<PAGE> 1
As filed with the Securities and Exchange Commission on October 24, 1995
Registration No. 33-63335
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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COMSHARE, INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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MICHIGAN 7372 38-1804887
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Code Classification) Identification No.)
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555 BRIARWOOD CIRCLE, ANN ARBOR, MICHIGAN 48108, (313) 994-4800
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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KATHRYN A. JEHLE
COMSHARE, INCORPORATED
555 BRIARWOOD CIRCLE, ANN ARBOR, MICHIGAN 48108, (313) 994-4800
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
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THOMAS S. VAUGHN, ESQ. THOMAS A. BEVILACQUA, ESQ.
DYKEMA GOSSETT PLLC BROBECK, PHLEGER & HARRISON
400 RENAISSANCE CENTER ONE MARKET
DETROIT, MI 48234-1668 SPEAR STREET TOWER
(313) 568-6524 SAN FRANCISCO, CA 94105
(415) 442-0900
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement is declared effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or investment plans, please check the following box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
reinvestment plans, please check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED PRICE(1) FEE(2)
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Common Stock, $1.00 par value........................ $39,776,100 $13,715
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(1) Estimated solely for the purpose of computing the registration fee.
(2) $13,653 of this fee was previously paid. The balance of $62, representing
the fee with respect to the additional 10,000 shares registered hereby, is
being paid herewith.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 24, 1995
[COMSHARE LOGO]
2,170,000 SHARES
COMMON STOCK
Of the 2,170,000 shares of Common Stock offered hereby, 1,125,000 shares
are being sold by Comshare, Incorporated ("Comshare" or the "Company") and
1,045,000 shares are being sold by the Selling Shareholders. The Company will
not receive any of the proceeds from the sale of shares by the Selling
Shareholders. See "Selling Shareholders." The Common Stock trades on the Nasdaq
National Market under the symbol "CSRE." On October 20, 1995, the last reported
sale price for the Common Stock was $18.33, as adjusted to reflect the recently
declared stock split described below. See "Price Range of Common Stock."
The Company's Board of Directors recently declared a three-for-two stock
split. This stock split, to be effective November 20, 1995, is conditioned upon
approval by the Company's shareholders of an increase in the number of
authorized shares of Common Stock on November 18, 1995. All share and per share
information in this Prospectus reflect the stock split. Purchasers of Common
Stock in this Offering will not be entitled to receive shares issued in the
stock split in respect of any shares so purchased.
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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" ON PAGE 7.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS COMPANY(1) SHAREHOLDERS(2)
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Per Share......................... $ $ $ $
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Total(3).......................... $ $ $ $
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(1) Before deducting expenses payable by the Company estimated at $233,000.
(2) Before deducting expenses payable by the Selling Shareholders estimated at
$217,000.
(3) The Company and the Selling Shareholders have granted the Underwriters a
30-day option to purchase up to an additional 168,750 shares and 156,750
shares of Common Stock, respectively, at the Price to Public shown above
less the Underwriting Discounts and Commissions, solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions, Proceeds to Company
and Proceeds to Selling Shareholders will be $ , $ , $ and
$ , respectively. See "Underwriting."
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The Common Stock is offered by the Underwriters as stated herein, subject
to receipt and acceptance by them and subject to their right to reject any order
in whole or in part. It is expected that delivery of such shares will be made
through the offices of Robertson, Stephens & Company, L.P. ("Robertson, Stephens
& Company"), San Francisco, California, on or about , 1995.
ROBERTSON, STEPHENS & COMPANY
VOLPE, WELTY & COMPANY
THE CHICAGO CORPORATION
The date of this Prospectus is , 1995.
<PAGE> 3
A diagram illustrates the process whereby data is extracted from various
databases by data extraction tools contained in Comshares products and delivered
to the desktop by a range of client front-ends.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY
OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE
MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE
THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND
SELLING GROUP MEMBERS OR THEIR AFFILIATES MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMPANY'S COMMON STOCK ON NASDAQ
IN ACCORDANCE WITH RULE 10B-6A UNDER THE EXCHANGE ACT. SEE
"UNDERWRITING."
<PAGE> 4
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE 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, ANY SELLING SHAREHOLDER OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES
OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH
AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. 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
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
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TABLE OF CONTENTS
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PAGE
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Available Information................................................................. 3
Incorporation of Certain Documents by Reference....................................... 4
Summary............................................................................... 5
Risk Factors.......................................................................... 7
Use of Proceeds....................................................................... 14
Price Range of Common Stock........................................................... 14
Dividend Policy....................................................................... 14
Capitalization........................................................................ 15
Selected Consolidated Financial Data.................................................. 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 17
Business.............................................................................. 31
Management............................................................................ 45
Selling Shareholders.................................................................. 48
Description of Capital Stock.......................................................... 51
Shares Eligible for Future Sale....................................................... 53
Underwriting.......................................................................... 54
Legal Matters......................................................................... 56
Experts............................................................................... 56
Additional Information................................................................ 56
Index to Consolidated Financial Statements............................................ F-1
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ARTHUR, Commander Budget, Commander OLAP, Commander Execu-View Server,
Commander FDC, Commander NewsAlert and Commander Prism are trademarks of
Comshare. Microsoft is a registered trademark and Windows is a trademark of
Microsoft Corporation. This Prospectus also includes other trademarks of
Comshare and trademarks of companies other than Comshare.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and the rules and regulations
thereunder, and in accordance therewith files reports, proxy statements, and
other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information filed by the
Company can be inspected and copied at the Commission's Public Reference Section
at 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the Regional
Offices of the Commission located at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511, and Seven World Trade Center, 13th Floor, New
York, New York 10048. Copies of such material can be obtained by mail from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of the fees prescribed by the Commission.
The Common Stock of the Company is quoted on the Nasdaq National Market.
Reports, proxy and information statements and other information concerning the
Company may be inspected at the offices of Nasdaq Operations at 1735 K Street,
N.W., Washington, D.C. 20006.
3
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Commission
pursuant to the Exchange Act are incorporated herein by reference: (i) the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1995, as
filed with the Commission on September 28, 1995, (ii) the Company's Annual
Report on Form 10-K/A (Amendment No. 1) for the fiscal year ended June 30, 1995,
as filed with the Commission on October 2, 1995, (iii) the Company's Annual
Report on Form 10-K/A (Amendment No. 2) for the fiscal year ended June 30, 1995,
as filed with the Commission on October 11, 1995, (iv) the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1995, as filed with the
Commission on October 24, 1995, and (v) the description of the Company's Common
Stock contained in the Prospectus forming a part of the Company's Registration
Statement on Form S-1 (no. 2-29663) (incorporated by reference into the
Company's Registration Statement on Form 10 under the Exchange Act, filed in
October 1969, as amended by Item 4 of the Company's Report on Form 8-K, filed in
January 1973, and Item 5 of the Company's Report on Form 8-K, filed in September
1988).
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act, after the date of this Prospectus and prior to the
termination of this Offering shall be deemed to be incorporated by reference in
this Prospectus and to be a part hereof from the date of filing of such
documents. Any statement incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon written or oral request, a copy of any or all of
the foregoing documents incorporated by reference in this Prospectus. Requests
for such documents should be directed to: Comshare, Incorporated, 555 Briarwood
Circle, Ann Arbor, MI 48108, Attention: Ricia Hughes, telephone (313) 994-4800.
The information relating to the Company contained in this Prospectus does not
purport to be comprehensive and should be read together with the information
contained in the incorporated documents.
4
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and Consolidated Financial Statements and
Notes thereto, appearing elsewhere in the Prospectus. Unless otherwise noted,
all financial information, share and per share data in this Prospectus have been
adjusted to reflect a three-for-two stock split to be effective on November 20,
1995, conditioned upon approval by the Company's shareholders of an increase in
the number of authorized shares of Common Stock on November 18, 1995.
THE COMPANY
Comshare develops, markets and supports client/server decision support
applications software designed to improve business analysis, planning, reporting
and decision making. The Company's software products enable the enterprise-wide
integration and transformation of data into business-critical information by
leveraging on-line analytical processing ("OLAP") technologies to provide
customers with robust multidimensional analysis capabilities. More specifically,
the Company focuses on delivering complete decision support solutions by
targeting specific industry and functional markets -- currently, executive
information systems ("EIS"), financial reporting and retail decision support --
and by providing implementation, consulting, training and support expertise in
these markets. Such complete decision support solutions permit the easy
implementation and adoption of the Company's software applications throughout an
enterprise, thus enabling end-users to make better and faster decisions.
To succeed in today's environment of intensifying global competition,
organizations must seek new ways of making faster and more informed decisions.
Specific products that have been used to automate decision support activities
include spreadsheets, relational database management systems ("RDBMSs"), data
warehouses, query and reporting tools and analysis modules on transaction
processing-based applications. While each performs specific functions, none
possesses the full range of features which assist an end-user or an organization
to transform data into business-critical information. For example, a business
professional may wish to analyze the profitability of a customer from several
perspectives, or dimensions, such as channel, geography, sales representative,
fiscal period or budget versus actual. However, these traditional technology
approaches to decision support do not readily provide such multidimensional
analysis capability.
Recently, OLAP has emerged as a technology capable of integrating,
organizing and presenting historical, as well as projected, data located
throughout an enterprise on a multidimensional basis. OLAP solutions permit
multidimensional views of data, providing businesses with the robust calculation
capabilities they require to transform data into information that facilitates
decision making. More specifically, OLAP software enables end-users to rapidly
understand data relationships by permitting the multidimensional analysis of
large amounts of data organized consistent with the end-user's perception of the
business (e.g., sales by region, by channel, by budget versus actual).
Leveraging OLAP technology, the Company's complete decision support
solutions provide specific industry or functional application and customer
service expertise. The Company designs its software products to access data
located in spreadsheets, RDBMSs, data warehouses, legacy systems and other data
repositories so that end-users can extract and analyze data located throughout
the enterprise for more informed decision making. In addition, the Company's
internally developed information visualizers and interfaces to popular front-end
applications enable end-users to quickly manipulate and analyze this data.
Moreover, the Company's products permit quick, enterprise-wide adoption through
their availability on popular client/server platforms (Windows on the client and
Windows NT and OS/2 on the server).
The Company markets its products through a direct sales force in the United
States, Canada, United Kingdom, France, Germany and Australia and has an
extensive agent/distributor network in 34 other countries. The Company has
implemented its client/server and mainframe decision support application
software, and is currently providing maintenance, at more than 3,000 corporate
and public sector customer sites. The Company has customers in the
communications, financial services, health care, retail and transportation
industries, including AT&T Corporation, Chase Manhattan Corporation, Johnson &
Johnson, Inc., NIKE, Inc. and TRW Inc.
The Company was incorporated in Michigan in 1966. Its executive offices are
located at 555 Briarwood Circle, Ann Arbor, Michigan 48108, and its telephone
number is (313) 994-4800.
5
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THE OFFERING
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Common Stock Offered by the Company....................... 1,125,000 shares
Common Stock Offered by the Selling Shareholders.......... 1,045,000 shares
Common Stock to be Outstanding after the Offering......... 9,365,273 shares(1)
Use of Proceeds........................................... To repay bank indebtedness, and
for working capital and general
corporate purposes.
Nasdaq National Market Symbol............................. CSRE
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SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
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THREE MONTHS
ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
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1993 1994 1995 1994 1995
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CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
Software licenses......................... $ 40,397 $ 37,871 $ 49,294 $10,006 $13,920
Software maintenance...................... 43,064 41,625 36,649 8,972 9,015
Implementation, consulting and other
services............................... 21,733 17,130 22,415 5,180 5,718
-------- ------- -------- ------- -------
Total revenue.......................... 105,194 96,626 108,358 24,158 28,653
Income (loss) from operations............... (1,271) 1,648 2,485 1,418 2,628
Net income (loss)........................... (1,763) 222 5,328 751 1,510
Net income (loss) per common share.......... $ (0.22) $ 0.03 $ 0.63 $ 0.09 $ 0.17
Weighted average number of common and
dilutive common equivalent shares......... 7,978 8,234 8,398 8,235 8,730
</TABLE>
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SEPTEMBER 30, 1995
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ACTUAL AS ADJUSTED(2)
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CONSOLIDATED BALANCE SHEET DATA:
Cash................................................................ $ 2,023 $ 16,564
Total assets........................................................ 81,376 95,917
Long-term debt...................................................... 4,662 --
Total shareholders' equity.......................................... $34,354 $ 53,557
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(1) Based on the number of shares outstanding as of September 30, 1995. Excludes
828,375 shares of Common Stock issuable upon the exercise of stock options
outstanding as of September 30, 1995, and approximately 9,870 shares
employees have elected to purchase under the Employee Stock Purchase Plan.
(2) Adjusted to reflect the sale of 1,125,000 shares of Common Stock offered by
the Company hereby at the assumed public offering price of $18.33 per share
and the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
Unless otherwise noted, all financial information, share and per share data
in this Prospectus (i) have been adjusted to reflect a three-for-two split of
the Common Stock to be effective on November 20, 1995, conditioned upon approval
by the Company's shareholders of an increase in the number of authorized shares
of Common Stock on November 18, 1995, and (ii) assume no exercise of the
Underwriters' over-allotment option.
6
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RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating the Company and its
business before purchasing shares of Common Stock offered hereby.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; FUTURE OPERATING RESULTS UNCERTAIN
The Company has experienced and may in the future experience significant
fluctuations in revenue and operating results from quarter to quarter and from
year to year due to a combination of factors, including: demand for the
Company's products and services; the size, timing and recognition of revenue
from significant orders; increased competition; the Company's success in and
expense associated with developing, introducing and shipping new products; new
product introductions and announcements by the Company's competitors; changes in
Company strategy; product life cycles; cancellations of maintenance and support
agreements; software defects; changes in operating expenses; fluctuations in
foreign exchange rates; and economic conditions generally or in specific
industry segments. In addition, revenue and income from operations may fluctuate
due to the mix of products and services sold and the mix of distribution
channels employed. Further, the Company's results of operations reflect seasonal
trends, and the Company's business, results of operations and financial
condition may be affected by such trends in the future. As a result of all of
these factors, there can be no assurance that the Company will remain profitable
on a quarterly or annual basis. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The Company's future revenues are difficult to predict. This is due in part
to the fact that a significant portion of the Company's revenue in any quarter
is typically derived from non-recurring license fees, and the timing of orders
for the Company's products is subject to delay for a number of reasons,
including factors beyond the Company's control. The Company typically ships its
products shortly after receipt of orders, and, consequently, order backlog at
the beginning of any quarter has in the past represented only a small portion of
that quarter's expected revenue. As a result, license revenue in any quarter is
substantially dependent on orders booked and shipped in that quarter.
Historically, the Company has often recognized a substantial portion of its
software license revenue in the last month of a quarter. The Company believes
that the purchase of its products is relatively discretionary and generally
involves a significant commitment of capital. As a result of these factors, in
the event of any downturn in any potential customer's business or the economy in
general, purchases of the Company's products may be deferred or canceled, which
could have a material adverse effect on the Company's business, results of
operations and financial condition.
In addition, a significant portion of the Company's annual revenue is
derived from ongoing annual maintenance contracts, including contracts relating
to the Company's mainframe applications still in use. Although mainframe
maintenance revenue is expected to decline in future periods, if such decline
occurs more rapidly than is anticipated, the Company's revenue, profits and cash
flow from operations will be at lower levels than are currently anticipated
which could have a material adverse effect on the Company's business, results of
operations and financial condition.
Further, the Company's expense levels are based, in part, on its
expectations as to future revenue. If revenue is below expectations, results of
operations are likely to be materially adversely affected. Net income may also
be disproportionately affected by a reduction in revenue, because a significant
portion of the Company's expenses do not vary with revenue. The Company may also
choose to reduce prices or increase spending in response to competition or to
pursue new market opportunities, either of which could have a material adverse
effect on the Company's business, results of operations and financial condition.
Because of these factors, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and that
such comparisons should not be relied upon as indications of future performance.
Further, the Company has in recent periods experienced significant percentage
growth in client/server license revenue, but such rate of growth is not
necessarily
7
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indicative of future performance. In addition, it is possible that in some
future quarter the Company's operating results will be below the expectations of
public market analysts and investors. In such event, or in the event that
adverse conditions prevail or are perceived to prevail generally or with respect
to the Company's business, the price of the Company's Common Stock would likely
be materially adversely affected. See "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
COMPETITION
The client/server applications software market, including the market for
decision support software, is intensely competitive, highly fragmented and
subject to rapid change and evolving industry standards. Because the Company
offers multiple products, the Company competes with a variety of other companies
depending on the target market for their applications software products. In the
EIS market, the Company competes primarily with Oracle Corporation, which
recently purchased Express software from Information Resources, Inc.;
Information Resources, Inc., which retained rights to Express software for
certain applications; The Dun and Bradstreet Corporation, which purchased Pilot
Software; and certain other software vendors. In the financial reporting
applications market, the Company's principal competitor is Hyperion Software
Corporation, which is generally recognized as the current market leader for
stand-alone financial consolidation applications. In the retail decision support
applications market, the Company competes with traditional EIS providers that do
not have specific merchandise planning applications and with a number of smaller
software providers. The Company also competes with a variety of additional
software companies, third-party professional services organizations that develop
custom software and with internal information technology departments which
develop decision support solutions. Among the Company's current and potential
competitors are also a number of large software companies, including developers
of spreadsheets, RDBMSs, data warehouses, database query and reporting tools and
transaction processing-based applications, that may elect to increase the
decision support capabilities of their current products or that may develop or
acquire products that compete with the Company's products. Increased competition
could result in price reductions, reduced operating margins and loss of market
share, any of which could have a material adverse effect on the Company's
business, results of operations and financial condition. In addition, many of
the Company's current and potential competitors have significantly greater
financial, technical, marketing and other resources than the Company. As a
result, they may be able to respond more quickly to new or emerging technologies
and changes in customer requirements, or to devote greater resources to the
development, promotion and sale of products than can the Company. There can be
no assurance that the Company will be able to compete successfully against
current and future competitors or that competitive pressures faced by the
Company will not materially adversely affect its business, results of operations
and financial condition. See "Business -- Competition."
RELIANCE ON RELATIONSHIPS WITH ARBOR SOFTWARE CORPORATION AND OTHER THIRD
PARTIES
The Company licenses certain software from third parties and incorporates
such software into its products. Generally, these licenses are non-exclusive
worldwide licenses providing for varying royalty payments and expiration dates.
In particular, the Company is substantially dependent on Essbase,
multidimensional database software developed by Arbor Software Corporation
("Arbor") which is incorporated in several of the Company's major products, and
is expected to be incorporated in certain future products. Because Essbase is
the OLAP technology which provides the critical multidimensional functionality
for Commander OLAP and is an integral component of the Company's ARTHUR product
line, loss of the Company's rights to Essbase, or any change impacting the
availability of Essbase, could have a material adverse effect on the Company's
business, results of operations and financial condition. In addition, if there
is any significant change in the competitiveness of Essbase, the Company could
be required to undertake an expensive and time-consuming revision of its
products to operate on competitive products or technologies, and the Company's
business, results of operations and financial condition could be materially
adversely affected. See "Business -- Licensed Technologies."
8
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In the future, the Company intends to increase the rate at which it
licenses software tools from third parties for incorporation into its products
as part of its strategy to reduce product development risk and time to market
for new products and product enhancements. Incorporating third-party software
into its products subjects the Company to risks that its third-party vendors
will refuse to renew a license, or become unable or unwilling to support and
enhance their products in a manner that satisfies the Company's requirements. If
the Company were unable to renew these licenses, or if its third-party vendors
were to become unable or unwilling to support and enhance their products, the
Company could be required to devote additional resources to the enhancement and
support of these products or to acquire or develop software providing equivalent
capabilities, which could adversely impact the ability of the Company to sell
its current products, cause delays in the development and introduction of new
products and increase the Company's cost of development of such products. The
occurrence of any of the foregoing risks associated with licensing software from
third parties could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Business -- Licensed
Technologies."
RISKS ASSOCIATED WITH RAPID TECHNOLOGICAL CHANGE
The markets for the Company's products are characterized by rapid
technological advances, evolving industry standards, changes in customer
requirements and frequent introductions and enhancements of competitive
products. The Company's success and future financial performance will depend on
its ability to anticipate these changes as they occur and to enhance its
existing products and develop new products in a timely and cost-effective manner
which keeps pace with these changes.
The Company has been required to make several technological and product
transitions in response to changing market conditions. Most recently, these
transitions have included the adaptation of its products from the mainframe to
the client/server environment and the modification of its products to run on the
Windows operating environment. The most recent transition from mainframe-to
client/server-based products required a significant financial investment by the
Company in research and development over a number of years, financed by
operating cash flow and increased bank borrowings. During this transition, the
Company experienced a period of significantly decreased revenue and net income,
including net losses in fiscal 1992 and fiscal 1993, and incurred significant
unusual and restructuring related costs, which included the write-off of the
Company's remaining capitalized software associated with its mainframe-based
products. There can be no assurance that the Company will be able to
successfully accomplish future technological or product transitions, that the
Company will not experience significant delays in developing new products or
enhancements required to accomplish such transitions or that the Company will
have sufficient financial resources available to it to finance such efforts.
There can be no assurance as to the impact that any such transition would have
on the Company's revenue or profitability. In addition, there can be no
assurance that the Company's new products and enhancements will adequately
address the changing needs of the marketplace and achieve market acceptance or
that developments by others will not render the Company's products obsolete or
noncompetitive. As required by SFAS No. 86, "Accounting for the Cost of Computer
Software to be Sold, Leased or Otherwise Marketed," a substantial portion of the
Company's software development costs have been capitalized. Any failure of the
related products to achieve and sustain market acceptance could result in the
write-off of all or part of such capitalized costs. Any such failure or
write-off could have a material adverse effect on the Company's business,
results of operations and financial condition.
The Company has a number of ongoing development projects for the
enhancement of existing products and the introduction of new products. There can
be no assurance that products under development will be completed successfully
or on time or that they will include the features required to achieve market
acceptance. Failure of these new product development projects could have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Business -- Research and Product Development."
9
<PAGE> 11
UNCERTAIN MARKET ACCEPTANCE OF THE COMPANY'S NEW PRODUCT OFFERINGS
The Company's business strategy involves the development and licensing of
client/server decision support applications software designed to address
specific industry or functional markets. Although the Company has been
successful in the past in developing and licensing applications software
designed to address specific industry or functional markets, such as its
financial reporting and retail applications, the Company intends to introduce
additional applications in the Company's current markets and markets not
previously served by the Company. There can be no assurance that the Company's
current or future applications will achieve widespread market acceptance or that
sales of such products will be sufficient to justify the development, marketing
and other expenses associated with such products. Failure of the Company's
products, whether internally developed or acquired, to achieve widespread market
acceptance or the need to rewrite certain products could have a material adverse
effect on the Company's business, results of operations and financial condition.
See "Business -- The Comshare Solution" and "-- Business Strategy."
DEPENDENCE ON SALES TO INSTALLED BASE
A substantial percentage of the Company's licenses of its recently
introduced client/server applications software has been made to customers of the
Company's earlier generation of mainframe-based products. In fiscal 1995, 54% of
the Company's software license revenue was attributable to software licenses
sold to companies that had purchased an earlier generation of the Company's
products. The Company's revenue in future periods will depend in large part on
its continued ability to sell its products to existing customers, as well as to
customers that are not previous users of the Company's products. Failure to
successfully transition the Company's existing base of mainframe customers to
the Company's client/server products, or failure of such products to be adopted
by new customers, could have a material adverse effect on the Company's
business, results of operations and financial condition. See "Business --
Business Strategy" and "-- Products."
INTERNATIONAL OPERATIONS
The Company derived 57%, 55%, 55% and 54% of its total revenue from outside
North America in fiscal 1993, 1994, 1995 and in the three months ended September
30, 1995, respectively, and expects that revenue generated outside of North
America will continue to represent a significant portion of the Company's total
revenue. This international business is subject to various risks inherent in
international activities, including the impact on the Company's operations of,
and the burdens of complying with, a wide variety of laws, regulations, rules
and policies of local foreign governments, such as those relating to currency
controls, hiring and termination of employees, import restrictions and the
protection of propriety rights. There can be no assurance that the Company will
be able to maintain or increase international market demand for the Company's
products. In addition, a substantial percentage of the Company's international
revenue is attributable to sales by the Company's international distributors and
agents. Although no one distributor or agent accounted for more than 5% of the
Company's total revenue in fiscal 1995, the loss of one or more of such
distributors or agents could have a material adverse effect on the Company's
business, results of operations and financial condition. In addition, the
Company intends to develop programs to increase the dollar level of revenue
generated by these distributors and agents. There can be no assurance that such
programs will be successful or that the Company's will be able to continue to
generate sales through distributors and agents at or above current levels. See
"Business -- Business Strategy" and "-- Sales and Marketing."
The Company's international operations also expose the Company to
constantly fluctuating currency rates. Currency fluctuations have in the past
adversely affected, and may in the future adversely affect, the Company's
reported revenue, expenses and shareholders' equity. The Company's international
sales are primarily denominated in foreign currencies. As a result, an increase
in the value of the U.S. dollar relative to foreign currencies may have the
effect of reducing the Company's reported revenue and profits from international
sales denominated in such currencies. If the Company were to increase its prices
in certain markets in response to such fluctuations, its products may be less
10
<PAGE> 12
competitive in those markets. Currency exchange rate fluctuations can also
result in gains and losses from foreign currency exchange transactions. The
Company at various times has entered into forward exchange contracts to hedge
exposures related to foreign currency exchange transactions. Because the Company
only selectively hedges against certain large transactions that present the most
exposure to exchange rate fluctuations, the Company's results of operations will
continue to be impacted by fluctuations in foreign currency exchange rates,
which at times could be material. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 1 of Notes to
Consolidated Financial Statements.
