed by law or this Restated Certificate of
Incorporation, special meetings of stockholders may be held at any time on call
of the Chairman of the Board of Directors, a Vice Chairman of the Board of
Directors, the President or, at the request in writing of a majority of the
Board of Directors, any officer.
(d) Notwithstanding anything contained in this Restated Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
75% of the total voting power of all classes of outstanding capital stock,
voting together as a single class, shall be required to amend, repeal or adopt
any provision inconsistent with this Article 9.
10. LIMITATION ON LIABILITY OF DIRECTORS. (a) A director of the
Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability
(i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware General Corporation Law or
(iv) for any transaction from which the director derived an improper
personal benefit.
(b) If the Delaware General Corporation Law is amended after approval
by the stockholders of this Article 10 to authorize corporate action further
eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the Delaware General Corporation Law, as so
amended.
(c) Any repeal or modification of this Article 10 by the stockholders of
the Corporation shall not adversely affect any right or protection of a director
of the Corporation existing at the time of such repeal or modification.
11. INDEMNIFICATION AND INSURANCE. (a) Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding,
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<PAGE>
whether civil, criminal, administrative, investigative or otherwise
(hereinafter a "proceeding"), by reason of the fact that he or she, or a
person of whom he or she is the legal representative, is or was a director,
officer or employee of the Corporation or is or was serving at the request of
the Corporation as a director, officer or employee of another corporation or
of a partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such proceeding
is alleged action in an official capacity as a director, officer or employee
or in any other capacity while serving as a director, officer or employee,
shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the Delaware General Corporation Law, as the same exists
or may hereafter be amended (but, in the case of any such amendment, only to
the extent that such amendment permits the Corporation to provide broader
indemnification rights than said law permitted the Corporation to provide
prior to such amendment), against all expense, liability and loss (including
penalties, fines, judgments, attorney's fees, amounts paid or to be paid in
settlement and excise taxes or penalties imposed on fiduciaries with respect
to (i) employee benefit plans, (ii) charitable organizations or (iii) similar
matters) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has
ceased to be a director, officer or employee and shall inure to the benefit
of his or her heirs, executors and administrators; provided that the
Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person
(other than pursuant to paragraph (b) of this Article 11) only if such
proceeding (or part thereof) was authorized by the Board of Directors of the
Corporation. The right to indemnification conferred in this paragraph (a) of
Article 11 shall be a contract right and shall include the right to be paid
by the Corporation the expenses incurred in defending any such proceeding in
advance of its final disposition; provided that if the Delaware General
Corporation Law requires, the payment of such expenses incurred by a director
or officer in his or her capacity as a director or officer (and not in any
other capacity in which service was or is rendered by such person while a
director or officer, including without limitation, service to an employee
benefit plan) in advance of the final disposition of a proceeding shall be
made only upon delivery to the Corporation of an undertaking, by or on behalf
of such director or officer, to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not entitled to be
indemnified under this paragraph (a) of Article 11 or otherwise.
(b) If a claim which the Corporation is obligated to pay under
paragraph (a) of this Article 11 is not paid in full by the Corporation
within 60 days after a written claim has been received by the Corporation,
the claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in
part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than
an action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the Corporation) that
the claimant has not met the standards of conduct which make it permissible
under the Delaware General Corporation Law for the Corporation to indemnify
the claimant for the amount claimed, but the burden of proving such defense
shall be on the Corporation. Neither the failure of the Corporation
(including
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its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel or
its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
(c) The provisions of this Article 11 shall cover claims, actions, suits
and proceedings, civil or criminal, whether now pending or hereafter commenced,
and shall be retroactive to cover acts or omissions or alleged acts or omissions
which heretofore have taken place. If any part of this Article 11 should be
found to be invalid or ineffective in any proceeding, the validity and effect of
the remaining provisions shall not be affected.
(d) The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Article 11 shall not be exclusive of any other right which any person may have
or hereafter acquire under any statute, provision of this Restated Certificate
of Incorporation, By-Laws, agreement, vote of stockholders or disinterred
directors or otherwise.
(e) The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
(f) The Corporation may, to the extent authorized from time to time by the
Board of Directors, grant rights to indemnification, and rights to be paid by
the Corporation the expenses incurred in defending any proceeding in advance of
its final disposition, to any agent of the Corporation to the fullest extent of
the provisions of this Article 11 with respect to the indemnification and
advancement of expenses of directors, officers and employees of the Corporation.
12. BY-LAWS AMENDMENTS. The By-Laws of the Corporation may be altered,
amended or repealed at any meeting of the Board of Directors or of the
stockholders, provided that notice of such alteration, amendment or repeal be
contained in the notice of such meeting of the Board of Directors or
stockholders (subject, in the case of meetings of stockholders, to the
provisions of Article II of the By-Laws), as the case may be. All such
amendments must be approved by the affirmative vote of the holders of at
least 75% of the total voting power of all classes of outstanding capital
stock, voting together as a single class (if effected by action of the
stockholders), or by the affirmative vote of directors constituting not less
than a majority of the entire Board of Directors (if effected by action of
the Board of Directors).
13. AMENDMENTS. The Corporation reserves the right to amend, alter,
change or repeal any provision contained in this Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by the law of the State
of Delaware, and all rights of the stockholders herein are granted subject to
this reservation.
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<PAGE>
IN WITNESS WHEREOF, ACCPAC INTERNATIONAL, INC. has caused this Restated
Certificate of Incorporation to be signed on this 14th day of August, 1998 in
its name.
ACCPAC INTERNATIONAL, INC.
By: /s/ Frederick S. Wysocki
--------------------------------
Name: Frederick S. Wysocki
Title: President and Chief Executive
Officer
<PAGE>
Exhibit 3.2
AMENDED AND RESTATED BY-LAWS
OF
ACCPAC INTERNATIONAL, INC. (the "Company")
Adopted August 13, 1998
ARTICLE I
OFFICES
The registered office of the Company shall be at 1013 Centre Road, City of
Wilmington, County of New Castle, State of Delaware. The Company may also have
one or more offices at such other places, either inside or outside of the State
of Delaware, as the Board of Directors may from time to time determine or as the
business of the Company may require. The books and records of the Company may
be kept (subject to the provisions of the laws of the State of Delaware) at any
place, either inside or outside of the State of Delaware, as from time to time
may be determined by the Board of Directors.
ARTICLE II
STOCKHOLDERS
Section 2.1. PLACE OF MEETING. Meetings of stockholders (whether annual
or special) shall be held at such place, either inside or outside of the State
of Delaware, as the Board of Directors shall from time to time determine.
Section 2.2. ANNUAL MEETINGS. The annual meeting of stockholders shall
be held at such time as the Board of Directors shall determine from time to
time. If, for any reason, the annual meeting shall not be held at the
specified time herein, the directors shall fix another date for such meeting.
Section 2.3. SPECIAL MEETINGS. Unless otherwise prescribed by law or by
the Company's certificate of incorporation, as amended from time to time (the
"Charter"), special meetings of stockholders may be held at any time on call of
the Chairman of the Board of Directors, a Vice Chairman of the Board of
Directors, the President, or, at the request in writing of a majority of the
Board of Directors, any officer. Such request shall state the purpose or
purposes of the proposed meeting.
Section 2.4. NOTICE OF MEETINGS. Except as otherwise provided by law,
at least twenty (20) days' notice of stockholders' meetings stating the time
and place and the objects thereof shall be given by the Chairman of the Board
of Directors, a Vice Chairman of the Board
<PAGE>
of Directors, the President, the Secretary or an Assistant Secretary to each
stockholder of record having voting power in respect of the business to be
transacted thereat. Subject to Section 2.5 of this Article II, no business
other than that stated in the notice shall be transacted at any meeting.
Section 2.5. NOTICE OF STOCKHOLDER BUSINESS AND NOMINATIONS. (A) ANNUAL
MEETINGS OF STOCKHOLDERS. (1) Nominations of persons for election to the Board
of Directors and the proposal of business to be considered by the stockholders
may be made at an annual meeting of stockholders (a) pursuant to the Company's
notice of meeting delivered pursuant to Section 2.4 of this Article II, (b) by
or at the direction of the Board of Directors or (c) by any stockholder of the
Company who is entitled to vote at the meeting, who complied with the notice
procedures set forth in paragraphs (A)(2) and (A)(3) of this Section 2.5 and who
was a stockholder of record at the time such notice is delivered to the
Secretary of the Company.
(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 Section 2.5, the stockholder must have given timely notice thereof in
writing to the Secretary of the Company and such business must be a proper
subject for stockholder action under the General Corporation Law of the State of
Delaware. To be timely, a stockholder's notice shall be delivered to the
Secretary at the principal executive offices of the Company not less than sixty
(60) days nor more than ninety (90) days 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 advanced by more than thirty (30) days or delayed
by more than sixty (60) days from such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the ninetieth day
prior to such annual meeting and not later than the close of business on the
later of the sixtieth day prior to such annual meeting or the tenth day
following the day on which public announcement of the date of such meeting is
first made. 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, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act") (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 and address of such
stockholder, as they appear on the Company's books, and of such beneficial owner
and (ii) the class and number of shares of the Company which are owned
beneficially and of record by such stockholder and such beneficial owner. If
the stockholder or beneficial owner intends to solicit proxies in support of any
such nomination or proposal, such stockholder's notice shall also include a
representation to that effect.
(3) Notwithstanding anything in the second sentence of paragraph (A)(2)
of this Section 2.5 to the contrary, in the event that the number of
directors to be elected to the Board of Directors is increased and there
is no public announcement naming all of the nominees for
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director or specifying the size of the increased Board of
Directors made by the Company at least seventy (70) days prior to the first
anniversary of the preceding year's annual meeting, a stockholder's notice
required by this Section 2.5 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
Company not later than the close of business on the tenth day following the
day on which such public announcement is first made by the Company.
(B) SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall be
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Company's notice of meeting pursuant to Section 2.4
of this Article II. 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 Company's notice of meeting (a) by or at the
direction of the Board of Directors or (b) by any stockholder of the Company who
is entitled to vote at the meeting, who complies with the notice procedures set
forth in this Section 2.5 and who is a stockholder of record at the time such
notice is delivered to the Secretary of the Company. Nominations by
stockholders of persons for election to the Board of Directors may be made at
such a special meeting of stockholders if the stockholder's notice required by
paragraph (A)(2) of this Section 2.5 shall be delivered to the Secretary at the
principal executive offices of the Company not earlier than the ninetieth day
prior to such special meeting and not later than the close of business on the
later of the sixtieth day prior to such special meeting or the tenth 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.
(C) GENERAL. (1) Only persons who are nominated in accordance with the
procedures set forth in this Section 2.5 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 Section 2.5. Except as otherwise provided by law, the Charter 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 in accordance with this Section 2.5 and, if any proposed nomination or
business is not in compliance with this Section 2.5, or if a stockholder or
beneficial owner solicits proxies in support of a nomination or proposal without
having made the representation required in paragraph (A)(2) of this Section 2.5,
to declare that such proposal or nomination shall be disregarded.
(2) For purposes of this Section 2.5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
Company 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 Section 2.5, 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 Section 2.5. Nothing in this
Section 2.5 shall be deemed to affect any rights of stockholders to request
inclusion of proposals in the Company's proxy statement pursuant to Rule
14a-8 under the Exchange Act.
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<PAGE>
Section 2.6. QUORUM. At any meeting of stockholders, the presence in
person or by proxy of the holders of shares entitled to cast a majority of all
the votes which could be cast at such meeting by the holders of all of the
outstanding shares of stock of the Corporation entitled to vote on every matter
that is to be voted on without regard to class at such meeting shall constitute
a quorum. At any meeting of stockholders at which a quorum is not present, the
person serving as chairman of the meeting or the holders of shares entitled to
cast a majority of all of the votes which could be cast at such meeting by the
holders of outstanding shares of stock of the Company who are present in person
or by proxy and who are entitled to vote on every matter that is to be voted on
without regard to class at such meeting may adjourn the meeting from time to
time. At any meeting of stockholders duly called and held at which a quorum is
present, (i) in all matters other than the election of directors, a majority of
the votes which could be cast at such meeting upon a give question and (ii) in
the case of the election of directors, a plurality of the votes which could be
cast at such meeting upon such election, by such holders who are present in
person or by proxy, shall be necessary, in addition to any vote or other action
that may be expressly required by the provisions of the Charter or these By-Laws
or by the law of the State of Delaware, to decide such question or election, and
shall decide such question or election if no such additional vote or other
action is so required.
Section 2.7. ORGANIZATION AND CONDUCT OF BUSINESS. The Chairman of the
Board of Directors shall act as chairman of meetings of the stockholders. The
Board of Directors may designate any other officer or director of the Company to
act as chairman of any meeting in the absence of the Chairman of the Board of
Directors, and the Board of Directors may further provide for determining who
shall act as chairman of any stockholders' meeting in the absence of the
Chairman of the Board of Directors and such designee. The person serving as
chairman of any meeting of stockholders shall determine the order of business
and the procedure at the meeting, including such regulation of the manner of
voting and the conduct of discussion as seem to him or her in order.
The Secretary of the Company shall act as secretary of all meetings of the
stockholders, but in the absence of the Secretary the presiding officer may
appoint any other person to act as secretary of any meeting.
Section 2.8. PROXIES AND VOTING. At any meeting of stockholders, every
stockholder entitled to vote may vote in person or by proxy authorized by an
instrument in writing or by a transmission permitted by law filed in accordance
with the procedure established for the meeting. Any copy, facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this paragraph may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
All voting, including on the election of directors but excepting where
otherwise required by law, may be a voice vote; provided, however, that upon
demand therefor by a stockholder entitled to vote or by his or her proxy, a
stock vote
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shall be taken. Every stock vote shall be taken by ballots, each
of which shall state the name of the stockholder or proxy voting and such
other information as may be required under the procedure established for the
meeting.
Section 2.9. STOCK LISTS. A complete list of stockholders entitled to
vote at any meeting of stockholders, arranged in alphabetical order for each
class of stock and showing the address of each such stockholder and the number
of shares registered in his or her name, shall be open to the examination of any
such stockholder, for any purpose germane to the meeting, during ordinary
business hours for a period of at least ten (10) 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 the meeting, or if not so specified, at the
place where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
Section 2.10. RATIFICATION. Any transaction questioned in any
stockholders' derivative suit, or any other suit to enforce alleged rights of
the Company or any of its stockholders, on the ground of lack of authority,
defective or irregular execution, adverse interest of any director, officer or
stockholder, nondisclosure, miscomputation or the application of improper
principles or practices of accounting may be approved, ratified and confirmed
before or after judgment by the Board of Directors or by the holders of the
Company's Common Stock, par value $.01 per share (the "Common Stock"), voting as
provided in Section 2.6, and, if so approved, ratified or confirmed, shall have
the same force and effect as if the questioned transaction had been originally
duly authorized, and said approval, ratification or confirmation shall be
binding upon the Company and all of its stockholders and shall constitute a bar
to any claim or execution of any judgment in respect of such questioned
transaction.
Section 2.11. INSPECTORS OF ELECTION. The Board of Directors may, and to
the extent required by law, shall, in advance of any meeting of stockholders,
appoint one or more inspectors to act at the meeting, decide upon the
qualification of voters, count the votes, decide the results and make a written
report thereof in accordance with the General Corporation Law of the State of
Delaware. The Board of Directors may designate one or more persons as alternate
inspectors to replace any inspector who fails to act. If no inspector or
alternate is able to act at a meeting of stockholders, the person presiding at
the meeting may, and to the extent required by law, shall, appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his or her duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of his or her ability. Every vote taken by ballots shall be counted by an
inspector or inspectors appointed by the chairman of the meeting.
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<PAGE>
ARTICLE III
BOARD OF DIRECTORS
Section 3.1. NUMBER, TERM OF OFFICE AND ELIGIBILITY. Subject to any
rights of holders of preferred stock to elect additional directors under
specified circumstances, the number of directors of the Company shall be fixed
from time to time exclusively by resolution of the Board of Directors adopted by
the affirmative vote of directors constituting not less than a majority of the
total number of directors that the Company would have if there were no vacancies
on the Company's Board of Directors, but shall consist of not more than nine (9)
nor less than three (3) directors. Each director shall be elected annually by
ballot by the holders of the Common Stock as provided in Section 2.6 at the
annual meeting of stockholders, to serve until his or her successor shall have
been elected and shall have qualified, except as provided in this Section 3.1.
Subject to any rights of holders of preferred stock, and unless the Board of
Directors otherwise determines, any vacancy occurring in the Board of
Directors caused by death, resignation, increase in number of directors or
otherwise may be filled by the affirmative vote of a majority of the
remaining members of the Board of Directors, though less than a quorum, or by
a sole remaining director, and except as otherwise provided by law, any such
vacancy may not be filled by the stockholders of the Company, and any
director so elected shall hold office until the next election of directors
and until his or her successor is duly elected and qualified, or until his or
her earlier death, resignation or removal.
Section 3.2. MEETINGS. Meetings of the Board of Directors may be held at
such place, either inside or outside of the State of Delaware, as may from time
to time be designated by the Chairman of the Board of Directors, the President
or resolution of the Board of Directors or as may be specified in the call of
any meeting. In the absence of any such designation, the meetings shall be held
at the principal executive offices of the Company.
An annual meeting of the Board of Directors shall be held on the same day
as, and as soon as practicable following the annual meeting of stockholders or
at such other time or place as shall be determined by the Board of Directors at
its regular meeting next preceding said annual meeting of stockholders.
Special meetings of the Board of Directors may be held at any time on the
call of the Chairman of the Board of Directors, the President or the Board of
Directors. Meetings may be held at any time or place without notice if all the
directors are present or if those not present waive notice of the meeting in
writing.
Section 3.3. NOTICE OF MEETINGS. The Secretary or an Assistant Secretary
shall give notice of the time and place of meetings of the Board of Directors
(excepting the annual meeting of directors) by (i) mailing or sending via
courier such notice not later than during the second day preceding the day on
which such meeting is to be held, or (ii) by (a) sending a facsimile
transmission or other form of electronic communication containing such notice or
(b) delivering such notice personally or by telephone, in each case, not later
than during the first day preceding the day on which such meeting is to be
held to each director. Unless otherwise stated in the notice thereof any
and all business may be transacted at any meeting.
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Section 3.4. QUORUM AND ORGANIZATION OF MEETINGS. One-third of the total
number of members of the Board of Directors as constituted from time to time,
but in no event less than three, shall constitute a quorum for the transaction
of business; but if at any meeting of the Board of Directors there shall be less
than a quorum present, a majority of those present may adjourn the meeting from
time to time, and the meeting may be held as adjourned without further notice or
waiver. Except as otherwise provided by law or by the Charter or these By-Laws,
a majority of the directors present at any duly constituted meeting may decide
any question brought before such meeting.
Meetings shall be presided over by the Chairman of the Board of Directors
or, in his or her absence, by such other person as the Board of Directors may
designate or the members present may select.
Section 3.5. POWERS. In addition to the powers and authorities by these
By-Laws expressly conferred upon them, the Board of Directors shall have and may
exercise all such powers of the Company and do all such lawful acts and things
that are not by statute, the Charter or these By-Laws directed or required to be
exercised or done by the stockholders.
Section 3.6. RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each director,
each member of any committee designated by the Board of Directors and each
officer, in the performance of his or her duties, shall be fully protected in
relying in good faith upon such information, opinions, reports or statements
presented to the Company by any of its officers or employees, or by committees
of the Board of Directors, or by any other person, as to matters such director,
member or officer, as the case may be, reasonably believes are within such
person's professional or expert competence and who has been selected with
reasonable care by the Board of Directors or by any such committee, or in
relying in good faith upon other records of the Company.
Section 3.7. COMPENSATION OF DIRECTORS. Directors, as such, may receive,
pursuant to resolution of the Board of Directors, fixed fees and other
compensation for their services as directors, including, without limitation,
services as members of committees of the Board of Directors; provided that
nothing herein contained shall be construed to preclude any director from
serving the Company in any other capacity and receiving compensation therefor.
Section 3.8. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Unless
otherwise provided by the Charter or these By-Laws, members of the Board of
Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors or such committee by means
of a conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation in a meeting pursuant to this Section 3.8 shall constitute
presence in person at such meeting.
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ARTICLE IV
COMMITTEES
Section 4.1. COMMITTEES. The Board of Directors may from time to time
establish standing committees or special committees of the Board of Directors,
each of which shall have such powers and functions as may be delegated to it by
the Board of Directors. The Board of Directors may abolish any committee
established by or pursuant to this Section 4.1 as it may deem advisable. Each
such committee shall consist of two or more directors, the exact number being
determined from time to time by the Board of Directors. Designations of the
chairman and members of each such committee, and, if desired, a vice chairman
and alternates for members, shall be made by the Board of Directors. In the
absence or disqualification of any member of any committee and any alternate
member in his or her place, the member or members of the committee present at
the meeting and not disqualified from voting whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or disqualified
member. Each committee shall have a secretary who shall be designated by its
chairman. A vice chairman of a committee shall act as the chairman of the
committee in the absence or disability of the chairman.
Section 4.2. RULES AND PROCEDURES. Each committee may fix its own rules
and procedures and shall meet at such times and places as may be provided by
such rules, by resolution of the committee or by call of the chairman or vice
chairman. Notice of meeting of each committee, other than of regular meetings
provided for by its rules or resolutions, shall be given to committee members.
The presence of one-third of its members, but not less than two, shall
constitute a quorum of any committee, and all questions shall be decided by a
majority vote of the members present at the meeting. All action taken at each
committee meeting shall be recorded in minutes of the meeting.
Section 4.3. APPLICATION OF ARTICLE. Whenever any provision of any other
document relating to any committee of the Company named therein shall be in
conflict with any provision of this Article IV, the provisions of this Article
IV shall govern, except that if such other document shall have been approved by
the stockholders, voting as provided in the Charter, or by the Board of
Directors, the provisions of such other document shall govern.
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<PAGE>
ARTICLE V
OFFICERS
Section 5.1. OFFICERS. The Officers of the Company shall include a
Chairman of the Board of Directors, a President, one or more Vice Presidents, a
Treasurer and a Secretary, each of whom shall be elected by the Board of
Directors to hold office until his or her successor shall have been chosen and
shall have qualified. The Board of Directors, the Chairman of the Board of
Directors and the President may elect or appoint one or more Assistant Vice
Presidents, one or more Assistant Treasurers, one or more Assistant Secretaries,
and the Board of Directors may elect or appoint such other officers as it may
deem necessary, or desirable, each of whom shall have such authority, shall
perform such duties and shall hold office for such term as may be prescribed by
the Board of Directors from time to time. Any person may hold at one time more
than one office, excepting that the duties of the President and Secretary shall
not be performed by one person.
Section 5.2. CHAIRMAN OF THE BOARD OF DIRECTORS. Subject to the
provisions of these By-Laws and to the direction of the Board of Directors, he
or she shall preside at all meetings of the Board of Directors. He or she may
redelegate from time to time and to the full extent permitted by law, in
writing, to officers or employees of the Company any or all of such duties and
powers, and any such redelegation may be either general or specific. Whenever
he or she so shall delegate any of his or her authority, he or she shall file a
copy of the redelegation with the Secretary of the Company.
Section 5.3. PRESIDENT. The President shall be the Chief Executive
Officer of the Company. Subject to the provisions of these By-Laws and to the
direction of the Board of Directors, the President shall have ultimate authority
for decisions relating to the general management and control of the affairs and
business of the Company and shall perform all other duties and exercise all
other powers commonly incident to the position of President and Chief Executive
Officer or which are or from time to time may be delegated to him or her by the
Board of Directors, or which are or may at any time be authorized or required by
law. He or she may redelegate from time to time and to the full extent
permitted by law, in writing, to officers or employees of the Company any or all
of such duties and powers, and any such redelegation may be either general or
specific. Whenever he or she so shall delegate any of his or her authority, he
or she shall file a copy of the redelegation with the Secretary of the Company.
Section 5.4. VICE PRESIDENTS. Each of the Vice Presidents shall have such
powers and shall perform such duties as may be delegated to him or her by the
Board of Directors, the Chairman of the Board of Directors, the President or
such other officer or officers to whom he or she is directly responsible.
Section 5.5. TREASURER AND ASSISTANT TREASURER. The Treasurer, subject
to the direction of the Board of Directors, shall have the care and custody
of all funds and securities of the Company which may come into his or her
hands. When necessary or proper he or she shall endorse on behalf of the
Company, for collection, checks, notes and other obligations, and shall
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<PAGE>
deposit all funds of the Company in such banks or other depositories as
may be designated by the Board of Directors or by such officers or employees
as may be authorized by the Board of Directors so to designate. He or she
shall perform all acts incident to the office of Treasurer, subject to the
control of the Board of Directors and such other officer or officers to whom
he or she is directly responsible. He or she may be required to give a bond
for the faithful discharge of his or her duties, in such sum and upon such
conditions as the Board of Directors may require.
At the request and direction of the Treasurer or, in the case of his or her
absence or inability to act, any Assistant Treasurer may act in his or her
place. In the case of the death of the Treasurer, or in the case of his or her
absence or inability to act without having designated an Assistant Treasurer to
act temporarily in his or her place, the Assistant Treasurer so to perform the
duties of the Treasurer shall be designated by the Chairman of the Board of
Directors or the President.
Section 5.6. SECRETARY AND ASSISTANT SECRETARY. The Secretary shall keep
full and accurate minutes of the meetings of the stockholders and of the Board
of Directors in the proper record book of the Company provided therefor, and,
when required, the minutes of meetings of the committees, and shall be
responsible for the custody of all such minutes. Subject to the direction of
the Board of Directors, the Secretary shall have custody of the stock ledgers
and documents of the Company. He or she shall have custody of the corporate
seal of the Company and shall affix and attest such seal to any instrument whose
execution under seal shall have been duly authorized. He or she shall give due
notice of meetings and, subject to the direction of the Board of Directors,
shall perform all other duties commonly incident to his or her office or as
properly required of him or her by the Chairman of the Board of Directors and
such other officer or officers to whom he or she is directly responsible and
shall enjoy all other powers commonly incident to his or her office.
At the request and direction of the Secretary or, in the case of his or her
absence or inability to act, any Assistant Secretary may act in his or her
place. In the case of the death of the Secretary, or in the case of his or her
absence or inability to act without having designated an Assistant Secretary to
act temporarily in his or her place, the Assistant Secretary or other person so
to perform the duties of the Secretary shall be designated by the Chairman of
the Board of Directors or the President.
Section 5.7. OTHER OFFICERS. Each other officer shall perform such duties
commonly incident to his or her office or as properly required of him or her by
the Chairman of the Board of Directors and such other officer or officers to
whom he or she is directly responsible.
Section 5.8. SALARIES. Salaries of officers, agents or employees shall
be fixed from time to time by the Board of Directors or by such committee or
committees, or person or persons, if any, to whom such power shall have been
delegated by the Board of Directors. An employment contract, whether with an
officer, agent or employee, if expressly approved or specifically authorized
by the Board of Directors, may fix a term of employment thereunder; and
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<PAGE>
such contract, if so approved or authorized, shall be valid and binding upon
the Company in accordance with the terms thereof, provided that this
provision shall not limit or restrict in any way the right of the Company at
any time to remove from office, discharge or terminate the employment of any
such officer, agent or employee prior to the expiration of the term of
employment under any such contract.
Section 5.9. VACANCIES. A vacancy in any office filled by election of
the Board of Directors may be filled by the Board of Directors by the
election of a new officer who shall hold office, subject to the provisions of
this Article V, until the regular meeting of the directors following the next
annual meeting of the stockholders and until his or her successor is elected.
Section 5.10. REMOVAL OR DISCHARGE. Any officer may be removed or
discharged by the Chairman of the Board of Directors at any time excepting an
officer who is also a director. Any officer who also is a director may be
discharged at any time by the Board of Directors.