The Company also believes that it is exposed to greater risks of software
piracy in international markets because of the weaker protection afforded to
intellectual property in some foreign jurisdictions. Although the Company is not
aware of any significant unauthorized use of its proprietary software to date,
there can be no assurance that it will not experience such unauthorized use in
the future. See "Risk Factors -- Limited Intellectual Property Protection" and
"Business -- Intellectual Property."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent on its ability to
attract and retain key management, sales, consulting and technical personnel.
Competition for such personnel is intense and there can be no assurance that the
Company will be able retain its key managerial, sales, consulting and technical
employees or that it will be able to attract, assimilate or retain such highly
qualified managerial, sales, consulting or technical personnel as may be
required in the future. If the Company is unable to retain its key managerial,
sales, consulting and technical personnel, or attract, assimilate and retain
additional qualified personnel as needed, the Company's business, results of
operations and financial condition could be materially adversely affected.
LIMITED INTELLECTUAL PROPERTY PROTECTION
The Company's success is dependent on its proprietary technology. The
Company does not hold any material patents and seeks to protect its technology
primarily through trademarks, copyrights, employee and third-party
non-disclosure agreements and trade secret laws, which afford only limited
protection. The Company's software products are generally licensed to customers
under license agreements which generally restrict usage to internal operations
and prohibit unauthorized reproduction or transfer to third parties. The laws of
some foreign countries do not protect the Company's proprietary rights to the
same extent as do the laws of the United States. In addition, certain provisions
of the Company's contracts prohibiting unauthorized reproduction may be
unenforceable under the laws of certain foreign countries. There can be no
assurance that the steps taken by the Company to protect its proprietary rights
will be adequate to prevent misappropriation of its technology or development by
others of similar or superior technology. Although the Company believes that its
products and technology do not infringe on any existing proprietary rights of
others, there can be no assurance that third parties will not assert
infringement claims in the future or that any such claims will not require the
Company to enter into license arrangements or result in litigation, regardless
of the merits of such claims. No assurance can be given that any necessary
licenses will be available or that, if available, such licenses can be obtained
on commercially reasonable terms. Should litigation with respect to any such
claims commence, such litigation could be extremely expensive and time consuming
and could have a material adverse effect on the Company's business, results of
operations and financial condition regardless of the outcome of such litigation.
See "Business -- Intellectual Property."
RISK OF SOFTWARE DEFECTS
Software products as internally complex as those offered by the Company
frequently contain errors or defects, especially when first introduced or when
new versions or enhancements are released. Despite extensive product testing by
the Company, the Company has in the past released versions of its products with
defects that were not discovered until after commencement of
11
<PAGE> 13
commercial shipment. Although the Company has not to date experienced material
adverse effects resulting from any such defects and errors in current
commercially released products, there can be no assurance that despite testing
by the Company and by current and potential customers, defects and errors will
not be found in new versions or enhancements after commencement of commercial
shipments. Such defects or errors could result in damage to the Company's
reputation, loss of revenue, delay in market acceptance, diversion of
development and consulting resources and an increase in service and warranty
costs, any of which could have a material adverse effect on the Company's
business, results of operations and financial condition. See "Business --
Products" and "-- Research and Product Development."
PRODUCT LIABILITY
The Company's license agreements with its customers typically contain
provisions designed to limit the Company's exposure to potential product
liability claims. It is possible, however, that the limitation of liability
provisions contained in the Company's license agreements may not be effective as
a result of federal, state, local or foreign laws or ordinances currently in
effect or enacted in the future or of unfavorable judicial decisions. Although
the Company has not experienced any product liability claims with respect to its
software products to date, the sale and support of the Company's products and
the incorporation of products developed by third parties may entail the risk of
such claims. A product liability claim brought against the Company, regardless
of the merits of such claim, could have a material adverse effect upon the
Company's business, results of operations and financial condition.
STOCK PRICE VOLATILITY
The trading price of the Company's Common Stock has been and in the future
could be subject to wide fluctuations in response to quarterly variations in
results of operations, announcements of technological innovations or new
products by the Company or its competitors, the Company reporting results of
operations below the expectations of public market analysts and investors,
changes in earnings estimates by securities analysts, general conditions in the
software, decision support and computer industries and other events or factors.
In addition, the stock market has from time to time experienced extreme price
and volume fluctuations that have particularly affected the market price of the
stock of many high technology companies and that have often been unrelated or
disproportionate to the operating results of these companies. These broad market
fluctuations may adversely affect the market price of the Company's Common
Stock. The trading prices of these companies' stocks are at or near their
historical highs and reflect price/earnings ratios substantially above
historical norms. In particular, the trading price of the Company's Common Stock
in the most recent completed quarter was at its all-time high and reflected the
increased price/earnings ratios of high technology companies in general. There
can be no assurance that the trading price of the Common Stock will remain at or
near its current level. See "Price Range of Common Stock."
SHARES ELIGIBLE FOR FUTURE SALES; ADVERSE EFFECT ON MARKET PRICE
Sales of substantial amounts of the Company's Common Stock in the public
market following this Offering could adversely affect the market price of the
Common Stock. Immediately upon completion of this Offering, the Company will
have 9,365,273 shares of Common Stock outstanding, all of which, including the
2,170,000 shares offered hereby, will be freely tradeable without restriction
under the Securities Act, unless they are held by an "affiliate" of the Company
(as that term is defined in Rule 144 under the Securities Act of 1993, as
amended (the "Securities Act")). Of the Company's shares outstanding at
September 30, 1995, 696,591 shares are subject to lock-up agreements pursuant to
which they may not be sold or transferred for 90 days after the date of this
Prospectus. However, Robertson, Stephens & Company, in its sole discretion, may
release shareholders from these lock-up agreements, in whole or in part, at any
time and without notice. No prediction can be made as to the effect, if any,
that sales of any such shares will have on the market price of the Common Stock
prevailing from time to time. See "Selling Shareholders" and "Shares Eligible
For Future Sale."
12
<PAGE> 14
ANTI-TAKEOVER EFFECT OF BYLAWS AND MICHIGAN LAW
The Company's Bylaws contain provisions that could discourage a proxy
contest or make more difficult the acquisition of a substantial block of the
Company's Common Stock. The Company's Board of Directors is authorized to issue
preferred stock and additional shares of Common Stock which, if issued, could
dilute and adversely affect various rights of the holders of Common Stock, and,
in addition, could be used to discourage an unsolicited attempt to acquire
control of the Company. These provisions could limit the price that investors
would be willing to pay in the future for shares of Common Stock and could make
it more difficult for shareholders of the Company to effect certain corporate
actions. See "Description of Capital Stock -- Anti-Takeover Effects of the
Company's Bylaws and of Michigan Law."
13
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,125,000 shares of
Common Stock offered by the Company hereby are estimated to be $19,203,000
($22,118,000 if the over-allotment option is exercised in full), assuming a
public offering price of $18.33 per share and after deducting the Underwriting
Discounts and Commissions and estimated offering expenses payable by the
Company.
The Company will use a portion of the net proceeds from the sale of its
Common Stock to repay outstanding bank borrowings. As of September 30, 1995, the
outstanding principal amount owed to the Company's banks under its lines of
credit was approximately $4.7 million. The outstanding amount is due in October
1997 and the weighted average interest rate on such borrowings was 7.61% at
September 30, 1995. The Company has not yet identified specific uses for the
remainder of the net proceeds. The Company expects to use such remaining net
proceeds for working capital and general corporate purposes. Net proceeds may
also be used to acquire or invest in complementary businesses or technologies,
although the Company is not currently involved in negotiations with respect to,
and has no agreement or understanding regarding, any such acquisition or
investment. Pending such uses, the Company intends to invest the net proceeds
from the Offering in investment grade, short-term, interest-bearing instruments.
The Company will not receive any proceeds from the sale of shares of Common
Stock by Selling Shareholders. See "Selling Shareholders."
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is quoted on the Nasdaq National Market under
the symbol CSRE. As of September 25, 1995, there were approximately 1,204
holders of record of the Company's Common Stock.
The following table sets forth the high and low per share trading prices of
the Company's Common Stock, as reported on the Nasdaq National Market. All
amounts in the following table have been adjusted to reflect a three-for-two
stock split to be effective on November 20, 1995, conditioned upon approval by
the Company's shareholders of an increase in the number of authorized shares of
Common Stock on November 18, 1995.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1993
First Quarter............................................ $ 7.50 $ 4.50
Second Quarter........................................... 9.83 4.83
Third Quarter............................................ 9.50 4.67
Fourth Quarter........................................... 5.17 3.83
FISCAL 1994
First Quarter............................................ $ 7.33 $ 3.83
Second Quarter........................................... 7.83 6.33
Third Quarter............................................ 8.50 6.00
Fourth Quarter........................................... 9.33 6.17
FISCAL 1995
First Quarter............................................ $ 8.50 $ 6.00
Second Quarter........................................... 9.83 7.17
Third Quarter............................................ 11.50 8.83
Fourth Quarter........................................... 14.33 10.00
FISCAL 1996
First Quarter............................................ $21.58 $13.50
Second Quarter (through October 20, 1995)................ 20.33 17.67
</TABLE>
On October 20, 1995, the closing price of the Company's Common Stock was
$18.33, as adjusted to reflect the three-for-two stock split described above.
DIVIDEND POLICY
The Company has not paid cash dividends on its Common Stock since its
incorporation. It is the Company's present policy to retain earnings for use in
the Company's business. Accordingly, the Company does not anticipate that cash
dividends will be paid in the foreseeable future. Certain of the Company's
credit agreements contain covenants which prohibit the payment of cash dividends
on the Common Stock.
14
<PAGE> 16
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
September 30, 1995, and (ii) as adjusted to give effect to the sale of the
1,125,000 shares of Common Stock offered by the Company at the assumed public
offering price of $18.33 per share and application of the estimated net proceeds
thereof. See "Use of Proceeds." This information should be read in conjunction
with the Company's Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
----------------------
AS
ACTUAL ADJUSTED
------- ---------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt........................................................ $ 4,662 $ --
Shareholders' equity:
Capital stock:
Preferred stock, no par value; 5,000,000 shares authorized, none
issued.......................................................... -- --
Common stock, $1.00 par value; 20,000,000 shares authorized(1);
8,240,273 shares issued and outstanding, actual; 9,365,273
shares issued and outstanding, as adjusted...................... 8,240 9,365
Capital contributed in excess of par................................ 13,278 31,356
Retained earnings................................................... 16,987 16,987
Currency translation adjustments.................................... (3,217) (3,217)
------- -------
35,288 54,491
Less -- Notes receivable............................................ (934) (934)
------- -------
Total shareholders' equity................................... 34,354 53,557
------- -------
Total capitalization....................................... $39,016 $53,557
======= =======
</TABLE>
- ---------------
(1) Assumes that the Company's shareholders approve an increase in the number of
authorized shares of Common Stock from 10,000,000 to 20,000,000 on November
18, 1995.
15
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA
The following table summarizes selected consolidated financial data which
should be read in conjunction with the Company's Consolidated Financial
Statements and Notes thereto and with Management's Discussion and Analysis of
Financial Condition and Results of Operations, which are included elsewhere in
this Prospectus. The selected consolidated financial data set forth below as of
June 30, 1993, 1994 and 1995 and for each of the three fiscal years in the
period ended June 30, 1995 have been derived from the Company's consolidated
financial statements, which have been audited by Arthur Andersen LLP,
independent public accountants.
The selected consolidated financial data set forth below as of September
30, 1995 and for the three months ended September 30, 1994 and 1995 have been
derived from unaudited financial statements that, in management's opinion,
include all necessary adjustments (consisting only of normal recurring
adjustments) to present fairly the financial condition and results of operations
for such dates and periods. The results of operations for the three months ended
September 30, 1994 and 1995 are not necessarily indicative of results to be
expected for the full fiscal year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
-------------------------------- ------------------
1993 1994 1995 1994 1995
-------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
Software licenses.......................................... $ 40,397 $ 37,871 $ 49,294 $10,006 $13,920
Software maintenance....................................... 43,064 41,625 36,649 8,972 9,015
Implementation, consulting and other services.............. 21,733 17,130 22,415 5,180 5,718
-------- -------- -------- ------- -------
Total revenue.......................................... 105,194 96,626 108,358 24,158 28,653
-------- -------- -------- ------- -------
Costs and expenses:
Selling and marketing...................................... 54,065 46,457 45,283 10,232 12,038
Cost of revenue and support................................ 20,528 17,670 24,799 5,382 6,690
Internal research and product development.................. 22,989 19,293 16,180 4,070 3,998
Internally capitalized software............................ (15,035) (13,193) (11,667) (3,079) (2,358)
Software amortization...................................... 10,761 12,517 13,250 3,385 2,616
General and administrative................................. 11,668 9,891(1) 11,663 2,750 3,041
Unusual charge............................................. -- -- 6,365 -- --
Restructuring related costs................................ 1,489 2,343 -- -- --
-------- -------- -------- ------- -------
Total costs and expenses............................... 106,465 94,978 105,873 22,740 26,025
-------- -------- -------- ------- -------
Income (loss) from operations................................ (1,271) 1,648 2,485 1,418 2,628
Other income (expense):
Interest income............................................ 298 79 157 21 15
Interest expense........................................... (611) (568) (669) (187) (156)
Exchange gain (loss)....................................... 480 (25) 307 (37) (89)
-------- -------- -------- ------- -------
Total other income (expense)........................... 167 (514) (205) (203) (230)
-------- -------- -------- ------- -------
Income (loss) before taxes................................... (1,104) 1,134 2,280 1,215 2,398
Provision (benefit) for income taxes......................... 659 912 (3,048)(2) 464 888
-------- -------- -------- ------- -------
Net income (loss)............................................ $ (1,763) $ 222 $ 5,328 $ 751 $ 1,510
======== ======== ======== ======= =======
Net income (loss) per common share........................... $ (0.22) $ 0.03 $ 0.63 $ 0.09 $ 0.17
======== ======== ======== ======= =======
Weighted average number of common and dilutive common
equivalent shares.......................................... 7,978 8,234 8,398 8,235 8,730
======== ======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
-------------------------------- SEPTEMBER 30,
1993 1994 1995 1995
-------- -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash.......................................................... $ 2,593 $ 1,774 $ 1,398 $ 2,023
Total assets.................................................. 92,582 88,944 79,310 81,376
Long-term debt................................................ 16,058 15,354 5,436 4,662
Total shareholders' equity.................................... 26,161 26,506 32,548 34,354
</TABLE>
- ---------------
(1) Includes a $1.1 million gain from the sale of undeveloped land.
(2) Includes a $4.1 million tax benefit related to the recognition of prior
years' net operating losses and tax credits as well as tax reserves
released.
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Comshare develops, markets and supports client/server decision support
applications software designed to improve business analysis, planning, reporting
and decision making. Since its inception in 1966, the Company has accomplished
several technology and product transitions. Prior to 1992, the Company was
principally involved in the development, marketing and support of
mainframe-based executive information systems. Beginning in 1992, in response to
the market shift away from mainframe to client/server technology, the Company
began to transition its products to the client/server environment. Today, all of
the Company's major products are available for client/server implementations.
The Company's revenue in fiscal 1993, 1994 and 1995 and in the three months
ended September 30, 1995 was significantly impacted by the growth of
client/server software license and maintenance revenue and the decline in
mainframe software license and maintenance revenue, which offset the
client/server growth in fiscal 1993 and 1994. As a result of the release of the
Company's new client/server and Windows-based products beginning in mid-fiscal
1994, client/server software license and maintenance revenue increased 15.3%,
39.3% and 43.5% in fiscal 1994, fiscal 1995 and the three months ended September
30, 1995, respectively, as compared to the same period in the prior year.
Mainframe software license and maintenance revenue declined 24.2%, 35.3% and
31.2% in fiscal 1994, fiscal 1995 and the three months ended September 30, 1995,
respectively, as compared to the same period in the prior year. During fiscal
1995, for the first time, the dollar increase in client/server software license
and maintenance revenue exceeded the dollar decline in mainframe software
license and maintenance revenue. The increase in client/server software license
and maintenance revenue in fiscal 1995 and in the three months ended September
30, 1995 was driven by increases in client/server software licenses across all
three of the Company's decision support markets.
In connection with the Company's transition to client/server platforms, the
Company significantly downsized its operations and wrote off all of its
capitalized mainframe software. These actions resulted in unusual or
restructuring related costs of $1.5 million, $2.3 million and $6.4 million in
fiscal 1993, 1994 and 1995, respectively. The Company's fiscal 1995 results also
included a $4.1 million tax benefit related to the recognition of prior years'
net operating losses and tax credits as well as tax reserves released.
The Company's products are sold by direct sales organizations in the United
States, Canada, the United Kingdom, France, Germany and Australia and by an
extensive network of agents and distributors covering 34 countries not directly
served by the Company. In fiscal 1995 and the three months ended September 30,
1995, 55.3% and 53.7%, respectively, of the Company's revenue was derived from
sales outside of North America.
17
<PAGE> 19
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
financial data as a percentage of total revenue and the percentage change in the
dollar amounts of certain financial data over the same period of the prior year:
<TABLE>
<CAPTION>
PERCENT
PERCENT THREE MONTHS INCREASE
YEAR ENDED INCREASE (DECREASE) ENDED (DECREASE)
JUNE 30, ------------------------- SEPTEMBER 30, ------------
------------------------- 1994 OVER 1995 OVER ----------------- 1995 OVER
1993 1994 1995 1993 1994 1994 1995 1994
----- ----- ----- ---------- ---------- ------ ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Software licenses............. 38.4% 39.2% 45.5% (6.3)% 30.2% 41.4% 48.6% 39.1%
Software maintenance.......... 41.0 43.1 33.8 (3.3) (12.0) 37.1 31.4 0.5
Implementation, consulting and
other services.............. 20.6 17.7 20.7 (21.2) 30.9 21.5 20.0 10.4
----- ----- ----- ----- -----
Total revenue............. 100.0 100.0 100.0 (8.1) 12.1 100.0 100.0 18.6
Costs and expenses:
Selling and marketing......... 51.4 48.1 41.8 (14.1) (2.5) 42.3 42.0 17.7
Cost of revenue and support... 19.5 18.3 22.9 (13.9) 40.3 22.3 23.3 24.3
Internal research and product
development................. 21.9 20.0 14.9 (16.1) (16.1) 16.8 14.0 (1.8)
Internally capitalized
software.................... (14.3) (13.7) (10.8) (12.3) (11.6) (12.7) (8.2) (23.4)
Software amortization......... 10.2 13.0 12.2 16.3 5.9 14.0 9.1 (22.7)
General and administrative.... 11.1 10.2 10.8 (15.2) 17.9 11.4 10.6 10.6
Unusual charge................ -- -- 5.9 -- * -- -- --
Restructuring related costs... 1.4 2.4 -- 57.4 * -- -- --
----- ----- ----- ----- -----
Total costs and
expenses................ 101.2 98.3 97.7 (10.8) 11.5 94.1 90.8 14.4
Income (loss) from operations... (1.2) 1.7 2.3 * 50.8 5.9 9.2 85.3
Other income (expense).......... 0.2 (0.5) (0.2) * 60.1 (0.9) (0.8) 13.3
----- ----- ----- ----- -----
Income (loss) before taxes...... (1.0) 1.2 2.1 * 101.1% 5.0 8.4 97.4
Provision (benefit) for income
taxes......................... 0.6 1.0 (2.8) 38.4% * 1.9 3.1 91.4
----- ----- ----- ----- -----
Net income (loss)............... (1.6)% 0.2% 4.9% * * 3.1% 5.3% 101.1%
===== ===== ===== ===== =====
</TABLE>
- ---------------
* Not meaningful.
The following table sets forth, for the periods indicated, certain sources
of software license revenue in dollar amounts and the percentage change in the
dollar amounts of such sources over the same period of the prior year:
<TABLE>
<CAPTION>
PERCENT
PERCENT THREE MONTHS INCREASE
YEAR ENDED INCREASE (DECREASE) ENDED (DECREASE)
JUNE 30, ----------------------- SEPTEMBER 30, ------------
----------------------------- 1994 OVER 1995 OVER ------------------ 1995 OVER
1993 1994 1995 1993 1994 1994 1995 1994
------- ------- ------- --------- --------- ------- ------- ------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Software license revenue:
Client/server:
EIS....................... $13,785 $15,849 $26,748 15.0% 68.8% $ 4,661 $ 7,492 60.7%
Financial Reporting....... 7,291 7,160 10,047 (1.8) 40.3 2,073 3,277 58.1
Retail Decision Support... 2,945 5,075 8,506 72.3 67.6 2,075 2,573 24.0
Other..................... -- 220 210 * (4.6) 54 53 (1.9)
------- ------- ------- ------- -------
Total client/server..... 24,021 28,304 45,511 17.8 60.8 8,863 13,395 51.1
Mainframe................... 16,264 9,375 3,783 (42.4) (59.6) 1,143 525 (54.1)
Other....................... 112 192 -- 71.4 * -- -- --
------- ------- ------- ------- -------
Total software license
revenue............... $40,397 $37,871 $49,294 (6.3) 30.2 $10,006 $13,920 39.1
======= ======= ======= ======= =======
Software maintenance revenue:
Client/server............... $16,526 $18,456 $19,620 11.7 6.3 $ 4,460 $ 5,717 28.2
Mainframe................... 25,970 22,639 16,932 (12.8) (25.2) 4,415 3,298 (25.3)
Other....................... 568 530 97 (6.7) (81.7) 97 -- *
------- ------- ------- ------- -------
Total software
maintenance revenue... $43,064 $41,625 $36,649 (3.3)% (12.0)% $ 8,972 $ 9,015 0.5%
======= ======= ======= ======= =======
</TABLE>
- ---------------
* Not meaningful.
18
<PAGE> 20
THREE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 1994
REVENUE
The Company's revenue consists of software license, software maintenance
and implementation, consulting and other service revenue. Software license
revenue is recognized once the customer contract has been executed and the
product has been shipped; software maintenance revenue is recognized over the
term of the maintenance contract; and implementation, consulting and other
service revenue is recognized as services are performed.
Total revenue for the three months ended September 30, 1995 increased 18.6%
to $28.7 million, from $24.2 million in the three months ended September 30,
1994. The primary cause of this increase in revenue was the increase in
client/server software license and maintenance revenue.
Software License Revenue. Total software license revenue for the three
months ended September 30, 1995 increased 39.1% to $13.9 million, or 48.6% of
total revenue, from $10.0 million, or 41.4% of total revenue in the three months
ended September 30, 1994. Software license revenue from client/server products
for the three months ended September 30, 1995 increased 51.1% to $13.4 million,
or 96.2% of total software license revenue, from $8.9 million, or 88.6% of total
software license revenue in the three months ended September 30, 1994. Software
license revenue from the Company's mainframe products for the three months ended
September 30, 1995 decreased 54.1% to $0.5 million, or 3.8% of total software
license revenue, from $1.1 million, or 11.4% of total software license revenue
in the three months ended September 30, 1994. Software license revenue from
mainframe products is expected to continue to decline as the Company continues
to emphasize its client/server products.
Software license revenue increased in all three decision support market
areas. In the EIS market, software license revenue in the three months ended
September 30, 1995 increased 45.1% to $8.0 million, or 57.3% of total software
license revenue, from $5.5 million, or 54.9% of total software license revenue
in the three months ended September 30, 1994. Software license revenue for the
Company's client/server EIS products in the three months ended September 30,
1995 increased 60.7% to $7.5 million, or 53.8% of total software license
revenue, from $4.7 million, or 46.6% of total software license revenue in the
three months ended September 30, 1994, principally due to the strong demand
experienced for Commander OLAP. This increase in EIS client/server software
license revenue was partially offset by declines in EIS mainframe software
license revenue. Software license revenue for the Company's client/server
financial reporting products in the three months ended September 30, 1995
increased 58.1% to $3.3 million, or 23.5% of total software license revenue,
from $2.1 million, or 20.7% of total software license revenue in the three
months ended September 30, 1994, principally due to the sales of enhanced
versions of Commander FDC and Commander Budget products during the three months
ended September 30, 1995 that were not released in the three months ended
September 30, 1994. In the retail decision support applications market area,
software license revenue in the three months ended September 30, 1995 increased
15.5% to $2.6 million, or 18.8% of total software license revenue, from $2.3
million, or 22.6% of total software license revenue in the three months ended
September 30, 1994. Software license revenue for the Company's client/server
retail decision support products in the three months ended September 30, 1995
increased 24.0% to $2.6 million, or 18.5% of total software license revenue,
from $2.1 million, or 20.7% of total software license revenue in the three
months ended September 30, 1994. The increase was principally attributable to
sales of an enhanced version of ARTHUR Plan Monitor, incorporating Arbor's
Essbase, during the three months ended September 30, 1995, that was not released
in the three months ended September 30, 1994.
Software Maintenance Revenue. Software maintenance revenue was $9.0 million
in each of the three month periods ended September 30, 1995 and 1994, or 31.4%
and 37.1% of total revenue, respectively. Client/server software maintenance
revenue in the three months ended September 30, 1995 increased 28.2% to $5.7
million, or 63.4% of total software maintenance revenue, from $4.5 million, or
49.7% of total software maintenance revenue in the three months ended September
30, 1994. The increase was principally due to the increase in client/server
license revenue during the most recent
19
<PAGE> 21
twelve months in all three decision support market areas. Mainframe software
maintenance revenue in the three months ended September 30, 1995 decreased 25.3%
to $3.3 million, or 36.6% of total software maintenance revenue, from $4.4
million, or 49.2% of total software maintenance revenue in the three months
ended September 30, 1994. The decrease was primarily due to mainframe
maintenance cancellations and customer migration to client/server platforms.