ARTICLE VI
RESIGNATIONS
Any director, officer or agent of the Company, or any member of any
committee, may resign at any time by giving written notice to the Board of
Directors, the Chairman of the Board of Directors, the President or the
Secretary of the Company. Any such resignation shall take effect at the time
specified therein, or if the time be not specified therein, then upon receipt
thereof. The acceptance of such resignation shall not be necessary to make it
effective.
ARTICLE VII
CAPITAL STOCK - DIVIDENDS - SEAL
Section 7.1. CERTIFICATES OF SHARES. The certificates for shares of the
capital stock of the Company shall be in such form, not inconsistent with the
Charter, as shall be approved by the Board of Directors. The certificates shall
be numbered and signed by the Chairman of the Board of Directors, the President
or a Vice President, and also by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary. Any and all signatures may be facsimiles.
All certificates shall bear the name of the persons owning the shares
represented thereby, shall state the number of shares represented by such
certificate and the date of issue; and such information shall be entered in the
Company's original stock ledger.
Section 7.2. ADDRESSES OF STOCKHOLDERS. It shall be the duty of every
stockholder to notify the Company of his or her post office address and of
any change therein. The latest address furnished by each stockholder shall
be entered on the original stock ledger of the Company and the latest address
appearing on such original stock ledger shall be deemed conclusively to be
the post office address and the last-known post office address of such
stockholder. If any stockholder shall fail to notify the Company of his or
her post office address, it shall be sufficient to send corporate notices
to such stockholder at the address, if any, understood by the Secretary to
be his or her post office address, or in the absence of such
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<PAGE>
address, to such stockholder, at the General Post Office in the
City of Wilmington, State of Delaware.
Section 7.3. LOST, DESTROYED OR STOLEN CERTIFICATE. Any person claiming a
stock certificate in lieu of one lost, destroyed or stolen, shall give the
Company an affidavit as to his, her or its ownership of the certificate and of
the facts which go to prove that it has been lost, destroyed or stolen. If
required by the Board of Directors, he, she or it also shall give the Company a
bond, in such form as may be approved by the Board of Directors, sufficient to
indemnify the Company against any claim that may be made against it on account
of the alleged loss of the certificate or the issuance of a new certificate. A
new certificate shall be issued upon receipt of such an affidavit and, if
required, upon the giving of such a bond.
Section 7.4. RECORD OF HOLDER OF SHARES. The Company shall be entitled to
treat the holder of record of any share or shares as the holder in fact thereof,
and accordingly shall not be bound to recognize any equitable or other claims to
or interest in such shares on the part of any other person, whether or not it
shall have express or other notice thereof, save as expressly provided by the
General Corporation Law of the State of Delaware. The Company 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.
Section 7.5. RECORD DATE. In order that the Company may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders, or
to receive payment of any dividend or other distribution or allotment of any
rights or 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 a record date, which record date shall not precede the date on
which the resolution fixing the record date is adopted and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date of
any meeting of stockholders, nor more than sixty (60) days prior to the time for
such other action as hereinbefore described; provided, however, that if no
record date is fixed by the Board of Directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held, and, for determining
stockholders entitled to receive payment of any dividend or other distribution
or allotment of rights or to exercise any rights of change, conversion or
exchange of stock or for any other purpose, the record date shall be at the
close of business on the day on which the Board of Directors adopts a resolution
relating thereto.
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 that the Board of Directors may fix a new record date for the adjourned
meeting.
If stockholders are entitled to consent to corporate action in writing
without a meeting in accordance with the General Corporation Law of the State
of Delaware and the Charter, in order that the Company may determine the
stockholders entitled to so consent, the Board of Directors may fix a record
date, which shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which record date
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<PAGE>
shall be not more than ten
(10) days after the date upon which the resolution fixing the record date is
adopted and if no record date has been fixed by the Board of Directors and if
no prior action by the Board of Directors is required by the General
Corporation Law of the State of Delaware, the record date shall be the first
date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the Company in the manner prescribed by
Article 9 of the Charter. If stockholders are entitled to consent to
corporate action in writing without a meeting in accordance with the General
Corporation Law of the State of Delaware and the Charter, and no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by the General Corporation Law of the State of Delaware
with respect to the proposed action by written consent of the stockholders,
the record date for determining stockholders entitled to consent to corporate
action in writing shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action.
Section 7.6. REGULATIONS. The Board of Directors shall have power and
authority to make all such rules and regulations not inconsistent with any of
the provisions of these By-Laws, the Charter or the General Corporation Law of
the State of Delaware, as it may deem expedient, concerning the issue, transfer
and registration of certificates for shares of the stock of the Company.
Section 7.7. CORPORATE SEAL. The corporate seal shall be in such form as
shall from time to time be approved by the Board of Directors. If and when so
authorized by the Board of Directors, a duplicate of the seal may be kept and
used by the Secretary or Treasurer or by any Assistant Secretary or Assistant
Treasurer.
ARTICLE VIII
EXECUTION OF CONTRACTS AND OTHER DOCUMENTS
Section 8.1. CONTRACTS, ETC. Except as otherwise prescribed in these
By-Laws, such officers, employees or agents of the Company as shall be specified
by the Board of Directors shall sign, in the name and on behalf of the Company,
all deeds, bonds, contracts, mortgages and other instruments or documents, the
execution of which shall be authorized by the Board of Directors; and such
authority may be general or confined to specific instances. Except as so
authorized by the Board of Directors, no officer, agent or employee of the
Company shall have power or authority to bind the Company by any contract or
engagement or to pledge, mortgage, sell or otherwise dispose of its credit or
any of its property or to render it pecuniarily liable for any purpose or in any
amount.
Section 8.2. CHECKS, DRAFTS, ETC. Except as otherwise provided in
these By-Laws, all checks, drafts, notes, bonds, bills of exchange or other
orders, instruments or obligations for the payment of money shall be signed
by such officer or officers, employee or employees, or agent or agents,
as the Board of Directors shall by resolution direct. The Board of
Directors may, in its discretion, also provide by resolution for the
countersignature or registration of any or all such orders, instruments
or obligations for the payment of money.
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<PAGE>
ARTICLE IX
FISCAL YEAR
The fiscal year of the Company shall begin on the first day of April and
end on the last day of March in each year.
ARTICLE X
MISCELLANEOUS
Section 10.1. ORIGINAL STOCK LEDGER. As used in these By-Laws and in the
Charter, the words "original stock ledger" shall mean the record maintained by
the Secretary of the Company of the name and address of each of the holders of
shares of any class of stock of the Company, and the number of shares and the
numbers of the certificates for such shares held by each of them, taking into
account transfers at the time made by and recorded on the transfer sheets of
each of the Transfer Agents of the Company although such transfers may not have
been posted in the record maintained by the Secretary.
Section 10.2. NOTICES AND WAIVERS THEREOF. Whenever any notice whatsoever
is required by these By-Laws, the Charter or any of the laws of the State of
Delaware to be given to any stockholder, director or officer, such notice,
except as otherwise provided by the laws of the State of Delaware, may be given
personally or by telephone or be given by facsimile transmission or other form
of electronic communication, addressed to such stockholder at the address set
forth as provided in Section 7.2, or to such director or officer at his or her
Company location, if any, or at such address as appears on the books of the
Company, or the notice may be given in writing by depositing the same in a post
office, or in a regularly maintained letter box, or by sending it via courier in
a postpaid, sealed wrapper addressed to such stockholder at the address set
forth in Section 7.2, or to such director or officer at his or her Company
location, if any, or such address as appears on the books of the Company.
Any notice given by facsimile transmission or other form of electronic
communication shall be deemed to have been given when it shall have been
transmitted. Any notice given by mail or courier shall be deemed to have been
given when it shall have been mailed or delivered to the courier.
A waiver of any such notice in writing, including by facsimile
transmission, signed or dispatched by the person entitled to such notice or by
his or her duly authorized attorney, whether before or after the time stated
therein, shall be deemed equivalent to the notice required to be given, and the
presence at any meeting of any person entitled to notice thereof shall be deemed
a waiver of such notice as to such person.
Section 10.3. VOTING UPON STOCKS. The Board of Directors (whose
authorization in this connection shall be necessary in all cases) may from
time to time appoint an attorney or attorneys or agent or agents of the
Company, or may at any time or from time to time authorize the Chairman of
the Board of Directors, the President, any Vice President, the Treasurer or
the
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<PAGE>
Secretary to appoint an attorney or attorneys or agent or agents of the
Company, in the name and on behalf of the Company, to cast the votes which
the Company may be entitled to cast as a stockholder or otherwise in any
other corporation or association, any of the stock or securities of which may
be held by the Company, at meetings of the holders of the stock or other
securities of such other corporation or association, or to consent in writing
to any action by any such other corporation or association and the Board of
Directors or any aforesaid officer so authorized may instruct the person or
persons so appointed as to the manner of casting such votes or giving such
consent, and the Board of Directors or any aforesaid officer so authorized
may from time to time authorize the execution and delivery, on behalf of the
Company and under its corporate seal, or otherwise, of such written proxies,
consents, waivers or other instruments as may be deemed necessary or proper
in the premises.
ARTICLE XI
AMENDMENTS
These By-Laws may be altered, amended or repealed at any meeting of
the Board of Directors or of the stockholders, provided that notice of such
alteration, amendment or repeal be contained in the notice of such meeting of
the Board of Directors or stockholders (subject, in the case of meetings of
stockholders, to the provisions of Article II of these By-Laws), as the case may
be. All such amendments must be approved by the affirmative vote of the holders
of at least 75% of the total voting power of all classes of outstanding capital
stock, voting together as a single class (if effected by action of the
stockholders), or by the affirmative vote of directors constituting not less
than a majority of the total number of directors that the Company would have if
there were no vacancies on the Company's Board of Directors (if effected by
action of the Board of Directors).
-15-
<PAGE>
Exhibit 4.1
TEMPORARY CERTIFICATE-EXCHANGEABLE FOR DEFINITIVE ENGRAVED CERTIFICATE
WHEN READY FOR DELIVERY
COMMON STOCK COMMON STOCK
PAR VALUE $.01 PAR VALUE $.01
[GRAPHIC] [ACCPAC LOGO] [GRAPHIC]
ACCPAC INTERNATIONAL, INC.
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF DELAWARE CERTAIN DEFINITIONS
CUSIP 004354 10 6
- -------------------------------------------------------------------------------
THIS CERTIFIES that
is the owner of
- -------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF
- ------------------------ACCPAC INTERNATIONAL, INC.-----------------------------
Transferable on the books of the Corporation by the holder hereof 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 of the provisions of the Certificate of
Incorporation and By-Laws of the Corporation and any amendments thereto. This
Certificate is not valid unless countersigned by the Transfer Agent and
registered by the Registrar.
Witness the seal of the Corporation and the signatures of its duly
authorized officers.
Dated
CERTIFICATE OF STOCK
ChaseMellon Shareholder Services, L.L.C.
Transfer Agent
and Registrant
Authorized Signature
/s/ Donnat Lettman /s/ Frederick S. Wysocki
- --------------------------- [SEAL] ---------------------------
TREASURER CHIEF EXECUTIVE OFFICER AND PRESIDENT
<PAGE>
ACCPAC INTERNATIONAL, INC.
The Corporation will furnish, without charge to each stockholder who so
requests, a statement of 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.
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.
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
------------------
TEN ENT - as tenants by the entireties (Cust) (Minor)
under Uniform Gifts to Minors
JT TEN - as joint tenants with right Act
of survivorship and not as -------------------------
tenants in common (State)
</TABLE>
Additional abbreviations may also be used though not on 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 postal 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.
<PAGE>
Exhibit 10.1
CONTRIBUTION AGREEMENT
CONTRIBUTION AGREEMENT dated January 7, 1998 by and between Computer
Associates International, Inc. ("CA") and ACCPAC INTERNATIONAL, INC. ("AI").
WHEREAS, the Board of Directors of CA has determined that it is in the best
interest of CA and its shareholders to separate the business conducted by CA's
ACCPAC independent Business Unit ("iBU") into a separate business; and
WHEREAS, in furtherance of the foregoing it is appropriate and desirable to
transfer the assets used in the operation of the ACCPAC iBU to AI and its
subsidiaries and to cause AI and its subsidiaries to assume the liabilities
which have arisen in the course of the operation of the ACCPAC iBU, all as more
fully described in this Agreement; and
WHEREAS, the Board of Directors of CA has further determined that it is
appropriate and desirable, on the terms and conditions contemplated in this
Agreement, to cause AI to offer and sell for its own account in an initial
public offering a limited number of shares of AI common stock; and
WHEREAS, in consideration for the transfer of the ACCPAC assets to AI, AI
will issue 2,625 shares of its common stock to CA issue a note to CA in the
amount of $5 million and assume all of the liabilities associated with the
ACCPAC assets.
NOW THEREFORE, the parties intending to be legally bound agree as follows:
1. TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES.
(a) CA hereby contributes, assigns, transfers, conveys and
delivers to AI, and agrees to cause its subsidiaries to assign,
transfer, convey and deliver to AI, and AI hereby accepts from CA
and its subsidiaries, all of CA's and its subsidiaries respective
right, title and interest in all AI Assets. The transfer of
assets shall be deemed to have accrued on January 1, 1998.
(b) AI hereby assumes and agrees faithfully to perform and
fulfill all of the AI Liabilities in accordance with their
respective terms. AI shall be responsible for all AI
Liabilities, regardless of when or where such AI Liabilities
arose or arise or whether the facts on which they are based
occurred prior to or subsequent to the date hereof, regardless or
where or against whom such liabilities are asserted or determined
of whether asserted or determined prior to the date hereof, and
regardless of whether arising from, or alleged to arise from
negligence, recklessness, violation of law, fraud or
misrepresentation by CA or its subsidiaries or any of their
respective directors, officers, employees or agents.
<PAGE>
(c) AI hereby grants a worldwide, perpetual, royalty free
license to CA and its subsidiaries to use any and all present and
future AI products for internal use only. This license shall
include maintenance, at no cost to CA or its subsidiaries. In
the event that AI is required to make any royalty or license
payment to third parties as a result of this license to CA and
its subsidiaries, CA shall reimburse AI for any such royalty or
license payments made by AI to any third party. The license to
CA and its subsidiaries shall include, without limitation, any
products created or acquired by AI subsequent to this Agreement,
as well as products licensed by AI for sublicense by AI to third
parties.
2. AI ASSETS. For purposes of this agreement "AI Assets" shall mean,
(without duplication) any and all assets, properties and rights (including the
goodwill associated therewith), wherever located, that are being used
exclusively or primarily in the business of the ACCPAC iBU, including all
accounting and other books, records and information; all computer, equipment and
other tangible personal property; all inventories, work-in-process and finished
goods; all the outstanding capital stock of DistribuPro, Inc.; all license
agreements, purchase orders and other contracts, agreements and commitments; all
written technical information, data, specifications and reseat and development
information, all domestic and foreign copyrights, trade names, trademarks,
service marks and registrations and applications therefor; all trade secrets,
inventions and other proprietary information, all rights under contracts and
agreements and all claims or rights arising from the ownership of any ACCPAC
asset; and cash or cash equivalents, bank accounts and other deposit
arrangements. "AI Assets" shall not include any fee interest in real property,
or any asset, property or right that is not used exclusively or primarily in the
business of the ACCPAC iBU.
3. AI LIABILITIES. For purposes of this agreement, "AI Liabilities"
shall mean (without duplication) all liabilities and obligations (whether
absolute, accrued, contingent or otherwise and whether due or to become due)
relating to, arising out of or resulting from the AI Assets and the operation of
the business of the ACCPAC iBU as conducted at any time prior to, on or after
the date hereof (including any employee-related liabilities and any liability
relating to, arising out of or resulting from any act or failure to act by any
director, officer, employee, agent or representative (whether or not such act or
failure to act is or was within such person's authority)).
4. ISSUANCE OF SHARES IN CONSIDERATION FOR THE CONTRIBUTION AND TRANSFER
OF THE AI ASSETS TO CA. AI shall issue 2,625 shares of its common stock, par
value $.01 per share to CA upon the execution of this Agreement in consideration
for the transfer of the AI assets to AI.
5. ISSUANCE OF NOTE UPON THE EXECUTION OF THIS AGREEMENT. AI shall
execute a note substantially in the form of attached hereto as Exhibit A
providing for the payment to CA of $5 million. This Note shall not bear
interest until January 1, 1999
<PAGE>
after which the note shall bear interest at a rate of 9% per annum. The Note
shall be payable in full upon the earlier to occur of the closing of an
initial public offering of AI's common stock and December 31, 1999.
6. INDEMNIFICATION BY AI. AI shall indemnify, defend and hold harmless
CA, and each of its directors, officers and employees from and against any
claim, loss, charge, cost, liability, expense (including litigation expenses and
attorneys' fees and expenses), damage or cause of action relating to, arising
out of or resulting from any of the following items (without duplication):
(a) failure by AI to pay, perform or otherwise promptly discharge any
AI Liabilities in accordance with their respective terms, whether prior to or
after the date hereof;
(b) the AI Assets or the conduct by AI of its business and operations
(including any litigation pending or threatened or that arises in the future and
primarily or exclusively involving the AI Assets, the AI Liabilities or AI's
business); and
(c) any breach by AI of this Agreement.
7. INDEMNIFICATION BY CA. CA shall indemnify, defend and hold harmless
AI, and each of its directors, officers and employees from and against any
claim, loss, charge, cost, liability, expense (including litigation expenses and
attorneys' fees and expenses), damage or cause of action relating to, arising
out of or resulting from any of the following items (without duplication):
(a) the failure of CA to pay, perform or otherwise promptly discharge
any liability of CA other than the AI Liabilities whether prior to or after the
date hereof;
(b) the conduct by CA of its business; and
(c ) any breach by CA of this Agreement.
8. INDEMNIFICATION OBLIGATIONS NET OF INSURANCE PROCEEDS AND OTHER
AMOUNTS. The parties intend that any liability subject to indemnification or
reimbursement pursuant to this agreement will be net of insurance proceeds, if
any, received by either party that actually reduced the amount of the liability
if an indemnified party receives any payment ("Indemnity Payment") required by
this Agreement from an indemnifying party in respect of any liability for which
indemnification is provided under this Agreement and subsequently receives
insurance proceeds then the indemnified party will pay to the indemnifying party
an amount equal to the excess of the Indemnity Payment received over the amount
of the Indemnity Payment that would have been due if the insurance proceeds or
recovery had been received, realized or recovered before the Indemnity Payment
was made.
<PAGE>
9. DISCLAIMER OF REPRESENTATIONS AND WARRANTIES. Each of CA and AI
understand, acknowledge and agree that, except as expressly set forth herein, no
party to this Agreement is representing or warranting in any way as to the
assets, businesses or liabilities contributed, transferred or assumed as
contemplated by this Agreement, as to any consents or approvals required in
connection therewith, as to the value or freedom from any mortgage, claim,
security interest or other encumbrance (collectively, "Security Interests") of
any of the AI Assets, as to the absence of any defense or freedom from
counterclaim with respect to any claim of any party or as to legal sufficiency
of any assignment, document or instrument delivered hereunder to convey title to
any AI Assets. Except as may be expressly set forth herein, all AI Assets are
being contributed and transferred on an "as is," "where is" basis and AI shall
bear the economic and legal risks that any conveyance shall prove to be
insufficient to vest in the transferee good and marketable title, free and clear
of any Security Interest.
10. TAX PAYMENTS. In the event that AI has positive income (before
income taxes) for the fiscal period ending March 31, 1998 and for the period
beginning April 1, 1998 and ending on the date of the consummation of the
initial public offering of AI common stock (the "IPO Date"), as reflected on
AI's financial statements for such periods (the "Financial Statements"), AI
will make a payment to CA in an amount equal to the product of such income
and .375, in order to compensate the CA Consolidated Group (as defined below)
for a portion of its tax liability attributable to the AI Group (as defined
below); provided that any payment due from AI for the fiscal period ended
March 31, 1998 shall be deemed to constitute a portion of the $5.0 million
principal amount of the note described in Section 5 hereof. In the event
that AI has negative earnings for the fiscal period ending March 31, 1998 or
for the period beginning April 1, 1998 and ending on the IPO Date as
reflected on the Financial Statements, and if such loss makes allowable to
the CA Group a deduction or credit, CA shall make a payment to AI equal to
the "Tax Benefit Amount," determined in accordance with the following
sentence. The "Tax Benefit Amount" shall be determined by taking the excess
if any, of the income taxes that would have been payable by the CA Group for
the taxable year ending March 31, 1998 or March 31, 1999, as the case may be,
if the AI Group had not been a member of the CA Consolidated Group, to the
income taxes actually paid by the CA Group for such period. For purposes of
this Agreement, "AI Group" shall mean the corporation which are members of
the affiliated group of corporations of which AI is the common parent (within
the meaning of Section 1504 of the Internal Revenue Code of 1986, as amended
(the "Code")) immediately after the IPO Date and any predecessors or
successors thereto; "CA Consolidated Group" shall mean, with respect to any
taxable period, the corporations which are members of the affiliated group of
corporations of which CA is the common parent (within the meaning of Section
1504 of the Code); and "CA Group" shall mean the corporations which are
members of the CA Consolidated Group during any taxable period, excluding the
corporations which are the members of the AI Group.
11. CERTAIN ASSIGNMENTS. To the extent that CA's rights under any AI
Asset (including any claim or right to any benefit arising thereunder or
resulting therefrom), to be assigned to AI hereunder may not be assigned without
the consent of another person which has not been obtained by CA prior to the
date hereof, neither this Agreement nor any of the instruments of transfer,
assignment or conveyance executed in connection herewith shall constitute an
agreement to assign the same if an attempted assignment
<PAGE>
would constitute a breach thereof or be unlawful, and CA and AI shall use all
their respective reasonable efforts to obtain any such required consent as
promptly as possible after the date hereof. If (i) any such consent has not
been obtained or (ii) any attempted assignment would be ineffective or would
impair AI's rights under the instrument in question so that AI would not in
effect acquire the benefit of such rights, then CA, as may be appropriate, shall
cooperate with AI in any reasonable manner to provide AI with the benefits of
such instrument.
12. FURTHER ASSURANCES. From time to time after the date hereof, each
party hereto agrees to execute, acknowledge and deliver to the other party such
other instruments of conveyance and transfer, to take such other actions and to
execute and deliver such other documents, certifications and further assurances
as such party hereto may reasonably request in order to vest more effectively in
AI, or to put AI more fully in possession of, any of the AI Assets, or to better
enable AI to complete, perform or discharge any of the AI Liabilities.
13. MISCELLANEOUS.
(a) This Agreement may be executed in one or more counterparts, all
of which have been considered one in the same agreement.
(b) This Agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of New York irrespective
of the choice of law principles of the state of the forum as to all matters,
including matters of the liberty, construction, effect and enforceability,
performance and remedies.
IN WITNESS WHEREOF, the parties have caused this Contribution Agreement to
be executed by their duly authorized representatives.
COMPUTER ASSOCIATES INTERNATIONAL, INC.
By: /s/ Robert H. Toth
-------------------------------
ACCPAC INTERNATIONAL, INC.
By: /s/ Frederick S. Wysocki
-------------------------------
<PAGE>
$5,000,000
Islandia, New York
January 7, 1998
PROMISSORY NOTE
FOR VALUE RECEIVED, ACCPAC International, Inc. ("Borrower"), agrees to
pay to the order of Computer Associates International, Inc., One Computer
Associates Plaza, Islandia, New York 11788, the principal sum of five million
dollars ($5,000,000) plus interest, if any, as set forth herein on the
earlier to occur of (i) the closing of an initial public offering of common
stock of ACCPAC International, Inc. and (ii) December 31, 1999.
In the event that this Note is not paid in full on or prior to December
31, 1998, interest shall accrue on the unpaid principal amount of this Note
as of January 1, 1999 and thereafter at the rate of nine (9) percent per
annum.
Both principal and interest, if any, are payable in lawful money of the
United States at the offices of Computer Associates International, Inc., One
Computer Associates Plaza, Islandia, New York 11788, in New York City good
funds, or at such other place as the holder of this Note, from time to time,
in writing may require.
Should the indebtedness represented by this Note, or any part thereof, be
collected at law or in equity or in bankruptcy, receivership or other court
proceedings, or this Note be placed in the hands of attorneys for collection
after default, the Borrower agrees to pay, in addition to the principal,
interest and other fees due and payable hereon, reasonable attorneys' and
collection fees.
The Borrower and any endorser hereof, and each of them, hereby waives
presentment for payment, notice of dishonor, protest and notice of protest
and other notices of every kind, and, to the fullest extent permitted by law,
all rights to plead any statute of limitations as defense to any action
hereunder. No delay on the part of the holder hereof in exercising any rights
hereunder shall operate as a waiver of such rights.
This Note shall be governed by, and for all purposes construed in
accordance with, the laws of the State of New York without regard to its
principles of conflicts of laws.
ACCPAC INTERNATIONAL, INC.
By: /s/ Frederick S. Wysocki
--------------------------
<PAGE>
Exhibit 10.2
REGISTRATION RIGHTS AGREEMENT, dated as of August __,
1998, between ACCPAC INTERNATIONAL, INC., a Delaware
corporation (the "Company"), and COMPUTER ASSOCIATES
INTERNATIONAL, INC., a Delaware corporation ("Computer
Associates").
------------------------------------------------------
INTRODUCTION
The Company was incorporated in Delaware in October 1997 and became a
subsidiary of Computer Associates effective January 1998. As of the date
hereof, Computer Associates owns 5,250,000 shares (adjusted for the 2,000-for-1
stock split effective August 17, 1998) of the Company's Common Stock, par
value $.01 per share ("Common Stock").
The parties are contemplating that the Company will issue and sell
additional shares of its Common Stock in an initial public offering (the
"Offering") registered under the Securities Act of 1933, as amended (the
"Securities Act").
The parties desire to enter into this Agreement to set forth their
agreement regarding certain registration rights with respect to the Common Stock
(and any other securities issued in respect thereof or in exchange therefor)
owned by Computer Associates.
The parties hereto agree as follows:
Section 1. DEMAND REGISTRATION - REGISTRABLE SECURITIES.
(a) Upon written notice provided by Computer Associates to the
Company at any time after the 180-day period following the completion of the
initial sale of Common Stock in the Offering (the "IPO Date") (or such earlier
date as permitted by J.P. Morgan Securities, Inc.) requesting that the Company
effect the registration under the Securities Act of any or all of the Common
Stock (and any stock or other securities into which or for which such Common
Stock may hereafter be changed, converted or exchanged and any other shares or
securities issued to Computer Associates (or such shares or other securities
into which or for which such shares are so changed, converted or exchanged) upon
any reclassification, share combination, share subdivision, share dividend,
share exchange, merger, consolidation or similar transaction or event) held by
Computer Associates (the "Registrable Securities"), which notice shall specify
the intended method or methods of disposition of such Registrable Securities,
the Company shall use its best efforts to effect the registration under the
Securities Act and applicable state securities laws of such Registrable
Securities for disposition in accordance with the intended method or methods of
disposition stated in such request (including in an offering on a delayed or
continuous basis pursuant to Rule 415 (or any successor rule to similar effect)
promulgated under the Securities Act (a "Rule 415 Offering"), if the Company is
then eligible to register such Registrable Securities on Form S-3 (or a
successor form) for such offering); provided that:
<PAGE>
(i) with respect to any registration statement filed, or to be
filed, pursuant to this Section 1, if the Company shall furnish to Computer
Associates a certified resolution of the Board of Directors of the Company
adopted by the affirmative vote of the directors not designated by
Computer Associates stating that in the Board of Directors' good faith
judgment it would (because of the existence of, or in anticipation of, any
acquisition or financing activity, or the unavailability for reasons beyond
the Company's reasonable control of any required financial statements, or
any other event or condition of similar significance to the Company) be
significantly disadvantageous (a "Disadvantageous Condition") to the
Company for such a registration statement to be filed and become effective,
or to be maintained effective, and setting forth the general reasons for
such judgment, the Company shall be entitled not to file any such
registration statement, or, if a registration statement has been filed, to
cause such registration statement to be withdrawn and the effectiveness of
such registration statement terminated, until such Disadvantageous
Condition no longer exists (notice of which the Company shall promptly
deliver to Computer Associates). Upon receipt of any such notice of a
Disadvantageous Condition, Computer Associates shall forthwith discontinue
use of the prospectus contained in such registration statement and, if so
directed by the Company, Computer Associates will deliver to the Company
all copies, other than permanent file copies then in Computer Associates'
possession, of the prospectus then covering such Registrable Securities
current at the time of receipt of such notice; provided, that the filing of
any such registration statement may not be delayed for a period in excess
of three months due to the occurrence of any particular Disadvantageous
Condition or for more than a total of three months in any 12-month
period for any reason pursuant to this paragraph (a);
(ii) Except as otherwise provided herein, Computer
Associates shall not have the right to exercise registration rights
pursuant to this Section 1 within the 180-day period following the
registration and sale of Registrable Securities effected pursuant to a
prior exercise of the registration rights provided in this Section 1; and
(iii) Computer Associates may exercise its rights under this
Section 1 on not more than three occasions.
(b) Notwithstanding any other provision of this Agreement to the
contrary, a registration requested by Computer Associates pursuant to this
Section 1 shall not be deemed to have been effected (and, therefore, not
requested for purposes of paragraph (a) above), (i) unless it has become
effective, (ii) if after it has become effective such registration is interfered
with by any stop order, injunction or other order or requirement of the
Securities and Exchange Commission ("SEC") or other governmental agency or court
for any reason other than a misrepresentation or an omission by Computer
Associates and, as a result thereof, the Registrable Securities requested to be
registered cannot be completely distributed in accordance with the plan of
distribution set forth in the related registration statement or (iii) if the
conditions to closing specified in any purchase agreement or underwriting
agreement entered into in connection with any such registration are not
satisfied or waived other than by reason of some act or omission by Computer
Associates.
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<PAGE>
(c) In the event that any registration pursuant to this Section 1
shall involve, in whole or in part, an underwritten offering, Computer
Associates shall have the right to designate an underwriter or underwriters
reasonably acceptable to the Company as the lead or managing underwriters of
such underwritten offering and, in connection with each registration pursuant to
this Section 1, Computer Associates may select one counsel reasonably acceptable
to the Company to represent Computer Associates.
(d) The Company shall have the right to cause the registration of
additional equity securities for sale for its account or the account of any of
its existing directors, officers or employees in any registration of Registrable
Securities requested by Computer Associates pursuant to paragraph (a) above;
provided, however, that if Computer Associates is advised in writing (with a
copy to the Company) by a nationally recognized investment banking firm selected
by Computer Associates reasonably acceptable to the Company (which shall be the
lead underwriter or a managing underwriter in the case of an underwritten
offering) that, in such firm's good faith view, all or a part of such additional
equity securities cannot be sold and the inclusion of such additional equity
securities in such registration would be likely to have an adverse effect on the
price, timing or distribution of the offering and sale of the Registrable
Securities then contemplated by Computer Associates, the registration of such
additional equity securities or part thereof shall not be permitted. Computer
Associates may require that any such additional equity securities be included in
the offering proposed by Computer Associates on the same conditions as the
Registrable Securities included therein. In the event that the number of
Registrable Securities requested to be included in a registration statement by
Computer Associates exceeds the number which, in the good faith view of such
investment banking firm, can be sold without adversely affecting the price,
timing, distribution or sale of securities in the offering, the number shall be
reduced accordingly.
(e) As to any particular Registrable Securities, such Registrable
Securities shall cease to be Registrable Securities when (i) a registration
statement with respect to the sale by Computer Associates shall have been
declared effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (ii) such securities
shall have been distributed to the public in accordance with Rule 144
promulgated under the Securities Act ("Rule 144"), (iii) such securities shall
have been otherwise transferred, new certificates for them not bearing a legend
restricting further transfer shall have been delivered by the Company and
subsequent disposition of them shall not require registration or qualification
of them under the Securities Act or any state securities or blue sky law then in
effect or (iv) such securities shall have ceased to be outstanding.
Section 2. PIGGYBACK REGISTRATION. In the event that the Company
at any time after the IPO Date proposes to register any of its Common Stock, any
other of its equity securities or securities convertible into or exchangeable
for its equity securities (collectively, including Common Stock, "Other
Securities") under the Securities Act, whether or not for sale for its own
account, in a manner that would permit registration of Registerable Securities
for sale for cash to the public under the Securities Act, it shall at each such
time give prompt written notice to Computer Associates of its intention to do
so. Subject to the terms and conditions hereof, such
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<PAGE>
notice shall offer Computer Associates the opportunity to include in such
registration statement such number of Registerable Securities as Computer
Associates may request. Upon the written request of Computer Associates made
within 15 days after the receipt of the Company's notice (which request shall
specify the number of Registrable Securities intended to be disposed of and the
intended method of disposition thereof), the Company shall use its best efforts
to effect, in connection with the registration of the Other Securities, the
registration under the Securities Act of all Registerable Securities which the
Company has been so requested to register, to the extent required to permit the
disposition (in accordance with such intended method of disposition thereof) of
the Registrable Securities so requested to be registered; provided, that:
(a) if, at any time after giving such written notice of its intention
to register any Other Securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register the Other Securities, the Company
may, at its election, give written notice of such determination to Computer
Associates and thereupon the Company shall be relieved of its obligation to
register such Registrable Securities in connection with the registration of such
Other Securities, without prejudice, however, to the rights of Computer
Associates immediately to request that such registration be effected as a
registration under Section 1 to the extent permitted thereunder;
(b) if the registration referred to in the first sentence of this
Section 2 is to be an underwritten registration on behalf of the Company, and a
nationally recognized investment banking firm selected by the Company advises
the Company in writing that, in such firm's good faith view, all or a part of
such Registrable Securities cannot be sold and that the inclusion of all or a
part of such Registrable Securities in such registration would be likely to have
an adverse effect upon the price, timing or distribution of the offering and
sale of the Other Securities then contemplated, the Company shall include in
such registration: (i) first, all Other Securities the Company proposes to sell
for its own account ("Company Securities"), (ii) second, up to the full number
of Registrable Securities which, in the good faith view of such investment
banking firm, can be sold without adversely affecting such offering (and if such
number is less than the full number of such Registrable Securities requested to
be registered by Computer Associates, such number shall be reduced accordingly;
provided that, in such case, Computer Associates may withdraw its request for
registration of its Registrable Securities under this Section 2 and 90 days
subsequent to the effective date of the registration statement for the
registration of such Other Securities request that such registration be effected
as a registration under Section 1 to the extent permitted thereunder), and (iii)
third, up to the full number of the Other Securities (other than Company
Securities), if any, in excess of the number of Company Securities and
Registrable Securities to be sold in such offering which, in the good faith view
of such investment banking firm, can be so sold without so adversely affecting
such offering (and, if such number is less than the full number of such Other
Securities, such number shall be allocated pro rata among the holders of such
Other Securities (other than Company Securities) on the basis of the number of
securities requested to be included therein by each such other holder);
(c) if the registration referred to in the first sentence of this
Section 2 is to be an underwritten secondary registration on behalf of holders
of Other Securities (the "Other Holders"), and the lead underwriter or managing
underwriter advises the Company in writing that
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<PAGE>
in their good faith view, all or a part of such additional securities cannot be
sold and the inclusion of such additional securities in such registration would
be likely to have an adverse effect on the price, timing or distribution of the
offering and sale of the Other Securities then contemplated, the Company shall
include in such registration the number of securities (including Registrable
Securities) that such underwriters advise can be so sold without adversely
affecting such offering, allocated pro rata among the Other Holders and Computer
Associates on the basis of the number of securities (including Registrable
Securities) requested to be included therein by each Other Holder and Computer
Associates. If such Other Holders have requested that such registration
statement be filed pursuant to demand registration rights granted to them by the
Company, the Company shall include in such registration (i) first, Other
Securities sought to be included therein by the Other Holders pursuant to the
exercise of such demand registration rights and (ii) second, the number of
Registrable Securities sought to be included in such registration in excess of
the number of Other Securities sought to be included in such registration by the
Other Holders which in the good faith view of such investment banking firm, can
be so sold without so adversely affecting such offering (and (x) if such number
is less than the full number of such Registrable Securities, such number shall
be reduced accordingly and (y) in the event that such investment banking firm
advises that less than all of such Registrable Securities may be included in
such offering, Computer Associates may withdraw its request for registration of
the Registrable Securities under this Section 2 and 90 days subsequent to the
effective date of the registration statement for the registration of such Other
Securities request that such registration be effected as a registration under
Section 1 to the extent permitted thereunder);
(d) the Company shall not be required to effect any registration of
Registrable Securities under this Section 2 incidental to the registration of
any of its securities in connection with mergers, acquisitions, exchange offers,
subscription offers, dividend reinvestment plans or stock option or other
executive or employee benefit or compensation plans; and
(e) no registration of Registrable Securities effected under this
Section 2 shall relieve the Company of its obligation to effect a registration
of Registrable Securities pursuant to Section 1.
3. EXPENSES. With respect to a particular registration (or proposed
registration) hereunder, the Company shall pay any and all expenses incident to
performance of or compliance with any registration of securities pursuant to
this Agreement, including, without limitation, (i) the fees, disbursements and
expenses of the Company's counsel and accountants and the reasonable fees and
expenses of counsel selected by Computer Associates in accordance with this
Agreement in connection with the registration of the securities to be disposed
of; (ii) all expenses, including filing fees, in connection with the
preparation, printing and filing of the registration statement, any preliminary
prospectus or final prospectus, any other offering document and amendments and
supplements thereto and the mailing and delivering of copies thereof to any
underwriters and dealers; (iii) the cost of printing or producing any
underwriting agreements and blue sky or legal investment memoranda and any other
documents in connection with the offering, sale or delivery of the securities to
be disposed of; (iv) all expenses in connection with the qualification of the
securities to be disposed of for offering and sale under state securities laws,
including the fees and disbursements of counsel for the underwriters or
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<PAGE>
Computer Associates in connection with such qualification and in connection with
any blue sky and legal investment surveys; (v) the filing fees incident to
securing any required review by the National Association of Securities Dealers,
Inc. of the terms of the sale of the securities to be disposed of; (vi) transfer
agents' and registrars' fees and expenses and the fees and expenses of any other
agent or trustee appointed in connection with such offering; (vii) all security
engraving and security printing expenses; (viii) all fees and expenses payable
in connection with the listing of the securities on any securities exchange or
automated interdealer quotation system or the rating of such securities, (ix)
any other fees and disbursements of underwriters customarily paid by the sellers
of securities, but excluding underwriting discounts and commissions and transfer
taxes, if any, and (x) other reasonable out-of-pocket expenses of Computer
Associates other than legal fees and expenses referred to in clause (i) above.
Notwithstanding the foregoing, each of Computer Associates and the Company shall
be responsible for its own internal administrative and similar costs.
4. REGISTRATION AND QUALIFICATION. If and whenever the Company is
required to effect the registration of any Registrable Securities under the
Securities Act as provided in Section 1 or 2, the Company shall as promptly as
practicable:
(a) prepare, file and use its reasonable best efforts to cause to
become effective a registration statement under the Securities Act relating to
the Registrable Securities to be offered;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act with respect to the disposition of all
Registrable Securities until the earlier of (A) such time as all of such
Registrable Securities have been disposed of in accordance with the intended
methods of disposition set forth in such registration statement and (B) the
expiration of six months after such registration statement becomes effective;
provided, that such six-month period shall be extended for such number of days
that equals the number of days elapsing from (x) the date the written notice
contemplated by paragraph (f) below is given by the Company to (y) the date on
which the Company delivers to Computer Associates the supplement or amendment
contemplated by paragraph (f) below;
(c) furnish to Computer Associates and to any underwriter of such
Registrable Securities such number of conformed copies of such registration
statement and of each such amendment and supplement thereto (in each case
including all exhibits), such number of copies of the prospectus included in
such registration statement (including each preliminary prospectus and any
summary prospectus), in conformity with the requirements of the Securities Act,
such documents incorporated by reference in such registration statement or
prospectus, and such other documents, as Computer Associates or such underwriter
may reasonably request, and upon request a copy of any and all transmittal
letters or other correspondence to or received from, the SEC or any other
governmental agency or self-regulatory body or other body having jurisdiction
(including any domestic or foreign securities exchange) relating to such
offering;
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<PAGE>
(d) use its reasonable best efforts to register or qualify all
Registrable Securities covered by such registration statement under the
securities or blue sky laws of such U.S. jurisdictions as Computer Associates or
any underwriter to such Registrable Securities shall request, and use its
reasonable best efforts to obtain all appropriate registrations, permits and
consents in connection therewith, and do any and all other acts and things which
may be necessary or advisable to enable Computer Associates or any such
underwriter to consummate the disposition in such jurisdictions of its
Registrable Securities covered by such registration statement; provided, that
the Company shall not for any such purpose be required to qualify generally to
do business as a foreign corporation in any such jurisdiction wherein it is not
so qualified or to consent to general service of process in any such
jurisdiction;
(e)(i) use its best efforts to furnish to Computer Associates and
to any underwriter of such Registrable Securities an opinion of counsel for the
Company addressed to Computer Associates and dated the date of the closing under
the underwriting agreement (if any) (or if such offering is not underwritten,
dated the effective date of the registration statement) and (ii) use its best
efforts to furnish to Computer Associates and to any underwriter of such
Registrable Securities a "cold comfort" letter addressed to Computer Associates
and signed by the independent public accountants who have audited the financial
statements of the Company included in such registration statement, in each such
case covering substantially the same matters with respect to such registration
statement (and the prospectus included therein) as are customarily covered in
opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities and such other
matters as Computer Associates may reasonably request and, in the case of such
accountants' letter, with respect to events subsequent to the date of such
financial statements;
(f) as promptly as practicable, notify Computer Associates in writing
(i) at any time when a prospectus relating to a registration pursuant to
Sections 1 or 2 is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits 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 and (ii) of any request by the SEC or any
other regulatory body or other body having jurisdiction for any amendment of or
supplement to any registration statement or other document relating to such
offering, and in either such case, at the request of Computer Associates,
prepare and furnish to Computer Associates a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not include an 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 are made, not
misleading;
(g) if reasonably requested by Computer Associates or the lead or
managing underwriters, use its best efforts to list all such Registrable
Securities covered by such registration on each securities exchange and
automated inter-dealer quotation system on which a class of common equity
securities of the Company is then listed;
-7-
<PAGE>
(h) to the extent reasonably requested by the lead or managing
underwriters, send appropriate officers of the Company to attend any "road
shows" scheduled in connection with any such registration, with all
out-of-pocket costs and expense incurred by the Company or such officers in
connection with such attendance to be paid by the Company; and
(i) furnish for delivery in connection with the closing of any
offering of Registrable Securities pursuant to a registration effected pursuant
to Sections 1 or 2 unlegended certificates representing ownership of the
Registrable Securities being sold in such denominations as shall be requested by
Computer Associates or the underwriters.
5. UNDERWRITING; DUE DILIGENCE. (a) If requested by the
underwriters for any underwritten offering of Registrable Securities pursuant to
a registration requested under this Agreement, the Company shall enter into an
underwriting agreement with such underwriters for such offering, which agreement
will contain such representations and warranties by the Company and such other
terms and provisions as are customarily contained in underwriting agreements of
the Company to the extent relevant and as are customarily contained in
underwriting agreements generally with respect to secondary distributions to the
extent relevant, including, without limitation, indemnification and contribution
provisions substantially to the effect and to the extent provided in Section 6,
and agreements as to the provision of opinions of counsel and accountants'
letters to the effect and to the extent provided in Section 4(e). Computer
Associates shall be a party to any such underwriting agreement and the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters, shall also be made to and
for the benefit of Computer Associates. Such underwriting agreement shall also
contain such representations and warranties by Computer Associates and such
other terms and provisions as are customarily contained in underwriting
agreements with respect to secondary distributions, when relevant, including,
without limitation, indemnification and contribution provisions substantially to
the effect and to the extent provided in Section 6.
(b) In connection with the preparation and filing of each
registration statement registering Registrable Securities under the Securities
Act pursuant to this Agreement, the Company shall give Computer Associates and
the underwriters, if any, and their respective counsel and accountants, such
reasonable and customary access to its books and records and such opportunities
to discuss the business of the Company with its officers and the independent
public accountants who have certified the financial statements of the Company as
shall be necessary, in the opinion of Computer Associates and such underwriters
or their respective counsel, to conduct a reasonable investigation within the
meaning of the Securities Act.
6. INDEMNIFICATION AND CONTRIBUTION. (a) In the case of each
offering of Registrable Securities made pursuant to this Agreement, the Company
agrees to indemnify and hold harmless, to the extent permitted by law, Computer
Associates, each underwriter of Registrable Securities so offered and each
individual, partnership, limited liability company, joint venture, corporation,
trust, unincorporated organization, government (and any department or agency
thereof) or other entity (each a "Person"), if any, who controls any of the
foregoing Persons within the meaning of the Securities Act and the officers,
directors, affiliates, employees
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<PAGE>
and agents of each of the foregoing, against any and all losses, liabilities,
costs (including reasonable attorney's fees and disbursements), claims and
damages, joint or several, to which they or any of them may become subject,
under the Securities Act or otherwise, including any amount paid in settlement
of any litigation commenced or threatened, insofar as such losses, liabilities,
costs, claims and damages (or actions or proceedings in respect thereof, whether
or not such indemnified Person is a party thereto) arise out of or are based
upon any untrue statement by the Company or alleged untrue statement by the
Company of a material fact contained in the registration statement (or in any
preliminary or final prospectus included therein) or in any offering memorandum
or other offering document relating to the offering and sale of such Registrable
Securities prepared by the Company or at its direction, or any amendment thereof
or supplement thereto, or in any document incorporated by reference therein, or
any omission by the Company or alleged omission by the Company to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading; provided that the Company shall not be liable
to any Person in any such case to the extent that any such loss, liability,
cost, claim or damage arises out of or relates to any untrue statement or
alleged untrue statement, or any omission or alleged omission, if such statement
or omission shall have been made in reliance upon and in conformity with
information relating to Computer Associates or an underwriter furnished to the
Company by or on behalf of Computer Associates or such underwriter specifically
for use in the registration statement (or in any preliminary or final prospectus
included therein), offering memorandum or other offering document, or any
amendment thereof or supplement thereto. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of
Computer Associates or any underwriter and shall survive the transfer of such
securities. The foregoing indemnity agreement is in addition to any liability
that the Company may otherwise have to Computer Associates or any underwriter of
the Registrable Securities or any controlling Person of the foregoing and the
officers, directors, affiliates, employees and agents of each of the foregoing;
provided, further, that, in the case of an offering with respect to which
Computer Associates has designated the lead or managing underwriters (or
Computer Associates is offering Registrable Securities directly, without an
underwriter), this indemnity does not apply to any loss, liability, cost, claim
or damage arising out of or relating to any untrue statement or alleged untrue
statement or omission or alleged omission in any preliminary prospectus or
offering memorandum if a copy of a final prospectus or offering memorandum was
not sent or given by or on behalf of any underwriter (or Computer Associates) to
such Person asserting such loss, liability, cost, claim or damage at or prior to
the written confirmation of the sale of the Registrable Securities as required
by the Securities Act and such untrue statement or omission had been corrected
in such final prospectus or offering memorandum.
(b) In the case of each offering made pursuant to this Agreement,
Computer Associates, by exercising its registration rights hereunder, agrees to
indemnify and hold harmless, and to cause each underwriter of Registrable
Securities included in such offering (in the same manner and to the same extent
as set forth in Section 6(a)) to agree to indemnify and hold harmless, the
Company, each other underwriter who participates in such offering, each other
holder with securities included in such offering, each Person, if any, who
controls any of the foregoing within the meaning of the Securities Act and the
officers, directors, affiliates, employees and agents of each of the foregoing,
against any and all losses, liabilities, costs
-9-
<PAGE>
(including reasonable attorney's fees and disbursements), claims and damages to
which they or any of them may become subject, under the Securities Act or
otherwise, including any amount paid in settlement of any litigation commenced
or threatened, insofar as such losses, liabilities, costs, claims and damages
(or actions or proceedings in respect thereof, whether or not such indemnified
Person is a party thereto) arise out of or are based upon any untrue statement
or alleged untrue statement by Computer Associates or underwriter, as the case
may be, of a material fact contained in the registration statement (or in any
preliminary or final prospectus included therein) or in any offering memorandum
or other offering document relating to the offering and sale of such Registrable
Securities prepared by the Company or at its direction, or any amendment thereof
or supplement thereto, or any omission by Computer Associates or underwriter, as
the case may be, or alleged omission by Computer Associates or underwriter, as
the case may be, of a material fact required to be stated therein or necessary
to make the statements therein not misleading, but in each case only to the
extent that such untrue statement of a material fact is contained in, or such
material fact is omitted from information relating to Computer Associates or
underwriter, as the case may be, furnished to the Company by or on behalf of
Computer Associates or underwriter, as the case may be, specifically for use in
such registration statement (or in any preliminary or final prospectus included
therein), offering memorandum or other offering document, or any amendment
thereof or supplement thereto. The foregoing indemnity is in addition to any
liability which Computer Associates or underwriter, as the case may be, may
otherwise have to the Company, or controlling persons and the officers,
directors, affiliates, employees, and agents of each of the foregoing; provided
that, in the case of an offering made pursuant to this Agreement with respect to
which the Company has designated the lead or managing underwriters (or the
Company is offering securities directly, without an underwriter), this indemnity
does not apply to any loss, liability, cost, claim, or damage arising out of or
based upon any untrue statement or alleged untrue statement or omission or
alleged omission in any preliminary prospectus or offering memorandum if a copy
of a final prospectus or offering memorandum was not sent or given by or on
behalf of any underwriter (or the Company, as the case may be) to such Person
asserting such loss, liability, cost, claim or damage at or prior to the written
confirmation of the sale of the Registrable Securities as required by the
Securities Act and such untrue statement or omission had been corrected in such
final prospectus or offering memorandum.
(c) Each party indemnified under paragraph (a) or (b) above shall,
promptly after receipt of notice of a claim or action against such indemnified
party in respect of which indemnity may be sought hereunder, notify the
indemnifying party in writing of the claim or action; provided, that the failure
to notify the indemnifying party shall not relieve it from any liability that it
may have to an indemnified party on account of the indemnity agreement contained
in paragraph (a) or (b) above otherwise than under such subsection. If any such
claim or action shall be brought against an indemnified party, and it shall have
notified the indemnifying party thereof, unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified party and
indemnifying parties may exist in respect of such claim, the indemnifying party
shall be entitled to participate therein, and, to the extent that it wishes,
jointly with any other similarly notified indemnifying party, to assume the
defense thereof with counsel satisfactory to the indemnified party (who shall
not, except with the consent of the indemnified party, be counsel to the
indemnifying party). After notice from the
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<PAGE>
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 6 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation. If the indemnifying party
does not assume the defense of such claim or action, it is understood that the
indemnifying party shall not, in connection with any one such claim or action or
separate but substantially similar or related claims or actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to one separate firm of local attorneys in each such jurisdiction) at
any time for all such indemnified parties. Any indemnifying party against whom
indemnity may be sought under this Section 6 shall not be liable to indemnify an
indemnified party if such indemnified party settles such claim or action without
the consent of the indemnifying party, which consent shall not be unreasonably
withheld.
(d) If the indemnification provided for in this Section 6 shall for
any reason be unavailable (other than in accordance with its terms) to an
indemnified party in respect of any loss, liability, cost, claim or damage
referred to therein, then each indemnifying party shall, in lieu of indemnifying
such indemnified party, contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, cost, claim or damage in
such proportion as shall be appropriate to reflect (i) the relative benefits
received by the indemnifying party on the one hand and the indemnified party on
the other hand or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law or if the indemnified party failed to give the
notice required under paragraph (c) above, the relative benefits and the
relative fault of the indemnifying party on the one hand and the indemnified
party on the other with respect to the statements or omissions which resulted in
such loss, liability, cost, claim or damage as well as any other relevant
equitable considerations. The relative benefits received by the indemnifying
party and the indemnified party shall be deemed to be in the same respective
proportion as the net proceeds (before deducting expenses) of the offering
received by such party (or, in the case of an underwriter, such underwriter's
discounts and commissions) bear to the aggregate offering price of the
Registrable Securities or Other Securities. The relative fault shall be
determined by reference to whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the indemnifying party on the one hand or the
indemnified party on the other, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
statement or omission, but not by reference to any indemnified party's stock
ownership in the Company. The amount paid or payable by an indemnified party as
a result of the loss, cost, claim, damage or liability, or action in respect
thereof, referred to above in this paragraph (d) shall be deemed to include, for
purposes of this paragraph (d), any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. 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.
(e) Indemnification and contribution similar to that specified in the
preceding paragraphs of this Section 6 (with appropriate modifications) shall be
given by the Company,
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<PAGE>
Computer Associates and underwriters with respect to any required registration
or other qualification of securities under any state law or regulation or
governmental authority.
(f) The obligations of the parties under this Section 6 shall be in
addition to any liability which any party may otherwise have to any other party.
7. RULE 144 AND FORM S-3. Commencing 90 days after the consummation
of the Offering, the Company shall use its best efforts to ensure that the
conditions to the availability of Rule 144 set forth in paragraph (c) thereof
shall be satisfied. Upon the request of Computer Associates, the Company will
deliver to Computer Associates a written statement as to whether it has complied
with such requirements. The Company further agrees to use its reasonable efforts
to cause all conditions to the availability of Form S-3 (or any successor form)
under the Securities Act for the filing of registration statements under this
Agreement to be met as soon as practicable after the consummation of the
Offering. Notwithstanding anything contained in this Section 7, the Company may
deregister under Section 12 of the Securities Exchange Act of 1934, as amended,
if it then is permitted to do so pursuant to said Act and the rules and
regulations thereunder.
8. HOLDBACK AGREEMENT. If any registration pursuant to this
Agreement shall be in connection with an underwritten public offering of
Registrable Securities, Computer Associates agrees not to effect any public sale
or distribution, including any sale under Rule 144, of any equity security of
the Company or any security convertible into or exchangeable or exercisable for
any equity security of the Company, in the case of Registrable Securities
(otherwise than through the registered public offering then being made), within
7 days prior to or 90 days (or such lesser period as the lead or managing
underwriters may permit) after the effective date of the registration statement
(or the commencement of the offering to the public of such Registrable
Securities in the case of any Rule 415 Offering). The Company hereby also so
agrees; provided, that, subject to Section 5(a) hereof, the Company shall not be
so restricted from effecting any public sale or distribution of any security in
connection with any merger, acquisition, exchange offer, subscription offer,
dividend reinvestment plan or stock option or other executive or employee
benefit or compensation plan.
9. MISCELLANEOUS.
(a) Entire Agreement. This Agreement constitutes the entire
agreement between the Company and Computer Associates with respect to the
transactions contemplated hereby and supersedes all prior agreements or
understandings among the parties with respect thereto.
(b) Headings. Descriptive headings are for convenience only and
shall not control or affect the meaning or construction of any provision of this
Agreement.
(c) Notices. All notices or other communications provided for in
this Agreement shall be in writing and shall be sent by confirmed telecopy (with
an undertaking to
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<PAGE>
provide a hard copy) or delivered by hand or sent by overnight courier service
prepaid to the address specified below.
If to the Company:
ACCPAC INTERNATIONAL, INC.