Implementation, Consulting and Other Service Revenue. Implementation,
consulting and other service revenue in the three months ended September 30,
1995 increased 10.4% to $5.7 million, or 20.0% of total revenue, from $5.2
million, or 21.5% of total revenue in the three months ended September 30, 1994.
The increase in client/server software license revenue in all three decision
support markets led to increased demand for implementation and consulting
services.
COSTS AND EXPENSES
Total operating expenses in the three months ended September 30, 1995
increased 14.4% to $26.0 million, with an operating profit margin of 9.2%,
compared with total operating expenses of $22.7 million, with an operating
profit margin of 5.9% in the three months ended September 30, 1994.
Selling and Marketing Expense. The Company's selling and marketing expense
primarily includes employee costs, travel costs, agent fees, facilities expenses
and advertising. Selling and marketing expense in the three months ended
September 30, 1995 increased 17.7% to $12.0 million, or 42.0% of total revenue,
from $10.2 million, or 42.3% of total revenue in the three months ended
September 30, 1994. The dollar increase was principally due to an increase in
employee costs, including sales commissions, in support of increased revenue in
the three months ended September 30, 1995, compared with the same fiscal quarter
in the prior year.
Cost of Revenue and Support. Cost of revenue and support includes direct
costs of producing software, royalty expense for licensed technologies, customer
support costs and costs related to service revenue. Cost of revenue and support
in the three months ended September 30, 1995 increased 24.3% to $6.7 million, or
23.3% of total revenue, from $5.4 million, or 22.3% of total revenue in the
three months ended September 30, 1994. The increase was primarily attributable
to increased royalty fees payable to Arbor as a result of increased software
license revenue from certain Comshare products which use Arbor's Essbase and to
the higher costs to support the growth in implementation, consulting and other
services revenue.
Internal Research and Product Development; Internally Capitalized Software;
Software Amortization Expense. Internal research and product development expense
primarily includes employee costs, facilities expenses and computer hardware and
software costs. Internal research and product development expense in the three
months ended September 30, 1995 remained relatively constant at $4.0 million, or
14.0% of total revenue, compared with $4.1 million, or 16.8% of total revenue in
the three months ended September 30, 1994. Internally capitalized software in
the three months ended September 30, 1995 decreased 23.4% to $2.4 million, or
8.2% of total revenue, from $3.1 million, or 12.7% of total revenue in the three
months ended September 30, 1994. The decrease is primarily due to increased
levels of development costs that were not capitalizable. Software amortization
expense in the three months ended September 30, 1995 decreased 22.7% to $2.6
million, or 9.1% of total revenue, from $3.4 million, or 14.0% of total revenue
in the three months ended September 30, 1994. The decrease in amortization
expense was principally attributable to reduced levels of capitalized software
following the write-off of capitalized mainframe software in the fourth quarter
of fiscal 1995. The Company expects software amortization expense to exceed
internally capitalized software in fiscal 1996, but does not expect the excess
of software amortization expense over internally capitalized software to be
materially different from that of fiscal 1995.
General and Administrative Expense. General and administrative expense
primarily includes employee costs, facilities expenses and professional fees.
General and administrative expense in the three months ended September 30, 1995
increased 10.6% to $3.0 million, or 10.6% of total revenue, from $2.8 million,
or 11.4% of total revenue in the three months ended September 30, 1994. The
increase in
20
<PAGE> 22
general and administrative expense is primarily attributable to professional
services and employee-related costs.
INTEREST EXPENSE
Interest expense in the three months ended September 30, 1995 decreased
16.6% to $156,000, or 0.5% of total revenue, from $187,000, or 0.8% of total
revenue in the three months ended September 30, 1994. The decrease was primarily
due to reduced loan balances outstanding during the period. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
PROVISION FOR INCOME TAXES
The effective income tax rate in the three months ended September 30, 1995
was 37.0%, as compared with 38.2% for the same period a year ago. A comparative
analysis of the factors influencing the effective income tax rate is presented
in Note 8 of Notes to Consolidated Financial Statements.
FOREIGN CURRENCY
In the three months ended September 30, 1995, 53.7% of the Company's total
revenue was from outside North America. Most of the Company's international
revenue is denominated in foreign currencies. The Company recognizes currency
transaction gains and losses in the period of occurrence. As currency rates are
constantly changing, these gains and losses can, at times, fluctuate greatly.
The Company had an exchange loss of $89,000 in the three months ended September
30, 1995, as compared with a $37,000 exchange loss for the three months ended
September 30, 1994.
Foreign currency fluctuations in the three months ended September 30, 1995
impacted operating income as currency fluctuations on revenue denominated in a
foreign currency were offset by currency fluctuations on expenses denominated in
foreign currency. Overall, the increase in total revenue for the three months
ended September 30, 1995, compared with the three months ended September 30,
1994, would have been approximately $0.5 million lower, offset by a reduction in
the increase in total expenses, resulting in an estimated net $25,000 positive
impact on the increase in pre-tax profit, at comparable exchange rates.
At various times, the Company denominates borrowings in foreign currencies
and enters into forward exchange contracts to hedge exposures related to foreign
currency transactions. In general, the Company uses forward exchange contracts
selectively to hedge against certain large transactions that present the most
exposure to exchange rate fluctuations. The Company had two forward contracts
totaling $1.8 million outstanding at September 30, 1995. See Note 1 of Notes to
Consolidated Financial Statements.
FISCAL 1995 COMPARED WITH FISCAL 1994
REVENUE
Total revenue for fiscal 1995 increased 12.1% to $108.4 million from $96.6
million in fiscal 1994. This revenue growth was primarily due to the increase in
client/server software license revenue, reflecting the release of the Company's
new products during the past 18 months.
Software License Revenue. Total software license revenue in fiscal 1995
increased 30.2% to $49.3 million, or 45.5% of total revenue, from $37.9 million,
or 39.2% of total revenue in fiscal 1994. Software license revenue from
client/server products in fiscal 1995 increased 60.8% to $45.5 million, or 92.3%
of total software license revenue, from $28.3 million, or 74.7% of total
software license revenue in fiscal 1994. Software license revenue from the
Company's mainframe products in fiscal 1995 decreased 59.6% to $3.8 million, or
7.7% of total software license revenue, from $9.4 million, or 24.8% of total
software license revenue in fiscal 1994.
21
<PAGE> 23
Software license revenue increased in all three decision support market
areas. In the EIS market, software license revenue in fiscal 1995 increased
25.7% to $29.8 million, or 60.4% of total software license revenue, from $23.7
million, or 62.5% of total software license revenue in fiscal 1994. Software
license revenue for the Company's client/server EIS products in fiscal 1995
increased 68.8% to $26.8 million, or 54.3% of total software license revenue,
from $15.8 million, or 41.9% of total software license revenue in fiscal 1994,
principally due to the March 1994 release of Commander OLAP. This increase in
EIS client/server software license revenue was partially offset by declines in
EIS mainframe software license revenue. Software license revenue for the
Company's client/server financial reporting products in fiscal 1995 increased
40.3% to $10.0 million, or 20.4% of total software license revenue, from $7.2
million, or 18.9% of total software license revenue in fiscal 1994, principally
due to the release of Windows versions of Commander FDC and Commander Budget. In
the retail decision support applications market area, software license revenue
in fiscal 1995 increased 40.9% to $9.1 million, or 18.5% of total software
license revenue, from $6.5 million, or 17.1% of total software license revenue
in fiscal 1994. Software license revenue for the Company's client/server retail
decision support products in fiscal 1995 increased 67.6% to $8.5 million, or
17.3% of total software license revenue, from $5.1 million, or 13.4% of total
software license revenue in fiscal 1994, principally as a result of new
client/server releases of ARTHUR Planning and ARTHUR Plan Monitor.
Software Maintenance Revenue. Software maintenance revenue in fiscal 1995
decreased 12.0% to $36.6 million, or 33.8% of total revenue, from $41.6 million,
or 43.1% of total revenue in fiscal 1994. The decrease was primarily due to the
decline in software maintenance revenue from mainframe products. Mainframe
software maintenance revenue in fiscal 1995 decreased 25.2% to $16.9 million, or
46.2% of total software maintenance revenue, from $22.6 million, or 54.4% of
total software maintenance revenue in fiscal 1994. The decrease was principally
due to the conversion of certain agents to distributors, the impact of
maintenance cancellations and price discounts on multi-year agreements.
Client/server software maintenance revenue in fiscal 1995 increased 6.3% to
$19.6 million, or 53.5% of total software maintenance revenue, from $18.5
million, or 44.3% of total software maintenance revenue in fiscal 1994. The
increase was due to the growth in client/server software licenses, partially
offset by the conversion of certain agents to distributors. The conversion of
certain agents to distributors in fiscal 1994 impacted the comparability of
software maintenance revenue in fiscal 1995 and fiscal 1994. When an agent
converts to a distributor, sales are made directly to the distributor rather
than the end-user, and the distributor assumes the obligation of providing
maintenance. In addition, the revenue from distributors is recognized net of
fees (which fees are approximately the same as agent fees, but unlike agent
fees, are not recorded as selling expenses), and revenue from agents is
recognized before deducting their fees. As a result, the conversion of agents to
distributors reduced reported software maintenance revenue in fiscal 1995,
without a material impact on operating profits. In addition, in fiscal 1994,
software maintenance revenue benefited from the nonrecurring release of
approximately $1.6 million of deferred software maintenance revenue related to
the conversion of the Company's Belgium and Holland offices to an independent
agency and to the conversion of certain of the Company's agents to distributors.
Included in fiscal 1994 operating expenses was approximately $0.9 million of
costs associated with the recording of this software maintenance revenue.
Implementation, Consulting and Other Service Revenue. Implementation,
consulting and other service revenue in fiscal 1995 increased 30.9% to $22.4
million, or 20.7% of total revenue, from $17.1 million, or 17.7% of total
revenue in fiscal 1994. The increase in client/server software license revenue
during the fiscal period in all three decision support market areas created
increased demand for implementation, consulting and other services.
COSTS AND EXPENSES
Total operating expenses, excluding restructuring and unusual charges, in
fiscal 1995 increased 7.4% to $99.5 million, with an operating profit margin of
8.2%, compared with total operating expenses of $92.6 million, with an operating
profit margin of 4.1% in fiscal 1994.
22
<PAGE> 24
Selling and Marketing Expense. Selling and marketing expense in fiscal 1995
decreased 2.5% to $45.3 million, or 41.8% of total revenue, from $46.5 million,
or 48.1% of total revenue in fiscal 1994. The decrease was principally due to a
$5.4 million reduction in agent fees as a result of the conversion of certain
agents to distributors. Partially offsetting this decline was a $3.8 million
increase in direct selling and marketing expenses during fiscal 1995 to support
the increased revenue base.
Cost of Revenue and Support Expense. Cost of revenue and support in fiscal
1995 increased 40.3% to $24.8 million, or 22.9% of total revenue, from $17.7
million, or 18.3% of total revenue in fiscal 1994. The increase is primarily
attributed to royalty fees related to the use of Arbor's Essbase in certain of
the Company's products and to personnel and outside contract costs associated
with the growth in implementation, consulting and other services.
Internal Research and Product Development; Internally Capitalized Software;
Software Amortization Expense. Internal research and product development expense
in fiscal 1995 decreased 16.1% to $16.2 million, or 14.9% of total revenue, from
$19.3 million, or 20.0% of total revenue in fiscal 1994. The decrease was
primarily attributable to staff reductions made at the end of 1994. These
reductions principally reflected the Company's change in development strategy to
include the increased utilization of technology developed by third parties,
which the Company believes shortens development cycles, minimizes investment in
software tools and accelerates time to market. The decrease in internal research
and product development costs resulted in lower internally capitalized software
in fiscal 1995 of $11.7 million, or 10.8% of total revenue, compared with $13.2
million, or 13.7% of total revenue, in fiscal 1994. Software amortization
expense increased 5.9% to $13.2 million in the current year, or 12.2% of total
revenue, from $12.5 million, or 13.0% of total revenue in fiscal 1994. The
increase in software amortization expense was a result of new client/server
product enhancements released during the previous year.
General and Administrative Expense. General and administrative expense in
fiscal 1995 increased 17.9% to $11.7 million, or 10.8% of total revenue, from
$9.9 million, or 10.2% of total revenue in fiscal 1994. General and
administrative expense, after excluding the $1.1 million gain on the sale of
undeveloped land which was included in general and administrative expense in
fiscal 1994, increased 6.4% in fiscal 1995, as compared with the prior year.
This increase in general and administrative expenses principally related to
employee costs, including relocation, travel and incentives.
Unusual Charge. An unusual charge of $6.4 million was recorded in fiscal
1995 due to the write-off of capitalized software associated with the Company's
mainframe products. The write-off was the result of the Company's 1996 product
plans to focus primarily on client/server decision support applications software
and the decreased industry emphasis on mainframe decision support software
products. In addition, the Company recently implemented a marketing strategy to
migrate its existing clients using mature mainframe products to its new
client/server products. The above factors will reduce the future revenue from
mainframe software, which prompted the Company to write off the remainder of its
capitalized mainframe software.
INTEREST EXPENSE
Interest expense in fiscal 1995 increased 17.8% to $0.7 million, from $0.6
million in fiscal 1994. The increase was primarily due to the loan origination
fees associated with amending and restating a domestic credit agreement with the
Company's banks. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
BENEFIT FOR INCOME TAXES
The benefit from income taxes was $3.0 million in fiscal 1995, as compared
with an income tax provision of $0.9 million for fiscal 1994. The income tax
benefit included the release of tax valuation reserves of $2.5 million related
to tax credits, attributable to the significant improvement in the Company's
profitability in fiscal 1995, which allowed for the realization of a significant
portion of these credits. In addition, settlements with tax authorities
regarding certain outstanding issues allowed the
23
<PAGE> 25
Company to release tax reserves of $1.6 million previously established against
these exposures. The net tax assets remaining are projected by the Company to be
substantially utilized by fiscal 1997, well before expiration. A comparative
analysis of the factors influencing the effective income tax rate is presented
in Note 8 of Notes to Consolidated Financial Statements.
FOREIGN CURRENCY
In fiscal 1995, 55.3% of Comshare's total revenue was from outside North
America. The Company had an exchange gain of $0.3 million in fiscal 1995,
compared with an exchange loss of $25,000 in fiscal 1994. The exchange gain in
fiscal 1995 was attributable to the strengthening of the Deutsche mark and
French franc against the British pound.
Foreign currency fluctuations in fiscal 1995 impacted operating income as
currency fluctuations on revenue denominated in a foreign currency were offset
by currency fluctuations on expenses denominated in foreign currency. Overall,
the increase in total revenue and total expenses in fiscal 1995, compared with
fiscal 1994, would have been approximately $3.6 million and $3.3 million lower,
respectively, with an estimated net $0.3 million negative impact on the increase
in pre-tax profit, at comparable exchange rates.
The Company had two forward contracts totaling $2.2 million outstanding at
June 30, 1995. See Note 1 of Notes to Consolidated Financial Statements.
FISCAL 1994 COMPARED WITH FISCAL 1993
REVENUE
Total revenue for fiscal 1994 decreased 8.1% to $96.6 million from $105.2
million in fiscal 1993. The decrease was principally due to both the decline in
revenue from mainframe sources and the weakening of foreign currencies against
the U.S. dollar in fiscal 1994. Overall, total revenue for fiscal 1994 would
have been approximately $5.5 million higher, as compared to fiscal 1993 levels,
at comparable exchange rates.
Software License Revenue. Total software license revenue in fiscal 1994
decreased 6.3% to $37.9 million, or 39.2% of total revenue, compared with $40.4
million, or 38.4% of total revenue in fiscal 1993. Software license revenue from
client/server products in fiscal 1994 increased 17.8% to $28.3 million, or 74.7%
of total software license revenue, from $24.0 million, or 59.5% of total
software license revenue in fiscal 1993. Software license revenue from the
Company's mainframe products in fiscal 1994 decreased 42.4% to $9.4 million, or
24.8% of total software license revenue, from $16.3 million, or 40.3% of total
software license revenue in fiscal 1993. The Company believes that this decline
was due to the industry slowdown in sales of mainframe computer software as
customers migrated to new generation client/server operating systems from their
traditional mainframe operating systems.
In the EIS market, software license revenue in fiscal 1994 decreased 17.7%
to $23.7 million, or 62.5% of total software license revenue, from $28.8
million, or 71.3% of total software license revenue in fiscal 1993, primarily
due to the decline in mainframe software license revenue partially offset by the
revenue resulting from the March 1994 release of the Company's Commander OLAP
product. Software license revenue from financial reporting applications remained
essentially unchanged in fiscal 1994 at $7.3 million, compared with the prior
year. Retail decision support software license revenue in fiscal 1994 increased
54.8% to $6.5 million, or 17.1% of total software license revenue, from $4.2
million, or 10.4% of total software license revenue in fiscal 1993, principally
as a result of the international release of a new Windows version of ARTHUR
Planning.
Software Maintenance Revenue. Total software maintenance revenue in fiscal
1994 decreased 3.3% to $41.6 million, or 43.1% of total revenue, from $43.1
million, or 41.0% of total revenues in fiscal 1993. Mainframe software
maintenance revenue in fiscal 1994 decreased 12.8% to $22.6 million, or 54.4% of
total software maintenance revenue, from $26.0 million, or 60.3% of total
software maintenance revenue in fiscal 1993. Partially offsetting the decline
was the increase in software maintenance revenue from client/server products,
which in fiscal 1994 increased 11.7% to $18.5 million, or 44.3% of
24
<PAGE> 26
total software maintenance revenue, from $16.5 million, or 38.4% of total
software maintenance revenue in fiscal 1993.
During fiscal 1994, software maintenance revenue benefited from the release
of approximately $1.6 million of deferred revenue related to the conversion of
the Company's Belgium and Holland offices to an independent agent and to the
conversion of certain of the Company's agents to distributors. Included in
operating expenses was approximately $0.9 million of costs associated with the
recording of the maintenance revenue.
Implementation, Consulting and Other Service Revenue. Implementation,
consulting and other service revenue in fiscal 1994 decreased 21.2% to $17.1
million, or 17.7% of total revenue, from $21.7 million, or 20.6% of total
revenue in fiscal 1993. The decrease in implementation, consulting and other
service revenue was partially due to the decline in mainframe software license
revenue and increased competition from small implementation and consulting
service companies, as well as to management changes in France in the second
quarter.
COSTS AND EXPENSES
Total costs and expenses for fiscal 1994 and fiscal 1993 included $2.3
million and $1.5 million, respectively, of restructuring related costs.
Excluding the restructuring related costs, total costs and expenses in fiscal
1994 decreased 11.8% to $92.6 million from $105.0 million in fiscal 1993. The
weakening of foreign currencies against the U.S. dollar in fiscal 1994 caused
$4.8 million of the decline in total costs and expenses from fiscal 1993 levels.
The remaining $6.4 million of the decline was primarily the result of cost
containment actions taken by the Company at the end of fiscal 1993, most of
which related to personnel reductions implemented in connection with the
restructuring.
Selling and Marketing Expense. Selling and marketing expense in fiscal 1994
decreased 14.1% to $46.5 million, or 48.1% of total revenue, from $54.1 million,
or 51.4% of total revenue in fiscal 1993. The decrease was principally due to
cost containment actions taken by the Company at the end of fiscal 1993.
Cost of Revenue and Support Expense. Cost of revenue and support decreased
13.9% to $17.7 million, or 18.3% of total revenue in fiscal 1994, from $20.5
million or 19.5% of total revenue in fiscal 1993. The decline was principally
caused by lower costs associated with the $4.6 million decline in
implementation, consulting and other service revenue. This was partially offset
by the inclusion of $1.0 million of royalty expense in fiscal 1994 for products
licensed from others for use in the Company's product offerings. The increase in
royalty expense was principally due to the initiation in March 1994 of sales of
products which incorporated Essbase, licensed from Arbor.
Internal Research and Product Development; Internally Capitalized Software;
Software Amortization Expense. Internal research and product development expense
decreased 16.1% to $19.3 million, or 20.0% of total revenue in fiscal 1994,
compared with $23.0 million, or 21.9% of total revenue in fiscal 1993. The
decrease was principally due to cost containment actions. The decrease in
internal research and product development expense resulted in lower internally
capitalized software in fiscal 1994 of $13.2 million, or 13.7% of total revenue,
compared with $15.0 million, or 14.3% of total revenue in fiscal 1993. Software
amortization expense in fiscal 1994 increased 16.3% to $12.5, or 13.0% of total
revenue, from $10.8 million, or 10.2% of total revenue in fiscal 1993. The
increase was primarily due to several products that were commercially released
during the fourth quarter of fiscal 1993 and the first quarter of fiscal 1994.
General and Administrative Expense. General and administrative expense
decreased 15.2% to $9.9 million, or 10.2% of total revenue in fiscal 1994, from
$11.7 million, or 11.1% of total revenue in fiscal 1993. The decrease was
primarily attributable to the $1.1 million gain on the sale of undeveloped land
in the second quarter of fiscal 1994 included in general and administrative
expense.
Restructuring Related Costs. Restructuring related costs were $2.3 million
in fiscal 1994 and represented provisions for management actions or plans in
connection with restructuring, primarily
25
<PAGE> 27
related to staff reductions. For the period ended June 30, 1994, the
restructuring related costs included staff reductions of approximately 50
employees. Restructuring related costs for fiscal 1993 were $1.5 million and
also related to management actions or plans in connection with restructuring,
primarily related to staff reductions.
INTEREST EXPENSE
Interest expense was $0.6 million in fiscal 1994, essentially unchanged
from fiscal 1993. Reduced loan balances were partly offset by higher interest
rates and a reduction in the amount of interest capitalized as part of
capitalized computer software. The banks with which the Company has its domestic
credit agreement reduced the interest rate on the Company's borrowings,
effective November 1, 1993, from prime plus 3% to prime plus 1%. Interest
expense was capitalized as required under accounting principles and included in
capitalized computer software.
PROVISION FOR INCOME TAXES
The effective income tax rate for fiscal 1994 was 80%. The provision for
fiscal 1994 resulted from a combination of factors including losses occurring in
certain countries where no tax benefit could be provided, partially offset by
the reversal of taxes previously provided. For fiscal year 1993, there was a
provision for income taxes on a loss, rather than a tax benefit as would usually
be expected, primarily caused by losses occurring in certain countries where no
tax benefit could be provided while profits occurred in countries where a tax
provision was required. A detailed comparative analysis of the numerous factors
influencing the effective income tax rate is presented in Note 8 of Notes to
Consolidated Financial Statements.
FOREIGN CURRENCY
In fiscal 1994, 55.3% of the Company's total revenue was from outside North
America. The Company had an exchange loss of $25,000 in fiscal 1994, compared
with an exchange gain of $0.5 million in fiscal 1993. The unusually high
currency gain in fiscal 1993 was principally due to the United Kingdom's
withdrawal from the European Exchange Rate Mechanism.
Foreign currency fluctuations in fiscal 1994 impacted operating income as
currency fluctuations on revenue denominated in a foreign currency were offset
by expenses denominated in foreign currency. Overall, the reduction in total
revenue and total expenses for fiscal 1994, compared with fiscal 1993, would
have been $5.5 million and $4.8 million lower, respectively, with an estimated
net $0.7 million positive impact on the increase in pre-tax profit, at
comparable exchange rates.
At June 30, 1994, the Company did not have any forward contracts.
26
<PAGE> 28
QUARTERLY RESULTS OF OPERATIONS
The following table presents the Company's unaudited quarterly results of
operations for each of the quarters of fiscal 1994 and 1995 and the three months
ended September 30, 1995. This unaudited quarterly information has been prepared
on the same basis as the audited annual Consolidated Financial Statements and,
in management's opinion, includes all necessary adjustments (consisting only of
normal recurring adjustments, except as otherwise noted below) to present fairly
the unaudited quarterly results when read in conjunction with the Company's
audited Consolidated Financial Statements and Notes thereto appearing elsewhere
in this Prospectus. The results of operations in any quarter are not necessarily
indicative of future fiscal period results.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------------------
SEPT.
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, 30,
1993 1993 1994 1994 1994 1994 1995 1995 1995
--------- -------- -------- -------- --------- -------- -------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Software licenses........... $ 7,833 $ 9,793 $ 9,188 $11,057 $10,006 $13,018 $12,705 $13,565 $13,920
Software maintenance........ 11,052 9,915 10,194 10,464 8,972 9,237 8,895 9,545 9,015
Implementation, consulting
and other services........ 4,845 4,071 3,820 4,394 5,180 5,401 6,104 5,730 5,718
------- ------- ------- ------- ------- ------- ------- ------- -------
Total revenue............. 23,730 23,779 23,202 25,915 24,158 27,656 27,704 28,840 28,653
------- ------- ------- ------- ------- ------- ------- ------- -------
Costs and expenses:
Selling and marketing....... 11,033 11,860 11,387 12,177 10,232 11,514 11,375 12,162 12,038
Cost of revenue and
support................... 4,262 4,159 4,224 5,025 5,382 5,979 6,959 6,479 6,690
Internal research and
product development....... 5,223 4,676 4,683 4,711 4,070 4,031 3,884 4,195 3,998
Internally capitalized
software.................. (3,512) (3,285) (3,056) (3,340) (3,079) (2,940) (2,845) (2,803) (2,358)
Software amortization....... 3,008 2,912 3,075 3,522 3,385 3,262 3,415 3,188 2,616
General and
administrative............ 2,719 1,756 (1) 2,696 2,720 2,750 2,964 3,088 2,861 3,041
Unusual charge.............. -- -- -- -- -- -- -- 6,365 --
Restructuring related
costs..................... -- -- -- 2,343 -- -- -- -- --
-------- ------- ------- ------- ------- ------- ------- ------- -------
Total costs and
expenses................ 22,733 22,078 23,009 27,158 22,740 24,810 25,876 32,447 26,025
-------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations.................. 997 1,701 193 (1,243) 1,418 2,846 1,828 (3,607) 2,628
Other income (expense):
Net interest income
(expense)................. (112) (115) (81) (181) (166) (175) (126) (45) (141)
Exchange gain (loss)........ 42 (180) 107 6 (37) (6) 216 134 (89)
-------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before taxes.... 927 1,406 219 (1,418) 1,215 2,665 1,918 (3,518) 2,398
Provision (benefit) for income
taxes....................... 270 354 125 163 464 984 714 (5,210)(2) 888
-------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)............. $ 657 $ 1,052 $ 94 $(1,581) $ 751 $ 1,681 $ 1,204 $ 1,692 $ 1,510
======== ======= ======= ======= ======= ======= ======= ======= =======
Net income (loss) per common
share....................... $ 0.08 $ 0.13 $ 0.01 $ (0.20) $ 0.09 $ 0.20 $ 0.14 $ 0.20 $ 0.17
======== ======= ======= ======= ======= ======= ======= ======= =======
Weighted average number of
common and dilutive common
equivalent shares........... 8,052 8,212 8,271 8,020 8,235 8,325 8,472 8,526 8,730
======== ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) Includes a $1.1 million gain from the sale of undeveloped land.
(2) Includes a $4.1 million tax benefit related to the recognition of prior
years' net operating losses and tax credits as well as tax reserves
released.
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<PAGE> 29
The following table sets forth, for the periods indicated, certain
financial data as a percentage of total revenue:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1993 1993 1994 1994 1994 1994 1995 1995 1995
--------- -------- -------- -------- --------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Software licenses........... 33.0% 41.2% 39.6% 42.6% 41.5% 47.1% 45.9% 47.0% 48.6%
Software maintenance........ 46.6 41.7 43.9 40.4 37.1 33.4 32.1 33.1 31.4
Implementation, consulting
and other services........ 20.4 17.1 16.5 17.0 21.4 19.5 22.0 19.9 20.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Total revenue............. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ----- ----- ----- -----
Costs and expenses:
Selling and marketing....... 46.5 49.9 49.1 47.0 42.4 41.6 41.1 42.2 42.0
Cost of revenue and
support................... 18.0 17.5 18.2 19.4 22.3 21.6 25.1 22.5 23.3
Internal research and
product development....... 22.0 19.7 20.2 18.2 16.8 14.6 14.0 14.5 14.0
Internally capitalized
software.................. (14.8) (13.8) (13.2) (12.9) (12.8) (10.6) (10.3) (9.7) (8.2)
Software amortization....... 12.7 12.2 13.3 13.6 14.0 11.8 12.3 11.0 9.1
General and
administrative............ 11.4 7.4 11.6 10.5 11.4 10.7 11.2 9.9 10.6
Unusual charges............. -- -- -- -- -- -- -- 22.1 --
Restructuring related
costs..................... -- -- -- 9.0 -- -- -- -- --
----- ----- ----- ----- ----- ----- ----- ----- -----
Total costs and
expenses................ 95.8 92.9 99.2 104.8 94.1 89.7 93.4 112.5 90.8
----- ----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from
operations.................. 4.2 7.2 0.8 (4.8) 5.9 10.3 6.6 (12.5) 9.2
Other income (expense):
Net interest income
(expense)................. (0.5) (0.5) (0.4) (0.7) (0.7) (0.6) (0.5) (0.2) (0.5)
Exchange gain (loss)........ 0.2 (0.8) 0.5 0.0 (0.2) (0.0) 0.8 0.5 (0.3)
----- ----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before taxes.... 3.9 5.9 0.9 (5.5) 5.0 9.7 6.9 (12.2) 8.4
Provision (benefit) for income
taxes....................... 1.1 1.5 0.5 0.6 1.9 3.6 2.6 (18.1) 3.1
----- ----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)............. 2.8% 4.4% 0.4% (6.1)% 3.1% 6.1% 4.3% 5.9% 5.3%
===== ===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
The software industry is generally characterized by seasonal trends. Such
trends may cause higher revenue in the Company's last fiscal quarter as a result
of efforts to exceed sales quotas, and in the second fiscal quarter as many
customers complete annual budgetary cycles. In addition, lower revenue in the
first fiscal quarter may be principally due to the impact of slower sales during
the summer months, particularly in Europe.
In general, over the quarterly periods indicated, the decrease in selling
and marketing expense in absolute dollar amounts and as a percentage of total
revenue is primarily due to the reduction in agent fees as a result of the
conversion of certain agents to distributors. The increase in cost of revenue
and support in absolute dollar amounts and as a percentage of total revenue is
primarily due to an increase in royalty expense due to increased sales of
products that incorporate Arbor's multidimensional database software, Essbase,
and to an increase in personnel and outside contract costs associated with the
growth in implementation, consulting and other services. The decrease in
internal research and product development in absolute dollar amounts and as a
percentage of total revenue is primarily due to a reduction in research and
development staff as the Company made a strategic change to more actively seek
third-party technology.
The Company has experienced and may in the future experience significant
fluctuations in revenue and operating results from quarter to quarter and from
year to year due to a combination of factors, including: demand for the
Company's products and services; the size, timing and recognition of revenue
from significant orders; increased competition; the Company's success in and
expense associated with developing, introducing and shipping new products; new
product introductions and announcements by the Company's competitors; changes in
Company strategy; product life cycles; cancellations of maintenance and support
agreements; software defects; changes in operating expenses; fluctuations in
foreign exchange rates; and economic conditions generally or in specific
industry segments. In addition, revenue and income from operations may fluctuate
due to the mix of products and services sold and the mix of distribution
channels employed. Further, the Company's results of operations reflect seasonal
trends, and the Company's business, results of operations and financial
condition may be affected by such trends in the future. As a result of all of
these factors, there can be no assurance that the Company will remain profitable
on a quarterly or annual basis.
28
<PAGE> 30
The Company's future revenues are difficult to predict. This is due in part
to the fact that a significant portion of the Company's revenue in any quarter
is typically derived from non-recurring license fees, and the timing of orders
for the Company's products is subject to delay for a number of reasons,
including factors beyond the Company's control. The Company typically ships its
products shortly after receipt of orders, and, consequently, order backlog at
the beginning of any quarter has in the past represented only a small portion of
that quarter's expected revenue. As a result, license revenue in any quarter is
substantially dependent on orders booked and shipped in that quarter.
Historically, the Company has often recognized a substantial portion of its
software license revenue in the last month of a quarter. The Company believes
that the purchase of its products is relatively discretionary and generally
involves a significant commitment of capital. As a result of these factors, in
the event of any downturn in any potential customer's business or the economy in
general, purchases of the Company's products may be deferred or canceled, which
could have a material adverse effect on the Company's business, results of
operations and financial condition.
In addition, a significant portion of the Company's annual revenue is
derived from ongoing annual maintenance contracts, including contracts relating
to the Company's mainframe applications still in use. Although mainframe
maintenance revenue is expected to decline in future periods, if such decline
occurs more rapidly than is anticipated, the Company's revenue, profits and cash
flow from operations will be at lower levels than are currently anticipated
which could have a material adverse effect on the Company's business, results of
operations and financial condition.
Further, the Company's expense levels are based, in part, on its
expectations as to future revenue. If revenue is below expectations, results of
operations are likely to be materially adversely affected. Net income may also
be disproportionately affected by a reduction in revenue, because a significant
portion of the Company's expenses do not vary with revenue. The Company may also
choose to reduce prices or increase spending in response to competition or to
pursue new market opportunities, either of which could have a material adverse
effect on the Company's business, results of operations and financial condition.
Because of these factors, the Company believes that period-to-period
comparisons of its results of operations are not necessarily meaningful and that
such comparisons should not be relied upon as indications of future performance.
Further, the Company has in recent periods experienced significant percentage
growth in client/server license revenue, but such rate of growth is not
necessarily indicative of future performance. In addition, it is possible that
in some future quarter the Company's operating results will be below the
expectations of public market analysts and investors. In such event, or in the
event that adverse conditions prevail or are perceived to prevail generally or
with respect to the Company's business, the price of the Company's Common Stock
would likely be materially adversely affected. See "Selected Consolidated
Financial Data" and "Risk Factors -- Fluctuations in Quarterly Operating
Results; Future Operating Results Uncertain."
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1995, cash was $2.0 million and available borrowings under
the Company's lines of credit were $13.8 million, as compared with cash of $1.4
million and available borrowings under the Company's lines of credit of $12.2
million at June 30, 1995 and cash of $1.8 million and available borrowings under
the Company's lines of credit of $1.6 million at June 30, 1994.
Net cash provided by operating activities was $4.3 million in the three
months ended September 30, 1995, $23.3 million in fiscal 1995 and $13.6 million
in fiscal 1994. In the three months ended September 30, 1995, net income, plus
depreciation and amortization, was $4.7 million. In fiscal 1995, pretax profit,
excluding the non-cash write-off of software, was $8.6 million, which
contributed $7.5 million of the $9.7 million increase in net cash provided by
operating activities in fiscal 1995, compared with fiscal 1994. Due to net
operating losses and tax credits generated prior to fiscal 1995, only $0.6
million of tax was paid in fiscal 1995. The $2.7 million reduction in accounts
receivable balances during fiscal 1995, attributable to improved collections,
also contributed to the increased cash flow in fiscal 1995 as compared with
fiscal 1994.
29
<PAGE> 31
Net cash used in investing activities was $3.3 million, $14.1 million and
$12.4 million in the three months ended September 30, 1995, fiscal 1995 and
fiscal 1994, respectively. The $1.7 million increase in fiscal 1995 over fiscal
1994 was primarily due to the one-time benefit in fiscal 1994 from the proceeds
of the sale of undeveloped land. Additions to capitalized computer software
declined in dollar amount during fiscal 1995 primarily due to the decrease in
internal product development spending.
The Company used the net cash from operating activities to fund its
investing activities and reduce long-term debt by approximately $0.7 million and
$10.0 million during the three months ended September 30, 1995 and fiscal 1995,
respectively.
At September 30, 1995, the Company did not have any material capital
expenditure commitments. In fiscal 1996, property and equipment purchases and
additions to internally developed software are expected to continue at levels
similar to those of fiscal 1995 and fiscal 1994.
Working capital was a negative $0.7 million, a negative $2.2 million and a
negative $0.5 million at September 30, 1995, June 30, 1995 and June 30, 1994,
respectively. The increase of $1.5 million from June 30, 1995 to September 30,
1995 was primarily due to the $1.5 million increase in accounts receivable. The
decrease of $1.7 million from fiscal 1994 to fiscal 1995 was primarily due to
the $2.7 million reduction in accounts receivable, mentioned above, offset by
the $1.0 million reduction in deferred revenue. Deferred revenue as of September
30, 1995, June 30, 1995 and June 30, 1994 was $18.7 million, $18.6 million and
$19.6 million, respectively. Deferred revenue, which is included in current
liabilities, principally relates to prepaid maintenance contracts.
Total assets were $81.4 million, $79.3 million and $88.9 million at
September 30, 1995, June 30, 1995 and June 30, 1994, respectively. The primary
contributing factors to the increase from June 30, 1995 to September 30, 1995
were the increases in cash and accounts receivable balances. The primary
contributing factor to the decrease from fiscal 1994 to fiscal 1995 was the
write-off of $6.4 million of capitalized software associated with the Company's
mainframe products.
On October 31, 1994, the Company entered into a $14.0 million amended and
restated, domestic credit agreement with its banks which matures on October 31,
1997. The amended and restated credit agreement contains covenants regarding,
among other things, working capital, leverage, net worth and payment of
dividends. Under the terms of the agreement, the Company is prohibited from
paying cash dividends on the Common Stock. Permitted borrowings under the credit
agreement are based on a percentage of worldwide eligible accounts receivable.
At September 30, 1995 and June 30, 1995, permitted borrowings under the
agreement totaled $14.0 million, of which $2.1 million and $3.5 million were
outstanding, respectively. At September 30, 1995, interest was at the Eurodollar
rate (5.875% at September 30, 1995) plus an applicable margin, which varies
between 1 1/2% and 2 1/2% (2% at September 30, 1995). At June 30, 1995, interest
was at the bank's prime rate (8.75% at June 30, 1995) plus 1% until July 1,
1995, at which time it changed to the Eurodollar rate, plus the applicable
margin. In the first quarter of fiscal 1996, the banks released all security
interests in the assets of the Company previously granted to the banks.
In addition, certain of the Company's subsidiaries have local currency
credit agreements or overdraft facilities with banks totaling $4.4 million and
$3.7 million, of which $2.6 million and $1.9 million were outstanding at
September 30, 1995 and June 30, 1995, respectively. These credit agreements
expire on October 1, 1997. The interest rates generally vary with the banks'
base rate. Most of such borrowings are guaranteed by the Company.
The Company expects to use a portion of the net proceeds from this Offering
to pay outstanding bank borrowings. The Company expects to use the remaining net
proceeds from this Offering for working capital and general corporate purposes.
Pending such uses, the Company intends to invest the net proceeds from the
Offering in investment grade, short-term, interest bearing instruments.
The Company believes that the combination of the proceeds from this
Offering, present cash balances, future operating cash flows and credit
facilities will be sufficient to meet the Company's currently anticipated cash
requirements for at least the next 12 months.
30
<PAGE> 32
BUSINESS
Comshare develops, markets and supports client/server decision support
applications software designed to improve business analysis, planning, reporting
and decision making. The Company's software products enable the enterprise-wide
integration and transformation of data into business-critical information by
leveraging on-line analytical processing ("OLAP") technologies to provide
customers with robust multidimensional analysis capabilities. More specifically,
the Company focuses on delivering complete decision support solutions by
targeting specific industry and functional markets -- currently, executive
information systems ("EIS"), financial reporting and retail decision support --
and by providing implementation, consulting, training and support expertise in
these markets. Such complete decision support solutions permit the easy
implementation and adoption of the Company's software applications throughout an
enterprise, thus enabling end-users to make better and faster decisions.
BACKGROUND
To succeed in today's environment of intensifying global competition,
organizations must seek new ways of making faster and more informed decisions. A
key element of decision making is the analysis of enterprise-wide historical and
projected data. Such analyses, including profitability analysis, budgeting,
trend analysis and financial consolidations, often are computation-intensive and
iterative in nature. For example, a business professional may wish to analyze
the profitability of a customer from several perspectives, or dimensions,
including channel, geography, sales representative, fiscal period or budget
versus actual. Often initial analyses lead to additional questions, resulting in
significant follow-on or scenario analyses, such as the calculation of projected
customer profitability under different pricing scenarios or economic conditions.
Business and Technology Trends
The pace and complexity of business decision making has increasingly become
a greater challenge for organizations. In order to improve their
competitiveness, many organizations have implemented business process
reengineering initiatives. Decision making authority has generally become more
distributed throughout all levels of an organization, creating a need by more
people to access information used for making critical business decisions.
Consequently, management information systems ("MIS") groups and end-users have
invested in a wide variety of information systems to collect, access and analyze
business data. These end-users, who are increasingly involved in system purchase
decisions, demand easy-to-use solutions that can be implemented quickly and that
address their specific business problems.
The development of open systems and client/server architectures has further
enabled the distribution of decision making by allowing end-users to share
common databases, business rules and graphical user interfaces ("GUIs"). These
technologies have also increased the availability of data and improved the
environment for automated decision support. In addition, these open systems and
client/server architectures permit the integration of multiple hardware and
software products, giving organizations the flexibility they require to
implement available technologies. Specific products that have been used to
automate decision support activities include: spreadsheets, databases, data
warehouses, query and reporting tools and analysis modules on transaction
processing-based applications. While each performs specific functions, none
possesses the full range of features which assist an end-user or an organization
in transforming data into business-critical information.
Available Technologies
Spreadsheets are a widespread and popular approach to planning and
analysis. However, spreadsheets are two-dimensional in nature, and therefore are
not well-suited for planning and analysis requiring multidimensional views of
data. In addition, spreadsheets frequently require rekeying
31
<PAGE> 33
significant amounts of data, thereby increasing the risk of error, and are
cumbersome to change as organizations' structures evolve.
Relational database management systems ("RDBMSs") have been widely used as
storage repositories for high-volume, historical transaction information.
Businesses typically employ multiple RDBMSs, with each often designed for a
specific function. Accordingly, the limited ability to integrate and update data
from multiple relational databases ultimately restricts planning, analysis and
reporting.
Data warehouses have emerged as an approach to complement RDBMSs by acting
as central repositories for data loaded from various databases. However,
end-users often have read-only access to the data and may be unfamiliar with the
syntax necessary to extract this information from the databases. Consequently,
the assistance of MIS personnel is often necessary for the end-user to further
analyze and process business data.
Database query and reporting tools have been developed to make it easier to
access and view the contents of RDBMSs and data warehouses. These tools are
well-suited for viewing historical data and performing simple analytical
functions, but they (i) generally have limited ability to handle complex
hierarchies and analytical functions, and (ii) may be slow-performing and lead
to errors in cross-dimensional analysis. As a result, the Company believes that
organizations require more powerful software for accessing and analyzing RDBMS
data and warehouse data.
General ledgers, manufacturing resource planning, human resource management
and other transaction processing-based applications provide repositories of
information for specific corporate functions. While these applications often
have add-on analysis modules for particular functional areas, these modules are
generally incapable of integrating data from throughout the enterprise and have
limited planning, analysis and reporting capabilities. Typically, these systems
only generate pre-programmed reports. Consequently, decision-making end-users
cannot easily perform follow-on analyses.
Recently, OLAP has emerged as a technology capable of integrating,
organizing and presenting historical, as well as projected, data located
throughout an enterprise on a multidimensional basis. OLAP solutions permit
multidimensional views of data, providing businesses with the robust calculation
capabilities they require to transform data into information that facilitates
decision making. More specifically, OLAP software enables end-users to rapidly
understand data relationships by permitting the multidimensional analysis of
large amounts of data organized consistent with the end-user's perception of the
business (e.g., sales by region, by channel, by budget versus actual).
The availability of these technologies and the growing need for better and
faster decisions have increased demand for decision support solutions. End-users
seek easy-to-use decision support applications that provide solutions tailored
to specific industry or functional needs and can answer end-user's business
questions through robust multidimensional analytical capabilities. Further,
these applications must build on the organization's existing computing
infrastructure and integrate data located throughout the enterprise so that
existing and projected data can be transformed into useful information upon
which decisions can be based.
THE COMSHARE SOLUTION
Comshare develops, markets and supports client/server decision support
applications software designed to improve business analysis, planning, reporting
and decision making. The Company's software enables the enterprise-wide
integration and transformation of data into business-critical information. The
Company's products currently target three decision support markets: EIS,
financial reporting and retail. The following are key attributes of the Comshare
solution:
Complete Decision Support Solutions. The Company provides its customers
with complete decision support solutions, either through customizable or
packaged applications. The Company's software products address the full range of
a customer's information access and analysis needs, from data extraction to
end-user desktop access. Packaged applications are designed to satisfy the
specific
32
<PAGE> 34
decision support needs of an industry, such as merchandise planning for the
retail industry, or a function, such as financial consolidation or budgeting.
The Company then supports these applications through implementation, consulting,
training and support offered by the Company's team of industry and application
specialists.
Enterprise-Wide Integration of Data. The Company's decision support
solutions extract and integrate data that reside in a variety of spreadsheets,
RBDMSs, data warehouses, legacy systems and other data repositories. The
Company's decision support applications include data extraction tools which
leverage existing data sources, permitting quick and cost-effective
implementation of the Company's solutions. This integration of data in a common
database permits end-users throughout an enterprise to access and manipulate
information, enabling better and faster decision making.
On-Line Analytical Processing Capability. The Company leverages OLAP
technology in certain of its software products and is currently utilizing
Arbor's multidimensional database software, Essbase, to enable end-users to
rapidly access information, calculate data relationships and analyze large
amounts of data organized in multiple dimensions. More specifically, OLAP
software allows end-users to quickly understand data relationships by permitting
the multidimensional analysis of large amounts of data organized consistent with
the end-user's perception of the business (e.g. sales by region, by channel, by
budget versus actual).
Ease-of-Use. Comshare's software products provide information to end-users'
desktops by permitting database query, browsing and analysis through an
easy-to-use information visualizer, Commander Execu-View Server ("Execu-View"),
which provides data manipulation and viewing capability through simple
mouse-based operations; Briefing Book, a series of pre-formatted reports; or
through popular front-end applications, such as Microsoft Excel or Lotus 1-2-3.
The Company is also beta testing an information visualizer designed specifically
for Windows '95 which will combine and enhance the functionality of Execu-View
and Briefing Book. Such easy-to-use front-ends enable end-users to make quicker
decisions by allowing more intuitive access, manipulation and analysis of data.
By eliminating the need for end-users to become familiar with a new front-end,
query or programming language, Comshare's software products also lead to quick
adoption throughout the organization.
Client/Server Implementation. All of the Company's new products are
client/server-based. Most products perform computation-intensive functions on
the server, and only requested data is transmitted to the client over the
network. Consequently, information is processed faster, and end-users are able
to access data and make decisions more efficiently. In addition, the Company's
software products are available on popular client/server platforms, including
Windows on the client and Windows NT and OS/2 on the server. The availability of
the Company's products on these popular platforms allows for quick
implementation without costly hardware upgrades.
BUSINESS STRATEGY
The Company's objective is to be the leading provider of client/server
decision support applications software in its target markets. The Company's
strategy includes the following key elements:
Focus on Application-Specific Solutions. The Company seeks to differentiate
itself from its competitors by providing customizable and packaged applications
for specific industry or functional needs. With end-users requesting
decision-making solutions with increasingly sophisticated and specific
analytical capabilities, the Company plans to offer an expanded range of
application-specific products beyond the packaged applications currently offered
for financial reporting and retail decision support. The new applications
include a planning application designed for the consumer packaged goods industry
and an inventory allocation application targeting the retail industry.
Maintain Technology Leadership. The Company plans to maintain technology
leadership by continuing to develop new client/server software solutions that
are differentiated by application-specific functions and innovative internally
developed technology. For instance, the Company plans to make its new Detect and
Alert technology available for use with all of its major products. The
33
<PAGE> 35
Company also plans to release a new information visualizer which enhances and
combines Execu-View and Briefing Book.
Leverage Third-Party Technologies. The Company actively seeks third-party
software tools offering the latest technological advances for inclusion in the
Company's product offerings. The Company believes the use of third-party tools
allows it to focus product development efforts on differentiating applications,
developing innovative technology and offering products which include the most
advanced technologies available, while reducing product development risk and
time to market.
Leverage Current Customer Base. The Company has implemented its
client/server and mainframe decision support applications software, and is
currently providing maintenance, at more than 3,000 corporate and public sector
customer sites. The Company seeks to leverage its current customer base to
generate additional revenue opportunities. Since the Company's products can be
used on an enterprise-wide basis, the Company targets further deployment of its
products at existing customer sites through sales of additional or new products,
the extension of its products into other departments and functional areas and
sales of client/server applications to customers converting from mainframe
systems. The Company also intends to expand its sales force so as to more fully
capitalize on existing and new customer sales opportunities and improve customer
service.
Leverage Global Organization. The Company seeks to expand its international
customer base by leveraging its established direct and indirect sales
distribution organizations currently located in 40 countries. By utilizing its
extensive worldwide sales network, the Company plans to address global demand
for decision support applications software and to provide the implementation,
consulting, training and support services its international customers require.
The Company plans to develop programs in conjunction with its international
agents and distributors to increase market penetration in key markets and more
fully offer its applications on a worldwide basis.
Provide Superior Customer Service and Support. The Company seeks to
differentiate itself from its competitors through its industry and application
expertise, enabling it to offer superior implementation, consulting, training
and support. Because end-users seek complete decision support solutions tailored
to their specific industry or functional needs, superior implementation,
consulting, training and support are essential for customer satisfaction and are
key components of the Company's solutions. The Company intends to leverage
customer satisfaction to increase sales at existing customer locations.
PRODUCTS
The Company's software applications are targeted at three decision support
markets: EIS, financial reporting and retail decision support. Software license
fees for the Company's decision support software applications vary widely
depending upon the product, platform and number of users supported. Add-on
features and products are available for additional fees. The initial amount paid
by customers purchasing decision support applications typically covers the
software license fee and product maintenance for the first 12 to 15 months of
the license. Customers may continue product maintenance thereafter for an annual
fee ranging from 15 to 20% of the software license fee. For fiscal 1995, the
software license fee for a typical EIS, financial reporting and retail decision
support application (including add-ons, but excluding maintenance) averaged
approximately $110,000, $82,000 and $115,000, respectively.
EXECUTIVE INFORMATION SYSTEMS (EIS)
Comshare was among the first software companies to successfully introduce
EIS products to the market. Today, Comshare is an industry leader in the EIS
market, based upon reports prepared by International Data Corporation, an
independent market research company, which ranks EIS software companies based
upon revenues.
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Within the EIS market, Comshare offers decision support applications
designed to provide information to a wide range of business users. Typical
applications include customer and product profitability, sales analysis,
business unit profitability analysis and critical success factor and key
performance indicator reporting. The Company designs its EIS applications so
that they may be customized by the Company's consultants, third parties or the
customers themselves to meet specific customer requirements.