2525 Augustine Drive
Santa Clara, CA 95054
Attention: General Counsel
Telecopy: (408) 562-8740
If to Computer Associates:
Computer Associates International, Inc.
One Computer Associates Plaza
Islandia, NY 11788
Attention: President
Telecopy: (516) 342-4866
with a copy to:
Computer Associates International, Inc.
One Computer Associates Plaza
Islandia, NY 11788
Attention: General Counsel
Telecopy: (516) 342-4866
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith.
(d) Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
(e) Amendments. This Agreement shall not be altered or otherwise
amended except pursuant to an instrument in writing signed by the Company and
Computer Associates.
(f) Transferability. The registration and other rights granted to
Computer Associates hereunder may be transferred or assigned by Computer
Associates to a third party in connection with a sale or other transfer of all
shares of Common Stock then owned by Computer Associates to such third party.
Except as otherwise set forth in the immediately preceding sentence, the
registration and other rights granted to Computer Associates hereunder are
non-transferable and cannot be assigned or transferred in any manner to any
third party without the prior written consent of the Company.
(H) CHOICE OF LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be duly executed and delivered as of the date first above written.
ACCPAC INTERNATIONAL, INC.
By:
-------------------------
Name:
Title:
COMPUTER ASSOCIATES INTERNATIONAL, INC.
By:
-------------------------
Name:
Title:
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<PAGE>
Exhibit 10.3
REAL ESTATE AGREEMENT, dated as of April 1, 1998,
between ACCPAC INTERNATIONAL, INC., a Delaware
corporation (the "Company"), and COMPUTER ASSOCIATES
INTERNATIONAL, INC., a Delaware corporation ("Computer
Associates").
------------------------------------------------------
INTRODUCTION
The Company was incorporated in Delaware in October 1997 and became a
subsidiary of Computer Associates effective January 1998. All of the Company's
operations are currently conducted at facilities owned or leased by Computer
Associates or another of its subsidiaries.
The parties are contemplating that the Company will issue and sell
shares of its common stock in an initial public offering (the "Offering"). The
parties desire to enter into this Agreement to set forth their agreements
regarding the continued use by the Company and Computer Associates of such
facilities after the consummation of the Offering.
The parties hereto agree as follows:
1. DEFINITIONS. The following terms shall have the following
meanings when used herein:
(a) "Ancillary Facilities" means the premises each leased from a
third party, or owned, by Computer Associates or a subsidiary thereof and
located, respectively, at the addresses set forth on Annex I attached hereto.
(b) "Richmond Facility" means the premises leased by Computer
Associates Canada, Ltd., a wholly owned subsidiary of Computer Associates
("CA Canada"), from Bentall Properties Ltd. and Westminster Management
Corporation and located at 13700 International Plaza, Suite 300, Richmond,
British Columbia, Canada V6V 2X6.
(c) "Santa Clara Facility" means the premises subleased to the
Company by Computer Associates, which leases the premises from Augustine
Partners, LLC, and located at 2525 Augustine Drive, Santa Clara,
California 95054.
(d) "Singapore Facility" means the premises leased by Computer
Associates Pte. Ltd., a wholly owned subsidiary of Computer Associates ("CA
Singapore"), from a third party and located at 5 Temasek Blvd. #04-02,
Suntec City Tower, Singapore 038985.
(e) "Toronto Facility" means the premises leased by CA Canada from a
third party and located at 5935 Airport Road, Mississauga, Ontario, Canada
L4V IWF.
2. SANTA CLARA FACILITY. (a) Computer Associates hereby grants
to the Company a license to continue to occupy that portion of the Santa Clara
Facility occupied by the Company and the Company's employees as of the date
hereof until such time as the Company is able to relocate its Santa Clara
operations to a new facility.
<PAGE>
(b) In exchange for such license to occupy the Santa Clara Facility,
the Company shall pay Computer Associates an aggregate of US$62,000 per month.
(c) The Company shall use its commercially reasonable efforts to
effect as promptly as practicable the relocation to a new facility of its
operations conducted at the Santa Clara Facility.
3. RICHMOND FACILITY. (a) Computer Associates hereby agrees to
cause CA Canada to assign to the Company all of CA Canada's rights, and the
Company agrees to assume all of CA Canada's liabilities, under CA Canada's lease
for the Richmond Facility (the "Richmond Lease"). Such assignment of rights and
assumption of liabilities shall be accomplished by means of a customary
assignment and assumption agreement between the Company and CA Canada.
(b) Notwithstanding such assignment and assumption, the Company
hereby grants Computer Associates and CA Canada a license to continue to occupy
that portion of the Richmond Facility occupied by Computer Associates and CA
Canada and their respective employees as of the date hereof. Such license shall
expire at the end of the current term of the Richmond Lease or any earlier
termination thereof.
(c) In exchange for such license to occupy a portion of the
Richmond Facility, Computer Associates shall pay, or shall cause CA Canada to
pay, the Company an amount equal to C$18.50 per square foot occupied per year
plus Computer Associates' and CA Canada's proportionate share of facility
operating expenses, including real estate taxes.
4. TORONTO FACILITY. (a) Computer Associates shall cause CA
Canada to grant the Company a license to continue to occupy that portion of the
Toronto Facility occupied by the Company and its employees as of the date
hereof. Such license shall expire at the end of the current term of CA Canada's
lease for the Toronto Facility or any earlier termination thereof.
(b) In exchange for such license to occupy a portion of the Toronto
Facility, the Company shall pay CA Canada an amount equal to C$6,000 per month
plus the Company's proportionate share of facility operating expenses, including
real estate taxes.
5. SINGAPORE FACILITY. (a) Computer Associates shall cause
CA Singapore to grant the Company a license to continue to occupy that
portion of the Singapore Facility occupied by the Company and its employees
as of the date hereof. Such license shall expire at the end of the current
term of CA Singapore's lease for the Singapore Facility or any earlier
termination thereof.
(b) In exchange for such license to occupy a portion of the
Singapore Facility, the Company shall pay CA Singapore an amount equal to the
Company's proportionate share of (x) CA Singapore's rent for the Singapore
Facility and (y) facility operating expenses, including real estate taxes.
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<PAGE>
6. ANCILLARY FACILITIES. Computer Associates hereby grants, and
agrees to cause its subsidiaries that own or lease any Ancillary Facilities to
grant, as the case may be, the Company a license to continue to occupy that
portion of the Ancillary Facilities occupied by the Company and its employees as
of the date hereof. In the case of each Ancillary Facility such license shall
expire at the earlier of (x) September 30, 1998 and (y) the end of the current
term of the underlying lease, if any, for such Ancillary Facility or any earlier
termination thereof. The grant of the licenses to continue to occupy portions
of the Ancillary Facilities shall be without charge or expense to the Company.
7. PAYMENTS
(a) Payments due under this Agreement shall begin to accrue as of
the date hereof. Within five business days after the closing of the Offering,
each party shall pay the other party all amounts such party owes the other
party for the period from April 1, 1998 through the closing of the Offering.
(b) After the closing of the Offering, all subsequent payments
shall be made no later than 30 days after the end of each calendar quarter
for payments due for such quarter.
(c) Payments due for any partial periods shall be adjusted on a
pro rata basis.
8. MISCELLANEOUS.
(a) Notwithstanding anything to the contrary set forth herein, any
of the rights granted under this Agreement may be terminated by a party
hereto upon six month's prior written notice to the other party.
(b) This Agreement constitutes the entire agreement between the
Company and Computer Associates with respect to the transactions contemplated
hereby and supersedes all prior agreements or understandings among the
parties with respect thereto.
(c) Descriptive headings are for convenience only and shall not
control or affect the meaning or construction of any provision of this
Agreement.
(d) All notices or other communications provided for in this
Agreement shall be in writing and shall be sent by confirmed telecopy (with an
undertaking to provide a hard copy) or delivered by hand or sent by overnight
courier service prepaid to the address specified below.
If to the Company:
ACCPAC International, Inc.
2525 Augustine Drive
Santa Clara, CA 95054
Attention: General Counsel
Telecopy: (408) 562-8740
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<PAGE>
If to Computer Associates:
Computer Associates International, Inc.
One Computer Associates Plaza
Islandia, NY 11788
Attention: President
Telecopy: (516) 342-4866
with a copy to:
Computer Associates International, Inc.
One Computer Associates Plaza
Islandia, NY 11788
Attention: General Counsel
Telecopy: (516) 342-4866
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith.
(e) This Agreement may be executed in any number of counterparts, and
each such counterpart hereof shall be deemed to be an original instrument, but
all such counterparts together shall constitute but one agreement.
(f) This Agreement shall not be altered or otherwise amended except
pursuant to an instrument in writing signed by the Company and Computer
Associates.
(G) THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK.
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be duly executed and delivered as of the date first above written.
ACCPAC INTERNATIONAL, INC.
By:
-------------------------
Name:
Title:
COMPUTER ASSOCIATES INTERNATIONAL, INC.
By:
-------------------------
Name:
Title:
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<PAGE>
ANNEX I
ANCILLARY FACILITIES
7755 Center Avenue, Suite 760
Huntington Beach, CA 92647
2300 Windy Ridge Pkwy, Suite 1000
Atlanta, GA 30339
2400 Cabot Drive
Lisle, IL 60532-3621
One Computer Associates Plaza
Islandia, NY 11788-7000
909 Las Colinas Blvd. East
Irving, TX 75039-3906
3001 Bee Caves Road, Suite 300
Austin, TX 78746-5561
575 Herndon Parkway
Herndon, VA 20170-0000
411 108th Avennue, N.E., Suite 600
Bellevue, WA 98004-0000
Level 5
441 St. Kilda Road
Melbourne, VIC, Australia 3004
555 Dr. Frederik-Phillips Blvd., Suite 240
St. Laurent, Quebec, Canada H4M 2X4
Room 2401, Capital Mansion
No. 6 Xin Yuan Nan Road
Chao Yang District
Bejing 100004, China
<PAGE>
Exhibit 10.4
ACCPAC INTERNATIONAL, INC.
1998 STOCK INCENTIVE PLAN
I. PURPOSE.
The purpose of the ACCPAC INTERNATIONAL, INC. 1998 Stock Incentive Plan is
to promote the growth and profitability of ACCPAC INTERNATIONAL, INC. (the
"Company") and its subsidiaries and to provide officers and key employees
of the Company and its subsidiaries with an incentive to achieve long-term
corporate objectives, to attract and retain key employees of outstanding
competence, and to provide such key employees with an opportunity to
acquire an equity interest in the Company.
Options granted hereunder may be either Incentive Stock Options (as defined
under Section 422 of the Code) or Nonstatutory Stock Options, at the
discretion of the Committee and as reflected in the terms of the written
option agreement
II. DEFINITIONS.
The following terms shall have the meaning shown:
2.1 "Board" shall mean the Board of Directors of the Company.
2.2 "Code" shall mean the Internal Revenue Code of 1986, as the same shall
be amended from time to time.
2.3 "Committee" shall mean the Stock Option and Compensation Committee of
the Board, having at least two (2) members and consisting of directors
appointed to the Committee by the Board, none of whom shall be
eligible to participate in the Plan and each of whom shall otherwise
qualify as a "Non-Employee Director" within the meaning of Rule 16b-3
under the Securities Exchange Act of 1934, as amended, or any
successor rule, promulgated by the Securities and Exchange Commission.
2.4 "Common Stock" shall mean the Company's Common Stock, par value $.01
per share.
2.5 "Continuing Director" shall mean (a) any member of the Board, while
such person is a member of the Board, who was a member of the Board on
January 7, 1998, the date of the adoption of the Plan, or (b) any
member of the Board, while such person is a member of the Board, if
such person's nomination or election to the Board was recommended or
made by a majority of the Continuing Directors.
2.6 "Fair Market Value" shall mean the value of a share of Common Stock on
a particular date, determined as follows:
(a) If the Common Stock is listed or admitted to trading on such
date on the New York Stock Exchange, the closing sales price
of the Common Stock
<PAGE>
on such date as reported in the principal consolidated
transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange;
or
(b) If the Common Stock is not listed or admitted to trading on
the New York Stock Exchange but is listed or admitted to
trading on another national exchange, the closing sales price
of the Common Stock on such date as reported in the principal
consolidated transaction reporting system with respect to
securities listed or admitted to trading on such national
exchange; or
(c) If the Common Stock is not listed or admitted to trading on
any national exchange, the mean of the closing bid and asked
prices (or, if available, the high and low sales prices) of a
share on such date in the over-the-counter market, as reported
by the National Association of Securities Dealers, Inc.
Automatic Quotation Systems, the National Quotation Bureau or
such other system then in use with regard to the Common Stock
or, if on such date the stock of the Company is publicly
traded but not quoted by any such system, the mean of the
closing bid and asked prices of the Common Stock on such date
as furnished by a professional market maker making a market in
the Common Stock; or
(d) If in (a), (b) or (c) above, as applicable, there were no
sales on such date reported as provided above, but a public
market exists, the last sale price on the most recent prior day
on which a sale of the Common Stock took place; or
(e) If no public market exists for the Common Stock, the fair market
value as determined by the Committee.
2.7 "ISOs" shall mean stock options which at the time granted qualify as
incentive stock options under Section 422 of the Code granted by the
Company or any Subsidiary.
2.8 "Nonstatutory Options" shall mean stock options which at the time
granted are not intended to qualify as ISOs.
2.9 "Options" shall mean any rights to purchase shares of Common Stock
granted pursuant to Article IV of this Plan including both ISOs and
Nonstatutory Options.
2.10 "Parent" shall mean any corporation which, on the date of
determination, qualifies as a parent corporation of the Company under
Section 424(e) of the Code, or any similar provision hereafter
enacted.
2.11 "Plan" shall mean this ACCPAC INTERNATIONAL, INC. 1998 Stock
Incentive Plan, as the same shall be amended from time to time.
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2.12 "SARs" shall mean stock appreciation rights granted pursuant to
Article V of the Plan.
2.13 "Subsidiary" shall mean any corporation which, on the date of
determination, qualifies as a subsidiary corporation of the Company
under Section 424(f) of the Code, or any similar provision hereafter
enacted.
2.14 "Ten Percent Stockholder" shall mean any stockholder who at the time
an ISO is granted owns (within the meaning of Section 424(d) of the
Code) more than ten percent (10%) of the voting power of all classes
of stock of the Company or any Subsidiary.
III. GENERAL.
3.1 Administration.
(a) The Plan shall be administered by the Committee; provided
that, prior to the Committee being constituted, the Board
shall function as the Committee for all purposes under the
Plan. The Committee shall have full authority to interpret
the Plan and all Options and SARs granted hereunder; to
establish, amend, and rescind rules for carrying out the Plan;
to administer the Plan; to select employees to participate in
the Plan; to grant Options and SARs under the Plan; to
determine the terms, exercise price and form of exercise
payment for each Option and SAR granted under the Plan; to
determine whether each Option granted under the Plan shall be
intended to qualify as an ISO; and to make all other
determinations and to take all such steps in connection with
the Plan, the Options and the SARs as the Committee, in its
discretion, deems necessary or desirable. The Committee shall
not be bound to any standards of uniformity or similarity of
action, interpretation or conduct in the discharge of its
duties hereunder, regardless of the apparent similarity of the
matters coming before it. Its determination shall be binding
on all parties, including Optionees and any other holders of
any Options.
(b) Any employee may hold more than one Option or SAR under the
Plan and under any other plan pursuant to which stock options,
stock appreciation rights or other incentives may be granted,
issued or paid.
(c) The Committee may designate any employees of the Company or
professional advisors to assist the Committee in the
administration of the Plan, and may grant authority to such
persons to execute agreements or other documents on behalf of
the Committee. The Committee may employ such legal counsel,
consultants and agents as it may deem desirable for the
administration of the Plan, and may rely upon any opinion
received from any such counsel or consultant and any
computation received from any such consultant or agent.
Expenses
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incurred by the Committee in the engagement of such counsel,
consultant or agent shall be paid by the Company.
(d) No member or former member of the Committee or of the Board
shall be liable for any action or determination made in good
faith with respect to the Plan or any Option or SAR granted
under it. To the maximum extent permitted by applicable law,
each member or former member of the Committee or of the Board
shall be indemnified and held harmless by the Company against
any cost or expense (including counsel fees) or liability
(including any sum paid in settlement of a claim with the
approval of the Company) arising out of any act or omission to
act in connection with the Plan unless arising out of such
member's or former member's own fraud or bad faith. Such
indemnification shall be in addition to any rights of
indemnification the members or former members may have as
directors under applicable law or under the certificate of
incorporation or by-laws of the Company.
(e) The Committee shall select one of its members as a Chairman
and shall adopt such rules and regulations as it shall deem
appropriate concerning the holding of its meetings and the
transaction of its business. Any member of the Committee may
be removed at anytime either with or without cause by
resolution adopted by the Board, and any vacancy on the
Committee may at any time be filled by resolution adopted by
the Board.
(f) All determinations by the Committee shall be made by the
affirmative vote of a majority of its members. Any such
determination may be made at a meeting duly called and held at
which a majority of the members of the Committee were in
attendance in person or through telephonic communication. Any
determination set forth in writing and signed by all of the
members of the Committee shall be as fully effective as if it
had been made by a majority vote of the members at a meeting
duly called and held.
IV. OPTIONS.
4.1 No Grants to Outside Directors.
Directors of the Company who are not also employees of the Company or
a Subsidiary shall in no event be eligible to be granted Options or
SARs under this Plan.
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4.2 Terms and Conditions.
The grant of an Option shall be evidenced by a written option
agreement in a form approved by the Committee. Such Option shall be
subject to the following express terms and conditions and to such
other terms and conditions, not
inconsistent with the terms of this Plan, which the Committee may deem
appropriate.
(a) Terms of Options.
The term of each Option shall be for such period as the Committee
shall determine, but for not more than ten (10) years from the
date of grant thereof; PROVIDED, HOWEVER, that in the case of an
ISO granted to any individual who, at the time of grant is a Ten
Percent Stockholder, such period shall not exceed five (5) years
from the date of grant.
(b) Exercise Price.
The exercise price per share for the Common Stock covered by any
Option (the "Exercise Price") shall be determined by the
Committee and shall not be less than the Fair Market Value (or in
the case of an Option granted to a Ten Percent Stockholder, 110
percent of the Fair Market Value) of one (1) share of Common
Stock (but in no event less than the par value) on the date the
Option is granted. The aggregate Fair Market Value (determined at
the time the ISO is granted) of the shares of Common Stock
(together with all other stock of the Company and all stock of
any Parent or Subsidiary) with respect to which ISOs may first
become exercisable by an individual optionee during any calendar
year, under all stock option plans of the Company and of its
Parents and Subsidiaries, shall not exceed $100,000.
(c) Exercise of Options.
An Option may be exercised from time to time by written notice by
the optionee of his intent to exercise the Option with respect to
a specified number of shares. Alternatively, the Company may
provide for exercise of an optionee's Option by delivery of an
irrevocable notice of exercise signed by the optionee,
accompanied by payment in full of the Exercise Price by the
optionee's broker and an irrevocable instruction to the Company
to deliver the shares of Common Stock issuable upon exercise of
the Option promptly to the optionee's broker for the optionee's
account, provided that at the time of such exercise the optionee
is not subject to Section 16(b) of the Securities Exchange Act of
1934 (the "Exchange Act"), or that such exercise would not
subject the optionee to liability under such Section 16(b)
pursuant to Securities and Exchange Commission Rule 16b-3 or any
successor rule or regulation of the
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Commission. In either case, the specified number of shares
will be issued and transferred to the optionee upon receipt by
the Company of (i) such notice and (ii) payment in full for
such shares.
(d) Payment of Exercise Price Upon Exercise.
The medium for payment of the Exercise Price for the shares of
Common Stock with respect to which an Option shall be exercised
shall be determined by the Committee and specified in each option
agreement and may include payment in (i) cash (or by certified or
bank check), (ii) whole shares of Common Stock already owned by
the optionee, valued at their Fair Market Value on the date
immediately preceding the date of exercise, (iii) a combination
of cash (or certified or bank check) and Common Stock equal to
the Exercise Price or (iv) such other form of consideration as
the Committee may, in it sole discretion, determine to be
acceptable.
(e) Exercise Period; Termination of Employment.
(1) NO EXERCISE WITHIN ONE YEAR OF GRANT. The
Committee shall have the discretion to determine when each
Option granted hereunder shall become exercisable, and to
prescribe any vesting schedule limiting the exercisability
of such Options as it may deem appropriate. Unless the
Committee affirmatively determines otherwise, no Option
shall become exercisable prior to the date which is one (1)
year after the date on which the Option was granted.
(2) BY REASON OF THE PARTICIPANT'S DEATH. If the optionee dies
while an employee of the Company or a Subsidiary, all
outstanding Options granted to the optionee and not
exercised by the optionee prior to death shall,
notwithstanding any vesting schedule or period of
non-exercisability imposed on such Options pursuant to
Paragraph 4.2(e) of this Plan, without any further action of
the Committee, immediately become exercisable in full,
effective as of the death of the optionee by the estate or
by the person given authority to exercise such Options by
his will or by operation of law for a period of one (1) year
from the date of the optionee's death; PROVIDED, HOWEVER,
that no Option may be exercised more than ten (10) years
from the date of grant or the date such Option expires by
its terms.
In the event an Option is exercised by the executor or
administrator of a deceased optionee, or by the person or
persons to whom the Option has been transferred by the
Optionee's will or the applicable laws of descent and
distribution, the Company shall be under no obligation to
deliver stock thereunder unless and until the Company is
satisfied that the person or persons exercising the Option
is or are the duly appointed executor(s) or administrator(s)
of the deceased optionee or the person to whom the
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<PAGE>
Option has been transferred by the optionee's will or by
the applicable laws of descent and distribution.
(3) BY REASON OF THE PARTICIPANT'S RETIREMENT OR DISABILITY. If
an optionee retires at or after age 65 (or, at his early
retirement date as defined in any retirement plan of the
Company or a Subsidiary which is qualified under Section 401
ET SEQ. of the Code), all outstanding Options not exercised
by the optionee prior to the termination of his employment
shall, unless otherwise specified in his option agreement,
remain exercisable (to the extent that the optionee was
entitled to exercise them at the date of such age 65
retirement or early retirement) for a period of three (3)
months after termination of employment. If an optionee
terminates due to disability, all outstanding Options not
exercised by the Optionee prior to the termination of
employment shall, unless otherwise specified in his option
agreement, remain exercisable (to the extent that the
optionee was entitled to exercise them at the date of such
termination ) for a period of one (1) year from the date of
termination of the optionee's employment. Notwithstanding
anything in the foregoing to the contrary, no Option may be
exercised more than ten (10) years after the date of grant
thereof. As used in this subsection, the term "disability"
shall refer to a condition causing an employee to be unable
to engage in any substantially gainful activity by reason of
any medically determinable physical or mental impairment
which can be expected to result in death or can be expected
to last for a continuous period of not less than twelve (12)
months.
(4) BY REASON OF OTHER SEPARATION FROM SERVICE. Upon any
termination of employment not governed by Section 4.2(e)(2)
or (3) thereof, all outstanding Options not exercised by the
optionee prior to the termination of his employment shall
terminate on the date his employment terminates; PROVIDED,
HOWEVER, that the Committee may, in its discretion, extend
the period for exercise up to a date not more than ninety
(90) days following such termination of employment in the
case of an ISO, and not more than one year following such
termination of employment in the case of all other Options.
The assignment of any optionee from the Company to a
Subsidiary or from a Subsidiary to the Company or from one
Subsidiary to another Subsidiary shall not be considered a
termination of employment.
For purposes of this Agreement, the employment of an
optionee shall be treated as continuing intact while the
optionee is on military leave, sick leave or other bona fide
leave of absence (such as temporary employment with the
Government) if the period of such leave does not exceed
ninety (90) days, or if longer, so long as the optionee's
right to reemployment with the Company or a Subsidiary is
guaranteed either by statute or by contract. Where the
period of leave exceeds ninety (90) days and where the
optionee's right to re-employment is not guaranteed either
by statute or by contract, the employment relationship shall
be deemed to have terminated on the ninety-first (91st) day
of such leave.
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4.3 Designation of Options.
Each Option shall be designated in the written option agreement as
either an ISO or a Nonstatutory Option.
4.4 Incentive Stock Options.
Each provision of the Plan and of each written option agreement
relating to an Option designated as an ISO shall be construed so that
such Option qualifies as an ISO, and any provision that cannot be so
construed shall be disregarded.
4.5 Waiver of Restrictions on Exercisability Upon a Change in Control.
(a) The Committee may, in its sole discretion, determine that
any option agreement to be executed with respect to Options
to be granted to an individual under the Plan shall, or that any
existing option agreement (or agreements) executed with respect
to all or any portion of Options previously granted to the
individual under this Plan shall be amended to, include a
provision stating that if, during the period of one (1) year
ending on the first anniversary of the effective date of any
Change of Control Transaction,
(1) the optionee's employment with the Company or any
Subsidiary shall be terminated without just cause (relating
to the specific optionee) on the part of the Company; or
(2) the optionee's aggregate annual compensation shall be
materially reduced,
then the Options granted to the optionee (or the relevant portion
thereof) shall, notwithstanding any vesting schedule or period of
non-exercisability imposed on such Options pursuant to Paragraph
4.2(e) of this Plan, and without any further action of the
Company or the Committee, immediately become exercisable in full,
effective as of the date of such change in the optionee's
employment status.
(b) For purposes of this Paragraph, a "Change of Control
Transaction" shall be deemed to have occurred if more than
thirty (30%) percent of the aggregate voting power of all
classes of outstanding securities of the Company ordinarily
entitled to vote in elections of directors shall be acquired
(whether by direct purchase, exchange upon merger or
otherwise) by another corporation or other person or group
without the prior consent (evidenced by a resolution adopted
at a duly called meeting of the Board or by a written
statement of action) of a majority of the Continuing
Directors. "Group" shall mean persons who act in concert as
described in Section 14(d)(2) of the Securities Exchange Act
of 1934, as amended. In addition, any transfer or sale of
substantially all the assets of the Company shall constitute a
"Change of Control Transaction."
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<PAGE>
(c) The Committee may, in its sole discretion, determine at any
time that all or any portion of Options granted to an
individual under the Plan shall, notwithstanding any
restrictions on exercisability imposed pursuant to Paragraph
4.2(e), become immediately exercisable in full.
4.6 Tax Gross-Ups.
The Committee may, in its sole discretion, award to any optionee tax
gross-up rights, which entitle the optionee to cash payments from the
Company at such time as income and/or exercise tax liability arises
with respect to the exercise of Options granted hereunder. Such tax
gross-up rights may be granted coincident with or after the date of
grant of the related Option.
V. STOCK APPRECIATION RIGHTS.
5.1 Grant of SARs.
The Committee may, in its sole discretion, from time to time grant
SARs to optionees in connection with (but not separately from) any
Option granted under this Plan. Holders of SARs shall be entitled to
receive upon exercise thereof, in cash or Common Stock as provided in
Paragraph 5.3(c), the difference between the Fair Market Value of the
Common Stock underlying the Option on the day preceding the exercise
date and the Exercise Price of the Option. SARs may be granted with
respect to all or part of the common Stock issuable upon exercise of a
particular Option, except as otherwise expressly provided herein.
5.2 Related Options.
SARs shall entitle the holder of the related Option, upon exercise, in
whole or in part, of the SARs, to receive payment in the amount and
form determined pursuant to Paragraph 5.3(c). SARs may be exercised
only to the extent that the related Option has not been exercised.
The exercise of SARs shall result in a pro rata surrender of the
related Option to the extent that the SARs have been exercised.
5.3 Terms and Conditions.
The grant of SARs shall be evidenced by a written option agreement in
a form approved by the Committee. Such SARs shall be subject to the
following express terms and conditions and to such other terms and
conditions, not inconsistent with the terms of the Plan, which the
Committee may deem appropriate.
(a) SARs shall be exercisable at such time or times and to the
extent, but only to the extent, that the Option to which they
relate shall be exercisable.
(b) SARs (and any Option related thereto) shall in no event be
exercisable during the first year after the date of grant and
such rights shall not be transferable other than by will or by
the laws of descent and distribution
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and shall be exercisable during the optionee's lifetime only by
the optionee.
(c) Upon exercise of SARs, the holder thereof shall be entitled to
receive an amount equal in value to the difference between the
per share Exercise Price of the Option and the Fair Market
Value per share of Common Stock on the day preceding the
exercise date, multiplied by the number of shares in respect
of which the SARs shall have been exercised. Such amount
shall be paid in the form of (i) cash, (ii) shares of Common
Stock with a Fair Market Value on the day preceding the
exercise date equal to such amount or (iii) a combination of
cash and shares of Common Stock, all as determined by the
Committee.
(d) In no event shall an SAR be exercisable at a time when the
Exercise Price of the related Option is greater than the Fair
Market Value of the shares of the Common Stock issuable upon
exercise of such Option.
VI. AGGREGATE LIMITATION ON SHARES OF COMMON STOCK.
6.1 Number of Shares of Common Stock.
(a) Shares of Common Stock which may be issued pursuant to Options
or SARs granted under the Plan may be either authorized and
unissued shares of Common Stock or authorized and issued
shares of Common Stock held by the Company as treasury stock.
The aggregate number of shares of Common Stock reserved and
available for issuance under Options and SARs granted under
this Plan shall be 750 shares of Common Stock, subject to such
adjustments as may be made pursuant to Paragraph 7.8.
(b) For purposed of Paragraph 6.1(a), in addition to shares of
Common Stock actually issued pursuant to the exercise of
Options granted under the Plan, there shall be deemed to have
been issued under the Plan a number of shares of Common Stock
equal to the SARs which have been exercised, except that to
the extent that SARs are settled by the actual delivery of
shares of Common Stock, the number of shares deemed to have
been issued under the Plan pursuant to the exercise of SARs
shall be reduced.
(c) Any shares of Common Stock subject to an option which for any
reason either terminates unexercised or expires, except by
reason of the exercise of a related SAR, shall again be
available for issuance under the Plan.
VII. MISCELLANEOUS.
7.1 General Restrictions.
Any Option or SAR granted under this Plan shall be subject to the
requirement that, if at any time the Committee shall determine that
any listing or registration of the shares of Common Stock, or any
consent or
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approval of any governmental body, or any other agreementor
consent, is necessary or desirable as a condition of the granting
of an award or issuance of Common Stock or cash in satisfaction
thereof, such award may not be consummated unless such requirement
is satisfied in a manner acceptable to the Committee.
7.2 Non-Assignability.
(a) Except as provided in this subparagraph (a), Nonstatutory
options granted under the Plan may not be transferred other
than by will or the laws of descent and distribution or
pursuant to Title I of the Employee Retirement Income Security
Act, or the rules thereunder. Notwithstanding the foregoing,
any presently outstanding Nonstatutory options, or
Nonstatutory options granted in the future, may be transferred
by the option holder to members of his other immediate family,
or to one or more trusts for the benefit of such family
members, or partnerships in which such family members are the
only partners, provided that any such transfer shall be
permitted only if: (1) the optionholder does not receive any
consideration for such transfer, (2) written notice of such
proposed transfer and the details thereof shall have been
furnished to the Committee, and (3) the Nonstatutory stock
option agreement with respect to the options being transferred
(including any amendments thereof) which shall have been
approved by the Committee, expressly permits such transfer.
Any Nonstatutory options transferred to such immediate family
members, trusts or partnership will continue to be subject to
the same terms and conditions that were applicable to such
options immediately prior to their transfer. Any transfer in
violation of this paragraph shall be void and of no effect.
As used herein, the term "family members" shall mean the
optionee's spouse, children and grandchildren.
(b) No ISO or SAR granted under this Plan shall be assignable or
transferable except by will or by the laws of descent and
distribution.
7.3 Withholding Taxes.
(a) The Committee shall have the right to require participating
employees to remit to the Company an amount sufficient to
satisfy any federal, state and local withholding tax
requirements prior to the delivery of any shares of Common
Stock under the Plan. If an employee sells, transfers,
assigns or otherwise disposes of shares of Common Stock
acquired upon the exercise of an ISO within two (2) years
after the date on which the ISO was granted or within one (1)
year after the receipt of the shares of Common Stock by the
employee, the employee shall promptly notify the Company of
such disposition and the Company shall have the right to
require the employee to remit to the Company the amount
necessary to satisfy any federal, state and local tax
withholding requirements imposed by reason of such disposition.
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(b) The Company shall have the right to withhold from payments
made in cash to an employee (or his permitted transferee)
under the terms of the Plan, an amount sufficient to satisfy
any federal, state and local withholding tax requirements.
(c) Amounts to which the Company is entitled pursuant to
Paragraph 7.3(a) or (b) may be paid at the election of the
employee and with the approval of the Committee, either (i) in
cash, withheld from the employee's salary or other compensation
payable by the Company (or any Parent or Subsidiary), or (ii) in
shares of Common Stock otherwise issuable to the employee upon
exercise of an Option or SAR that have a Fair Market Value on the
date on which the amount of tax to be withheld is determined (the
"Tax Date") equal to the amount of tax the Company is entitled to
withhold. An optionee's election to have withheld shares of
Common Stock that are otherwise issuable shall be in writing,
shall be irrevocable upon approval by the Committee, and shall be
delivered to the Company prior to the Tax Date with respect to
the exercise of an Option or SAR and, if the participant is
subject to the short-swing profit rules of Section 16(b) of the
Securities Exchange Act of 1934, as amended, shall be delivered
to the Company at least six (6) months prior to such Tax Date.
7.4 Investment Representation.
Each Option or SAR agreement may provide, upon demand by the Company,
that the optionee or recipient shall deliver to the Company at the
time of any exercise of any Option or SAR a written representation
that the shares to be acquired are to be acquired for investment and
not for resale or with a view to the distribution thereof. Upon such
demand, delivery of such representation prior to delivery of any
shares shall be a condition precedent to the right of the employee or
such other person to purchase any shares.
7.5 No Right to Employment.
Nothing in this Plan or any agreement entered into pursuant to it
shall confer upon any participating employee the right to continue in
the employment of the Company or a Parent or Subsidiary or affect any
right which the Company or a Parent or Subsidiary may have to
terminate the employment of such participating employee.
7.6 Non-Uniform Determinations.
The Committee's determinations under this Plan (including without
limitation its determinations of the persons to receive Options or
SARs, the form amount and timing of such awards and the terms and
provisions of such awards) need not be uniform and may be made by it
selectively among persons who receive, or are
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eligible to receive, awards under this Plan, whether or not such
persons are similarly situated.
7.7 No Rights as Stockholders.
Employees granted Options or SARs under this Plan shall have no rights
as stockholders of the Company (or of a Parent or Subsidiary) as
applicable with respect thereto unless and until certificates for
shares of Common Stock are issued to them.
7.8 Adjustments of Stock.
(a) Recapitalization.
In the event of changes in the Common Stock due to a change in
capitalization, such as a stock dividend, stock split, or the
exchange of the Common Stock in the whole or in part for another
class of shares of the Company, there shall be a proportionate
adjustment in the number and kind of shares with respect to which
Options may be granted under the Plan, including any shares
subject to Option or SARs, and of the Option price stated in any
Option or SAR; PROVIDED, HOWEVER, that the Board may determine in
its discretion that no such adjustment shall be made unless the
aggregate effect of such change, or a series of such changes, in
capitalization is to increase or decrease the number of
outstanding shares of Common Stock by 5% or more; PROVIDED,
FURTHER, that any fractional shares resulting from such
adjustment shall be eliminated. The computation by the Board of
any such adjustment shall be conclusive.
(b) Merger or Consolidation.
In the event of a consolidation or merger in which the Company is
not the surviving corporation, or in the event of complete
liquidation of the Company, all outstanding Options and SARs
shall thereupon terminate, provided the Board shall, at least
twenty (20) days prior to the effective date of any such
corporate event, either (a) make all outstanding Options
immediately exercisable or (b) arrange to have the surviving
corporation grant to the optionees replacement options on terms
which the Board determines to be fair and reasonable.
7.9 Amendment or Termination of the Plan.
The Committee, without further approval of the stockholders, but with
the approval of the Board, may at any time terminate this Plan or any
part thereof and may from time to time amend this Plan as it may deem
advisable; PROVIDED, HOWEVER, that without stockholder approval, the
Committee may not amend the Plan in any manner that would, absent
stockholder approval, disqualify the Plan for coverage under Rule
16b-3 of the Securities and Exchange Commission, or
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any successor rule or regulation adopted by the Commission,
including an amendment which would (i) increase the aggregate
number of shares of Common Stock which may be issued under this
plan (other than increases permitted under Paragraph 7.8),
(ii) extend the term of this Plan, (iii) extend the period during
which an Option or SAR may be exercised. The termination or
amendment of this Plan shall not, without the consent of the
employee, affect such employee's rights under an award previously
granted.
7.10 Term of Plan.
Unless previously terminated pursuant to Paragraph 7.9, the Plan shall
terminate on January 7, 2008 the tenth (10th) anniversary of the date
on which the Plan became effective, and no Options or SARs may be
granted on or after such date.
VIII. EFFECTIVE DATE OF THE PLAN
The effective date of this Plan shall be January 7, 1998, the date on
which the Plan was adopted by the Board and the stockholders of the
Company.
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Exhibit 10.5
BERNAL CORPORATE PARK
BERNAL CORPORATE PLAZA I
OFFICE LEASE
BETWEEN
PATRICIAN ASSOCIATES, INC.
A CALIFORNIA CORPORATION
("LANDLORD")
AND
ACCPAC INTERNATIONAL, INC.
A Delaware Corporation
("TENANT")
June 5, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE PAGE
1 TERM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 POSSESSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3 BASIC RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
4 RENTAL ADJUSTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5 SECURITY DEPOSIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6 USE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8 BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
9 HOLDING OVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
10 TAXES ON TENANT'S PROPERTY. . . . . . . . . . . . . . . . . . . . . . . 8
11 CONDITION OF PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . 9
12 ALTERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
13 REPAIRS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
14 LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
15 ENTRY BY LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
16 UTILITIES AND SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . 11
17 BANKRUPTCY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
18 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
19 DAMAGE TO TENANT'S PROPERTY . . . . . . . . . . . . . . . . . . . . . . 13
(i)
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20 TENANT'S INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
21 DAMAGE OR DESTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . 15
22 EMINENT DOMAIN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
23 DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . 17
24 ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . . . . . . 19
25 SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
26 ESTOPPEL CERTIFICATE. . . . . . . . . . . . . . . . . . . . . . . . . . 21
27 SIGNAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
28 RULES AND REGULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 23
29 CONFLICT OF LAWS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
30 SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . . . . . . . . 23
31 SURRENDER OF PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . 23
32 ATTORNEYS' FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
33 PERFORMANCE BY TENANT . . . . . . . . . . . . . . . . . . . . . . . . . 24
34 MORTGAGEE PROTECTION. . . . . . . . . . . . . . . . . . . . . . . . . . 24
35 DEFINITION OF LANDLORD. . . . . . . . . . . . . . . . . . . . . . . . . 24
36 WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
37 IDENTIFICATION OF TENANT. . . . . . . . . . . . . . . . . . . . . . . . 25
38 PARKING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
39 TERMS AND HEADINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . 26
40 EXAMINATION OF LEASE. . . . . . . . . . . . . . . . . . . . . . . . . . 26
(ii)
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41 TIME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
42 PRIOR AGREEMENT: AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . 26
43 SEPARABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
44 RECORDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
45 CONSENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
46 LIMITATION ON LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . 27
47 RIDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
48 EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
49 MODIFICATION FOR LENDER . . . . . . . . . . . . . . . . . . . . . . . . 28
50 PROJECT PLANNING. . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
51 OPTION TO RENEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
52 RIGHT OF FIRST OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . 29
LIST OF EXHIBITS
EXHIBIT A The Premises
EXHIBIT A-1 The Project
EXHIBIT B Work Letter Agreement
EXHIBIT C Standards for Utilities and Services
EXHIBIT D Rules and Regulations
EXHIBIT E Parking Rules and Regulations
(iii)
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BERNAL CORPORATE PARK
BERNAL CORPORATE PLAZA I
THIS LEASE is made as of the 5th day of June, 1998, by and between
PATRICIAN ASSOCIATES, INC., a California corporation ("Landlord"), and ACCPAC
INTERNATIONAL, INC., a Delaware corporation ("Tenant").
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord
Suite Number 300 (the "Premises") outlined on the floor plan attached hereto and
marked EXHIBIT A, the Premises being agreed, for the purposes of this Lease, to
have an area of approximately 29,357 rentable square feet and being situated on
the third floor of that certain office building located at 6700 Koll Center
Parkway, Bernal Corporate Plaza I, Pleasanton, California 94566 (the
"Building"), more particularly described in EXHIBIT A-1 attached hereto. The
Building contains approximately one hundred eight thousand five hundred
sixty-four (108,564) rentable square feet of space.
The parties hereto agree that said letting and hiring is upon and subject
to the terms, covenants and conditions herein set forth. Tenant covenants, as a
material part of the consideration for this Lease to keep and perform each and
all of said terms, covenants and conditions for which Tenant is liable and that
this Lease is made upon the condition of such performance.
Prior to the commencing of the term of this Lease the Premises shall be
improved by the Tenant Improvements described in the Work Letter marked EXHIBIT
B attached hereto.
ARTICLE 1
TERM
The term of this Lease shall be for sixty (60) months, unless sooner
terminated as hereinafter provided, commencing upon the date ("Commencement
Date") which is the earlier of :
(i) Substantial completion of the Tenant Improvements described in the
Work Letter (subject to the provisions of Paragraph 7 of the Work Letter) and
the tender of possession of the Premises to Tenant; or
(ii) The date that Tenant opened for business in the Premises;
and ending on the last day of the last month in the term of this Lease, unless
such term shall be sooner terminated as hereinafter provided. As soon as the
Commencement Date is determined, the parties shall enter into an amendment of
this Lease setting forth the precise commencement and termination dates of this
Lease. Failure to enter into such an amendment, however, shall not affect the
parties respective rights and liabilities hereunder. Reference in this Lease to
a "Lease Year" shall mean each successive twelve month period commencing with
the Commencement Date.
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Landlord and Tenant estimate that the Commencement Date shall be August 1, 1998.
ARTICLE 2
POSSESSION
Tenant agrees that, if Landlord is unable to deliver possession of the
Premises to Tenant on or before the scheduled commencement of the term of this
Lease, this Lease shall not be void or voidable, nor shall Landlord be liable to
Tenant for any loss or damage resulting therefrom, but in such event the Term of
this Lease shall not commence until Landlord tenders possession of the Premises
to Tenant with the Tenant Improvements substantially completed. If, however,
Landlord is unable to deliver possession of the Premises to Tenant with the
Tenant Improvements substantially completed within five months from the date
this Lease is fully executed, for any reason other than delays caused by Tenant,
then Tenant shall have the right to terminate this Lease by delivery of written
notice to Landlord no later than ten business days after the expiration of such
five-month period. If Landlord completes construction of the Tenant
Improvements prior to the date scheduled in the Work Letter, Landlord shall
deliver possession of the Premises to Tenant upon such completion and the term
of this Lease shall thereupon commence.
ARTICLE 3
BASIC RENT
(a) Tenant agrees to pay Landlord Basic Rent for the Premises (subject to
adjustment as hereinafter provided) as follows:
MONTHS OF TERM BASIC RENT/PER MONTH
01-60 $66,053.25
The Basic Rent shall be paid monthly, in advance on the first (1st) day of each
calendar month during the term, commencing on the first (1st) month of the Lease
term and continuing on the first day of each month thereafter, except that the
first (1st) month's rent shall be paid on execution hereof. If Tenant's
obligation to pay rent commences or ends on a day other than the first day of a
calendar month, then the rental for such period shall be prorated in the
proportion that the number of days this Lease is in effect during such period
bears to thirty. In addition to the Basic Rent, Tenant agrees to pay as
additional rental the amount of rental adjustments and other charges required by
this Lease. All rental shall be paid to Landlord, without prior demand and
without any deduction or offset, in lawful money of the United States of
America, at the address of Landlord designated on the signature page of this
Lease or to such other person or at such other place as Landlord may from time
to time designate in writing.
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(b) LATE CHARGES. In the event Tenant fails to pay any installment of
rent when due or in the event Tenant fails to make any other payment for which
Tenant is obligated under this Lease when due, then Tenant shall pay to Landlord
a late charge equal to 5% of the amount due to compensate Landlord for the extra
costs incurred as a result of such late payment.
ARTICLE 4
RENTAL ADJUSTMENT
(a) For the purpose of this Article 4, the following terms are defined as
follows:
(i) TENANT'S PERCENTAGE. That portion of the Project occupied by
Tenant divided by the total rentable square footage of the Project, which result
is the following: 28.859%.
(ii) DIRECT EXPENSES BASE. The amount of annual Direct Expenses which
Landlord has included in Annual Basic Rent, which amount is Tenant's Percentage
of the actual Direct Expenses for 1999. If the Project is less than ninety-five
percent (95%) occupied during any calendar year of the term, an adjustment shall
be made in computing the Direct Expenses for such year so that Direct Expenses
shall be computed as though the Project were ninety-five percent (95%) occupied.
(iii) DIRECT EXPENSES. The term "Direct Expenses" shall include:
(A) All real and personal property taxes and
assessments (excluding those assessments described in Paragraph 4(a)(iii)(D))
imposed by any governmental authority or agency on the Project and the land on
which the Project is located (including a pro-rata portion of any taxes levied
on any common areas); any assessments levied in lieu of taxes; any
non-progressive tax on or measured by gross rentals received from the rental of
space in the Project; and any other costs levied or assessed by, or at the
direction of, any federal, state, or local government authority in connection
with the use or occupancy of the Premises or the parking facilities serving the
Premises; any tax on this transaction or any document to which Tenant is a party
creating or transferring an interest in the Premises, and any expenses,
including cost of attorneys or experts, reasonably incurred by Landlord in
seeking reduction by the taxing authority of the above-referenced taxes, less
tax refunds obtained as a result of an application for review thereof; but shall
not include any net income, franchise, capital stock, estate or inheritance
taxes.
(B) Operating costs consisting of costs incurred by Landlord to
the extent they relate to maintaining and operating the Project, exclusive of
costs required to be capitalized for federal income tax purposes, costs relating
to the leasing, mortgaging, disputes with and special requirements of other
tenants, and including (without limiting the generality of the foregoing) the
following: costs of utilities, supplies and insurance, cost of services of
independent contractors, managers and other suppliers, the fair rental value of
the Project management office, cost of compensation (including employment taxes
and fringe benefits) of all persons who perform regular and recurring duties
connected with the management, operation, maintenance, and repair of the
Project, its equipment, parking facilities and
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the common areas, including, without limitation, engineers, janitors,
foremen, floor waxers, window washers, watchmen and gardeners, but excluding
persons performing services not uniformly available to or performed for
substantially all Project tenants; cost of maintaining, repairing and
replacing landscaping, sprinkler systems, concrete walkways, paved parking
areas, signs, and site lighting.
(C) Amortization of such capital improvements as Landlord may
have installed: (a) for the purpose of reducing operating costs, (b) to
comply with governmental rules and regulations promulgated after the date of
substantial completion of the Premises, and (d) any costs required by the
CC&R's, as defined in Article 6, affecting the Premises or by any corporation,
committee or association formed in connection therewith, provided that such cost
together with interest at the prime rate for money center banks plus 100 basis
points as published from time to time in the Wall Street Journal shall be
amortized over such reasonable period as Landlord shall determine in accordance
with generally accepted accounting principles, and only the monthly amortized
cost shall be included in Direct Expenses monthly.
(D) ASSESSMENTS. Tenant acknowledges that the Premises are
subject to assessments levied to secure bonds sold by the City of Pleasanton
pursuant to Consolidated Reassessment District 1993-1. Such assessments shall
be Landlord's responsibility throughout the term of this Lease. Tenant hereby
consents to the formation of any other districts formed for maintenance,
utilities, landscaping, lighting, special service zones, fire district, water
district, road extensions, traffic mitigation, sports facilities or other
improvements in the Project or Bernal Corporate Park and to the re-financing of
any assessment districts. Tenant hereby waives any right of notice and protest
in connection with the formation and continued existence of the assessment
districts so long as Tenant is not required to pay any assessments for any
assessment districts that are specific to Bernal Corporate Park. Tenant shall
execute all documents, including, but not limited to, petitions and formal
waivers of notice and protest of formation, evidencing such consent and waiver
upon request of Landlord or the City of Pleasanton.
(b) PAYMENT OF DIRECT EXPENSES.
(i) If Tenant's Percentage of the Direct Expenses paid or incurred by
Landlord for any calendar year exceeds the Direct Expenses Base included in
Tenant's rent, then Tenant shall pay such excess as additional rent.
(ii) In addition, for each year after the first calendar year, or
portion thereof, Tenant shall pay Tenant's Percentage of Landlord's estimate of
the amount by which Direct Expenses for that year shall exceed the Direct
Expenses Base ("Landlord's Estimate"). This estimated amount shall be divided
into twelve equal monthly installments. Tenant shall pay to Landlord,
concurrently with the regular monthly rent payment next due following the
receipt of such statement, an amount equal to one monthly installment multiplied
by the number of months from January in the calendar year in which said
statement is submitted to the month of such payment, both months inclusive.
Subsequent installments shall be payable concurrently with the regular monthly
rent payments for the balance of that calendar year and shall continue until the
next calendar year's statement is rendered.
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(iii) As soon as possible after the end of each calendar year,
Landlord shall provide Tenant with a reasonably detailed statement showing
the amount of Tenant's Percentage of Direct Expenses, the amount of
Landlord's Estimate actually paid by Tenant and the amount of the Direct
Expenses Base. Thereafter, Landlord shall reconcile the above amounts and
shall either bill Tenant for the balance due (payable on demand by Landlord)
or credit any overpayment by Tenant towards the next monthly installment of
Landlord's Estimate falling due, as the case may be. For purposes of making
these calculations, in no event shall Tenant's Percentage of the Direct
Expenses be deemed to be less than the Direct Expenses Base.
(c) Even though the term has expired and Tenant has vacated the Premises,
when the final determination is made of Tenant's Percentage of Direct Expenses
for the year in which this Lease terminates, Tenant shall immediately pay any
increase due over the estimated expenses paid and, conversely, any overpayment
made in the event said expenses decrease shall be rebated by Landlord to Tenant.
(d) Tenant shall have the right to inspect Landlord's books and records
for the Project for the prior calendar year at any time within twelve (12)
months after Tenant's receipt of Landlord's statement of the actual Direct
Expenses to verify the Direct Expenses for such calendar year. Tenant shall
conduct such inspection during normal business hours at the office of Landlord's
property manager upon not less than two business days prior notice to Landlord.
If Tenant questions or disputes any Direct Expenses billed to Tenant, Tenant
shall notify Landlord in writing, and Landlord and Tenant shall attempt in good
faith to resolve any dispute regarding such expenses. If Landlord and Tenant
fail to resolve such dispute within thirty days after Tenant has notified
Landlord of the expenses questioned, Tenant shall be permitted to conduct an
audit of Landlord's books and records of the Direct Expenses, using an
independent, licensed and reputable accounting firm, which audit shall be
completed no later than eighteen (18) months from the date that Landlord's
statement of the actual Direct Expenses for the calendar year in question has
been delivered to Tenant. If the audit discloses that the Direct Expenses
charged to Tenant for the period under review were overstated by five percent
(5%) or more, Landlord shall reimburse Tenant for the cost of the audit;
otherwise, the cost of the audit shall be paid by Tenant. Landlord shall
promptly refund to Tenant the full amount of any overpayment made by Tenant.
ARTICLE 5
SECURITY DEPOSIT
Tenant shall deposit with Landlord the sum of Sixty-Six Thousand Fifty
Three and 25/100ths Dollars ($66,053.25) upon Lease execution by Tenant.
Said sum shall be held by Landlord as security for the faithful performance by
Tenant of all of Tenant's obligations hereunder. If Tenant defaults with
respect to any provision of this Lease, including but not limited to the
provisions relating to the payment of rent, and such default continues beyond
the expiration of any applicable cure period provided for in this Lease,
Landlord may (but shall not be required to) use, apply or retain all or any part
of this security deposit for the payment of any rent or any other sum in
default, or for the payment of any other amount which Landlord may spend or
become obligated to spend by reason of Tenant's default or to compensate
Landlord for any other loss or damage which Landlord may suffer by reason of
Tenant's default. If any portion of the deposit is so used or applied,
Tenant shall, upon demand, deposit cash with Landlord in
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an amount sufficient to restore the security deposit to
its original amount. Tenant's failure to do so shall be a material breach of
this Lease. Landlord shall not be required to keep this security deposit
separate from its general funds, and Tenant shall not be entitled to interest on
such deposit. The security deposit or any balance thereof shall be returned to
Tenant at the expiration of the Lease term, provided that Landlord may retain
the security deposit for any outstanding amount due from Tenant in accordance
with Article 4 hereof at the expiration of the Lease.
ARTICLE 6
USE
Tenant shall use the Premises for general office use and shall not use or
permit the Premises to be used for any other purpose without the prior written
consent of Landlord. Nothing contained herein shall be deemed to give Tenant
any exclusive right to such use in the Project. Tenant shall not use or occupy
the Premises in violation of law or of the certificate of occupancy issued for
the Building or Project, and shall, upon written notice from Landlord,
discontinue any use of the Premises which is declared by any governmental
authority having jurisdiction to be a violation of law or of said certificate of
occupancy. Tenant shall comply with any direction of any governmental authority
having jurisdiction which shall, by reason of the nature of Tenant's use or
occupancy of the Premises, impose any duty upon Tenant or Landlord with respect
to the Premises or with respect to the use or occupation thereof. Tenant's
shall not do or permit to be done anything which will invalidate or increase the
cost of any fire, extended coverage or any other insurance policy covering the
Building and/or Project and/or property located therein and shall comply with
all rules, orders, regulations and requirements of the Insurance Service
Offices, formerly known as the Pacific Fire Rating Bureau or any other
organization performing a similar function. Tenant shall promptly, upon demand,
reimburse Landlord for any additional premium charged for such policy by reason
of Tenant's failure to comply with the provisions of this Article. Tenant shall
not do or permit anything to be done in or about the Premises which will in any
way obstruct or interfere with the rights of other tenants or occupants of the
Project, or injure them, or use or allow the Premises to be used for any
improper, immoral, unlawful or objectionable purpose, nor shall Tenant cause,
maintain or permit any nuisance in, on or about the Premises. Tenant shall not
commit or suffer to be committed any waste in or upon the Premises. Tenant
acknowledges that Landlord has recorded covenants, conditions and restrictions
against the Premises on February 18, 1987 as Instrument Number 87/046032 in the
Official Records of Alameda County (the "CC&Rs"). Tenant's use of the Premises
shall be subject to and Tenant shall comply with the CC&R's, as the same may be
amended from time to time, provided that any amendments do not materially
diminish Tenant's rights under this Lease or materially increase Tenant's
obligations. Tenant acknowledges that there have been and may be from time to
time recorded easements and/or declarations granting or declaring easements for
parking, utilities, fire or emergency access, and other matters. Tenant's use
of the Premises shall be subject to and Tenant shall comply with any and all
such easements and declarations. Tenant's use of the Premises shall be subject
to such guidelines as may from time to time be prepared by Landlord or the
Bernal Corporate Park Owner's Association in their sole discretion. Tenant
acknowledges that governmental entities with jurisdiction over the Premises
may, from time to time promulgate laws, rules, plans and regulations affecting
the use of the Premises, including, but not limited to, traffic management
plans and
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energy conservation plans. Tenant's use of the Premises shall be subject to
and Tenant shall comply with any and all such laws, rules, plans, and
regulations. Tenant, at its sole cost, shall comply with all laws relating
to the storage, use and disposal of hazardous, toxic or radioactive matter, to
the extent brought into the Project by Tenant, its agents or employees,
including those materials identified in Sections 66680 through 66685 of
Title 33 of the California Administrative Code, Division 4, Chapter 30
("Title 22") as they may be amended from time to time (collectively "Toxic
Materials"). If Tenant does store, use or dispose of any Toxic Materials,
Tenant shall notify Landlord in writing at least ten (10) days
prior to their first appearance on the Premises.