Comshare's flagship EIS product for client/server systems, Commander OLAP,
is a suite of software which delivers customizable enterprise-wide business
planning, analysis, reporting and decision-making capabilities. Commander OLAP
capitalizes on the increased use of multidimensional analysis by business
professionals to solve business problems. Using multidimensional analysis,
business professionals view information in a manner which is consistent with
their perception of the underlying business. For example, for a business
organized along geographic lines and product lines, a business professional is
able to view this data across multiple time periods. Commander OLAP facilitates
these and other multidimensional analyses by permitting end-users to structure
business data across the multiple dimensions of importance to these users.
Commander OLAP consists of data extraction tools, a multidimensional
database, enhanced server technology, agent technology and a variety of GUIs.
Its data extraction tools collect data from multiple, disparate data sources,
including spreadsheets, RBDMSs, data warehouses, legacy systems and other data
repositories. Commander OLAP is also able to incorporate non-database data,
including text, voice annotation, video clips and personalized information
presented on GUIs. The software contains a powerful data extraction tool which
collects, integrates, summarizes and filters such data. A key component of
Commander OLAP is Arbor's multidimensional database software, Essbase. Essbase
is a comprehensive on-line analytical processing solution that stores and
summarizes data, and supports concurrent multi-user read-write for
multidimensional analysis. Comshare enhances Essbase with Commander Server, its
internally developed technology, that increases the speed of computation-
intensive functions, such as sorting and ad hoc calculations, by processing the
calculations on the server. Ad hoc calculations can be defined by end-users as
they work with data at their desktops and results can be stored and used for
further analysis. For example, an end-user may want to calculate a budget
variance, using budget and actual data existing in the database. The end-user
could then drill down to analyze the underlying detail or perform follow-on
analyses using these budget variance calculations, such as sorting the variances
by size.
Commander OLAP is enhanced by internally developed Detect and Alert
software which automates personal monitoring of internal and external (Dow Jones
and Reuters) databases to reduce data overload and optimize the end-user's time.
Detect and Alert is comprised of rule-based software agents that detect problems
and exceptions and alert the end-user to them. The agents are programmed by the
end-user to monitor targeted databases for changes, trends and other patterns
that fall within detection rules established by the end-user. These changes,
trends and patterns trigger alerts that are immediately sent to the end-user by
Commander NewsAlert, an easy-to-read electronic newspaper format. Detect and
Alert allows the end-user to easily identify the data that triggered a specific
alert, without having to generate complicated queries to review such data.
Rather than spending their time performing routine surveillance of databases,
end-users are free to analyze data for critical decision making.
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[DIAGRAM]
COMMANDER OLAP
A diagram depicting the Commander OLAP application illustrates
how data extraction tools into Commander OLAP, and then transported to the
desktop through various front-ends.
Commander OLAP provides concise current information to the end-user's
desktop through one of the following front-ends: Execu-View, Comshare's
information visualizer; Briefing Book, a series of pre-formatted reports;
Microsoft Excel; or Lotus 1-2-3. The end-user's selection of the appropriate
front-end is based on the user's requirements for ease-of-use versus
functionality. Execu-View provides the end-user with direct access to detailed
data. By pointing and clicking, end-users are able to easily and quickly query
the information, drill down for more detail, change dimensions and extract data
for further analysis. These capabilities ensure that all of the data contained
in the database are equally available for inspection, rotation and side-by-side
comparison. Briefing Book provides the user with quick and easy access to
business information through pre-formatted reports, while Microsoft Excel and
Lotus 1-2-3 provide end-users with the spreadsheet capability with which they
are familiar. For an example illustrating how a Comshare customer has used
Commander OLAP, see "Business -- Customers."
Comshare also sells and supports System W and IFPS decision support
software for use on mainframe computers. Customers use System W and IFPS for
applications similar to those performed through Commander OLAP, although the
multidimensional database resides on the mainframe, rather than on the server.
Because market demand has shifted towards client/server technology, these
mainframe-related portions of Comshare's EIS business have declined
significantly in recent years. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
FINANCIAL REPORTING APPLICATIONS
Comshare offers a suite of decision support consolidation, financial
reporting and budgeting applications targeted at the financial departments of
organizations. Comshare's principal financial reporting applications are
Commander FDC and Commander Budget, complementary products that, when used
together, share a single database to facilitate integration of historical and
budgetary financial data located throughout the enterprise for management
reporting.
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Commander FDC collects and consolidates financial data from different
general ledgers within a multi-division or multi-location company and produces
consolidated financial reports for management and statutory reporting. Commander
FDC has built-in controls to ensure data accuracy and security features to
support its multi-user capabilities. The product also performs currency
translation, handles intercompany eliminations and account reclassifications and
is readily adaptable to the changing reporting needs of the end-user. For an
example illustrating how a Comshare customer has used Commander FDC, see
"Business -- Customers."
Commander Budget is a distributed budgeting system which allows managers
throughout an organization to prepare budgets using Microsoft Excel or Lotus
1-2-3 front-ends and enables an organization's central financial group to
consolidate the budgets. Commander Budget shares the same basic architecture of
Commander FDC, offering similar capabilities such as currency translation,
security and multi-user functionality.
Commander FDC and Commander Budget consist of data extraction tools, a
central database and a choice of GUIs. Similar to Commander OLAP, their data
extraction tools collect, integrate, summarize and filter data from multiple,
disparate data sources. Commander FDC and Commander Budget, when used together,
share a Btrieve database that permits the integration of consolidated historical
and budgetary financial data, giving the end-user the option of a
fully-integrated financial management system. Commander FDC and Commander Budget
provide end-users with a choice of front-ends. Both are offered with Microsoft
Excel, and Commander Budget is also offered with Lotus 1-2-3. Customers may
separately purchase Execu-View Finance, which is Execu-View sold under the
Company's financial reporting product line. Execu-View Finance allows users
point-and-click access to interactively browse, report, graph and analyze
information generated by Commander FDC and Commander Budget. Comshare also
offers Commander Prism, a multidimensional database that resides on the
end-user's desktop and provides analytical and report writing capabilities.
[DIAGRAM]
COMMANDER FDC AND COMMANDER BUDGET
A diagram depicting the Commander FDC and Commander Budget applications
illustrates how data is collected from general ledgers and spreadsheets,
transferred to a shared application database, processed in the FDC/Budget
Server and then delivered to the desktop by a range of client front-ends.
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RETAIL DECISION SUPPORT APPLICATIONS
Comshare's ARTHUR product line is a suite of retail decision support
software that enables retailers to plan merchandise purchases to control
inventory levels, tailor their purchases to consumer preferences and market
trends and track and analyze actual sales performance. Comshare designs its
ARTHUR products to improve the productivity and profitability of its retail
customers and to serve as a strategic planning tool for retailers by allowing
them to test merchandise plans and identify market opportunities, changing sales
trends or problems.
ARTHUR Planning is a suite of software offering retailers a packaged
application which enables them to create detailed merchandise plans, analyze
information and test merchandise strategies before placing orders and committing
resources. The product also helps buyers match merchandise assortments to their
customers' requirements and the characteristics of their stores. ARTHUR Planning
can be used by smaller retailers on a desktop platform or larger retailers using
ARTHUR Plan Monitor as the data repository. For an example illustrating how a
Comshare customer has used ARTHUR Planning, see "Business -- Customers."
ARTHUR Plan Monitor is server-based and has Arbor's Essbase as its core. It
may be used in conjunction with ARTHUR Planning for larger retail applications,
as described above, or as the database for multidimensional sales reporting and
tracking.
Comshare also offers ARTHUR Performance Tracking, which is mainframe-based.
Both ARTHUR Plan Monitor and ARTHUR Performance Tracking, in combination with
ARTHURView, report weekly sales information across the retailer's product lines
and geographic regions in various levels of detail. They provide up-to-date
merchandise performance information, giving retailers the opportunity to change
merchandise plans in response to consumer preferences and market trends.
Comshare's Detect and Alert software is also offered in connection with ARTHUR
products, so variances and trends can automatically and more easily be
identified. ARTHUR Performance Tracking has an architecture similar to Commander
OLAP, except that the multidimensional database is mainframe-based.
These products deliver vital information to the end-user through
ARTHURView, which is Execu-View sold under the ARTHUR brand name, or Briefing
Book, a series of pre-formatted reports, which may be distributed throughout a
retailing organization.
[DIAGRAM]
ARTHUR PLANNING
A diagram depicting the ARTHUR Planning application illustrates how
data is extracted from internal databases with Arthur Plannings data
extraction tools, transported to a multidimensional database, processed in
the ARTHUR Planning Server and delivered to the desktop by various client
front-ends.
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IMPLEMENTATION, CONSULTING, TRAINING, SUPPORT AND MAINTENANCE
The Company offers implementation, consulting, training, pre-sales and
post-sales technical support and maintenance to complement its product
offerings. Comshare supports its product offerings with customer support from
its teams of industry and functional decision support specialists and its
worldwide agent/distributor network. Support for Comshare's products starts
before the sale, with Comshare providing its customers with pre-sales technical
support services. Implementation and consulting services are offered in all
three of the Company's decision support software markets, and are organized by
industry and/or functional decision support expertise. These services include
application design and modification, installation assistance, implementation and
troubleshooting support. Comshare also offers training at customer sites, at its
local sales offices and at its central training centers in Ann Arbor, Michigan
and London, England.
The Company's maintenance customers receive product enhancements and
updates, bug fixing and unlimited customer telephone helpline support and access
to Comshare's CompuServe forum. Beginning 12 to 15 months following the sale,
maintenance customers pay an annual maintenance fee, which is typically 15 to 20
percent of the license fee.
CUSTOMERS
Comshare has implemented its client/server and mainframe decision support
applications software, and is currently providing maintenance, at more than
3,000 corporate and public sector customer sites in 40 countries. Comshare's
diversified customer base includes many Fortune 1000 and Financial Times 1000
industrial companies as well as large and mid-sized companies in the
communications, financial services, health care, retail and transportation
industries, and many governmental and other public sector organizations. The
following table includes a representative sample of Comshare customers who
purchased over $50,000 in software licenses from Comshare in fiscal 1995:
<TABLE>
<CAPTION>
EXECUTIVE INFORMATION FINANCIAL REPORTING RETAIL DECISION
SYSTEMS (EIS) APPLICATIONS SUPPORT APPLICATIONS
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
AlliedSignal Inc. Alberto-Culver USA, Inc. Boscov's Department
AMP Incorporated Barclays Bank PLC Stores Inc.
AT&T Corporation Cargill, Inc. C&J Clark America Inc.
The Bear Stearns Companies Inc. Franklin Resources, Inc. Coach Leatherware Co., Inc.
British Gas PLC Hartmarx Corporation CompUSA Inc.
Bristol-Myers Squibb Co. Insignia Financial Group, Inc. Country Road Clothing
Canadian Coast Guard Interprovincial Pipe Line Inc. Pty. Ltd.
Chase Manhattan Corporation Kerr McGee Chemical Co. Dylex Limited
CIBA Vision Corp., a subsidiary Lee Company Foot Action USA
of CIBA-Geigy Ltd. Nestle France S.A. Gantos, Inc.
Columbia Gas System Service Corp. Paging Network, Inc. ISSC Corporation
Internal Revenue Service Pegasus Gold Inc. (Eckerd Drugs)
Johnson & Johnson, Inc. Progress Software Corporation J. Crew Group, Inc.
Lenox, Inc. Bank of America National Trust Jockey International, Inc.
Liz Claiborne, Inc. & Savings Assn. Kaufhalle AG
Old Kent Financial Corp. Skadden, Arps, Slate, Neiman Marcus Group
The Reader's Digest Meagher & Flom NIKE, Inc.
Association, Inc. Starbucks Corporation Oshman's Sporting
Roadway Package System, Inc. Time Warner, Inc. Goods, Inc.
Rohm & Haas Co. Toshiba America, Inc. Service Merchandise Co., Inc.
Shell Oil Company Toyota Motor Corporation Sportmart Inc.
Textron Inc. Tropicana Products, Inc. Sterling Inc.
TRW Inc. Watts Regulator Co. Victoria's Secret Stores
U.S. Bancorp
Wells Fargo Bank, N.A.
</TABLE>
No customer has accounted for more than 5% of the Company's total revenues
in any of its three most recent fiscal years.
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The following examples illustrate how organizations use Comshare's decision
support software to make business decisions. These examples have been prepared
by the Company based on information provided by its customers.
EIS. AlliedSignal, Inc. ("Allied"), a major world-wide manufacturer, is
using Commander OLAP to collect and access data relating to its aerospace,
automotive and engineered materials sectors. Prior to implementing Commander
OLAP, reports needed by senior management at Allied's aerospace sector were
unavailable until data from dozens of division executives at remote sites had
been collected, consolidated and summarized. Other important information was
unavailable because it had never been collected at the divisional level. Allied
contacted Comshare to enable its aerospace sector's senior management to get
immediate desktop access to critical business information. Within three months
of developing a prototype, Comshare installed the first EIS at the aerospace
sector's headquarters. After a month of training sessions, Comshare's EIS was
rolled out to the desktops of more than 150 people at 15 different aerospace
sector sites. Within 18 months, the aerospace sector's 150-user EIS had become a
500-user system spanning all three sectors of Allied's operations. With
Commander OLAP, Allied's key managers are now able to obtain within seconds at
their desktops such information as the top ten customers by business unit; net
sales and income by customer and product line; and unit sales by foreign versus
domestic or military versus commercial.
Financial Reporting. The Toro Company ("Toro"), a leading manufacturer of
lawn mowers and snow blowers, is using Comshare's Commander FDC to collect and
consolidate financial data. Prior to implementing Commander FDC, Toro's
financial staff created reports by rekeying data into spreadsheets, printing out
dozens of documents and distributing them in thick report packages. This process
took time and introduced a greater chance of error. After implementing Commander
FDC, Toro is now able to track data from 175 units, consolidate it by division
and on an enterprise-wide basis and then break down Toro's eight divisions by
product line, geographical location and, in some cases, distribution channel.
Each month, Toro does three different consolidations. Information is reported in
a variety of different ways: actual, prior year, plan, current projection and
prior projection. Information provided by Toro indicates that Commander FDC has
enabled Toro to reduce the time required to close its books from eight to four
days and has helped it to distribute its financial reports two weeks earlier.
Retail Decision Support. Gantos, Inc. ("Gantos"), a high fashion apparel
retailer, is using ARTHUR Planning to develop detailed merchandise plans that
handle such details as average stock, turnover, sales and gross margin
calculations. Prior to implementing ARTHUR Planning, Gantos's planners would
create merchandise plans based upon guidelines developed by the chief executive
officer and the director of merchandise planning. However, because each plan and
subsequent revisions had to be sent to the host and loaded into another program
for processing, it would be the next day, at the earliest, before the planner
could review the impact of those revisions on the plan. With the implementation
of ARTHUR Planning, data captured through bar code scanning at the point of sale
at 113 stores in the Midwest are transmitted to a server and transferred into
ARTHUR Planning. The data can then be manipulated on line by buyers and planners
to create merchandise plans. Since these plans then become part of the database,
plan changes can be directly entered into the system and, in a matter of
minutes, the planner has a revised plan. Gantos has found that ARTHUR Planning
has reduced planning time and allows planners to test more merchandising
strategies before resources are committed. In addition, ARTHUR Planning has
helped Gantos to more quickly create numerous bottom-up divisional merchandise
plans which conform to overall company-wide merchandise planning goals.
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SALES AND MARKETING
Comshare products and services are sold on a worldwide basis by a direct
sales operation and by an extensive worldwide agent/distributor network. Both of
these complementary distribution channels leverage the Company's extensive
industry and application expertise and offer pre-sales and post-sales technical
customer support.
The Company sells and markets its software products and services in the
United States, Canada, United Kingdom, France, Germany and Australia through a
direct sales organization. Direct sales operations are organized geographically,
and within a geographic region, are organized generally by industry or
functional decision support expertise.
The sales cycle begins with the generation of sales leads through seminars,
trade journals and trade shows. After a lead is qualified, the Company's sales
force analyzes the potential customer's decision support needs and makes a
presentation to the potential customer. After obtaining a preliminary
commitment, the Company often develops customized demonstrations to illustrate
how the Company's products will satisfy a customer's specific needs. The
negotiation of a contract concludes the sales cycle, which varies in length from
customer to customer, but typically requires three to six months or more.
The Company has an extensive agent/distributor network covering 34
countries not directly served by the Company. The Company has selected
established software application vendors or systems integration firms to act as
agents and distributors to market, implement and support Comshare products in
their respective geographic areas. Comshare derived 17% of its total revenue in
fiscal 1995 from the Company's agent/distributor network.
RESEARCH AND PRODUCT DEVELOPMENT
The Company's product development strategy is to expand the range of its
application-specific products, develop new client/server software differentiated
by innovative internally developed technology and incorporate third-party tools
offering the latest technological advances into its products. The Company has
increasingly incorporated third-party tools into its products to focus its
product development efforts on applications, while reducing product development
risk and time to market. At September 30, 1995 the Company had approximately 140
product development specialists, organized by EIS, financial reporting or retail
decision support application expertise, who are charged with implementing the
Company's product development strategy. Located in Ann Arbor, Michigan and
Leicester, England, these specialists develop new products and product
enhancements by considering customer suggestions, competitive offerings,
technology trends and market opportunities.
The Company is developing a planning application focused on the consumer
packaged goods industry which enables marketing and sales managers to both plan
for changes in consumer demand and to optimize pricing, promotions and
inventory. Based on the ARTHUR Planning technology, this new product will allow
consumer packaged goods manufacturers to better plan product sales and margins.
The Company is also developing a new application, ARTHUR Allocation,
targeting the retail industry. ARTHUR Allocation will enable a retailer to
improve sales and margins by quickly and easily determining which stores should
receive merchandise shipped to the retailer's warehouses.
The Company plans to offer its Detect and Alert technology with its
financial reporting products. Detect and Alert enables end-users to identify
variances, trends and values that fall within detection rules established by the
end-user. The Company is also developing enhanced versions of Commander FDC and
Commander Budget which tightly integrate Commander Prism, a multidimensional
database residing on the desktop, for more efficient analysis and reporting.
The Company is developing a new information visualizer which combines and
enhances the functionality of Execu-View and Briefing Book and is designed
specifically for the Windows '95 and Windows NT operating systems. The new
visualizer will be available with Commander OLAP and
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certain of the Company's ARTHUR products. The new visualizer will allow the
end-user to perform cross-dimensional analysis and has built-in capabilities for
data ranking and for basic alert functions. It also offers predominantly
script-free application development, allowing MIS professionals to more quickly
build and change applications.
There can be no assurance that products under development will be completed
successfully or on time, or that they will include the features required to
achieve market acceptance. Failure of these new product development projects
could have a material adverse effect on the Company's business, results of
operations and financial condition.
The markets for the Company's products are characterized by rapid
technological advances, evolving industry standards, changes in customer
requirements and frequent introductions and enhancements of competitive
products. The Company's success and future financial performance will depend on
its ability to anticipate these changes as they occur and to enhance its
existing products and develop new products in a timely and cost-effective manner
which keeps pace with these changes. There can be no assurance that the Company
will be able to successfully accomplish future technological or product
transitions, that the Company will not experience significant delays in
developing new products or enhancements required to accomplish such transitions
or that the Company will have sufficient financial resources available to it to
finance such efforts. There can be no assurance as to the impact that any such
transition would have on the Company's revenue or profitability. In addition,
there can be no assurance that the Company's new products and enhancements will
adequately address the changing needs of the marketplace and achieve market
acceptance or that developments by others will not render the Company's products
obsolete or noncompetitive. Any such failure could have a material adverse
effect on the Company's business, results of operations and financial condition.
See "Risk Factors -- Risks Associated With Rapid Technological Change."
INTELLECTUAL PROPERTY
Comshare distributes its software products under software license
agreements which generally grant customers a non-exclusive, non-transferable
license to use the Company's products. The Company considers its software
products to be valuable and unique assets and actively attempts to protect them
contractually by generally restricting usage to internal operations, and
prohibiting the unauthorized reproduction or transfer to third parties. The
Company also believes that the nature of its customers and the provision of
continuing maintenance and support services reduce the risk of unauthorized
reproduction.
In addition, the Company relies on copyright protection and trade secret
laws to protect proprietary information. The laws of some foreign countries do
not protect the Company's proprietary rights to the same extent as do the laws
of the United States. In addition, certain provisions of the Company's contracts
prohibiting unauthorized reproduction may be unenforceable under the laws of
certain foreign countries. There can be no assurance that the steps taken by the
Company to protect its proprietary rights will be adequate to prevent
misappropriation of its technology or development by others of similar or
superior technology. Although the Company believes that its products and
technology do not infringe on any existing proprietary rights of others, there
can be no assurance that third parties will not assert infringement claims in
the future or that any such claims will not require the Company to enter into
license arrangements or result in litigation, regardless of the merits of such
claims. No assurance can be given that any necessary licenses will be available
or that, if available, such licenses can be obtained on commercially reasonable
terms. Should litigation with respect to any such claims commence, such
litigation could be extremely expensive and time-consuming and could have a
material adverse effect on the Company's business, results of operations and
financial condition regardless of the outcome of such litigation. See "Risk
Factors -- Limited Intellectual Property Protection."
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LICENSED TECHNOLOGIES
The Company licenses certain software programs and tools from third parties
and incorporates them into the Company's products. Generally, these licenses are
non-exclusive worldwide licenses providing for varying royalty payments and
expiration dates. The Company believes that the inclusion of third-party
software programs and tools in its products reduces product development risk and
time to market.
Examples of third-party software tools that the Company incorporates into
its products include Arbor's Essbase, Btrieve Technology, Inc.'s Btrieve
database, Microsoft Excel and Strategic Mapping, Inc.'s Atlas View SDK. The
Company is substantially dependent upon Essbase, which is an integral part of
the Company's Commander OLAP, ARTHUR Planning and Plan Monitor products and
certain planned new products. The Company's worldwide license for Essbase
expires December 31, 2001. The license may also be terminated in the event of an
uncured material breach.
Because Essbase is the OLAP technology which provides the critical
multidimensional functionality for Commander OLAP and is an integral component
of the Company's ARTHUR product line, loss of the Company's rights to Essbase,
or any change impacting the availability of Essbase, could have a material
adverse effect on the Company's business, results of operations and financial
condition. In addition, if there is any significant change in the
competitiveness of Essbase, the Company could be required to undertake an
expensive and time-consuming revision of its products to operate on the
competitive product or technology and the Company's business, results of
operations and financial condition could be materially adversely affected.
In the future, the Company intends to increase the rate at which it
licenses software tools from third parties for incorporation into its products,
as part of its strategy to reduce product development risk and time to market
for new products and product enhancements. Incorporating third-party software
into its products subjects the Company to risks that its third-party vendors
will refuse to renew a license, or become unable or unwilling to support and
enhance their products in a manner that satisfies the Company's requirements. If
the Company were unable to renew these licenses, or if its third party vendors
were to become unable or unwilling to support and enhance their products, the
Company could be required to devote additional resources to the enhancement and
support of these products or to acquire or develop software providing equivalent
capabilities, which could adversely impact the ability of the Company to sell
its current products, cause delays in the development and introduction of new
products and increase the Company's cost of development of such products. The
occurrence of any of the foregoing risks associated with licensing software from
third parties could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Risk Factors -- Reliance on
Relationships with Arbor Software Corporation and Other Third Parties."
COMPETITION
The markets for Comshare's software products are highly competitive and
characterized by continued change and rapid technological advancements. In
general, the Company competes on the basis of: (1) software application utility,
which includes the extent to which its product offerings meet specific end-user
markets and needs; (2) functionality, which includes the breadth and depth of
features and functions and ease-of-use; (3) service and support, which includes
the range and quality of technical support, training and consulting services;
(4) vendor reputation; (5) product architecture, which includes distributed
computing capability, and ease of customization and integration with other
applications; and (6) product pricing in relation to performance. The Company
believes it competes favorably with respect to these factors.
The client/server applications software market, including the market for
decision support software, is intensely competitive, highly fragmented and
subject to rapid change and evolving industry standards. Because the Company
offers multiple products, the Company competes with a variety of other companies
depending on the target market for their applications software products. In
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the EIS market, the Company competes primarily with Oracle Corporation, which
recently purchased Express software from Information Resources, Inc.;
Information Resources, Inc., which retained rights to Express software for
certain applications; The Dun and Bradstreet Corporation, which purchased Pilot
Software; and certain other software vendors. In the financial reporting
applications market, the Company's principal competitor is Hyperion Software
Corporation, which is generally recognized as the current market leader for
stand-alone financial consolidation applications. In the retail decision support
applications market, the Company competes with traditional EIS providers that do
not have specific merchandise planning applications and with a number of smaller
software providers. The Company also competes with a variety of additional
software companies, third-party professional services organizations that develop
custom software and with internal information technology departments which
develop decision support solutions. Among the Company's current and potential
competitors are also a number of large software companies, including developers
of spreadsheets, RDBMSs, data warehouses, database query and reporting tools and
transaction processing-based applications, that may elect to increase the
decision support capabilities of their current products or that may develop or
acquire products that compete with the Company's products. Increased competition
could result in price reductions, reduced operating margins and loss of market
share, any of which could have a material adverse effect on the Company's
business, results of operations and financial condition. In addition, many of
the Company's current and potential competitors have significantly greater
financial, technical, marketing and other resources than the Company. As a
result, they may be able to respond more quickly to new or emerging technologies
and changes in customer requirements, or to devote greater resources to the
development, promotion and sale of products than can the Company. There can be
no assurance that the Company will be able to compete successfully against
current and future competitors or that competitive pressures faced by the
Company will not materially adversely affect its business, results of operations
and financial condition. See "Risk Factors -- Competition."