ARTICLE 7
NOTICES
Any notice required or permitted to be given hereunder must be in writing
and may be given by personal delivery, by mail, or by nationally recognized
overnight delivery service, and if given by mail shall be deemed sufficiently
given if sent by registered or certified mail addressed to Tenant at the
Project, or to Landlord at its address set forth at the end of this Lease.
Either party may specify a different address for notice purposes by written
notice to the other except that the Landlord may in any event use the Premises
as Tenant's address for notice purposes.
ARTICLE 8
BROKERS
Landlord and Tenant warrant, each to the other, that it has had no dealings
with any real estate broker or agent in connection with the negotiation of this
Lease, except David B. Jonas of BT Commercial Real Estate, whose commission
shall be payable by Landlord, and that it knows of no other real estate broker
or agent who is or might be entitled to a commission in connection with the
Lease. If either Landlord or Tenant has dealt with any other person or real
estate broker with respect to leasing or renting space in the Project, such
party shall be solely responsible for the payment of any fee due said person or
firm and shall hold the other party free and harmless against any liability in
respect thereto, including attorneys' fees and costs.
ARTICLE 9
HOLDING OVER
If Tenant holds over after the expiration or earlier termination of the
term hereof without the express written consent of Landlord, Tenant shall become
a Tenant at sufferance only, at a rental rate equal to one hundred fifty percent
(150%) of the rent in effect upon the date of such expiration (subject to
adjustment as provided in Paragraph 4 hereof and prorated on a daily basis), and
otherwise subject to the terms, covenants and conditions herein specified, so
far as applicable. If Tenant desires to holdover possession of the Premises
after the expiration of the term with the consent of Landlord, Tenant shall
provide Landlord with at least six months' prior written notice of Tenant's
desire to do so, which
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notice shall specify the number of days or months of the proposed holdover.
Landlord shall notify Tenant within ten business days after receipt of Tenant's
notice whether Landlord will be able to accommodate Tenant's request.
Any such holdover will be a rental rate equal to one hundred fifty percent
(150%) of the rent in effect upon the date of such expiration (subject to
adjustment as provided in Paragraph 4 hereof and prorated on a daily basis),
and otherwise subject to the terms, covenants and conditions herein specified,
so far as applicable. Acceptance by Landlord of rent after such expiration or
earlier termination shall not result in a renewal of this Lease. The foregoing
provisions of this Article 9 are in addition to and do not affect Landlord's
right of re-entry or any rights of Landlord hereunder or as otherwise provided
by law. If Tenant fails to surrender the Premises upon the expiration of this
Lease or following any permitted holdover period, despite demand to do so by
Landlord, Tenant shall indemnify and hold Landlord harmless from all loss or
liability, including without limitation, any claim made by any succeeding tenant
founded on or resulting from such failure to surrender and any attorneys' fees
and costs.
ARTICLE 10
TAXES ON TENANT'S PROPERTY
(a) Tenant shall be liable for and shall pay, at least ten days before
delinquency, all taxes levied against any personal property or trade fixtures
placed by Tenant in or about the Premises. If any such taxes on Tenant's
personal property or trade fixtures are levied against Landlord or Landlord's
property of if the assessed value of the Premises is increased by the inclusion
therein of a value placed upon such personal property or trade fixtures of
Tenant and if Landlord, after written notice to Tenant, pays the taxes based
upon such increased assessment, which Landlord shall have the right to do
regardless of the validity thereof, but only under proper protest if requested
by Tenant, Tenant shall, upon demand, repay to Landlord the taxes so levied
against Landlord, or the portion of such taxes resulting from such increase in
the assessment.
(b) If any improvements or alterations are made to Premises after the
commencement of the term, whether installed, and/or paid for by Landlord or
Tenant and whether or not affixed to the real property so as to become a part
thereof, are assessed for real property tax purposes at a valuation higher than
the valuation at which any improvements or alterations in other space in the
Project of tenants not separately charged are assessed, then the real property
taxes and assessment levied against the Project by reason of such excess
assessed valuation shall be deemed to be taxes levied against personal property
of Tenant and shall be governed by the provisions of Paragraph 10(a), above.
If the records of the County Assessor are available and sufficiently detailed to
serve as a basis for determining whether said improvements or alterations are
assessed at a higher valuation than improvements or alterations of tenants not
separately charged, such records shall be binding on both the Landlord and the
Tenant. If the records of the County Assessor are not available or sufficiently
detailed to serve as a basis for making said determination, the actual cost of
construction shall be used.
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ARTICLE 11
CONDITION OF PREMISES
Tenant acknowledges that, except as expressly stated herein, neither
Landlord nor any agent of Landlord has made any representation or warranty with
respect to the Premises or the Project or with respect to the suitability of
either for the conduct of Tenant's business. The taking of possession of the
Premises by Tenant shall establish that the Premises and the Project were in
satisfactory condition at such time.
ARTICLE 12
ALTERATIONS
(a) Tenant shall make no alterations, additions or improvements in or to
the Premises without Landlord's prior written consent, which consent shall not
be unreasonably withheld, delayed or conditioned, and then only by contractors
or mechanics reasonably approved by Landlord. Tenant agrees that there shall be
no construction or partitions or other obstructions which might interfere with
Landlord's free access to mechanical installations or service facilities of the
Building or Project or interfere with the moving of Landlord's equipment to or
from the enclosures containing said installations or facilities. All such work
shall be done at such times and in such manner as Landlord may reasonably
designate from time to time. Tenant covenants and agrees that all work done by
Tenant shall be performed in full compliance with all laws, rules, orders,
ordinances, regulations and requirements of all governmental agencies, offices,
and boards having jurisdiction, and in full compliance with the rules,
regulations and requirements of the Insurance Service Offices formerly known as
the Pacific Fire Rating Bureau, and of any similar body. Before commencing any
work, Tenant shall give Landlord at least ten days written notice of the
proposed commencement of such work and shall, if required by Landlord, secure at
Tenant's own cost and expense, a completion and lien indemnity bond, reasonably
satisfactory to Landlord, for said work. Tenant further covenants and agrees
that any mechanic's lien filed against the Premises or against the Building or
Project for work claimed to have been done for, or materials claimed to have
been furnished to, Tenant will be discharged by Tenant, by bond or otherwise,
within 30 days after Landlord has notified Tenant in writing of the filing
thereof, at the cost and expense of Tenant. All alterations, additions or
improvements upon the Premises made by either party, including (without limiting
the generality of the foregoing) all wallcovering, built-in cabinet work,
paneling and the like, shall, unless Landlord elects otherwise, become the
property of Landlord, and shall remain upon, and be surrendered with the
Premises, as a part thereof, at the end of the term hereof, except that Landlord
may, by written notice to Tenant given to Tenant at the time that Landlord
grants its consent to any alterations, additions or improvements, specify that
Tenant shall be required to remove such alterations, additions or improvements
at the expiration or sooner termination of this Lease, and in such event Tenant
shall repair all damage resulting from such removal or, at Landlord's option,
shall pay to Landlord all reasonable costs arising from such removal.
(b) All articles of personal property and all business and trade fixtures,
machinery and equipment, furniture and movable partitions owned by Tenant or
installed by Tenant at its expense in the Premises shall be and remain the
property of Tenant and may be removed by Tenant at any time during the
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lease term. If Tenant shall fail to remove all of its effects from the
Premises upon termination of this Lease for any cause whatsoever (other than
Landlord's acts), Landlord may, at its option, remove the same in any
reasonable and prudent manner that Landlord shall choose, and store said
effects without liability to Tenant for loss thereof. In such event, Tenant
agrees to pay Landlord upon demand any and all reasonable and actual expenses
incurred in such removal, including court costs and attorneys' fees and storage
charges on such effects for any length of time that the same shall be in
Landlord's possession. Landlord may, at its option, with notice, sell said
effects, or any of the same, at private sale and without legal process, for
such price as Landlord may obtain and apply the proceeds of such sale upon any
amounts due under this Lease from Tenant to Landlord and upon the expense
incident to the removal and sale of said effects.
[cad 228][cad 228]
ARTICLE 13
REPAIRS
(a) By entry hereunder upon substantial completion of the Tenant
Improvements, Tenant accepts the Premises as being in good and sanitary order,
condition and repair, except for latent defects and any incomplete punch-list
items. Landlord shall keep, maintain and preserve the Premises in first class
condition and repair, and shall, when and if needed, make all repairs to the
Premises and every part thereof where required except due to excess wear and
tear by Tenant. Tenant shall, upon the expiration or sooner termination of the
term hereof, surrender the Premises to Landlord in the same condition as when
received, usual and ordinary wear and tear excepted and subject to the
provisions of Article 12. Except as provided in EXHIBIT B, Landlord shall have
no obligation to alter, remodel, improve, decorate or paint the Premises or any
part thereof. The parties hereto affirm that Landlord has made no
representations to Tenant respecting the condition of the Premises or the
Project except as specifically herein set forth.
(b) Anything contained in Paragraph 13(a) above to the contrary
notwithstanding, Landlord shall repair and maintain the structural portions of
the Building, including the foundations, building shell, and roof structure, all
at Landlord's expense. Landlord shall also repair and maintain the basic
plumbing, elevators, life safety systems and other building systems, heating,
ventilating, air conditioning and electrical systems installed or furnished by
Landlord, and perform roof repair and maintenance to the Premises; the cost of
such repairs and maintenance shall be included in Direct Expenses as provided in
Article 4. Landlord shall not be liable for any failure to make any such
repairs or to perform any maintenance unless such failure shall persist for an
unreasonable time after written notice of the need of such repairs or
maintenance is given to Landlord by Tenant. Except as provided in Article 21
hereof, there shall be no abatement of rent and no liability of Landlord by
reason of any injury to or interference with Tenant's business arising from the
making of any repairs, alterations or improvements in or to any portion of the
Building, Project or the Premises or in or to fixtures, appurtenances and
equipment therein. Tenant waives the right to make repairs at Landlord's
expense under any law, statute or ordinance now or hereafter in effect.
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ARTICLE 14
LIENS
Tenant shall not permit any mechanic's, materialmen's or other liens to be
filed against the Building or Project, nor against Tenant's leasehold interest
in the Premises. Landlord shall have the right at all reasonable times to post
and keep posted on the Premises any notices which it deems necessary for
protection from such liens. If any such liens are filed, Landlord may, without
waiving its rights and remedies based on such breach of Tenant and without
releasing Tenant from any of its obligations, cause such liens to be released by
any means it shall deem proper, including payments in satisfaction of the claim
giving rise to such lien. Tenant shall pay to Landlord at once, upon notice by
Landlord, any sum paid by Landlord to remove such liens, together with interest
at the maximum rate per annum permitted by law from the date of such payment by
Landlord.
ARTICLE 15
ENTRY BY LANDLORD
Landlord reserves and shall at any and all reasonable times have the right
to enter the Premises to inspect the same, to supply janitorial service and any
service to be provided by Landlord to Tenant hereunder, to show the Premises to
prospective purchasers or tenants, to post notices of nonresponsibility, to
alter, improve or repair the Premises or any other portion of the Building or
Project, all without being deemed guilty of any eviction of Tenant and without
abatement of rent. Except for emergencies and regularly scheduled janitorial
services, Landlord shall provide Tenant with reasonable prior notice of
Landlord's intended entry. Landlord may, in order to carry out any of the
foregoing purposes, erect scaffolding and other necessary structures where
reasonably required by the character of the work to be performed, provided that
the business of Tenant shall be interfered with as little as is reasonably
practicable. Tenant hereby waives any claim for damages for any injury or
inconvenience to or interference with Tenant's business, any loss of occupancy
or quiet enjoyment of the Premises, except to the extent caused by the gross
negligence or willful misconduct of Landlord, its agents or employees. Landlord
shall at all times have and retain a key with which to unlock all doors in the
Premises, excluding Tenant's vaults and safes. Landlord shall have the right to
use any and all means which Landlord reasonably may deem proper to open said
doors in an emergency in order to obtain entry to the Premises. Any entry to
the Premises obtained by Landlord by any of said means, or otherwise, shall not
be construed or deemed to be a forcible or unlawful entry into the Premises, or
any eviction of Tenant from the Premises or any portion thereof. Any damage to
the Premises caused on account thereof shall be paid by Landlord. It is
understood and agreed that no provision of this Lease shall be construed as
obligating Landlord to perform any repairs, alterations or decorations except as
otherwise expressly agreed herein by Landlord.
ARTICLE 16
UTILITIES AND SERVICES
Landlord agrees to furnish or cause to be furnished to the Premises the
utilities and services described in the Standards for Utilities and Services,
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attached hereto as EXHIBIT C, subject to the conditions and in accordance with
the standards set forth therein. Landlord's failure to furnish any of the
foregoing items when such failure is caused by:
(i) Accident, breakage, or repairs,
(ii) Strikes, lockouts or other labor disturbance or labor dispute of any
character,
(iii) Governmental regulation, moratorium or other governmental action,
(iv) Inability despite the exercise of reasonable diligence to obtain
electricity, water or fuel, or by
(v) Any other cause beyond Landlord's reasonable control, shall not result
in any liability to Landlord.
In addition, Tenant shall not be entitled to any abatement or reduction of rent
by reason of such failure, no eviction of Tenant shall result from such failure
and Tenant shall not be relieved from the performance of any covenant or
agreement in this Lease because of such failure. In the event of any failure,
stoppage or interruption thereof, Landlord shall diligently attempt to resume
service promptly.
ARTICLE 17
BANKRUPTCY
If Tenant shall file a petition in bankruptcy under any provision of the
Bankruptcy Code as then in effect, or if Tenant shall be adjudicated a bankrupt
in involuntary bankruptcy proceedings and such adjudication shall not have been
vacated within thirty days from the date thereof, or if a receiver or trustee
shall be appointed of Tenant's property and the order appointing such receiver
or trustee shall not be set aside or vacated within thirty days after the entry
thereof, or if Tenant shall assign Tenant's estate or effects for the benefit of
creditors, or if this Lease shall, by operation of law or otherwise, pass to any
person or persons other than Tenant, then in any such event Landlord may
terminate this Lease, if Landlord so elects, with or without notice of such
election and with or without entry or action by Landlord. In such case,
notwithstanding any other provisions of this Lease, Landlord, in addition to any
and all rights and remedies allowed by law or equity, shall, upon such
termination, be entitled to recover damages in the amount provided in Paragraph
23(b) hereof. Neither Tenant nor any person claiming through or under Tenant or
by virtue of any statute or order of any court shall be entitled to possession
of the Premises but shall surrender the Premises to landlord. Nothing contained
herein shall limit or prejudice the right of Landlord to recover damages by
reason of any such termination equal to the maximum allowed by any statute or
rule of law in effect at the time when, and governing the proceedings in which,
such damages are to be proved; whether or not such amount is greater, equal to,
or less than the amount of damages recoverable under the provisions of this
Article 17.
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ARTICLE 18
INDEMNIFICATION
(a) Tenant shall indemnify, defend and hold Landlord harmless from all
claims arising from Tenant's use of the Premises or the conduct of its business
or from any activity, work, or thing done, permitted or suffered by Tenant in or
about the Premises, except to the extent arising from the gross negligence or
willful misconduct of Landlord, its agents, or employees. Tenant shall further
indemnify, defend and hold Landlord harmless from all claims arising from any
breach or default in the performance of any obligation to be performed by Tenant
under the terms of this Lease, or arising from any act, neglect, fault or
omission of Tenant or of its agents or employees, and from and against all
costs, attorneys' fees, expenses and liabilities incurred in or about such claim
or any action or proceeding brought thereon. In case any action or proceeding
shall be brought against Landlord by reason of any such claim, Tenant upon
notice from Landlord shall defend the same at Tenant's expense by counsel
approved in writing by Landlord. Tenant, as a material part of the
consideration to Landlord, hereby assumes all risk of damage to property or
injury to person in, upon or about the Premises from any cause whatsoever except
that which is caused by the failure of Landlord to observe any of the terms and
conditions of this Lease where such failure has persisted for an unreasonable
period of time after written notice of such failure. Tenant hereby waives all
its claims in respect thereof against Landlord.
(b) Landlord shall indemnify, defend and hold Tenant harmless from all
claims arising from any breach or default in the performance of any obligation
to be performed by Landlord under the terms of this Lease, or arising from the
negligence or willful misconduct of Landlord or of its agents or employees, and
from and against all costs, attorneys' fees, expenses and liabilities incurred
in or about such claim or any action or proceeding brought thereon. In case any
action or proceeding shall be brought against Tenant by reason of any such
claim, Landlord upon notice from Tenant shall defend the same at Landlord's
expense by counsel approved in writing by Tenant.
ARTICLE 19
DAMAGE TO TENANT'S PROPERTY
Notwithstanding the provisions of Article 18 to the contrary, Landlord or
its agents shall not be liable for (i) loss or damage to any property by theft
or otherwise, or (ii) any injury or damage to property resulting from fire,
explosion, falling plaster, steam, gas, electricity, water or rain which may
leak from any part of the Project or from the pipes, appliances or plumbing work
therein or from the roof, street or sub-surface or from any other place or
resulting from dampness or from any other cause whatsoever. Landlord or its
agents shall not be liable for interference with light or other incorporeal
hereditaments. Tenant shall give prompt notice to Landlord in case of fire or
accidents in the Premises or in the Project or of defects therein or in the
fixtures or equipment.
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ARTICLE 20
TENANT'S INSURANCE
(a) Tenant shall, during the term hereof and any other period of
occupancy, at its sole cost and expense, keep in full force and effect the
following insurance:
(i) Standard form property insurance insuring against the perils of
fire, extended coverage, vandalism, malicious mischief, special extended
coverage ("All-Risk") and sprinkler leakage. This insurance policy shall be
upon all property owned by Tenant, for which Tenant is legally liable or that
was installed at Tenant's expense, and which is located in the Project
including, without limitation, furniture, fittings, installations, fixtures
(other than Tenant improvements installed by Landlord), and any other personal
property in an amount not less than ninety percent of the full replacement cost
thereof. Such policy shall name Landlord and any mortgagees of Landlord as
additional insured parties, as their respective interests may appear.
(ii) Commercial General Liability Insurance insuring Tenant against
any liability arising out of the lease, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be in the
amount of $3,000,000 Combined Single Limit for injury to, or death of one or
more persons in an occurrence, and for damage to tangible property (including
loss of use) in an occurrence. The policy shall insure the hazards of premises
and operation, contractual liability (covering the Indemnity contained in
Paragraph 18 hereof) and shall (1) name Landlord as an additional insured, and
(2) contain a cross liability provision, and (3) contain a provision that "the
insurance provided the Landlord hereunder shall be primary and non-contributing
with any other insurance available to the Landlord."
(iii) Workers' Compensation and Employer's Liability insurance (as
required by state law).
(iv) Any other form or forms of insurance as Tenant or Landlord or any
mortgagees of Landlord may reasonably require from time to time in form, in
amounts and for insurance risks against which a prudent tenant would protect
itself; provided that such other insurance is warranted due to a substantial
change in the nature of Tenant's operations at the Premises and the increased
risks associated therewith or due to the total amount of any claims paid on
Tenant's insurance policies in the prior twelve (12) month period, or such
insurance is customarily required for similar uses by owners of comparable
buildings in Pleasanton, California.
(b) All policies shall be written in a form satisfactory to Landlord and
shall be taken out with insurance companies holding a General Policyholders
Rating of "A" and a Financial Rating of "X" or better, as set forth in the most
current issue of Bests Insurance Guide. Within ten days after the execution
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of this Lease, Tenant shall deliver to Landlord certificates evidencing the
existence of the amounts and forms of coverage satisfactory to Landlord. No
such policy shall be cancelable or reducible in coverage except after thirty
days prior written notice to Landlord. Tenant shall, within ten days prior to
the expiration of such policies, furnish Landlord with a new certificate of
insurance evidencing the renewal thereof, or within ten (10) days after written
notice Landlord may order such insurance and charge the cost thereof to Tenant
as additional rent. If Landlord obtains any insurance that is the
responsibility of Tenant under this section, Landlord shall deliver to Tenant
a written statement setting forth the cost of any such insurance and showing
in reasonable detail the manner in which it has been computed.
ARTICLE 21
DAMAGE OR DESTRUCTION
(a) In the event the Project and/or the Premises is damaged by fire or
other perils covered by Landlord's insurance, Landlord shall have the following
rights and obligations:
(i) In the event of total destruction, at Landlord's option, as soon
as reasonably possible thereafter, commence repair, reconstruction and
restoration of the Project and/or the Premises and prosecute the same diligently
to completion, in which event this Lease shall remain in full force and effect;
or within ninety days after such damage, elect not to so repair, reconstruct or
restore the Project and/or the Premises, in which event this Lease shall
terminate. In either event, Landlord shall give Tenant written notice of its
intention within said ninety day period. In the event Landlord elects not to
restore the Project and/or the Premises, this Lease shall be deemed to have
terminated as of the date of such total destruction.
(ii) In the event of a partial destruction of the Project and/or the
Premises, to an extent not exceeding twenty-five percent of the full insurable
value thereof, and if the damage thereto is such that the Project and/or the
Premises may be repaired, reconstructed or restored within a period of ninety
days from the date of the happening of such casualty and if Landlord will
receive insurance proceeds sufficient to cover at least ninety-five percent
(95%) of the cost of such repairs, then Landlord shall commence and proceed
diligently with the work of repair, reconstruction and restoration and this
Lease shall continue in full force and effect. If such work of repair,
reconstruction and restoration shall require a period longer than ninety days or
exceeds twenty-five percent of the full insurable value thereof, or if said
insurance proceeds will not be sufficient to cover the cost of such repairs,
then Landlord either may elect to so repair, reconstruct or restore and the
Lease shall continue in full force and effect or Landlord may elect not to
repair, reconstruct or restore and the Lease shall then terminate. Under any of
the conditions of this Subparagraph 21(a)(ii), Landlord shall give written
notice to Tenant of its intention within said ninety day period. In the event
Landlord elects not to restore the Project and/or the Premises, this Lease shall
be deemed to have terminated as of the date of such partial destruction.
(b) Upon any termination of this Lease under any of the provisions of
this Article 21, the parties shall be released without further obligation to the
other from the date possession of the Premises is surrendered to Landlord except
for items which have therefore accrued and are then unpaid.
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(c) In the event of repair, reconstruction and restoration by Landlord as
herein provided, the rental payable under this Lease shall be abated
proportionately with the degree to which Tenant's use of the Premises is
impaired during the period of such repair, reconstruction or restoration.
Tenant shall not be entitled to any compensation or damages for loss in the use
of the whole or any part of the Premises and/or any inconvenience or annoyance
occasioned by such damage, repair, reconstruction or restoration.
(d) Tenant shall not be released from any of its obligations under this
Lease except to the extent and upon the conditions expressly stated in this
Article 21. Notwithstanding anything to the contrary contained in this Article
21, if Landlord is delayed or prevented from repairing or restoring the damaged
Premises within one year after the occurrence of such damage or destruction by
reason of acts of God, war, governmental restrictions, inability to procure the
necessary labor or materials, or other cause beyond the control of Landlord,
Landlord shall be relieved of its obligation to make such repairs or restoration
and Tenant shall be released from its obligation under this Lease as of the end
of said one year period.
(e) If damage, as defined and described in paragraph 21(a) above, is due
to causes other than fire or other peril covered by extended coverage insurance,
Landlord may elect to terminate this Lease.
(f) If Landlord is obligated to or elects to repair or restore as herein
provided, Landlord shall be obligated to make repair or restoration only of
those portions of the Project and the Premises which were originally provided at
Landlord's expense, and the repair and restoration of items in the Premises not
provided at Landlord's expense shall be the obligation of Tenant.
(g) Notwithstanding anything to the contrary contained in this Article 21,
Landlord shall not have any obligation whatsoever to repair, reconstruct or
restore the Premises when the damage resulting from any casualty covered under
this Article 21 occurs during the last twelve months of the term of this Lease
or any extension hereof.
(h) The provisions of California Civil Code 1932, Subsection 2, and 1933,
Subsection 4, which permit termination of a lease upon destruction of the Leased
Premises, are hereby waived by Tenant; and the provisions of this Article shall
govern in case of such destruction.
ARTICLE 22
EMINENT DOMAIN
In case all of the Premises, or such part thereof as shall substantially
interfere with Tenant's use and occupancy thereof, shall be taken for any public
or quasi-public purpose by any lawful power or authority by exercise of the
right of appropriation, condemnation or eminent domain, or sold to prevent such
taking, either party shall have the right to terminate this Lease effective as
of the date possession is required to be surrendered to said authority. Tenant
shall not assert any claim against Landlord or the taking authority for any
compensation because of such taking, and Landlord shall be entitled to receive
the entire amount of
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any award without deduction for any estate or interest of Tenant. In the
event the amount of property or the type of estate taken shall not
substantially interfere with the conduct of Tenant's business, Landlord shall
be entitled to the entire amount of the award without deduction for any
estate or interest of Tenant, Landlord shall restore the Premises to
substantially their same condition prior to such partial taking, and a
proportionate allowance shall be made to Tenant for the rent corresponding to
the time during which, and to the part of the Premises of which, Tenant shall
be so deprived on account of such taking and restoration. Nothing contained
in this Paragraph shall be deemed to give Landlord any interest in any award
made to Tenant for the taking of personal property and fixtures belonging to
Tenant.
ARTICLE 23
DEFAULTS AND REMEDIES
(a) The occurrence of any one or more of the following events shall
constitute a default hereunder by Tenant:
(i) The failure by Tenant to make any payment of rent or additional
rent or any other payment required to be made by Tenant hereunder, as and when
due, where such failure shall continue for a period of ten business days after
written notice thereof from Landlord to Tenant; provided however, that any such
notice shall be in lieu of, and not in addition to, any notice required under
California Code of Civil Procedure Section 1161 regarding unlawful detainer
actions.
(ii) The failure by Tenant to observe or perform any of the express or
implied covenants or provisions of this Lease to be observed or performed by
Tenant, other than as specified in Subparagraph 23(a)(i) above, where such
failure shall continue for a period of thirty days after written notice thereof
from Landlord to Tenant. Any such notice shall be in lieu of, and not in
addition to, any notice required under California Code of Civil Procedure
Section 1161 regarding unlawful detainer actions. If the nature of Tenant's
default is such that more than thirty days are reasonably required for its cure,
then Tenant shall not be deemed to be in default if Tenant shall commence such
cure within said thirty-day period and thereafter diligently prosecute such cure
to completion.
(iv) (1) The making by Tenant of any general assignment for the
benefit of creditors; (2) the filing by or against Tenant of a petition to
have Tenant adjudged a bankrupt or a petition for reorganization or arrangement
under any law relating to bankruptcy (unless, in the case of a petition filed
against Tenant, the same is dismissed within thirty days); (3) the appointment
of a trustee or receiver to take possession of substantially all of Tenant's
assets located at the Premises or of Tenant's interest in this Lease, where
possession is not restored to Tenant within thirty days; or (4) the
attachment, execution or other judicial seizure of substantially all of Tenant's
assets located at the Premises or of Tenant's interest in this Lease where such
seizure is not discharged within thirty days.