EMPLOYEES
Comshare had 694 full-time employees at September 30, 1995, including 259
in sales and marketing, 157 in consulting and implementation services, 141 in
research and product development and 137 in customer support and administration.
None of the Company's employees is represented by a labor union. The Company has
experienced no work stoppages and believes that its relations with employees are
good.
FACILITIES
The Company's headquarters is located in Ann Arbor, Michigan in a leased
facility consisting of approximately 61,200 square feet. This lease expires on
February 28, 2005. The Company also leases a 52,100 square feet facility in
London, England under a lease that expires on December 9, 2007. This facility is
used for administration, sales, marketing and implementation services. In
addition, the Company leases sales offices in 25 major cities in the United
States, Europe and Australia and maintains a product development facility in
Leicester, England.
LEGAL PROCEEDINGS
The Company is not a party to any litigation that, in the opinion of
management, could reasonably be expected to have a material adverse impact on
the Company's business, results of operations or financial condition.
44
<PAGE> 46
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The names, ages and positions of the executive officers and directors of
the Company, assuming the election of all directors nominated for election to
the Board of Directors at the Annual Meeting of Shareholders to be held on
November 18, 1995, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- --------------------------------------------------
<S> <C> <C>
T. Wallace Wrathall.............. 58 President, Chief Executive Officer and Director
Stephen R. Fluin................. 41 Vice President, European Operations
Dennis G. Ganster................ 44 Senior Vice President and Chief Technology Officer
Kathryn A. Jehle................. 43 Senior Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary
Dion T. O'Leary.................. 51 Vice President, Agents and Distributors
Charles J. Palmer................ 50 Vice President, North American EIS Sales
Steven J. Tonissen............... 46 Senior Vice President, Marketing
Donald J. Walker................. 55 Senior Vice President
Richard L. Crandall.............. 52 Chairman of the Board of Directors
Geoffrey B. Bloom................ 53 Director Nominee
Daniel T. Carroll................ 69 Director
Stanley R. Day................... 70 Director
W. John Driscoll................. 66 Director
Alan G. Merten................... 53 Director
George R. Mrkonic................ 42 Director Nominee
John F. Rockart.................. 64 Director
</TABLE>
Mr. Wrathall assumed the position of President and Chief Executive Officer
of the Company in April 1994, after having served as the Company's Chief
Financial Officer for 18 years and as a Senior Vice President since 1988.
Mr. Fluin was named Vice President, European Operations of the Company in
November 1994, after having served as the Company's Director of United Kingdom
Sales for over seven years. Mr. Fluin has been with the Company in various
positions since 1978.
Mr. Ganster was named Senior Vice President in July 1994 after having
served as Vice President and Chief Technology Officer since April 1993. He had
previously served as the Company's Vice President of Product Management from
July 1988 to April 1993, and has been with the Company in various positions
since 1972.
Ms. Jehle was named Senior Vice President, Chief Financial Officer,
Treasurer and Assistant Secretary in May 1994. Ms. Jehle served as Chief
Financial Officer of Pharmavene, Inc., a pharmaceutical company, from June 1993
to May 1994; and as Vice President of AMF Bowling Centers, Inc. from May 1990 to
June 1993. Ms. Jehle was previously employed by the Company from 1981 through
1987, most recently as Vice President and Treasurer.
Mr. O'Leary was named Vice President, Agents and Distributors of the
Company in November 1994 after having served as the Company's Director of Agents
and Distributors for over ten years. Mr. O'Leary has been with the Company in
various positions since 1971.
Mr. Palmer was named an executive officer of the Company in October 1995
and has served as Vice President, North American EIS Sales, of the Company since
July 1994. He previously served as Vice
45
<PAGE> 47
President, Eastern Region North American Sales, from July 1993 to July 1994,
after having served as Vice President, U.S. Sales, from July 1990 to July 1993.
Mr. Palmer has been with the Company in various positions since 1976.
Mr. Tonissen was named Senior Vice President, Marketing of the Company in
June 1995. Prior to joining the Company, Mr. Tonissen served as a principal in
The Spectrum Group, a management and information system consulting organization,
from December 1992 until June 1995; Sales Director of ONTOS, an object-oriented
database company, from December 1991 to December 1992; Managing Director of the
Telon Division of Pansophic Systems, a computer software and service company,
which was later acquired by Computer Associates, from June 1991 to December
1991; and as Director of Marketing of the same division of Pansophic from
January 1990 to June 1991.
Mr. Walker has been a Senior Vice President of the Company since July 1988
and has been with the Company in various positions since 1974.
Mr. Crandall was named Chairman of the Board of the Company in April 1994,
after having served as President and Chief Executive Officer of the Company
since 1970. Mr. Crandall also serves as a director of Computer Task Group, Inc.
Mr. Bloom is the President and Chief Executive Officer, Wolverine World
Wide, Inc, a manufacturer and seller of footwear. Mr. Bloom assumed such
position in 1993, after serving as Chief Operating Officer of such company from
1987 to 1993.
Mr. Carroll is the Chairman and President, The Carroll Group, Inc., a
management consulting company. He also serves as a director of the following
corporations: A.M. Castle & Co., American Woodmark Corporation, Aon Corporation,
DeSoto, Inc., Diebold, Inc., Michigan National Corporation, Oshkosh Truck
Corporation, UDC Homes, Inc., Wolverine World Wide, Inc. and Woodhead
Industries, Inc.
Mr. Day is the retired Chairman of the Board, Champion Enterprises, Inc., a
manufacturer of manufactured homes and mid-sized buses.
Mr. Driscoll is the retired President, Rock Island Company, a private
investment company. He also serves as a director of the following corporations:
The John Nuveen Company, The St. Paul Companies, Inc., Northern States Power
Company and Weyerhaeuser Company.
Mr. Merten is the Dean, Johnson Graduate School of Management, Cornell
University. He also serves as a director of Tompkins County Trust Company,
American Capital Bond Fund, Inc., American Capital Convertible Securities, Inc.
and American Capital Income Trust and as a trustee of the Common Sense Trust.
Mr. Mrkonic is the Vice Chairman and President, Borders Group, Inc., an
operator of book and music stores. He assumed his current position in December
1994 and has been a director of Borders Group, Inc. since August 1994. Mr.
Mrkonic served as Executive Vice President, Specialty Retailing Group of K-Mart
Corporation, a general merchandise retailer, from November 1990 to November
1994. He was President of Eyelab, Inc., an optical goods retailer, from 1987 to
1990. Mr. Mrkonic is also a director of The Sports Authority, Inc., OfficeMax,
Inc. and Champion Enterprises, Inc.
Mr. Rockart is a Director and Senior Lecturer at the Center for Information
Systems Research, Massachusetts Institute of Technology. He also serves as a
director of Keane, Inc. and Renaissance Solutions, Inc.
46
<PAGE> 48
STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of September 30, 1995, and
as adjusted to reflect the sale by the Selling Shareholders of the shares of
Common Stock offered by this Prospectus (assuming no exercise of the
Underwriters' over allotment option), by all directors and executive officers of
the Company as a group.
<TABLE>
<CAPTION>
SHARES TO BE
SHARES BENEFICIALLY BENEFICIALLY OWNED
OWNED PRIOR TO THE AFTER THE
OFFERING(1) SHARES TO BE OFFERING(1)
------------------------ SOLD IN THE --------------------
NAME NUMBER PERCENT(2) OFFERING(3) NUMBER PERCENT
- ------------------------------- --------- ---------- --------------- ------- -------
<S> <C> <C> <C> <C> <C>
All executive officers and
directors as a group (16
persons)(4).................. 1,358,538 16.2% 567,040 791,498 8.3%
</TABLE>
- ---------------
(1) To the best of the Company's knowledge, based on information reported by
such directors and officers or contained in the Company's shareholder
records. Unless otherwise indicated by any additional information included
in the footnotes to the table, the beneficial owners are presumed to have
sole voting and investment power with respect to all shares shown.
(2) The total number of shares of Common Stock deemed outstanding prior to this
Offering was 8,240,273 as of September 30, 1995. The number of shares of
Common Stock deemed outstanding after this Offering includes the additional
1,125,000 shares being offered by the Company in this Offering, and assumes
no exercise of the Underwriters' over-allotment option.
(3) The Selling Shareholders include Messrs. Crandall, Driscoll and certain
trusts of which Mr. Driscoll serves as a trustee. For a description of the
shares of Common Stock to be sold in the Offering by Messrs. Crandall,
Driscoll and the trusts of which Mr. Driscoll serves as a trustee, see
"Selling Shareholders." No other executive officer or director is
participating in this Offering as a Selling Shareholder.
(4) Includes 168,749 shares which certain directors and executive officers have,
or within 60 days of September 30, 1995 will have, the right to acquire
pursuant to the presently exercisable portion of options granted under the
Company's 1988 Stock Option Plan; 593,209 shares, referred to in Note (5)
under "Selling Shareholders," as to which beneficial ownership is
disclaimed; 11,153 shares that have been allocated to the accounts of
members of the group under the Company's Employee Stock Ownership Plan; and
36,000 shares referred to in Note (2) under "Selling Shareholders" owned by
the minor son of a director of the Company, as to which beneficial ownership
is disclaimed.
47
<PAGE> 49
SELLING SHAREHOLDERS
All of the Selling Shareholders, other than Richard L. Crandall, are
descendants or spouses of descendants of Frederick Weyerhaeuser, trusts for the
benefit of such persons, a corporation owned by such persons and trusts or a
foundation affiliated with such persons (the "Weyerhaeuser Family"). W. John
Driscoll, who has served as a director of the Company since 1970, and his
spouse, are members of the Weyerhaeuser Family and are Selling Shareholders. At
September 30, 1995, the members of the Weyerhaeuser Family, including the
Selling Shareholders, beneficially owned 1,452,819 shares, or 17.6%, of the
Common Stock. Following this Offering, the members of the Weyerhaeuser Family,
including the Selling Shareholders, will beneficially own 446,298 shares, or
4.8%, of the Common Stock. At September 30, 1995, the only member of the
Weyerhaeuser Family beneficially owning more than 1% of the Common Stock was
Rock Island Company, which beneficially owned 511,407 shares, or 6.2%, of the
Common Stock. The information pertaining to Rock Island Company is based on a
Schedule 13D Report, dated July 3, 1995. Following this Offering, no member of
the Weyerhaeuser Family will beneficially own more than 1% of the Common Stock.
Richard L. Crandall, Chairman of the Board of the Company, is also a Selling
Shareholder. At September 30, 1995, Mr. Crandall beneficially owned 209,809
shares, or 2.5%, of the Common Stock. Following this Offering, Mr. Crandall will
beneficially own 171,330 shares, or 1.8%, of the Common Stock.
The following table sets forth the name of each Selling Shareholder for
whose account shares of Common Stock are offered by this Prospectus, the number
of shares of Common Stock currently held for the account of such Selling
Shareholder, the number of shares of Common Stock being sold for the account of
such Selling Shareholder in this Offering (assuming no exercise of the
Underwriters' over-allotment option) and the number of shares of Common Stock
that will be held for the account of such Selling Shareholder following this
Offering (assuming no exercise of the Underwriters' over-allotment option).
<TABLE>
<CAPTION>
SHARES HELD FOR SHARES TO BE HELD
ACCOUNT PRIOR SHARES TO BE SOLD FOR ACCOUNT AFTER
NAME TO OFFERING IN THE OFFERING THE OFFERING
- -------------------------------------------------- --------------- ----------------- -----------------
<S> <C> <C> <C>
Rock Island Company(1)............................ 511,407 444,702 66,705
Richard L. Crandall(2)............................ 209,809 38,479 171,330
Elizabeth S. Driscoll............................. 68,085 59,205 8,880
Rev. Trust of Rudolph W. Driscoll, Jr.(3)......... 47,187 41,033 6,154
Frederick K. Weyerhaeuser Trust of 1939 fbo Vivian
W. Piasecki(4).................................. 44,775 38,935 5,840
Elizabeth C. Driscoll............................. 42,504 36,961 5,543
John B. Driscoll.................................. 42,504 36,961 5,543
Margaret L. Driscoll.............................. 42,504 36,961 5,543
William L. Driscoll............................... 42,504 36,961 5,543
Stewardship Foundation............................ 31,692 27,559 4,133
W. John Driscoll(5)............................... 26,250 9,783 16,467
Rudolph W. Driscoll............................... 22,500 19,565 2,935
Charles L. Weyerhaeuser........................... 22,500 19,565 2,935
F. T. Weyerhaeuser(6)............................. 22,500 19,565 2,935
Trust U/W of F. Weyerhaeuser
fbo V. Rasmussen(7)............................. 22,500 19,565 2,935
Michael W. Piasecki............................... 14,719 10,003 4,716
1966 Trust #2 of Sarah-Maud W. Sivertsen(8)....... 11,700 10,173 1,527
1966 Trust #3 of Sarah-Maud W. Sivertsen(9)....... 11,700 10,173 1,527
1966 Trust #4 of Sarah-Maud W. Sivertsen(10)...... 11,700 10,173 1,527
Trust for Elise B. Rosenberry(11)................. 10,800 9,391 1,409
Trust for Lucy Rosenberry(12)..................... 10,800 9,391 1,409
Trust for Walter S. Rosenberry III(13)............ 10,800 9,391 1,409
Trust U/W of J.P. Weyerhaeuser Jr. fbo Elizabeth
W. Meadowcroft(14).............................. 10,605 9,221 1,384
</TABLE>
48
<PAGE> 50
<TABLE>
<CAPTION>
SHARES HELD FOR SHARES TO BE HELD
ACCOUNT PRIOR SHARES TO BE SOLD FOR ACCOUNT AFTER
NAME TO OFFERING IN THE OFFERING THE OFFERING
---- --------------- ----------------- -----------------
<S> <C> <C> <C>
Trust U/W of J.P. Weyerhaeuser Jr.
fbo George H. Weyerhaeuser(15).................. 10,605 9,221 1,384
Trust U/W of J.P. Weyerhaeuser Jr.
fbo Ann W. Pascoe(16)........................... 10,605 9,221 1,384
Spec. Power of Appointment Trust U/W of J.P.
Weyerhaeuser III(17)............................ 10,605 9,221 1,384
Vivian W. Piasecki................................ 9,682 8,419 1,263
Julie C. Titcomb.................................. 8,145 7,082 1,063
Rev. Trust of William T. Weyerhaeuser(18)......... 7,068 6,146 922
Rev. Trust of Bruce L. Titcomb(19)................ 4,500 3,913 587
1985 Trust for Christopher B. Titcomb(20)......... 4,002 3,480 522
1985 Trust for Daniel O. Titcomb(21).............. 4,002 3,480 522
1985 Trust for Robert C. Titcomb(22).............. 4,002 3,480 522
Kirsten B. Driscoll............................... 3,750 3,260 490
Catherine C. Titcomb(23).......................... 2,499 2,173 326
Daniel L. Titcomb(23)............................. 2,499 2,173 326
Daniel C. Titcomb(24)............................. 2,437 2,119 318
Trust for Stephen T. Titcomb created
4-25-61(25)..................................... 2,100 1,826 274
Madeline O. Titcomb(23)........................... 2,062 1,793 269
Peter C. Titcomb.................................. 1,545 1,343 202
Edward R. Titcomb Insurance Trust
fbo Bruce L. Titcomb(26)........................ 1,125 978 147
Edward R. Titcomb Insurance Trust
fbo Daniel C. Titcomb(27)....................... 1,125 978 147
Edward R. Titcomb Insurance Trust fbo Frederick W.
Titcomb(28)..................................... 1,125 978 147
</TABLE>
- ---------------
(1) The information pertaining to Rock Island Company is based on a Schedule
13D Report, dated July 3, 1995, which was filed by Rock Island Company with
the Securities and Exchange Commission. The Schedule 13D Report reflects
that Rock Island Company has the sole power to vote or direct the vote and
sole power to dispose or direct the disposition of 511,407 shares.
(2) Includes 37,500 shares which Mr. Crandall has, or within 60 days of
September 30, 1995 will have, the right to acquire pursuant to the
presently exercisable portion of options granted under the Company's 1988
Stock Option Plan and 2,632 shares which have been allocated to his account
under the Company's Employee Stock Ownership Plan. Mr. Crandall disclaims
beneficial ownership of 36,000 shares reflected in the table which are
owned by his minor son.
(3) Rudolph W. Driscoll, Jr. has voting and investment power over the shares in
this revocable trust, but has delegated voting power over the shares in the
trust to W. John Driscoll.
(4) The trustees of the Frederick K. Weyerhaeuser Trust of 1939 fbo Vivian W.
Piasecki are Walter S. Rosenberry and John P. Weyerhaeuser IV, who share
voting and investment power over the shares in the trust.
(5) W. John Driscoll beneficially owns 623,919 shares of Common Stock, which
includes an aggregate of 84,387 shares owned by five trusts. Mr. Driscoll
is a co-trustee of the four trusts described in Notes (8), (9), (10) and
(25) under "Selling Shareholders" and is the sole trustee of a fifth trust
described in Note (3) under "Selling Shareholders." This number also
includes 511,407 shares owned by Rock Island Company, a private investment
company, all of the capital stock of which is owned by members of the
Weyerhaeuser Family, as well as 1,875 shares which Mr. Driscoll has, or
within 60 days of September 30, 1995 will have, the right to acquire
pursuant to the presently exercisable portion of options granted under the
Company's Directors Stock Option Plan. Mr. Driscoll is a director of, and
owns 0.8721% of the stock of, Rock Island Company. Mr. Driscoll shares
voting and investment power with respect to the shares owned by the four
trusts of which he is the co-trustee and the shares owned by Rock Island
Company; however, except as to 4,459 of the shares owned by Rock Island
Company, he disclaims beneficial ownership of such shares. Mr. Driscoll has
voting power, but no investment power, with respect to the trust of which
he is the sole trustee. All of the shares of Common Stock described in this
note are included in the shares owned by various members of the
Weyerhaeuser Family. The information in the table pertaining to W. John
Driscoll is based on a Schedule 13G Report, dated July 3, 1995, which was
filed by W. John Driscoll with the Securities and Exchange Commission. The
Schedule 13G Report reflects that W. John Driscoll has sole voting power
with respect to 26,250 shares, shared voting power with respect to 84,387
shares, sole dispositive power with respect to 26,250 shares, and shared
dispositive power with respect to 37,200 shares.
49
<PAGE> 51
(6) F.T. Weyerhaeuser is a co-trustee of the six trusts described in Notes (8),
(9), (10), (14), (15) and (16) under "Selling Shareholders."
(7) The trustees of the Trust U/W of F. Weyerhaeuser fbo V. Rasmussen are
Frederick W. Titcomb and George H. Weyerhaeuser, who share voting and
investment power over the shares in the trust.
(8) The trustees of the 1966 Rev. Trust #2 of Sarah-Maud W. Sivertsen are W.
John Driscoll, Edward R. Titcomb and F. T. Weyerhaeuser, who share voting
and investment power over the shares in the trust.
(9) The trustees of the 1966 Rev. Trust #3 of Sarah-Maud W. Sivertsen are W.
John Driscoll, Edward R. Titcomb and F. T. Weyerhaeuser, who share voting
and investment power over the shares in the trust.
(10) The trustees of the 1966 Rev. Trust #4 of Sarah-Maud W. Sivertsen are W.
John Driscoll, Edward R. Titcomb and F. T. Weyerhaeuser, who share voting
and investment power over the shares in the trust.
(11) The trustees of the Trust for Elise B. Rosenberry are Edward R. Titcomb and
Lynn W. Day, who share voting and investment power over the shares in the
trust.
(12) The trustees of the Trust for Lucy Rosenberry are Edward R. Titcomb and
Lynn W. Day, who share voting and investment power over the shares in the
trust.
(13) The trustees of the Trust for Walter S. Rosenberry III are Edward R.
Titcomb and Lynn W. Day, who share voting and investment power over the
shares in the trust.
(14) The trustees of the Trust U/W of J. P. Weyerhaeuser Jr. fbo Elizabeth W.
Meadowcroft are Walter S. Rosenberry III, F.T. Weyerhaeuser and William T.
Weyerhaeuser, who share voting and investment power over the shares in the
trust.
(15) The trustees of the Trust U/W of J. P. Weyerhaeuser Jr. fbo George H.
Weyerhaeuser are Walter S. Rosenberry III, F.T. Weyerhaeuser and William T.
Weyerhaeuser, who share voting and investment power over the shares in the
trust.
(16) The trustees of the Trust U/W of J. P. Weyerhaeuser Jr. fbo Ann W. Pascoe
are Walter S. Rosenberry, F.T. Weyerhaeuser and William T. Weyerhaeuser,
who share voting and investment power over the shares in the trust.
(17) The trustees of the Special Power of Appointment Trust U/W of J. P.
Weyerhaeuser III are George H. Weyerhaeuser and William T. Weyerhaeuser,
who share voting and investment power over the shares in the trust.
(18) The trustee of the Revocable Trust of William T. Weyerhaeuser is Gail T.
Weyerhaeuser, who has voting and investment power over the shares in the
trust.
(19) The trustee of the Revocable Trust of Bruce L. Titcomb is Kathleen Y.
Titcomb, who has voting and investment power over the shares in the trust.
(20) The trustees of the 1985 Trust for Christopher B. Titcomb are Daniel C.
Titcomb and John W. Titcomb Jr., who share voting and investment power over
the shares in the trust.
(21) The trustees of the 1985 Trust for Daniel O. Titcomb are Daniel C. Titcomb
and John W. Titcomb Jr., who share voting and investment power over the
shares in the trust.
(22) The trustees of the 1985 Trust for Robert C. Titcomb are Daniel C. Titcomb
and John W. Titcomb Jr., who share voting and investment power over the
shares in the trust.
(23) These shares are held in custodial accounts under a Uniform Transfer to
Minors Act, with Judith L. Titcomb, as custodian, having voting and
investment power over these shares.
(24) Daniel C. Titcomb is a co-trustee of the three trusts described in Notes
(20), (21) and (22) under "Selling Shareholders."
(25) The trustees of the 1985 Trust for Stephen T. Titcomb created 4-25-61 are
W. John Driscoll and George H. Weyerhaeuser, who share voting and
investment power over the shares in the trust.
(26) The trustees of the Edward R. Titcomb Insurance Trust fbo Bruce L. Titcomb
are Frederick W. Davis II, George H. Weyerhaeuser and William T.
Weyerhaeuser, who share voting and investment power over the shares in the
trust.
(27) The trustees of the Edward R. Titcomb Insurance Trust fbo Daniel C. Titcomb
are Frederick W. Davis II, George H. Weyerhaeuser and William T.
Weyerhaeuser, who share voting and investment power over the shares in the
trust.
(28) The trustees of the Edward R. Titcomb Insurance Trust fbo Frederick W.
Titcomb are Frederick W. Davis II, George H. Weyerhaeuser and William T.
Weyerhaeuser, who share voting and investment power over the shares in the
trust.
50
<PAGE> 52
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 10,000,000 shares
of Common Stock, $1.00 par value, and 5,000,000 shares of Preferred Stock, no
par value. The Company's Board of Directors has approved an increase in the
number of authorized shares of Common Stock from 10,000,000 to 20,000,000
shares, which increase will be voted upon by the Company's shareholders at the
1995 Annual Meeting of Shareholders to be held November 18, 1995.
COMMON STOCK
Holders of Common Stock are entitled to one vote per share for each share
held of record on all matters submitted to a vote of shareholders. Subject to
preferences that may be applicable to the holders of outstanding shares of
Preferred Stock, if any, the holders of Common Stock are entitled to receive
such lawful dividends as may be declared by the Board of Directors. In the event
of a liquidation, dissolution or winding up of the affairs of the Company,
whether voluntary or involuntary, and subject to the rights of the holders of
outstanding shares of Preferred Stock, if any, the holders of shares of Common
Stock shall be entitled to receive pro rata all of the remaining assets of the
Company available for distribution to its shareholders. The Common Stock has no
preemptive, redemption, conversion or subscription rights. All outstanding
shares of Common Stock are fully paid and non-assessable, and the shares of
Common Stock to be issued pursuant to this Offering will be fully paid and
non-assessable.
PREFERRED STOCK
The Board of Directors is authorized from time to time to issue shares of
Preferred Stock in one or more series and with such relative rights, powers,
preferences, limitations and restrictions as the Board of Directors may
determine, without the vote of holders of its Common Stock or Preferred Stock,
if any. Such shares may be convertible into Common Stock and may be superior to
the Common Stock in the payment of dividends, liquidation, voting and other
rights, preferences and privileges. The issuance of Preferred Stock could
adversely affect the holders of Common Stock. For example, the issuance of
Preferred Stock could be used in certain circumstances to render more difficult
or discourage a merger, tender offer or proxy contest or a removal of incumbent
management. Preferred Stock may be issued with voting and conversion rights that
could adversely affect the voting power and other rights of the holders of
Common Stock. The Company has no present plans to issue any shares of Preferred
Stock.
ANTI-TAKEOVER EFFECTS OF THE COMPANY'S BYLAWS AND OF MICHIGAN LAW
BYLAWS
The Company's Bylaws contain certain provisions that could discourage
potential takeover attempts and make more difficult attempts by shareholders to
change the Company's management. The Company's Bylaws provide that nominations
for directors may not be made by shareholders at any annual or special meeting
thereof unless the shareholder intending to make a nomination notifies the
Company of his intentions a specified number of days in advance of the meeting
and furnishes to the Company certain information regarding himself and the
intended nominee. The Company's Bylaws also require advance notice of any
proposal to be brought by a shareholder before any annual or special meeting of
shareholders and require that the shareholder provide certain information to the
Company regarding such shareholder, the proposal and any material interest such
shareholder may have in the proposal.
MICHIGAN LAW
The Michigan Business Corporation Act (the "MBCA") contains certain
provisions that may impede the acquisition of significant stock ownership in the
Company unless approved by the Company's Board of Directors. Chapter 7B of the
MBCA provides that "control shares" of the
51
<PAGE> 53
Company acquired in a control share acquisition have no voting rights except as
granted by the shareholders of the Company. Control shares are shares that, when
added to shares previously owned by a shareholder, increases such shareholder's
ownership of voting stock to 20% or more, 33 1/3% or more or a majority of the
outstanding voting power of the Company. Chapter 7A of the MBCA provides that
business combinations between a Michigan corporation which elects to be subject
to Chapter 7A and a beneficial owner of 10% or more of the voting power of such
corporation generally require the approval of 90% of the votes of each class of
stock entitled to be cast, and at least 2/3 of the votes of each class of stock
entitled to be cast other than shares owned by such 10% owner, unless the
corporation's board of directors approves the transaction prior to the time the
10% owner becomes such or the transaction satisfies certain fairness standards,
certain other conditions are met and the 10% owner has been such for at least
five years. The Company is subject to Chapter 7B of the MBCA. The Company is not
currently subject to Chapter 7A of the MBCA, but the Company's Board of
Directors may elect at any time to be subject to all or part of Chapter 7A, with
respect to specifically identified or unidentified 10% owners, by adopting a
resolution to that effect.
LIMITATION OF LIABILITY
The Company's Articles of Incorporation provide that no director of the
Company shall be personally liable to the Company or to its shareholders for
monetary damages for breach of fiduciary duty as a director, except that such
provisions do not eliminate or limit liability (i) for any breach of the
director's duty of loyalty to the Company or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, (iii) under Section 551(1) of the MBCA dealing with liability
for unauthorized distributions and loans to insiders or (iv) for any transaction
from which the director derived an improper personal benefit.
A principal effect of these provisions is to limit or eliminate the
potential liability of the Company's directors for monetary damages arising from
breaches of their duty of care, unless the breach involves one of the four
exceptions described in (i) through (iv) above. These provisions may also shield
directors from liability under federal and state securities laws.
The Company's Articles of Incorporation and Bylaws further provide for the
indemnification of the Company's directors and officers to the fullest extent
permitted by Michigan law, including circumstances in which indemnification is
otherwise discretionary.
STOCK TRANSFER AGENT
The transfer agent for the Common Stock is KeyCorp Shareholder Services,
Inc.
52
<PAGE> 54
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of this Offering, the Company will have 9,365,273 shares
of Common Stock outstanding, all of which, including the 2,170,000 shares
offered hereby, will be freely tradeable in the public market without
restriction under the Securities Act unless they are held by an "affiliate" of
the Company (as that term is defined in Rule 144 under the Securities Act). Of
the Company's outstanding shares at September 30, 1995, 696,591 shares are
subject to lock-up agreements pursuant to which they may not be sold or
transferred for 90 days after the date of this Prospectus. However, Robertson,
Stephens & Company, in its sole discretion, may release the shareholders from
these lock-up agreements, in whole or in part, at any time and without notice.
The Company also maintains two stock option plans, the 1988 Stock Option
Plan and the 1994 Directors Stock Option Plan, and an Employee Stock Purchase
Plan and an Executive Stock Purchase Program. As of September 30, 1995, there
were an aggregate of approximately 838,245 shares of Common Stock subject to
outstanding options or purchase rights under these plans. The Company has filed
registration statements on Form S-8 under the Securities Act to register all
shares of Common Stock issuable under the 1988 Stock Option Plan, the 1994
Directors Stock Option Plan, the Employee Stock Purchase Plan and the Executive
Stock Purchase Plan. Shares covered by those registration statements are
eligible for resale in the public market, subject to Rule 144 limitations
applicable to affiliates and to the lock-up agreements described above, if
applicable.
No prediction can be made as to the effect, if any, that market sales or
the availability for sale of such shares will have on the market price of the
Common Stock prevailing from time to time. Nevertheless, sales of substantial
numbers of shares in the public market could adversely affect the market price
of the Common Stock and could impair the Company's ability to raise capital
through a sale of its equity securities.
53
<PAGE> 55
UNDERWRITING
The Underwriters named below, acting through their representatives,
Robertson, Stephens & Company, L.P., Volpe, Welty & Company and The Chicago
Corporation (the "Representatives"), have severally agreed, subject to the terms
and conditions of the Underwriting Agreement, to purchase from the Company and
the Selling Shareholders the number of shares of Common Stock set forth opposite
their respective names below. The Underwriters are committed to purchase and pay
for all such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
------------------------------------------------------------------ ---------
<S> <C>
Robertson, Stephens & Company, L.P. ..............................
Volpe, Welty & Company............................................
The Chicago Corporation...........................................
---------
Total..................................................... 2,170,000
=========
</TABLE>
The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public at the public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession of not more than $ per share, of which $
may be reallowed to other dealers. After this Offering, the public offering
price, concession and reallowance to dealers may be reduced by the
Representatives. No such reduction shall change the amount of proceeds to be
received by the Company as set forth on the cover page of this Prospectus.
The Company and the Selling Shareholders have granted to the Underwriters
an option, exercisable during the 30-day period after the date of this
Prospectus, to purchase up to 325,500 additional shares of Common Stock at the
same price per share as the Company and the Selling Shareholders receive for the
2,170,000 shares that the Underwriters have agreed to purchase. To the extent
that the Underwriters exercise such option, each of the Underwriters will have a
firm commitment to purchase approximately the same percentage of such additional
shares that the number of shares of Common Stock to be purchased by it shown in
the above table represents as a percentage of the 2,170,000 shares offered
hereby. If purchased, such additional shares will be sold by the Underwriters on
the same terms as those on which the 2,170,000 shares are being sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Shareholders against certain civil
liabilities, including liabilities under the Securities Act.
Each executive officer and director of the Company listed in the table
under "Management" and each Selling Shareholder has agreed, during the period
ending 90 days after the date of this Prospectus, not to directly or indirectly
offer, sell, contract to sell, make subject to any purchase option, grant a
security interest in or otherwise dispose of an aggregate of 696,591 shares of
Common Stock owned at September 30, 1995 without the prior written consent of
Robertson, Stephens & Company, L.P. The
54
<PAGE> 56
Company has also agreed not to offer, sell, contract to sell or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock, or any options or warrants to
purchase Common Stock other than shares or options issued under the Company's
stock and option plans until 90 days after the effective date of this
Registration Statement, except with the prior written consent of Robertson,
Stephens & Company, L.P. Consent to earlier sale of such shares may be granted
by Robertson, Stephens & Company, L.P. in its discretion.
The Underwriters do not intend to confirm sales to any account over which
they have discretionary authority.
In general, the rules of the Commission will prohibit the Underwriters from
making a market in the Company's Common Stock during the "cooling off" period
immediately preceding the commencement of sales in this Offering. The Commission
has, however, adopted exemptions from these rules that permit passive market
making under certain conditions. These rules permit an underwriter to continue
to make a market subject to the conditions, among others, that its bid not
exceed the highest bid by a market maker not connected with this Offering and
that its net purchases on any one trading day not exceed prescribed limits.
Pursuant to these exemptions, certain Underwriters, selling group members (if
any) or their respective affiliates intend to engage in passive market making in
the Company's Common Stock during the cooling off period.
55
<PAGE> 57
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for the
Company by Dykema Gossett PLLC, Detroit, Michigan. Janet L. Neary, a member of
Dykema Gossett PLLC, serves as the Company's Secretary. Certain legal matters
will be passed upon for the Underwriters by Brobeck, Phleger & Harrison, San
Francisco, California.
EXPERTS
The consolidated balance sheets as of June 30, 1994 and 1995, and the
consolidated statements of operations, shareholders' equity and cash flows of
the Company for each of the three years in the period ended June 30, 1995, and
the related financial statement schedule included in or incorporated by
reference in this Prospectus and elsewhere in the Registration Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated by their reports with respect thereto, and are included in or
incorporated by reference herein in reliance on the authority of said firm as
experts in accounting and auditing. Reference is made to said report, which
includes an explanatory paragraph with respect to the change in the method of
accounting for income taxes as explained in Note 8 to the consolidated financial
statements.
ADDITIONAL INFORMATION
This Prospectus constitutes a part of a Registration Statement on Form S-3
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the Commission under the
Securities Act. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the shares of Common Stock offered
hereby, reference is hereby made to the Registration Statement. Statements
contained herein concerning the provisions of any document are not necessarily
complete, and each such statement is qualified in its entirety by reference to
the copy of such document filed with the Commission. The Registration Statement,
including the exhibits thereto, may be inspected at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of all or any part thereof may be obtained from such
office upon payment of the prescribed fees.
56
<PAGE> 58
COMSHARE, INCORPORATED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants............................................. F-2
Consolidated Statement of Operations for the Fiscal Years Ended
June 30, 1993, 1994 and 1995 and the Three Months Ended September 30, 1994 and 1995
(unaudited)........................................................................ F-3
Consolidated Balance Sheet as of June 30, 1994 and 1995 and September 30, 1995
(unaudited)........................................................................ F-4
Consolidated Statement of Cash Flows for the Fiscal Years Ended
June 30, 1993, 1994 and 1995 and the Three Months Ended September 30, 1994 and 1995
(unaudited)........................................................................ F-6
Consolidated Statement of Shareholders' Equity for the Fiscal Years Ended
June 30, 1993, 1994 and 1995 and the Three Months Ended September 30, 1995
(unaudited)........................................................................ F-7
Notes to Consolidated Financial Statements........................................... F-8
</TABLE>
F-1
<PAGE> 59
After the stock split discussed in Note 12 to Comshare, Incorporated's
Consolidated Financial Statements is effected, we expect to be in a position to
render the following audit report.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
July 27, 1995
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Comshare, Incorporated:
We have audited the accompanying consolidated balance sheet of COMSHARE,
INCORPORATED (a Michigan corporation) and subsidiaries as of June 30, 1994 and
1995, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended June 30,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Comshare, Incorporated and
subsidiaries as of June 30, 1994 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1995 in conformity with generally accepted accounting principles.
As explained in Note 8 to the financial statements, effective July 1, 1992, the
Company changed its method of accounting for income taxes.
F-2
<PAGE> 60
COMSHARE, INCORPORATED
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except for per share data)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, SEPTEMBER 30,
----------------------------- -----------------
1993 1994 1995 1994 1995
-------- ------- -------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
REVENUE
Software licenses.............................. $ 40,397 $37,871 $ 49,294 $10,006 $13,920
Software maintenance........................... 43,064 41,625 36,649 8,972 9,015
Implementation, consulting and other
services.................................... 21,733 17,130 22,415 5,180 5,718
-------- ------- -------- ------- -------
TOTAL REVENUE.................................... 105,194 96,626 108,358 24,158 28,653
COSTS AND EXPENSES
Selling and marketing.......................... 54,065 46,457 45,283 10,232 12,038
Cost of revenue and support.................... 20,528 17,670 24,799 5,382 6,690
Internal research and product development...... 22,989 19,293 16,180 4,070 3,998
Internally capitalized software................ (15,035) (13,193) (11,667) (3,079) (2,358)
Software amortization.......................... 10,761 12,517 13,250 3,385 2,616
General and administrative..................... 11,668 9,891 11,663 2,750 3,041
Unusual charge................................. -- -- 6,365 -- --
Restructuring related costs.................... 1,489 2,343 -- -- --
-------- ------- -------- ------- -------
TOTAL COSTS AND EXPENSES......................... 106,465 94,978 105,873 22,740 26,025
-------- ------- -------- ------- -------
INCOME (LOSS) FROM OPERATIONS.................... (1,271) 1,648 2,485 1,418 2,628
OTHER INCOME (EXPENSE)
Interest income................................ 298 79 157 21 15
Interest expense............................... (611) (568) (669) (187) (156)
Exchange gain (loss)........................... 480 (25) 307 (37) (89)
-------- ------- -------- ------- -------
TOTAL OTHER INCOME (EXPENSE)..................... 167 (514) (205) (203) (230)
-------- ------- -------- ------- -------
INCOME (LOSS) BEFORE TAXES....................... (1,104) 1,134 2,280 1,215 2,398
Provision (benefit) for income taxes............. 659 912 (3,048) 464 888
-------- ------- -------- ------- -------
NET INCOME (LOSS)................................ $ (1,763) $ 222 $ 5,328 $ 751 $ 1,510
======== ======= ======== ======= =======
NET INCOME (LOSS) PER COMMON SHARE............... $ (0.22) $ 0.03 $ 0.63 $ 0.09 $ 0.17
======== ======= ======== ======= =======
WEIGHTED AVERAGE NUMBER OF COMMON AND DILUTIVE
COMMON EQUIVALENT SHARES....................... 7,978 8,234 8,398 8,235 8,730
======== ======= ======== ======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE> 61
COMSHARE, INCORPORATED
CONSOLIDATED BALANCE SHEET
(dollars in thousands)
<TABLE>
<CAPTION>
JUNE 30, SEPTEMBER 30,
------------------ -------------
1994 1995 1995
------- ------- -------------
(unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash...................................................... $ 1,774 $ 1,398 $ 2,023
Accounts receivable, less allowance for doubtful accounts
of $1,161 as of June 30, 1994; $887 as of June 30, 1995
and $910 as of September 30, 1995...................... 30,846 29,531 30,995
Deferred income taxes..................................... 1,487 783 783
Prepaid expenses.......................................... 4,012 4,098 4,140
------- ------- -------
Total current assets................................... 38,119 35,810 37,941
PROPERTY AND EQUIPMENT, at cost
Computers and other equipment............................. 24,278 24,023 23,839
Leasehold improvements.................................... 4,258 3,053 3,535
------- ------- -------
28,536 27,076 27,374
Less -- Accumulated depreciation.......................... 24,338 23,663 23,867
------- ------- -------
Property and equipment, net............................ 4,198 3,413 3,507
COMPUTER SOFTWARE, net of accumulated amortization of
$50,114 as of June 30, 1994; $70,308 as of June 30, 1995
and $72,800 as of September 30, 1995...................... 40,236 32,676 32,410
GOODWILL, net of accumulated amortization of $1,437 as of
June 30, 1994; $1,751 as of June 30, 1995 and $1,730 as of
September 30, 1995........................................ 2,033 2,246 2,162
OTHER ASSETS................................................ 4,358 5,165 5,356
------- ------- -------
$88,944 $79,310 $81,376
======= ======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE> 62
COMSHARE, INCORPORATED
CONSOLIDATED BALANCE SHEET
(dollars in thousands)
<TABLE>
<CAPTION>
JUNE 30,
------------------ SEPTEMBER 30,
1994 1995 1995
------- ------- -------------
(unaudited)
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable............................................. $ 29 $ -- $ --
Accounts payable.......................................... 10,608 11,342 12,564
Accrued liabilities
Payroll................................................ 4,910 3,467 2,872
Taxes, other than income taxes......................... 1,399 1,486 1,441
Other.................................................. 1,364 1,465 1,008
------- ------- -------
Total accrued liabilities............................ 7,673 6,418 5,321
Income taxes.............................................. 641 1,602 2,010
Deferred revenue.......................................... 19,617 18,599 18,725
------- ------- -------
Total current liabilities............................ 38,568 37,961 38,620
LONG-TERM DEBT.............................................. 15,354 5,436 4,662
DEFERRED INCOME TAXES....................................... 5,511 275 274
OTHER LIABILITIES........................................... 3,005 3,090 3,466
SHAREHOLDERS' EQUITY
Capital stock:
Preferred stock, no par value; authorized 5,000,000
shares; none issued.................................. -- -- --
Common stock, $1.00 par value; authorized 20,000,000
shares; outstanding 8,036,716 shares as of June 30,
1994; 8,221,234 shares as of June 30, 1995 and
8,240,273 shares as of September 30, 1995............ 8,037 8,221 8,240
Capital contributed in excess of par...................... 11,982 13,199 13,278
Retained earnings......................................... 10,190 15,500 16,987
Currency translation adjustments.......................... (3,504) (3,239) (3,217)
------- ------- -------
26,705 33,681 35,288
Less -- Notes receivable.................................. 199 1,133 934
------- ------- -------
Total shareholders' equity........................... 26,506 32,548 34,354
------- ------- -------
$88,944 $79,310 $81,376
======= ======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE> 63
COMSHARE, INCORPORATED
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
-------------------------------- --------------------
1993 1994 1995 1994 1995
-------- -------- -------- -------- --------
(unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
NET INCOME (LOSS).......................... $ (1,763) $ 222 $ 5,328 $ 751 $ 1,510
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization............ 15,491 15,893 15,873 4,096 3,198
Write-off of capitalized software........ -- -- 6,365 -- --
Gain on sale of undeveloped land......... -- (1,102) -- -- --
Provision for losses on accounts
receivable............................ 586 140 (119) 27 19
Loss on sale of property and equipment... 71 3 28 11 --
Changes in operating assets and
liabilities:
Accounts receivable................... 4,601 585 2,675 (297) (1,415)
Prepaid expenses...................... 1,142 929 77 (56) (58)
Other assets.......................... 1,122 35 -- -- --
Accounts payable...................... (2,716) (1,083) (469) 149 1,403
Accrued liabilities................... (2,927) 853 (337) (1,579) (810)
Deferred revenue...................... (396) (3,875) (1,489) (1,044) 116
Deferred income taxes................. 528 732 (4,645) 387 2
Other liabilities..................... 607 301 42 67 381
-------- -------- -------- -------- --------
Net cash provided by operating
activities....................... 16,346 13,633 23,329 2,512 4,346
INVESTING ACTIVITIES
Additions to computer software........... (15,811) (13,187) (11,667) (3,079) (2,409)
Payments for property and equipment...... (1,645) (1,199) (1,207) (165) (523)
Proceeds from sale of undeveloped land... -- 3,376 -- -- --
Other.................................... (235) (1,382) (1,227) (264) (332)
-------- -------- -------- -------- --------
Net cash used in investing
activities....................... (17,691) (12,392) (14,101) (3,508) (3,264)
FINANCING ACTIVITIES
Net borrowings (repayments) under notes
payable............................... (590) (40) (33) 167 --
Net borrowings (repayments) under long-
term debt............................. 768 (2,046) (10,044) (24) (737)
Stock options exercised.................. 358 74 248 41 74
Other.................................... -- (42) 202 -- 187
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities............. 536 (2,054) (9,627) 184 (476)
EFFECT OF EXCHANGE RATE CHANGES............ (408) (6) 23 45 19
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH............ (1,217) (819) (376) (767) 625
-------- -------- -------- -------- --------
BALANCE AT BEGINNING OF YEAR............... 3,810 2,593 1,774 1,774 1,398
-------- -------- -------- -------- --------
BALANCE AT END OF YEAR..................... $ 2,593 $ 1,774 $ 1,398 $ 1,007 $ 2,023
======== ======== ======== ======== ========
Supplemental disclosures:
Cash paid for interest................... $ 540 $ 624 $ 690 $ 187 $ 118
======== ======== ======== ======== ========
Cash paid for income taxes............... $ 1,113 $ 481 $ 558 $ 119 $ 537
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE> 64
COMSHARE, INCORPORATED
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED JUNE 30, ENDED
----------------------------- SEPTEMBER 30,
1993 1994 1995 1995
------- ------- ------- -------------
(unaudited)
<S> <C> <C> <C> <C>
COMMON STOCK
Balance beginning of period...................... $ 7,930 $ 8,019 $ 8,037 $ 8,221
Employee Stock Purchase Plan..................... -- -- 22 --
1994 Executive Stock Purchase Program............ -- -- 104 --
Retirement of shares............................. (27) -- (2) (1)
Stock options exercised.......................... 116 18 60 20
------- ------- ------- -------
Balance end of period............................ 8,019 8,037 8,221 8,240
------- ------- ------- -------
CAPITAL CONTRIBUTED IN EXCESS OF PAR
Balance beginning of period...................... 11,557 11,926 11,982 13,199
Employee Stock Purchase Plan..................... -- -- 155 --
1994 Executive Stock Purchase Program............ -- -- 855 --
Retirement of shares............................. (41) -- (3) (2)
Stock options exercised.......................... 397 54 210 81
Tax benefits related to stock options............ 13 2 -- --
------- ------- ------- -------
Balance end of period............................ 11,926 11,982 13,199 13,278
------- ------- ------- -------
RETAINED EARNINGS
Balance beginning of period...................... 11,831 9,968 10,190 15,500
Net income (loss)................................ (1,763) 222 5,328 1,510
Retirement of shares............................. (100) -- (18) (23)
------- ------- ------- -------
Balance end of period............................ 9,968 10,190 15,500 16,987
------- ------- ------- -------
CURRENCY TRANSLATION ADJUSTMENTS
Balance beginning of period...................... (1,165) (3,553) (3,504) (3,239)
Translation adjustments.......................... (2,388) 49 265 22
------- ------- ------- -------
Balance end of period............................ (3,553) (3,504) (3,239) (3,217)
------- ------- ------- -------
LESS -- NOTES RECEIVABLE
Balance beginning of period...................... 199 199 199 1,133
1994 Executive Stock Purchase Program............ -- -- 934 --
Employee Stock Option Plan....................... -- -- -- (199)
------- ------- ------- -------
Balance end of period............................ 199 199 1,133 934
------- ------- ------- -------
Total shareholders' equity.................... $26,161 $26,506 $32,548 $34,354
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-7
<PAGE> 65
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1994 AND 1995 IS
UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of the Company and its subsidiaries, all of which are wholly owned.
All material intercompany accounts and transactions have been eliminated.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS. The accompanying consolidated
balance sheet as of September 30, 1995 and consolidated statements of
operations, cash flows and shareholders' equity for the three months ended
September 30, 1994 and 1995 are unaudited, but in the opinion of management
include all adjustments (consisting only of normal recurring adjustments)
necessary for fair presentation thereof. The results of operations for the three
months ended September 30, 1994 and 1995 are not necessarily indicative of
results to be expected for the full year or any future period.
REVENUE. The Company's revenue consists of software license, software
maintenance and implementation, consulting and other service revenue. Software
license revenue, including sales to distributors, is recognized when a customer
contract is fully executed and the software has been shipped. Software
maintenance revenue, whether bundled with product license or priced separately,
is recorded as deferred revenue on the balance sheet when invoiced and is
recognized over the term of the maintenance contract. Implementation, consulting
and other services revenue is recognized as the services are performed.
EXPENSE CLASSIFICATION. Selling and marketing expense includes advertising
and agency fees. Cost of revenue and support includes personnel and other costs
related to produce the implementation and consulting services revenue, customer
support costs, direct cost of producing software and royalty expense for
products licensed from others for use in the Company's product offerings.
FOREIGN CURRENCY TRANSLATION. All assets and liabilities of the Company's
foreign operations are translated at current exchange rates and revenue and
expenses are translated at monthly exchange rates. Resulting translation
adjustments are reflected as a separate component of shareholders' equity.
Foreign currency transaction gains and losses are included in net income.
The Company at various times has entered into forward exchange contracts to
hedge exposures related to foreign currency transactions. The Company does not
use any other types of derivatives to hedge such exposures nor does it speculate
in foreign currency. The Company only uses forward exchange contracts to hedge
against large selective transactions that present the most exposure to exchange
rate fluctuations. At June 30, 1995, the Company held a forward contract,
entered into on September 9, 1994, where it purchased a $1,500,000 contract for
British pounds with a maturity date of September 29, 1995 and a forward
contract, entered into on June 30, 1995, where it sold a $750,000 contract for
Canadian dollars with a maturity date of August 31, 1995. At September 30, 1995,
the Company held a forward contract, entered into on September 29, 1995, where
it purchased a $1,200,000 contract for British pounds with a maturity date of
December 29, 1995 and a forward contract, entered into on August 31, 1995, where
it sold a $600,000 contract for Canadian dollars with a maturity date of October
30, 1995. The carrying value of these contracts approximates the fair market
value.
Statement of Financial Accounting Standards No. 119 "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments"
requires additional disclosures regarding the nature of derivatives held. This
statement is required to be adopted by the Company during its fiscal year ended
June 30, 1996.
CASH. Cash includes investments in highly liquid investments with
maturities of three months or less at the time of acquisition.
F-8
<PAGE> 66
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTERNAL RESEARCH AND PRODUCT DEVELOPMENT. Internal research and product
development includes all such expense before computer software capitalization
and amortization.
COMPUTER SOFTWARE. The costs of developing and purchasing new software
products and enhancements to existing software products are capitalized after
technological feasibility is established. These costs include capitalized
interest of $906,000, $814,000, and $681,000 in fiscal 1993, 1994 and 1995,
respectively and $179,000 and $0 for the three months ended September 30, 1994
and 1995, respectively. In fiscal 1993, 1994 and 1995, capitalized development
costs were amortized using a rolling three year method, effectively a service
life of approximately six years. Beginning in fiscal 1996, capitalized
development costs were amortized using the straight-line method over a four year
service life. The policy is reevaluated and adjusted as necessary at the end of
each accounting period. On an ongoing basis, management reviews the valuation
and amortization of capitalized development costs. As part of this review, the
Company considers the value of future cash flows attributable to the capitalized
development costs in evaluating potential impairment of the asset. In addition
to the internally capitalized software, the Company expended $776,000 on
purchased software during the year ended June 30, 1993. There were no
expenditures for purchased software for the years ended June 30, 1994 and 1995
and for the three months ended September 30, 1995.
DEPRECIATION. The cost of depreciable assets is charged to operations on a
straight-line basis. Principal service lives for computers and other equipment
are three to five years. Leasehold improvements are amortized over the expected
life of the asset or term of the lease, whichever is shorter.