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(b) In the event of any such default by Tenant which continues beyond the
expiration of any applicable cure period provided for herein, in addition to any
other remedies available to Landlord at law or in equity, Landlord shall have
the immediate option to terminate this Lease and all rights of Tenant hereunder.
In the event that Landlord shall elect to so terminate this Lease then Landlord
may recover from Tenant:
(i) The worth at the time of award of any unpaid rent which had been
earned at the time of such termination; plus
(ii) The worth at the time of award of the amount by which the unpaid
rent which would have been earned after termination until the time of award
exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided; plus
(iii) The worth at the time of award of the amount by which the
unpaid rent for the balance of the term after the time of award exceeds the
amount of such rental loss that Tenant proves could be reasonably avoided; plus
(iv) Any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform Tenant's obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom.
As used in Subparagraph 23(b)(i) and (ii) above, the "worth at the time of
award" is computed by allowing interest at the maximum rate permitted by law.
As used in Subparagraph 23(b)(iii) above, the "worth at the time of award" is
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent.
(d) All rights, options and remedies contained in this Lease shall be
constructed and held to be cumulative, and no one of them shall be exclusive of
the other, and either party shall have the right to pursue any one or all of
such remedies or any other remedy or relief which may be provided by law,
whether or not stated in this Lease. No waiver of any default of Tenant
hereunder shall be implied from any acceptance by Landlord of any rent or other
payments due hereunder or any omission by Landlord to take any action on account
of such default if such default persists or is repeated, and no express waiver
shall affect defaults other than as specified in said waiver. The consent or
approval of Landlord to or of any act by Tenant requiring Landlord's consent or
approval shall not be deemed to waive or render unnecessary Landlord's consent
or approval to or of any subsequent similar acts by Tenant.
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(e) The chronic delinquency by Tenant in the payment of Basic Rent or any
other payments required to be paid by Tenant under this Lease shall constitute a
default hereunder by Tenant. "Chronic delinquency" shall mean failure by Tenant
to pay Basic Rent, or any other payments required to be paid by Tenant under
this Lease within ten (10) business days after written notice thereof (together
with appropriate invoices or other back-up documentation for any non-rent
payments due from Tenant) for any three (3) occasions (consecutive or
non-consecutive) during any twelve (12) month period. In the event of a chronic
delinquency, Landlord shall have the right, at Landlord's option, to require
that Basic Rent be paid by Tenant quarterly, in advance.
ARTICLE 24
ASSIGNMENT AND SUBLETTING
(a) Tenant shall not voluntarily assign or encumber its interest in this
Lease or in the Premises, or sublease all or any part of the Premises, or allow
any other person or entity to occupy or use all or any part of the Premises,
without first obtaining Landlord's prior written consent which consent shall not
be unreasonably withheld, delayed or conditioned. Any assignment, encumbrance
or sublease without Landlord's prior written consent shall be voidable, at
Landlord's election, and shall constitute a default. No consent to assignment,
encumbrance, or sublease shall constitute a further waiver of the provisions of
this paragraph. Tenant shall notify Landlord in writing of Tenant's intent to
sublease, encumber or assign this Lease and Landlord shall, within ten business
days of receipt of such written notice, elect one of the following:
(i) Consent to such proposed assignment, encumbrance or sublease;
(ii) Refuse such consent, which refusal shall be on reasonable
grounds; or
(iii) Elect to terminate this Lease in its entirety if an
assignment or a sublease of more than seventy-five percent (75%) of the
Premises, or to terminate this Lease with respect to only the portion of the
Premises affected and for the term affected if a sublease of less than
seventy-five percent (75%) of the Premises.
(b) As a condition for granting its consent to any assignment, encumbrance
or sublease, 30 days prior to any anticipated assignment or sublease Tenant
shall give Landlord written notice (the "Assignment Notice"), which shall set
forth the name, address and business of the proposed assignee or sublessee,
information (including references) concerning the character, ownership, and
financial condition of the proposed assignee or sublessee, and the Assignment
Date, any ownership or commercial relationship between Tenant and the proposed
assignee or sublessee, and the consideration of all other material terms and
conditions of the proposed assignment or sublease, all in such detail as
Landlord shall reasonably require. If Landlord requests reasonable additional
detail upon receipt of the Assignment Notice, such notice shall not be deemed to
have been received until Landlord receives such additional detail, and Landlord
may withhold consent to any assignment or sublease until such additional detail
is provided to it. Further, Landlord may require that the sublessee or assignee
remit directly to Landlord on a monthly basis, all monies due to Tenant by said
assignee or sublessee.
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(c) The consent by Landlord to any assignment or subletting shall not be
construed as relieving Tenant or any assignee of this Lease or sublessee of the
Premises from obtaining the express written consent of Landlord to any further
assignment or subletting or as releasing Tenant or any assignee or sublessee of
Tenant from any liability or obligation hereunder whether or not then accrued.
In the event Landlord shall consent to an assignment or sublease, Tenant shall
pay Landlord as Additional Rent a reasonable attorneys' and administrative fee
not to exceed $500 for costs incurred in connection with evaluating the
Assignment Notice. This section shall be fully applicable to all further sales,
hypothecations, transfers, assignments and subleases of any portion of the
Premises by any successor or assignee of Tenant, or any sublessee of the
Premises.
(d) As used in this section, the subletting of substantially all of the
Premises for substantially all of the remaining term of this Lease shall be
deemed an assignment rather than a sublease. Notwithstanding the foregoing,
Landlord's consent shall not be required for an assignment, sale or transfer to
an affiliate of Tenant, any entity into which Tenant is merged, with which
Tenant is consolidated or which acquires all or substantially all of the assets
or stock of Tenant, provided that the assignee first executes, acknowledges and
delivers to Landlord an agreement whereby the assignee agrees to be bound by all
of the covenants and agreements in this Lease which Tenant has agreed to keep,
observe or perform, that the assignee agrees that the provisions of this section
shall be binding upon it as if it were the original Tenant hereunder and that
the assignee shall have a net worth (determined in accordance with generally
accepted accounting principles consistently applied) immediately after such
assignment which is at least equal to the net worth (as so determined) of Tenant
at the commencement of this Lease.
(e) Except as provided above, Landlord's consent to any sublease shall not
be unreasonably withheld. A condition to such consent shall be delivery by
Tenant to Landlord of a true copy of any such sublease. If for any proposed
assignment or sublease Tenant receives rent or other consideration, either
initially or over the term of the assignment or sublease, in excess of the rent
called for hereunder, or, in case of the sublease of a portion of the Premises,
in excess of such rent fairly allocable to such portion, after appropriate
adjustments to assure that all other payments called for hereunder are taken
into account and after Tenant has first recovered any reasonable and customary
brokerage commission, reasonable attorneys' fees, and advertising costs paid by
Tenant in connection with the assignment or sublease, Tenant shall pay to
Landlord as additional rent hereunder one-half (1/2) of the excess of each such
payment of rent or other consideration received by Tenant promptly after its
receipt. Landlord's waiver or consent to any assignment or subletting shall not
relieve Tenant from any obligation under this lease. The parties intend that
the preceding sentence shall not apply to any sublease rentals respecting a
portion of the Premises that during the entire term of this Lease was not
occupied by Tenant for its own use, but was always subleased by Tenant and/or
kept vacant. For the purpose of this section, the rent for each square foot of
floor space in the Premises shall be deemed equal.
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ARTICLE 25
SUBORDINATION
Without the necessity of any additional document being executed by Tenant
for the purpose of effecting a subordination, and at the election of Landlord or
any mortgagee with a lien on the Project or any ground lessor with respect to
the Project, this Lease shall be subject and subordinate at all times to:
(i) All ground leases or underlying leases which may now exist or
hereafter be executed affecting the Project or the land upon which the Project
is situated or both,
(ii) The lien of any mortgage or deed of trust which may now exist or
hereafter be executed in any amount for which the Project, land, ground leases
or underlying leases, or Landlord's interest or estate in any of said items is
specified as security,
so long as the holder of any such ground or underlying lease, mortgage or deed
of trust executes and delivers to Tenant a non-disturbance agreement which
provides that in the event of any termination of such lease or foreclosure of
any such mortgage or deed of trust this Lease shall not be terminated so long as
Tenant is not in default hereunder. Notwithstanding the foregoing, Landlord
shall have the right to subordinate or cause to be subordinated any such ground
leases or underlying leases or any such liens to the Lease. In the event that
any ground lease or underlying lease terminates for any reason or any mortgage
or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made
for any reason, Tenant shall, notwithstanding any subordination, attorn to and
become the Tenant of the successor in interest to Landlord. Tenant covenants
and agrees to execute and deliver, upon demand by Landlord and in the form
requested by Landlord, any additional documents evidencing the priority or
subordination of this Lease with respect to any such ground leases or underlying
leases or the lien of any such mortgage or deed of trust so long as, in the
event of any subordination, such document(s) contain the non-disturbance
provisions stated above.
(iii) The CC&R's as described in Article 6.
ARTICLE 26
ESTOPPEL CERTIFICATE
(a) Within ten days following any written request which Landlord may make
from time to time, Tenant shall execute and deliver to Landlord a statement
prepared initially by Landlord and confirming:
(i) The date of commencement of this Lease;
(ii) The fact that this Lease is unmodified and in full force and
effect (or, if there have been modifications hereto, that this Lease is in full
force and effect, and stating the date and nature of such modifications);
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(iii) The date to which the rental and other sums payable under
this Lease have been paid;
(iv) That there are no current notices of any defaults under this
Lease by either Landlord or Tenant except as specified in Tenant's statement;
and
(v) Such other matters reasonably requested by Landlord.
Landlord and Tenant intend that any statement delivered pursuant to this Article
26 may be relied upon by any mortgagee, beneficiary, purchaser or prospective
purchaser of the Building or Project or any interest therein.
(b) Tenant's failure to deliver such statement to Landlord within five (5)
days after Landlord has delivered a second notice to Tenant requesting
completion of such statement shall be conclusive upon Tenant:
(i) That this Lease is in full force and effect, without
modification,
(ii) That there are no uncured defaults in Landlord's performance, and
(iii) That not more than one month's rental has been paid in
advance.
ARTICLE 27
SIGNAGE
Landlord shall provide for Tenant the opportunity to have Tenant's name
placed upon the Building lobby directory sign, and at Tenant's entrance to the
Premises. Tenant shall also be allowed signage on the Building parapet facing
I-680, the cost of said signage to be paid by the Tenant. Tenant shall have no
right to maintain any other Tenant identification sign in any other location in,
on or about the Premises, the Building, the Project, or Bernal Corporate Park
and shall not display or erect any Tenant identification sign, display or other
advertising material within the Premises that is visible from the exterior of
the Building. The size, design, color and other physical aspects of the Tenant
identification sign shall be subject to Landlord's written reasonable approval
prior to installation. The cost of the installation of the sign, and its
maintenance and removal expense, shall be at Tenant's sole expense. If Tenant
fails to maintain its sign or if Tenant fails to remove its sign upon
termination of this Lease, Landlord may do so at Tenant's expense and Tenant's
reimbursement to Landlord for such amounts shall be deemed additional rent. All
signs shall comply with rules and regulations set for by Landlord as may be
modified from time to time.
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ARTICLE 28
RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the "Rules and
Regulations," a copy of which is attached hereto and marked EXHIBIT D, and all
reasonable and nondiscriminatory modifications thereof and additions thereto
from time to time put into effect by Landlord. Landlord shall not be
responsible to Tenant for the violation or non-performance by any other tenant
or occupant of the Project of any of said Rules and Regulations.
ARTICLE 29
CONFLICT OF LAWS
This Lease shall be governed by and construed pursuant to the laws of the
State of
California.
ARTICLE 30
SUCCESSORS AND ASSIGNS
Except as otherwise provided in this Lease, all of the covenants,
conditions and provisions of this Lease shall be binding upon and shall inure to
the benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns.
ARTICLE 31
SURRENDER OF PREMISES
The voluntary or other surrender of this Lease by Tenant, or a mutual
cancellation thereof, shall not work a merger, and shall, at the option of
Landlord, operate as an assignment to it of any or all subleases and
subtenancies.
ARTICLE 32
ATTORNEYS' FEES
If Landlord should bring suit for possession of the Premises, or if either
party should bring suit for the recovery of any sum due under this Lease, or
because of the breach of any provisions of this Lease, or for any other relief
against the other party hereunder, or in the event of any other litigation
between the parties with respect to this Lease, then all costs and expenses,
including reasonable attorneys' fees, incurred by the prevailing party therein
shall be paid by the other party, which obligation on the part of the other
party shall be deemed to have accrued on the date of the commencement of such
action and shall be enforceable whether or not the action is prosecuted to
judgment.
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ARTICLE 33
PERFORMANCE BY TENANT
All covenants and agreements to be performed by Tenant under any of the
terms of this Lease shall be performed by Tenant at Tenant's sole cost and
expense and without any abatement of rent. If Tenant shall fail to pay any sum
of money owed to any party other than Landlord for which it is liable hereunder
and has received written notice with appropriate detailed information or if
Tenant shall fail to perform any other act on its part to be performed hereunder
and such failure shall continue for 30 days after written notice thereof by
Landlord, Landlord may, without waiving or releasing Tenant from obligations of
Tenant, but shall not be obligated to, make any such payment or perform any such
other act to be made or performed by Tenant. All sums so paid by Landlord and
all necessary incidental costs together with interest thereon at the maximum
rate permissible by law, from the date of such payment by Landlord, shall be
payable to Landlord on demand. Tenant covenants to pay any such sums and
Landlord shall have (in addition to any other right or remedy of Landlord) all
rights and remedies in the event of the non-payment thereof by Tenant as are set
forth in Article 23 hereof.
ARTICLE 34
MORTGAGEE PROTECTION
In the event of any default on the part of Landlord, Tenant will give
notice by registered or certified mail to any beneficiary of a deed of trust or
mortgage covering the Premises whose address shall have been furnished to
Tenant, and shall offer such beneficiary or mortgagee a reasonable opportunity
to cure the default, including time to obtain possession of the Premises by
power of sale or a judicial foreclosure, if such should prove necessary to
effect a cure.
ARTICLE 35
DEFINITION OF LANDLORD
The term "Landlord", as used in this Lease, so far as covenants or
obligations on the part of Landlord are concerned, shall be limited to mean and
include only the owner or owners, at the time in question, of the fee title of
the Premises or the lessees under any ground lease, if any. In the event of any
transfer, assignment or other conveyance or transfers of any such title,
Landlord herein named (and in case of any subsequent transfers or conveyances,
the then grantor) shall be automatically freed and relieved from and after the
date of such transfer, assignment or conveyance of all liability as respects the
performance of any covenants or obligations on the part of Landlord contained in
this Lease thereafter to be performed. Without further agreement, the
transferee of such title shall be deemed to have assumed and agreed to observe
and perform any and all obligations of Landlord hereunder, during its ownership
of the Premises. Landlord may transfer its interest in the Premises without the
consent of Tenant and such transfer or subsequent transfer shall not be deemed a
violation on Landlord's part of any of the terms and conditions of this Lease.
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ARTICLE 36
WAIVER
The waiver by either Landlord or Tenant of any breach of any term, covenant
or condition herein contained shall not be deemed to be a waiver of any
subsequent breach of the same or any other term, covenant or condition herein
contained, nor shall any custom or practice which may grow up between the
parties in the administration of the terms hereof be deemed a waiver of or in
any way affect the right of either Landlord or Tenant to insist upon the
performance by the other in strict accordance with said terms. The subsequent
acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of
any preceding breach by Tenant or any term, covenant or condition of this Lease,
other than the failure of Tenant to pay the particular rent so accepted,
regardless of Landlord's knowledge of such preceding breach at the time of
acceptance of such rent.
ARTICLE 37
IDENTIFICATION OF TENANT
If more than one person executes this Lease as Tenant:
(i) Each of them is jointly and severally liable for the keeping,
observing and performing of all of the terms, covenants, conditions, provisions
and agreements of this Lease to be kept, observed and performed by Tenant, and
(ii) The term "Tenant" as used in this Lease shall mean and include
each of them jointly and severally. The act of or notice from, or notice to
refund to, or the signature of any one or more of them, with respect to the
tenancy of this Lease, including, but not limited to any renewal, extension,
expiration, termination or modification of this Lease, shall be binding upon
each and all of the persons executing this Lease as Tenant with the same force
and effect as if each and all of them had so acted or so given or received such
notice or refund or so signed.
ARTICLE 38
PARKING
The use by Tenant, its employees and invitees, of the parking facilities of
the Project shall be on the terms and conditions set forth in EXHIBIT E attached
hereto and by this reference incorporated herein and shall be subject to such
other agreement between Landlord and Tenant as may hereinafter be established.
Tenant, its employees and invitees shall use no more than four (4) non-exclusive
parking spaces per one thousand (1,000) square feet of leased space. Tenant's
use of the parking spaces shall be confined to the Project. If, in Landlord's
reasonable business judgment, it becomes necessary, Landlord shall exercise due
diligence to cause the creation of cross-parking easements and such other
agreements as are necessary to permit Tenant, its employees and invitees to use
parking spaces on the properties and buildings of Bernal Corporate Park, which
are separate legal parcels from the Project. Tenant acknowledges that other
tenants of the Project and the tenants of the other buildings, their employees
and invitees, may be given the right to park at the Project. Tenant will be
provided two (2) reserved parking spaces proximate to the entrance of
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the building. All parking shall be provided to Tenant at no charge during the
term of this Lease; provided, however, that if the City of Pleasanton or any
other governmental entity with jurisdiction imposes any fees or charges
related to parking, such fees or charges may be included in Direct Expenses
and billed to Tenant as provided in Article 4.
ARTICLE 39
TERMS AND HEADINGS
The words "Landlord" and "Tenant" as used herein shall include the plural
as well as the singular. Words used in any gender include other genders. The
paragraph headings of this Lease are not a part of this Lease and shall have no
effect upon the construction or interpretation of any part hereof.
ARTICLE 40
EXAMINATION OF LEASE
Submission of this instrument for examination or signature by Tenant does
not constitute a reservation of or option for lease, and it is not effective as
a lease or otherwise until execution by and delivery to both Landlord and
Tenant.
ARTICLE 41
TIME
Time is of the essence with respect to the performance of every provision
of this Lease in which time of performance is a factor.
ARTICLE 42
PRIOR AGREEMENT: AMENDMENTS
This Lease contains all of the agreements of the parties hereto with
respect to any matter covered or mentioned in this Lease, and no prior agreement
or understanding pertaining to any such matter shall be effective for any
purpose. No provisions of this Lease may be amended or added to except by an
agreement in writing signed by the parties hereto or their respective successors
in interest.
ARTICLE 43
SEPARABILITY
Any provision of this Lease which shall prove to be invalid, void or
illegal in no way affects, impairs or invalidates any other provision hereof,
any such other provisions shall remain in full force and effect.
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ARTICLE 44
RECORDING
Neither Landlord nor Tenant shall record this Lease nor a short form
memorandum thereof without the consent of the other.
ARTICLE 45
CONSENTS
Whenever the consent of either party is required hereunder such consent
shall not be unreasonably withheld.
ARTICLE 46
LIMITATION ON LIABILITY
In consideration of the benefits accruing hereunder, Tenant and all
successors and assigns covenant and agree that, in the event of any actual or
alleged failure, breach or default hereunder by Landlord:
(a) The sole and exclusive remedy shall be against the Landlord's interest
in the Project;
(b) No partner, officer, agent or employee of Landlord shall be sued or
named as a party in any suit or action (except as may be necessary to secure
jurisdiction of Landlord);
(c) No service or process shall be made against any partner, officer,
agent or employee of Landlord (except as may be necessary to secure jurisdiction
of Landlord);
(d) No partner, officer, agent or employee of Landlord shall be required
to answer or otherwise plead to any service of process;
(e) No judgment will be taken against any partner, officer, agent or
employee of Landlord;
(f) Any judgment taken against any partner, officer, agent or employee of
Landlord may be vacated and set aside at any time nunc pro nunc;
(g) No writ of execution will ever be levied against the assets of any
partner, officer, agent or employee of Landlord;
(h) These covenants and agreements are enforceable both by Landlord and
also by any partner, officer, agent or employee of Landlord.
27
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ARTICLE 47
RIDERS
Clauses, plats and riders, if any, signed by Landlord and Tenant and
affixed to this Lease are a part hereof.
ARTICLE 48
EXHIBITS
All Exhibits attached hereto are incorporated into this Lease.
ARTICLE 49
MODIFICATION FOR LENDER
If, in connection with obtaining construction, interim or permanent
financing for the Project the lender shall request reasonable modifications in
this Lease as a condition to such financing, Tenant will not unreasonably
withhold, delay or defer its consent thereto, provided that such modifications
do not increase the obligations of Tenant hereunder or materially adversely
affect the leasehold interest hereby created or Tenant's rights hereunder.
ARTICLE 50
PROJECT PLANNING
If Landlord requires the Premises for use in conjunction with another suite
or for other reasons connected with the Project planning program, upon notifying
Tenant in writing, Landlord shall have the right to relocate Tenant to other
space in the Project, at Landlord's sole cost and expense, and the terms and
conditions of the original Lease shall remain in full force and effect, except
that a revised EXHIBIT A reflecting the location of the new space shall be
attached to and become a part of this Lease. However, if the new space does not
meet with Tenant's approval, Tenant shall have the right to terminate this Lease
effective thirty (30) days after written notice to Landlord, which notice shall
be given within sixty (60) days after receipt of Landlord's notification.
ARTICLE 51
OPTION TO RENEW
Provided that Tenant is not in default under the terms and conditions
of this Lease at the time of its exercise of this Option to Renew, Tenant
shall have the right to renew this Lease for one (1) five (5) year term at one
hundred percent (100%) of the then fair market rental value of the Premises.
Tenant shall exercise its option by delivery of written notice to Landlord not
less than one hundred eighty (180) days, but no more than two hundred seventy
(270) days, prior to the expiration of the initial term of this Lease.
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ARTICLE 52
RIGHT OF FIRST OFFER
Provided that Tenant is not in default of any provision of this Lease
at the time of exercise, Tenant shall have the right of first offer to lease the
approximately 8,000 square feet of space adjacent to the Premises (the
"Additional Space") on the following terms and conditions. If at any time
during the initial term of this Lease, all or any portion of the Additional
Space becomes available for lease after such space has first been occupied by
another tenant, Landlord shall notify Tenant of the portion of the Additional
Space available (the "Offered Space") and the rent and other terms and
conditions upon which Landlord would be willing to lease the Offered Space
("Landlord's Notice"). Tenant shall have five (5) business days after receipt
of Landlord's Notice to notify Landlord in writing of Tenant's election to lease
the Offered Space on the terms stated in Landlord's Notice. If Tenant notifies
Landlord within such five-day period of Tenant's desire to lease the Offered
Space, Landlord and Tenant shall enter into an amendment to this Lease adding
the Offered Space to the Premises and modifying the Basic Rent and any other
terms affected by the addition of the Offered Space. If, however, Tenant fails
to notify Landlord of Tenant's election to lease the Offered Space within such
five-day period or, if Landlord and Tenant, through no fault of Landlord, fail
to execute an amendment to this Lease within thirty (30) days after the date of
Tenant's notice to Landlord, Tenant shall be deemed to have waived its right to
lease the Offered Space at such time and Landlord shall have the right to lease
the Offered Space to any third party on substantially the terms stated in
Landlord's Notice without further notice to Tenant. For the purposes of this
Article 52, the Additional Space shall not be deemed to be "available for lease"
if Landlord is negotiating with the existing tenant or tenants of such space
for a renewal or extension of its lease term.
IN WITNESS WHEREOF, the parties have executed this Lease as of the date
first above written.
Patrician Associates, Inc., a
California Corporation ADDRESS:
By: /s/ Thomas R. Pospisil Patrician Associates
---------------------------- c/o Parkway Properties, Inc.,
Thomas R. Pospisil 7011 Koll Center, Suite 210
Pleasanton, California 94566
Its: Counsel
---------------------------
By: /s/ Ralph C. Eucher
----------------------------
Ralph C. Eucher
Its: Vice President
---------------------------
TENANT: ADDRESS:
ACCPAC INTERNATIONAL, INC., a
California corporation
By: /s/ Frederick S. Wysocki
----------------------------
Its: CEO & President
---------------------------
By:
----------------------------
Its:
---------------------------
29
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THE PREMISES
OUTLINE OF TENANT'S FLOOR PLAN
EXHIBT A
<PAGE>
THE PROJECT
That certain building consisting of approximately one hundred eight thousand
five hundred and sixty-four (108,564) rentable square feet located on that
certain real property consisting of approximately six and 0794/10,000th (6.0794)
acres more particularly described as:
PARCEL 1 OF PARCEL D OF PARCEL MAP 5075 OF BERNAL CORPORATE PLAZA FILED JUNE 5,
1987 IN BOOK 168 OF MAPS, PAGE 85, ALAMEDA COUNTY RECORDS.
EXHIBIT A-1
<PAGE>
WORK LETTER AGREEMENT
This Work Letter Agreement is entered into as of the fifth day of June,
1998 by and between Patrician Associates, Inc., a California corporation
("Landlord") and Accpac International, Inc., a California corporation
("Tenant").
RECITALS:
A. Concurrently with the execution of this Work Letter Agreement,
Landlord and Tenant have entered into a lease (the "Lease") covering certain
premises (the "Premises") more particularly described in EXHIBIT A attached to
the Lease.
B. In order to induce Tenant to enter into the Lease (which is hereby
incorporated by reference to the extent that the provisions of this Work Letter
Agreement may apply hereto) and in consideration of the mutual covenants
hereinafter contained, Landlord and Tenant hereby agree as follows:
1. COMPLETION SCHEDULE
Within ten days after the execution of the Lease, Landlord shall deliver to
Tenant, for Tenant's review and approval, a schedule (the "Work Schedule")
setting forth a timetable for the planning and completion of the installation of
the Tenant Improvements to be constructed in the Premises. The Work Schedule
shall set forth each of the various items of work to be done by or approval to
be given by Landlord and Tenant in connection with the completion of the Tenant
Improvements. Such schedule shall be submitted to Tenant for its approval and,
upon approval by both Landlord and Tenant, such schedule shall become the basis
for completing the Tenant Improvement Work. Tenant shall approve the Work
Schedule, as it may be modified after discussions between Landlord and Tenant,
within five working days after the date such schedule is first received by
Tenant.
2. TENANT IMPROVEMENTS
Reference herein to "Tenant Improvements" shall include all work to be done
in the Premises pursuant to the Tenant Improvement Plans described in Paragraph
3 below, including but not limited to partitioning, doors, ceilings, floor
coverings, finishes, (including paint and wallcovering) electrical, (including
lighting, switching, outlets, etc.) plumbing, heating ventilating and air
conditioning, fire protection, cabinets an other mill work.
3. TENANT IMPROVEMENT PLANS
Based upon the space plan and annotations described on Exhibit B-1
attached hereto,
EXHIBIT B
Page 1 of 4
<PAGE>
Landlord's architect and engineer shall prepare final working drawings and
specifications may be referred to herein as the "Tenant Improvement Plans."
4. FINAL PRICING AND DRAWING SCHEDULE
Landlord shall cause its architect to prepare and submit to Tenant the
final working drawings and specifications referred to in Paragraph 3 hereof.
Such working drawings shall be approved by Landlord and Tenant in accordance
with the Work Schedule and shall thereafter be submitted to the appropriate
governmental body for plan checking and a building permit. Concurrent with
the plan checking, Landlord shall have prepared a final pricing for Tenant's
approval, taking into account any modifications which may be required to
reflect changes in the plans and specifications required by the City or
County in which the Premises are located. After final approval of the working
drawings, no further changes to Tenant Improvement Plans may be made without
the prior written approval from both Landlord and Tenant, and then only after
agreement by Tenant to pay any excess costs resulting from such changes.
5. CONSTRUCTION OF TENANT IMPROVEMENTS
After the Tenant Improvement Plans have been prepared and approved, the
final pricing has been approved and a building permit for the Tenant
Improvements has been issued, Landlord shall enter into a construction contract
at competitive rates and terms with a general contractor selected by Landlord
for the installation of the Tenant Improvements in accordance with the Tenant
Improvement Plans. Landlord and Tenant agree that Hillhouse Construction will
be one of the general contractors selected to bid the construction of the Tenant
Improvements. Landlord shall supervise the completion of such work and shall use
its best efforts to secure completion of the work in accordance with the Work
Schedule.
6. PAYMENT OF COST OF THE TENANT IMPROVEMENTS
(a) Landlord shall deliver the Premises to Tenant in a "turnkey"
condition in accordance with the approved Tenant Improvement Plans and shall
pay for the cost of the Tenant Improvements shown on the Tenant
Improvement Plans. In connection therewith, Landlord shall only be
responsible for the following costs:
(i) Payment of the cost of preparing the space plan and the
final working drawings and specifications, including mechanical, electrical
and structural drawings and of all other aspects of the Tenant Improvement
Plans. Landlord will not be responsible for the payment of extraordinary
design work not included within the scope of the approved and annotated space
plan attached as Exhibit B-1 or for payments to any other consultants,
designers or architects other than Landlord's architect, engineer, and/or
space planner;
(ii) The payment of permit and license fees relating to
construction of the Tenant Improvements;
EXHIBIT B
Page 2 of 4
<PAGE>
(iii) Construction of the Tenant Improvements, including,
without limitation, the following:
(1) Installation within the Premises of all partitioning,
doors, floor coverings, finishes, ceilings, wall coverings and painting,
millwork and similar items.
(2) All electrical wiring, lighting fixtures, outlets and
switches, and other electrical work to be installed within the Premises.
(3) The furnishing and installation of all duct work,
terminal boxes, defusers and accessories required for the completion of the
heating, ventilation and air conditioning systems within the Premises, including
the cost of meter and key control for after-hour air conditioning.
(4) Any additional Tenant requirements including, but not
limited to odor control, special heating, ventilation and air conditioning,
noise or vibration control or other special systems.
(5) All fire and life safety control systems such as fire
walls, sprinklers, halon, fire alarms, including piping, wiring and accessories
installed with the Premises.
(6) All plumbing, fixtures, pipes, and accessories to be
installed within the Premises.
(7) Owner shall provide telephone conduit only from the
telephone jacks in the walls to the top of the ceiling at those locations
specified in the Tenant Improvement Plans. Tenant shall be responsible for
pulling all wires from the service boards to the individual jacks.
(b) In the event that the cost of installing the Tenant Improvements,
after the working drawings have been approved by Tenant, shall exceed the cost
of the improvements as indicated on the attached Exhibit "A", the excess shall
be paid by Tenant to Landlord prior to Landlord prior to the commencement of
construction of the Tenant Improvements.
(c) In the event that, after the Tenant Improvement Plans have been
prepared and a price therefore established by Landlord, Tenant shall require any
changes or substitutions to the Tenant Improvement Plans, any additional costs
therefor including architectural and space planning fees, shall be paid by
Tenant to Landlord prior to the commencement of such work.
7. COMPLETION AND RENTAL COMMENCEMENT DATE
The commencement of the term of this Lease and Tenant's obligation for
the payment of rental under the Lease shall not commence until substantial
completion of construction of the Tenant Improvements. However, if there
shall be a delay in substantial completion of the Tenant Improvements to the
extent the delay is as a result of:
EXHIBIT B
Page 3 of 4
<PAGE>
(i) Tenant's failure to approve any item or perform any other
obligation in accordance with and by the date specified in the Work Schedule;
(ii) Tenant's request for materials, finishes or installations other
than those readily available; or
(iii) Tenant's changes in the Tenant Improvement Plans after their
approval by Tenant;
then the commencement of the term of this Lease and the commencement date shall
be accelerated by the number of days of such delay.
In Witness whereof, this Work Letter Agreement is executed as of the date
first written above.
ADDRESS:
PATRICIAN ASSOCIATES, INC., a Patrician Associates
California corporation c/o Parkway Properties, Inc.,
7011 Koll Center, Suite 210
By: /s/ Thomas R. Pospisil Pleasanton, California 94566
---------------------------
Thomas R. Pospisil
Its: Counsel
--------------------------
By: /s/ Ralph C. Eucher
---------------------------
Ralph C. Eucher
Its: Vice President
--------------------------
TENANT: ADDRESS:
ACCPAC INTERNATIONAL, INC., a
California corporation
By: /s/ Frederick S. Wysocki
-------------------------------
Its: CEO & President
------------------------------
By: -------------------------------
Its:-------------------------------
EXHIBIT B
Page 4 of 4
<PAGE>
Tenant improvements will be done in substantial conformance with the
Ambiance Associates plan dated June 4, 1998, as annotated by Computer
Associates June 8, 1998 as described in and attached as Exhibit B-1.1; and
the TENANT DESIGN PROGRAM prepared by Computer Associates, Inc. and dated
11/5/97, all with the following exclusions or clarifications:
1. Wallcovering will not be provided in the coffee rooms, lunch rooms
or p.c. labs.
2. The custom reception unit is not included (existing unit to be
donated by Landlord).
3. Two (2) projection screens are included.
4. Column covers will be square, not round.
5. There will be no two-hour-rated walls. One-hour walls will be
provided where required by code.
6. Cost of Computer Associates-prescribed Bentley carpet not to exceed
$18.00/sq. yd. (not including installation).
7. The maximum allowance for the 24-hour supplemental air conditioning
unit is $12,500.
8. No upper cabinets are provided in copy rooms. No millwork is
provided in any conference/board rooms.
9. Miniblinds are not included on interior glass.
10. Maximum allowance for four (4) refrigerators is $3,000 ($750 each).
11. Card-key security system is included; Landlord to provide
electrified hardware only at three (3) doors.
EXHIBIT B-1
<PAGE>
STANDARDS FOR UTILITIES AND SERVICES
The following Standards for Utilities and Services are in effect.
Landlord reserves the right to adopt nondiscriminatory modifications and
additions hereto:
Landlord shall:
(a) On Monday through Friday, except holidays, from 7 A.M. to 6 P.M.
(and other times for a reasonable additional charge to be fixed by Landlord),
ventilate the Premises and furnish air conditioning or heating on such days and
hours, when in the reasonable judgment of Landlord, in accordance with prudent
practices for comparable Class A office buildings in Pleasanton, it may be
required for the comfortable occupancy of the Premises. The air conditioning
system achieves maximum cooling when the window coverings are closed. Landlord
shall not be responsible for room temperatures to the extent affected where
Tenant does not keep all window coverings in the Premises closed. Tenant agrees
to cooperate fully at all times with Landlord, and to abide by all regulations
and requirements which Landlord may prescribe for the proper function and
protection of said air conditioning system. Tenant agrees not to connect any
apparatus, device, conduit or pipe to the Building chilled and hot water air
conditioning supply lines. Tenant further agrees that neither Tenant nor its
servants, employees, agents, visitors, licensees or contractors shall at any
time enter mechanical installations or facilities of the Building or adjust,
tamper with, touch or otherwise in any manner affect said installations or
facilities. The cost of maintenance and service calls to adjust and regulate
the air conditioning system shall be charged to Tenant if the need for
maintenance work results from either Tenant's adjustment of room thermostats or
Tenant's failure to comply with its obligations under this section, including
keeping window coverings closed as needed. Such work shall be charged at hourly
rates equal to then current journeymen's wages for air conditioning mechanics.
(b) Landlord shall furnish to Tenant after-hours heating and air
conditioning at the rate of $20.00 per hour (two-hour minimum charge) for such
after-hours use. If the actual cost to Landlord of providing such after-hours
heating and air-conditioning increases at any time during the term of this
Lease, Landlord shall have the right to increase the hourly rate charged by
Landlord for such after-hours usage to the extent such costs are increased upon
at least 10 days prior notice to Tenant. Landlord shall bill Tenant monthly for
such after-hours usage. If such charges are billed to Tenant separately from
rent, then Tenant shall pay such charges to Landlord, as additional rent, within
30 days after receipt of Landlord's statement of such charges.
(c) Landlord shall furnish to the Premises, during the usual
business hours on business days, electric current sufficient for normal
office use. Tenant agrees, should its electrical installation or electrical
consumption be in excess of the aforesaid quantity or extend beyond normal
business hours, to reimburse Landlord monthly for the measured consumption at
the average cost per kilowatt hour charged to the Building during the period.
If a separate meter is not installed at Tenant's cost, such excess cost will
be established by an estimate agreed upon by Landlord and Tenant, and if the
parties fail to agree, as established by an independent licensed engineer.
Said estimates to be
EXHIBIT C
Page 1 of 3
<PAGE>
reviewed and adjusted quarterly. The parties agree that such process shall
be used for calculating the electrical usage attributable to Tenant's
dedicated air unit to be installed in the telecommunications room in the
Premises. Tenant shall pay Landlord the estimated cost of such electrical
usage monthly, as additional rent. Tenant agrees not to use any apparatus or
device in, or upon, or about the premises which may in any way increase the
amount of such services usually furnished or supplied to said Premises, and
Tenant further agrees not to connect any apparatus or device with wires,
conduits or pipes, or other means by which such services are supplied, for
the purpose of using additional or unusual amounts of such services without
written consent of Landlord. Should Tenant use the same to excess, the
refusal on the part of Tenant to pay upon demand of Landlord the amount
established by Landlord for such excess charge shall constitute a breach of
the obligation to pay rent under this Lease and shall entitle Landlord to the
rights therein granted for such breach. At all times Tenant's use of
electric current shall never exceed the capacity of the feeders to the
Building or the risers or wiring installation and Tenants shall not install
or use or permit the installation or use of any computer, larger than
personal computer, without the prior written consent of Landlord, which
consent shall not be unreasonably withheld, delayed or conditioned.
(d) Water will be available in public areas for drinking and lavatory
purposes only, but if Tenant requires, uses or consumes water for any purposes
in addition to ordinary drinking and lavatory purposes of which fact Tenant
constitutes Landlord to be the sole judge, Landlord may install a water meter
and thereby measure Tenant's water consumption for all purposes. Tenant shall
pay Landlord for the cost of the meter and the cost of the installation thereof
and throughout the duration of Tenant's occupancy, Tenant shall keep said meter
and installation equipment in good working order and repair at Tenant's own cost
and expense, in default of which Landlord may cause such meter and equipment to
be replaced or repaired and collect the cost thereof from Tenant. Tenant agrees
to pay for water consumed, as shown on said meter, as and when bills are
rendered, and on default in making such payment, Landlord may pay such charges
and collect the same from Tenant. Any such costs or expenses incurred, or
payments made by Landlord for any of the reasons or purposes hereinabove stated
shall be deemed to be additional rent payable by Tenant and collectible by
Landlord as such.
(e) Provide janitor service to the Premises, provided the same are
kept reasonably in order by Tenant, and if to be kept clean by Tenant, no one
other than persons reasonably approved by Landlord shall be permitted to enter
the Premises for such purposes. If the Premises are not used exclusively as
offices, they shall be kept clean and in order by Tenant, at Tenant's expense,
and to the satisfaction of Landlord, and by persons approved by Landlord.
Tenant shall pay to Landlord the cost of removal of any of Tenant's refuse and
rubbish, to the extent that the same exceeds the refuse and rubbish usually
attendant upon the use of the Premises as offices.
(f) Landlord reserves the right to stop service of the elevator,
plumbing, ventilation, air conditioning and electric systems, to the extent
necessary, by reason of accident or emergency or for repairs, alterations or
improvements, in the judgment of Landlord desirable or necessary to be made,
until said repairs, alterations or improvements shall have been completed, and
shall further have no responsibility or liability for failure to supply elevator
facilities, plumbing,
EXHIBIT C
Page 2 of 3
<PAGE>
ventilating, air conditioning or electric service, when
prevented from so doing by strike or accident or by any cause beyond Landlord's
reasonable control, or by laws, rules, orders, ordinances, directions,
regulations or requirements of any federal, state, county or municipal authority
or failure of gas, oil or other suitable fuel supply or inability by exercise of
reasonable diligence to obtain gas, oil or other suitable fuel. It is expressly
understood and agreed that any covenants on Landlord's part to furnish any
service pursuant to any of the terms, covenants, conditions, provisions or
agreements of this Lease, or to perform any act or thing for the benefit of
Tenant, shall not be deemed breached if Landlord is unable to furnish or perform
the same by virtue of a strike or labor trouble or any other cause whatsoever
beyond Landlord's control.
EXHIBIT C
Page 3 of 3
<PAGE>
RULES AND REGULATIONS
BERNAL CORPORATE PLAZA I PROJECT
1. Except as specifically provided in the Lease to which these Rules and
Regulations are attached, no sign, placard, picture, advertisement, name or
notice shall be installed or displayed on any part of the outside or inside of
the Building without the prior written consent of Landlord. Landlord shall have
the right to remove, at Tenant's expense and without notice, any sign installed
or displayed in violation of this rule. All approved signs or lettering on
doors and walls shall be printed, painted, affixed or inscribed at the expense
of Tenant by a person approved by Landlord.
2. If Landlord objects in writing to any curtains, blinds, shades,
screens or hanging plants or other similar objects attached to or used in
connection with any window or door of the Premises, or placed on any windowsill,
which is visible from the exterior of the Premises and which Landlord has not
previously approved, Tenant shall immediately discontinue such use. Tenant
shall not place anything against or near glass partitions or doors or windows
which may appear unsightly from outside the Premises.
3. Tenant shall not obstruct any sidewalks, halls, passages, exits,
entrances, elevators, escalators, or stairways of the Project. The halls,
passages, exits, entrances, elevators, and stairways are not open to the general
public, but are open, subject to reasonable regulation, to Tenant's business
invitees. Landlord shall in all cases retain the right to control and prevent
access thereto of all persons whose presence in the judgment of Landlord would
be prejudicial to the safety, character, reputation and interest of the Project
and its tenants; provided that nothing herein contained shall be construed to
prevent such access to persons with whom any tenant normally deals in the
ordinary course of its business, unless such persons are engaged in illegal or
unlawful activities. No tenant and no employee or invitee of any tenant shall
go upon the roof of any building of the Project.
4. The directory of the building will be provided exclusively for the
display of the name and location of tenants only, and Landlord reserves the
right to exclude any other names therefrom.
5. All cleaning and janitorial services for the Project and the Premises
shall be provided exclusively through Landlord, and except with the written
consent of Landlord, which consent shall not be unreasonably withheld, delayed
or conditioned, no person or persons other than those approved by Landlord shall
be employed by Tenant or permitted to enter the Building for the purpose of
cleaning the same. Tenant shall not cause any unnecessary labor by carelessness
or indifference to the good order and cleanliness of the Premises.
6. Landlord will furnish Tenant, free of charge, with two keys to each
door lock in the Premises. Landlord may make a reasonable charge for any
additional keys. Tenant shall not make or have made additional keys, and
Tenant shall not alter any lock or install a new additional lock or bolt on
any door of its Premises. Tenant, upon the termination of its tenancy, shall
deliver to Landlord the keys of all doors which have been furnished to Tenant,
and in the event of loss of any keys so furnished, shall pay Landlord therefor.
EXHIBIT D
Page 1 of 5
<PAGE>
7. If Tenant requires telegraphic, telephonic, burglar alarm or similar
services, it shall first obtain, and comply with, Landlord's reasonable
instructions in their installation.
8. Tenant shall not place a load upon any floor of the Premises which
exceeds the load per square foot which such floor was designed to carry and
which is allowed by law. Landlord shall have the right to prescribe the weight,
size and position of all equipment, materials, furniture or other property
brought into the Project. Heavy objects shall, if considered necessary by
Landlord, stand on such platforms as determined by Landlord to be necessary to
properly distribute the weight, which platforms shall be provided at Tenant's
expense. Business machines and mechanical equipment belonging to Tenant, which
cause noise or vibration that may be transmitted to the structure of the
Premises or to any space therein to such a degree to be objectionable to
Landlord or to any tenants in the Project, shall be placed and maintained by
Tenant, at Tenant's expense, on vibration eliminators or other devices
sufficient to eliminate noise or vibration. The persons employed to move such
equipment in or out of the Premises must be acceptable to Landlord. Landlord
will not be responsible for loss of, or damage to, any such equipment or other
property from any cause, and all damage done to the Premises, by maintaining or
moving such equipment or other property shall be repaired at the expense of
Tenant.
9. Tenant shall not use or keep in the Premises any kerosene, gasoline or
inflammable or combustible fluid or material other than those limited quantities
necessary for the operation or maintenance of office equipment. Tenant shall
not use or permit to be used in the Premises any foul or noxious gas or
substance, or permit or allow the Premises to be occupied or used in a manner
offensive or objectionable to Landlord or other occupants of the Project by
reason of noise, odors or vibrations, nor shall Tenant bring into or keep in or
about the Premises any birds or animals.
10. Tenant shall not use any method of heating or air-conditioning other
than that supplied or approved by Landlord.
11. Tenant shall not waste electricity, water or air-conditioning and
agrees to cooperate fully with Landlord to assure the most effective operation
of the Premises' heating and air-conditioning and to comply with any
governmental energy-saving rules, laws or regulations of which Tenant has actual
notice, and shall refrain from attempting to adjust controls. Tenant shall keep
corridor doors closed, and shall close window coverings at the end of each
business day.
12. Landlord reserves the right, exercisable upon prior written notice and
without liability to Tenant, to change the name of the Project to the extent the
same is not in conflict with Tenant's operations.
13. Landlord reserves the right to exclude from the Project between the
hours of 6 p.m. and 7 a.m. the following day, or such other hours as may be
established from time to time by Landlord in a manner consistent with first
class office buildings in Pleasanton, California, and on Sundays and legal
holidays, any person unless that person is known to the person or employee in
charge of the Project or has a pass or is properly identified. Landlord
shall not
EXHIBIT D
Page 2 of 5
<PAGE>
be liable for damages for any error with regard to the admission to or
exclusion from the Project of any person. Landlord reserves the right to
prevent access to the Project in case of invasion, mob, riot, public excitement
or other commotion by closing the doors or by other appropriate action.
14. Tenant shall close and lock the doors of its Premises and entirely
shut off all water faucets or gas outlets before Tenant and its employees leave
the Premises. Tenant shall be responsible for any damage or injuries sustained
by other tenants or occupants of the Project or by Landlord for noncompliance
with this rule.
15. Tenant shall not obtain for use on the Premises ice, drinking water,
food beverages, towel or other similar services upon the Premises, except at
such reasonable hours and under such reasonable regulations as may be reasonably
fixed by Landlord.
16. The toilet rooms, toilets, urinals, wash bowls and other apparatus
shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown
therein. The expense of any breakage, stoppage of damage resulting from the
violation of this rule shall be borne by the tenant who, or whose employees or
invitees, shall have caused it.
17. Tenant shall not sell, or permit the sale at retail, of newspapers,
magazines, periodicals, theater tickets or any other goods or merchandise to the
general public in or on the Premises. Tenant shall not make any room-to-room
solicitation of business from other tenants in the Project. Tenant shall not
use the Premises for any business or activity other than that specifically
provided for in Tenant's Lease.
18. Tenant shall not install any radio or television antenna, loudspeaker
or other devices on the roof or exterior walls of the Premises without
Landlord's prior written approval. Tenant shall not interfere with radio or
television broadcasting or reception from or in the Project or elsewhere.
19. Tenant shall not mark, drive nails, screw or drill into the
partitions, woodwork or plaster or in any way deface the Premises or any part
thereof, except in accordance with the provisions of the Lease pertaining to
alterations. Landlord reserves the right to direct electricians as to where
and how telephone and telegraph wires are to be introduced to the Premises.
Tenant shall not cut or bore holes for wires. Tenant shall not affix any
floor covering to the floor of the Premises in any manner except as approved
by Landlord. Tenant shall repair any damage resulting from noncompliance
with this rule.
20. Tenant shall not install, maintain or operate upon the Premises any
vending machines without the written consent of Landlord.
21. Canvassing, soliciting and distributing of handbills or any other
written material, and peddling in the Project are prohibited, and Tenant
shall cooperate to prevent such activities.
EXHIBIT D
Page 3 of 5
<PAGE>
22. Landlord reserves the right to exclude or expel from the Project any
person who, in Landlord's judgment, is intoxicated or under the influence of
liquor or drugs or who is in violation of any of the Rules and Regulations of
the Project if such violation materially adversely affects any other tenant's
use and occupancy.
23. Tenant shall store all its trash and garbage within its Premises or in
other facilities provided by Landlord. Tenant shall not place in any trash box
or receptacle any material which cannot be disposed of in the ordinary and
customary manner of trash and garbage disposal. All garbage and refuse disposal
shall be made in accordance with reasonable directions issued from time to time
by Landlord.
24. The Premises shall not be used for the storage of merchandise held for
sale to the general public, or for lodging or for manufacturing of any kind, nor
shall the Premises be used for any improper, immoral or objectionable purpose.
No cooking shall be done or permitted on the Premises without Landlord's
consent, except that use by Tenant of Underwriter's Laboratory approved
equipment for brewing coffee, tea, hot chocolate and similar beverages or use of
microwave ovens for employee use shall be permitted, provided that such
equipment and use is in accordance with all applicable federal, state, county
and city laws, codes, ordinances, rules and regulations.
25. Tenant shall not use in the Premises any hand truck except those
equipped with rubber tires and side guards or such other material-handling
equipment as Landlord may approve. Tenant shall not bring any other vehicles of
any kind into the Premises.
26. Without the written consent of Landlord, Tenant shall not use the name
of the Project in connection with or in promoting or advertising the business of
Tenant except as Tenant's address.
27. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
28. Tenant and its employees, guests and invitees shall not enter into the
waterways located in the Project. No object of any kind may be floated or
submerged in the waterways, and no foreign substance of any kind may be thrown
in the waterways. The expense of any breakage or damage to any mechanical
equipment related to the waterways resulting from violation of this rule or any
expense incurred restoring the waterways to their normal condition shall be
borne by the tenant who, or whose employees or invitees, shall have caused such
damage.
29. Tenant assumes responsibility for protecting its Premises from theft,
robbery and pilferage, which includes keeping doors locked and other means of
entry to the Premises closed.
30. Tenant's requirements will be attended to only upon appropriate
application to the Project management office by an authorized individual.
Employees of Landlord shall not perform any work or do anything outside of their
regular duties unless under special instructions from Landlord,
EXHIBIT D
Page 4 of 5
<PAGE>
and no employee of Landlord will admit any person (Tenant or otherwise) to
any office without specific instructions from Landlord.
31. Landlord may waive any one or more of these Rules and Regulations for
the benefit of Tenant or any other tenant in a non-discriminatory manner, but no
such waiver by Landlord shall be construed as a waiver of such Rules and
Regulations in favor of Tenant or any other tenant, nor prevent Landlord from
thereafter enforcing any such Rules and Regulations against any or all of the
tenants of the Project.
32. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of Tenant's lease of its Premises in the
Project.
33. Landlord reserves the right to make such other and reasonable Rules
and Regulations as, in its judgment, may from time to time be needed for safety
and security, for care and cleanliness of the Project and for the preservation
of good order therein. Tenant agrees to abide by all such Rules and Regulations
hereinabove stated and any additional rules and regulations which are adopted.
In particular, tenant shall comply at all times with the City of Pleasanton's
Transportation Systems Management Ordinance (TSM Ordinance, Chapter 17.24,
Pleasanton Municipal Code), as said Ordinance may be amended from time to time."
34. Tenant shall be responsible for the observance of all of the foregoing
rules by Tenant's employees, agents, clients, customers, invitees and guests.
EXHIBIT D
Page 5 of 5
<PAGE>
PARKING RULES AND REGULATIONS
The following rules and regulations shall govern use of the parking facilities
which are appurtenant to the Building.
1. All claimed damage or loss must be reported and itemized in
writing delivered to the Landlord within ten business days after any
claimed damage or loss occurs. Landlord has the option to make
repairs at its expense of any claimed damage within two business days
after filing of any claim. In all court actions the burden of proof
to establish a claim remains with Tenant. Court actions by Tenant for
any claim must be filed in the court of jurisdiction where a claimed
loss occurred within ninety days after date of damage or loss.
Landlord is not responsible for damage by water, fire, or defective
brakes, or parts, or for the act of omissions of others, or for
articles left in the car. Landlord is not responsible for loss of
use.
2. Tenant shall not park or permit its employees to park in any
parking areas designated by Landlord as areas for parking by visitors
to the Building. Tenant shall not leave vehicles in the parking areas
overnight nor park any vehicles in the parking areas other than
automobiles, motorcycles, motor driven or non-motor driven bicycles or
four-wheeled trucks.
3. Parking stickers or any other device or form of identification
supplied by Landlord as a condition of use of the Parking Facilities
shall remain the property of Landlord. Such parking identification
device must be displayed as requested and may not be mutilated in any
manner. The serial number of the parking identification device may
not be obliterated. Devices are not transferable and any device in
the possession of an unauthorized holder will be void.
4. No overnight or extended term storage of vehicles shall be
permitted.
5. Vehicles must be parked entirely within the painted stall lines
of a single parking stall.
6. All directional signs and arrows must be observed.
7. The speed limit within all parking areas shall be 5 miles per
hour.
8. Parking is prohibited:
(a) in areas not striped for parking;
(b) in aisles;
EXHIBIT E
Page 1 of 2
<PAGE>
(c) where "no parking" signs are posed;
(d) on ramps;
(e) in cross hatched areas; and
(f) in such other areas as may be designated by Landlord or
Landlord's Parking Operator.
9. Every parker is required to park and lock his own vehicle.
All responsibility for damage to vehicles is assumed by the parker.
10. Loss of theft of parking identification devices from automobiles
must be reported immediately, and a lost or stole report must be filed
by the customer at that time. Landlord has the right to exclude any
car from the parking facilities that does not have an identification.
11. Any parking identification devices reported lost or stolen found
on any unauthorized car will be confiscated and the illegal holder
will be subject to prosecution.
12. Lost or stolen devices found by the purchaser must be reported
immediately to avoid confusion.
13. Washing, waxing, cleaning or servicing (except in an emergency)
of any vehicle in any area not specifically reserved for such purpose
is prohibited.
14. Landlord reserves the right to refuse the sale of monthly
stickers or other parking identification devices to any tenant or
person and/or his agents or representatives who willfully refuse to
comply with these Rules and Regulations and all unposted City, State
or Federal ordinances, laws or agreements.
15. Landlord reserves the right to modify and/or adopt such other
reasonable and non-discriminatory rules and regulations for the
parking facilities as it deems necessary for the operation of the
parking facilities provided that such rules and regulations do not
materially diminish Tenant's rights or materially increase Tenant's
obligations. Landlord may refuse to permit any person who violates
these rules to park in the parking facilities, and any violation of
the rules shall subject the car to removal.
EXHIBIT E
Page 2 of 2
<PAGE>
Exhibit 21.1
LIST OF SUBSIDIARIES
Name Jurisdiction of Incorporation
---- -----------------------------
ACCPAC Canada Inc. Nova Scotia, Canada
DISTRIBUPRO, INC. California
ACCPAC Software International Pte. Ltd. Singapore
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference of our firm under the caption "Experts" and to the
use of our reports dated June 5, 1998 (except for Note 8, as to which the date
is August 17, 1998), in the Registration Statement (Form S-1) and related
Prospectus of ACCPAC INTERNATIONAL, INC. for the registration of shares of its
Common Stock.
/s/ ERNST & YOUNG LLP
San Jose, California
August 19, 1998
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