GOODWILL. Goodwill represents the unamortized cost in excess of fair value
of net assets acquired and is amortized on a straight-line basis over forty
years. On an ongoing basis, management reviews the valuation and amortization of
goodwill. As part of this review, the Company considers the value of future cash
flows attributable to the acquired operations in evaluating potential impairment
of goodwill.
OTHER ASSETS. Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. This statement is required to be adopted by
the Company during its fiscal year ended June 30, 1997. Although a detailed
analysis has not been performed, the Company believes there would be no material
impact on its financial statements, if this statement was adopted as of June 30,
1995 or September 30, 1995.
EARNINGS PER SHARE. Earnings per share of common stock is based on the
daily weighted average number of shares of common stock outstanding considering
the dilutive effect of outstanding stock options when appropriate and reflects
the three-for-two stock split. See Note 12 for information regarding the stock
split.
RECLASSIFICATIONS. For the year ended June 30, 1995, the Company changed
its presentation of cash flows from operating activities from the direct method
to the indirect method.
Certain amounts in the 1993 and 1994 financial statements have been
reclassified to conform with 1995 presentation.
2. RESTRUCTURING AND UNUSUAL CHARGES
During the years ended June 30, 1993 and 1994, the Company made provisions
totaling $1,489,000, and $2,343,000, respectively, for management actions or
plans in connection primarily with staff reductions related to its
restructuring. For the year ended June 30, 1994, the restructuring charges
F-9
<PAGE> 67
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
include staff reductions of approximately 50 employees; estimated savings of
$4,000,000 was achieved in fiscal 1995. At June 30, 1995, $554,000 remains to be
paid for contractual obligations related to restructuring actions taken during
1994.
During the year ended June 30, 1995, the Company recorded an unusual charge
of $6,365,000. This charge related to the write-off of capitalized software
associated with its mature mainframe products. The write-off of capitalized
software associated with the Company's mainframe products is the result of
current industry trends and reflects the Company's strategic product plan to
focus on desktop and client/server software products.
3. BORROWINGS
Borrowing components are as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
----------------- SEPTEMBER 30,
1994 1995 1995
------- ------ -------------
<S> <C> <C> <C>
Lines of credit............................... $15,354 $5,436 $ 4,662
Notes payable................................. 29 -- --
------- ------ -------
Total outstanding...................... 15,383 5,436 4,662
Less current portion.......................... 29 -- --
------- ------ -------
$15,354 $5,436 $ 4,662
======= ====== =======
</TABLE>
On October 31, 1994 the Company entered into a $14,000,000 amended and
restated domestic credit agreement with its banks which matures on October 31,
1997. The amended and restated credit agreement contains covenants regarding
among other things, working capital, leverage, net worth and payment of
dividends. Under the terms of the agreement, the Company is not permitted to pay
dividends. Permitted borrowings under the credit agreement are based on a
percentage of worldwide eligible accounts receivable and worldwide borrowings.
At June 30, 1995 and September 30, 1995, the permitted borrowings available
under the agreement were $14,000,000, of which $3,500,000 and $2,100,000 were
outstanding, respectively. Interest was at the bank's prime rate (8.75% at June
30, 1995) plus 1% and has been reduced effective July 1, 1995, upon the
Company's meeting certain financial criteria, to the Eurodollar rate (5.875% at
September 30, 1995) plus applicable margin, which varies between 1 1/2% and
2 1/2% (2% at September 30, 1995). During the first quarter of fiscal 1996, the
banks released all security interests in the assets of the Company previously
granted to the banks.
Separately, certain of the Company's subsidiaries entered into local
currency credit agreements or overdraft facilities in various currencies with
banks totaling $3,664,000 at June 30, 1995 and $4,441,000 at September 30, 1995.
At June 30, 1995, the Company had outstanding borrowings of $1,256,000 in
British pounds and $680,000 in German marks. At September 30, 1995, the Company
had outstanding borrowings of $1,901,000 in British pounds and $661,000 in
German marks. The credit agreements expire on October 1, 1997. The interest
rates generally vary with the banks' base rate. Most of such borrowings are
guaranteed by the Company.
4. SHAREHOLDERS' EQUITY
The Board of Directors has the authority to issue up to 5,000,000 shares of
no par value preferred stock. The shares can be issued in one or more series
with full, limited or no voting powers and with such special rights,
qualifications, limitations and restrictions as may be adopted by the Board of
Directors.
The Company's senior executives are encouraged to own Comshare common
stock. To facilitate such ownership, the shareholders approved the 1994
Executive Stock Purchase Program which enables
F-10
<PAGE> 68
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
such executives to purchase Comshare common stock at then current market prices
directly from the Company via a promissory note. The promissory note cannot
exceed the executive's base annual salary and is secured by the related common
stock issued by the Company. The promissory note matures four years from the
date of issuance. Interest is at the prime rate plus 1% and may be deferred
until the promissory note matures. A total of 300,000 shares of the Company's
common stock has been reserved for issuance under the 1994 Executive Stock
Purchase Program. For the year ended June 30, 1995, a total of 104,044 shares at
prices ranging from $8.67 to $12.33 were issued in exchange for notes totaling
$934,000. In the first quarter of fiscal 1996, no shares were issued under this
program.
5. STOCK OPTIONS
The Company has two stock option plans, the 1988 Stock Option Plan (the
"1988 Plan") and the 1994 Directors Stock Option Plan (the "Directors Plan")
which was adopted in November, 1994.
The Company's 1988 Plan provides for the grant of both incentive stock
options and non-qualified options to officers and key employees. Options under
the 1988 Plan are granted at 100% of market price on date of grant, are
exercisable at the rate of 25% per year after one year from the date of grant
and have a term of five years. The Board of Directors may, at its discretion,
grant stock appreciation rights in connection with the grant of options, but to
date has not elected to do so.
Effective June 25, 1993, the Company offered current option holders except
for the Company's senior executive officers, the opportunity to exchange
outstanding options, for an equal number of options of the Company's common
stock, at the current market price of $4.08. All eligible option holders
accepted this offer and the Company canceled the previous options and granted
new options representing 467,640 shares of common stock under the Company's 1988
Plan. The new options vest over four years effective from the new date of grant.
Effective August 13, 1993 and September 23, 1993, the Company offered the
senior executives the opportunity to exchange certain outstanding options, for
an equal number of options of the Company's common stock, at the current market
price of $6.00 and $6.17, respectively. The executive option holders accepted
this offer and the Company canceled certain of the previous options and granted
new options representing 201,000 shares of common stock under the Company's 1988
Plan. The new options vest over four years effective from the new date of grant.
The 1988 Stock Option Plan was amended in November 1994 to increase the
number of shares of common stock authorized for grant from 900,000 shares to
1,275,000.
At June 30, 1995 and September 30, 1995, the Company had reserved 1,192,928
and 1,172,528 shares of common stock, respectively, for the exercise of employee
stock options.
F-11
<PAGE> 69
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock option activity for the 1988 Plan is summarized below:
<TABLE>
<CAPTION>
NUMBER PRICE
OF SHARES PER SHARE
--------- ---------------------
<S> <C> <C> <C> <C>
Outstanding at June 30, 1992...................... 1,305,765 $ 3.83 to $14.67
Granted........................................... 529,140 4.09 to 7.00
Exercised......................................... (115,500) 3.83 to 4.83
Canceled.......................................... (533,265) 4.83 to 13.92
--------
Outstanding at June 30, 1993...................... 1,186,140 4.09 to 14.67
Granted........................................... 352,500 6.00 to 9.17
Exercised......................................... (17,625) 4.09 to 4.09
Canceled.......................................... (713,247) 4.09 to 14.67
--------
Outstanding at June 30, 1994...................... 807,768 4.09 to 11.17
Granted........................................... 216,000 7.33 to 13.00
Exercised......................................... (60,697) 4.09 to 4.09
Canceled.......................................... (197,546) 4.09 to 11.17
--------
Outstanding at June 30, 1995...................... 765,525 4.09 to 13.00
Granted........................................... 42,000 20.50 to 20.50
Exercised......................................... (20,400) 4.09 to 8.75
Canceled.......................................... (11,250) 4.09 to 4.09
--------
Outstanding at September 30, 1995................. 775,875 4.09 to 20.50
========
</TABLE>
The number of options exercisable was 174,250, 106,192, 182,775 and 231,375
at June 30, 1993, 1994 and 1995 and at September 30, 1995, respectively.
The 1994 Directors Stock Option plan was approved by the shareholders in
November 1994. The Directors Plan provides for the issuance of options to
purchase up to 150,000 shares of the Company's common stock to nonemployee
directors of the Company. Options under the Directors Plan are granted at 100%
of the market price on the date of grant, are exercisable at a rate of 25% per
year after one year from the date of grant and have a term of five years. In
November 1994, a total of 52,500 options were granted, with each of the
Company's seven outside directors receiving 7,500 options exercisable at $8.33
per share. None of the options was exercisable as of June 30, 1995 or September
30, 1995.
6. EMPLOYEE STOCK PURCHASE PLAN
The Employee Stock Purchase Plan was approved by the shareholders in
November 1994. A total of 300,000 shares of the Company's common stock have been
reserved for issuance under the Employee Stock Purchase Plan. The Employee Stock
Purchase Plan allows participating employees to purchase through payroll
deductions shares of the Company's common stock at 85% of the fair market value
at July 1 and January 1. Substantially all full time employees are eligible to
participate in the Employee Stock Purchase Plan. During the year ended June 30,
1995, 21,834 shares were issued at $8.07 per share under the Employee Stock
Purchase Plan. During the quarter ended September 30, 1995, no shares were
issued under the Employee Stock Purchase Plan.
7. BENEFIT PLANS
The Company has profit sharing and employee stock ownership plans covering
substantially all United States employees. The profit sharing plan provides for
a minimum annual contribution of 2% of an employee's salary, and both plans
require the Company to make matching contributions based on
F-12
<PAGE> 70
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
employee 401(k) contributions. The Company also has a deferred compensation plan
for United States officers for the payment of benefits which would not otherwise
be eligible under its tax-qualified retirement plans. The Company contributions,
other than the above, are discretionary and are determined by the Board of
Directors. The total contributions were $1,129,000, $1,007,000, $1,224,000 and
$300,000 in fiscal 1993, 1994 and 1995 and in the three months ended September
30, 1995, respectively.
A subsidiary in the United Kingdom maintains, through a trustee, a defined
benefit pension plan for substantially all of its employees hired before January
1, 1994 and a defined contribution plan for employees hired January 1, 1994 or
later. The defined contribution plan provides that employees contribute a
minimum of 5% of their pensionable salary with the Company contributing 5%. The
benefits of the defined pension plan, which are pay related, are integrated with
and supplement the benefits called for under the applicable laws of the United
Kingdom.
The components of pension expense are as follows (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Service cost for benefits earned during the year................. $ 485 $ 501 $ 540
Interest cost on projected benefit obligation.................... 962 1,111 1,292
Actual return on assets.......................................... (4,916) (1,347) (1,347)
Net amortization and deferral.................................... 3,770 261 101
------- ------- -------
Net pension expense.............................................. $ 301 $ 526 $ 586
======= ======= =======
</TABLE>
The funded status of the pension plan is as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits......................................................... $11,801 $14,705
Non-vested benefits..................................................... 41 29
------- -------
Accumulated benefit obligation....................................... 11,842 14,734
Effects of salary progression........................................... 1,241 1,664
------- -------
13,083 16,398
Plan assets at fair value................................................. 13,997 15,103
------- -------
Plan assets under (over) projected benefit obligation..................... $ (914) $ 1,295
======= =======
Amounts not recognized in balance sheet:
Unamortized transition obligation....................................... $ 748 $ 702
Unamortized net (gain) loss............................................. (81) 2,888
------- -------
$ 667 $ 3,590
======= =======
</TABLE>
The actuarial present value of the projected benefit obligations was
determined using a weighted average discount rate of 9.0% and an annual rate of
increase in future compensation of 7.0% for fiscal years 1993 and 1994
calculations; for the fiscal year 1995 a weighted average discount rate of 8.5%
and an annual rate of increase in future compensation of 6.5% was used to
project the benefit obligation. The long term weighted average rate of return on
assets used was 12%, 10% and 8.5% for 1993, 1994 and 1995, respectively.
The Company provides defined retirement benefits to the employees of the
other foreign subsidiaries through various contribution plans. The amount
charged to expense for these benefits was
F-13
<PAGE> 71
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$269,000, $201,000, $142,000 and $48,000 in fiscal 1993, 1994, 1995 and in the
three months ended September 30, 1995, respectively.
8. INCOME TAXES
During 1993, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". The statement
requires a change in the method of financial accounting and reporting for income
taxes from the deferral method to an asset and liability approach. The adoption
of this standard had no material effect on income. A summary of income (loss)
before provision (benefit) for income taxes and components of the provision
(benefit) for income taxes is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
----------------------------- ----------------
1993 1994 1995 1994 1995
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Income (loss) before provision (benefit) for
income taxes:
Domestic....................................... $(1,884) $(2,270) $ 486 $1,000 $ (34)
Foreign........................................ 780 3,404 1,794 215 2,432
------- ------- ------- ------ ------
$(1,104) $ 1,134 $ 2,280 $1,215 $2,398
======= ======= ======= ====== ======
Domestic provision (benefit) for income taxes:
Current........................................ $ 229 $ (230) $ (15) $ 71 $ 451
Deferred....................................... (678) (205) (2,773) 308 (481)
Foreign provision (benefit) for income taxes:
Current........................................ (99) 281 1,499 (80) 438
Deferred....................................... 1,207 1,066 (1,759) 165 480
------- ------- ------- ------ ------
Provision (benefit) for income taxes............. $ 659 $ 912 $(3,048) $ 464 $ 888
======= ======= ======= ====== ======
</TABLE>
The differences between the United States Federal statutory income tax
provision (benefit) and the consolidated income tax provision (benefit) are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
------------------------ --------------
1993 1994 1995 1994 1995
----- ---- ------- ---- ----
<S> <C> <C> <C> <C> <C>
Federal statutory provision (benefit)................. $(375) $386 $ 775 $413 $815
Non-deductible meals and entertainment................ 44 83 109 26 26
State income taxes, net of federal tax benefit........ 27 41 67 24 27
Increase in valuation reserve due to domestic and
foreign losses without tax benefit and tax
credits............................................. 499 882 42 -- --
Recognition of tax credits............................ -- -- (2,500) -- --
Tax reserves provided (released)...................... -- 65 (1,600) -- --
Tax rate differences.................................. 343 189 (51) 1 20
FAS 109 adjustment.................................... 131 -- -- -- --
Tax credits generated................................. -- (665) -- -- --
Other, net............................................ (10) (69) 110
----- ---- ------- ---- ----
Actual income tax provision (benefit)................. $ 659 $912 $(3,048) $464 $888
===== ==== ======= ==== ====
</TABLE>
F-14
<PAGE> 72
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes represent temporary differences in the recognition of
certain items for income tax and financial reporting purposes. The components of
the net deferred income tax liability (asset) are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
JUNE 30,
------------------ SEPTEMBER 30,
1994 1995 1995
------- ------- -------------
<S> <C> <C> <C>
Deferred income tax liabilities:
Research and development.................................. $ 7,005 $ 3,714 $ 3,713
Remittance of foreign earnings............................ 1,151 -- --
Employee benefits......................................... 535 727 727
Other..................................................... 208 190 190
------- ------- -------
8,899 4,631 4,630
Deferred income tax assets:
Tax credits excluding foreign............................. (1,428) (1,534) (1,534)
Foreign tax credit........................................ (1,160) (68) (68)
Depreciation and amortization............................. (1,196) (1,075) (1,075)
Net operating loss........................................ (2,708) (493) (493)
Deferred revenue.......................................... (997) (474) (474)
Employee benefits......................................... (680) (640) (640)
Other..................................................... (1,044) (1,224) (1,224)
------- ------- -------
(9,213) (5,508) (5,508)
Valuation allowance......................................... 4,338 369 369
------- ------- -------
(4,875) (5,139) (5,139)
------- ------- -------
Net deferred income tax liability (asset)................... $ 4,024 $ (508) $ (509)
======= ======= =======
</TABLE>
At June 30, 1995, for income tax purposes, the Company and certain of its
foreign subsidiaries had available net operating loss carryforwards of
approximately $493,000. If not used, these net operating loss carryforwards, as
well as the Company's general business tax credits, will expire between 1998 and
2009.
Income taxes have been provided on all undistributed earnings of foreign
subsidiaries which are expected to be remitted to the Company.
9. LEASES
The Company leases most of its office space and certain of its equipment.
Initial lease terms vary in length; several of the leases contain renewal
options. Future minimum lease payments under noncancellable operating leases are
as follows (in thousands):
<TABLE>
<S> <C>
Fiscal Year ending June 30,
1996................................................................ $ 5,130
1997................................................................ 4,309
1998................................................................ 3,513
1999................................................................ 2,722
2000................................................................ 2,642
After 2000.......................................................... 18,955
-------
$37,271
=======
</TABLE>
F-15
<PAGE> 73
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1988, the Company purchased its London sales and administrative
office building; it was also sold in 1988 along with leasehold improvements and
leased back. The gain on the sale was deferred. During 1992, the Company
consolidated this facility with its former London computer center. The Company
has thus reduced the deferred gain on the sale by $1,135,000 to provide for the
estimated costs until the lease obligations are assumed by a new tenant.
Total rental expense was $8,451,000, $7,231,000, $7,252,000, $1,686,000 and
$1,857,000 in fiscal 1993, 1994, 1995 and in the three months ended September
30, 1994 and 1995, respectively.
10. GEOGRAPHIC OPERATIONS AND SEGMENT INFORMATION
The following table summarizes selected financial information of the
Company's operations by geographic location (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED JUNE 30, SEPTEMBER 30,
-------------------------------- -------------------
1993 1994 1995 1994 1995
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenue:
North America........................... $ 45,596 $ 43,222 $ 48,478 $10,695 $13,273
International........................... 59,598 53,404 59,880 13,463 15,380
-------- -------- -------- ------- -------
Total revenue........................ $105,194 $ 96,626 $108,358 $24,158 $28,653
======== ======== ======== ======= =======
Operating income:
North America........................... $ 10,118 $ 10,082 $ 15,205 $ 3,892 $ 4,507
International........................... 12,163 13,938 15,392 2,905 3,872
-------- -------- -------- ------- -------
Total operating income............... 22,281 24,020 30,597 6,797 8,379
Unallocated expenses, net................. (23,385) (22,886) (28,317) (5,582) (5,981)
-------- -------- -------- ------- -------
Income (loss) before taxes................ $ (1,104) $ 1,134 $ 2,280 $ 1,215 $ 2,398
======== ======== ======== ======= =======
Identifiable assets:
North America........................... $ 25,582 $ 21,356 $ 16,672 $18,617 $17,138
International........................... 27,849 27,352 29,962 29,709 31,828
-------- -------- -------- ------- -------
Total identifiable assets............ 53,431 48,708 46,634 48,326 48,966
Computer software......................... 39,151 40,236 32,676 40,209 32,410
-------- -------- -------- ------- -------
Total assets.............................. $ 92,582 $ 88,944 $ 79,310 $88,535 $81,376
======== ======== ======== ======= =======
</TABLE>
Unallocated expenses consist of general corporate expenses, internal
research and product development expenses, interest expense and interest income.
In fiscal 1995, unallocated expenses include $6,365,000 of unusual charges
related to the write-off of capitalized software associated with the Company's
mature mainframe products.
The presentation of information on a geographical basis requires the use of
estimation techniques and does not take into account the extent to which
Comshare's marketing and management skills are inter-dependent.
The Company operates in one business segment: the development and marketing
of computer software and related services.
No customer accounted for more than 5% of total revenue in the fiscal years
ended June 30, 1993, 1994 and 1995 or in the three months ended September 30,
1994 and 1995.
F-16
<PAGE> 74
COMSHARE, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. QUARTERLY FINANCIAL DATA
Summarized quarterly financial data is as follows (unaudited and in
thousands, except per share data):
<TABLE>
<CAPTION>
INCOME NET NET
(LOSS) FROM INCOME INCOME (LOSS)
REVENUE OPERATIONS (LOSS) PER SHARE
-------- ----------- ------- -------------
<S> <C> <C> <C> <C>
1994
First quarter................................. $ 23,730 $ 997 $ 657 $ 0.08
Second quarter................................ 23,779 1,701 1,052 0.13
Third quarter................................. 23,202 193 94 0.01
Fourth quarter................................ 25,915 (1,243) (1,581) (0.20)
-------- ----------- -------
Year ended June 30, 1994...................... $ 96,626 $ 1,648 $ 222 $ 0.03
======== ========== =======
1995
First quarter................................. $ 24,158 $ 1,418 $ 751 $ 0.09
Second quarter................................ 27,656 2,846 1,681 0.20
Third quarter................................. 27,704 1,828 1,204 0.14
Fourth quarter................................ 28,840 (3,607) 1,692 0.20
-------- ----------- -------
Year ended June 30, 1995...................... $108,358 $ 2,485 $ 5,328 $ 0.63
======== ========== =======
1996
First quarter ended September 30, 1995........ $ 28,653 $ 2,628 $ 1,510 $ 0.17
</TABLE>
During the quarter ended December 31, 1993, the Company concluded an
agreement to sell undeveloped land that it owned. This resulted in a gain of
approximately $1,100,000.
During the quarter ended June 30, 1994 the Company made provisions totaling
$2,343,000 for management actions or plans primarily in connection with staff
reductions related to restructuring.
During the quarter ended June 30, 1995, the Company wrote-off $6,365,000 of
capitalized mainframe computer software.
The fourth quarter ended June 30, 1995 also included a $4,100,000 tax
benefit related to the recognition of prior years net operating losses and tax
credits as well as tax reserves released.
12. SUBSEQUENT EVENT (UNAUDITED)
On October 9, 1995, the Board of Directors declared a three-for-two stock
split of the Company's common stock which was effective November 20, 1995, after
the shareholders approved an increase in the authorized shares of common stock
to 20,000,000 shares. Capital contributed in excess of par has been charged and
common stock has been credited for the par value of the additional shares as a
result of the split. All references in the Consolidated Financial Statements and
accompanying notes have also been adjusted to reflect this split.
F-17
<PAGE> 75
CLIENT/SERVER APPLICATIONS AND TECHNOLOGY
FOR DECISION SUPPORT SOLUTIONS
<TABLE>
<S> <C>
[PICTURE OF COMPUTER SCREEN] [PICTURE OF COMPUTER SCREEN]
EXECUTIVE INFORMATION SYSTEMS (EIS): Commander FINANCIAL REPORTING APPLICATIONS: Commander FDC
OLAP is a suite of software which delivers and Commander Budget are complementary products
customizable enterprise-wide business planning, that, when used together, share a single
analysis, reporting and decision-making database to facilitate integration of historic
capabilities. and budgetary financial data from throughout
the enterprise for management reporting.
[PICTURE OF COMPUTER SCREEN] [PICTURE OF COMPUTER SCREEN]
RETAIL DECISION SUPPORT APPLICATIONS: NEWSALERT: Detect and Alert is a technology
ARTHUR Planning helps retailers plan their that automatically delivers personalized alerts
merchandise purchases to control inventory to users desktops in an individualized
levels, track and analyze actual sales performance electronic newspaper.
and tailor purchases to consumer preferences and
market trends.
</TABLE>
[COMSHARE LOGO]
<PAGE> 76
[COMSHARE LOGO]
<PAGE> 77
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following statement sets forth the estimated amounts of expenses to be
borne by the Company in connection with the distribution of the Common Stock
offered hereby:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... * $ 13,715
NASDAQ fees....................................................... * 4,478
Printing expenses................................................. * 90,000
Accounting fees and expenses...................................... * 100,000
Legal fees and expenses........................................... * 175,000
Blue sky fees and expenses........................................ * 10,000
Miscellaneous expenses............................................ * 56,807
---------
Total expenses.................................................... * $450,000**
=========
</TABLE>
- ---------------
* Estimated.
** The Selling Shareholders are bearing their pro rata share of expenses
relating to the Offering.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 561 through 571 of the Michigan Business Corporation Act (the
"MBCA") govern the indemnification of officers, directors and other persons. In
this regard, the MBCA provides for indemnification of directors and officers
acting in good faith and in a manner they reasonably believe to be in, or not
opposed to, the best interest of the corporation or its shareholders (and, with
respect to a criminal proceeding, if they have no reasonable cause to believe
their conduct to be unlawful). Such indemnification may be made against (a)
expenses (including attorney's fees), judgments, penalties, fines and amounts
paid in settlement, which were actually and reasonably incurred in connection
with any threatened, pending or completed action, suit or proceeding (other than
an action by, or in the right of, the corporation) arising out of a position
with the corporation (or with some other entity at the corporation's request),
and (b) expenses (including attorney's fees) and amounts paid in settlement
actually and reasonably incurred in connection with a threatened, pending or
completed action or suit by, or in the right of, the corporation, unless the
director or officer is found liable to the corporation and an appropriate court
does not determine that he or she is nevertheless fairly and reasonably entitled
to indemnification. The MBCA requires indemnification for expenses to the extent
that a director or officer is successful in defending against any such action,
suit or proceeding, and otherwise requires in general that the indemnification
provided for in (a) and (b) above be made only on a determination by a majority
vote of a quorum of the board of directors comprised of members who were not
parties to or threatened to be made parties to such action. In certain
circumstances, the MBCA further permits advances to cover such expenses before a
final determination that indemnification is permissible, upon receipt of (i) a
written affirmation by the director or officer of his good faith belief that he
has met the applicable standard of conduct set forth in the MBCA, and (ii) a
written undertaking by or on behalf of the director or officer to repay such
amounts unless it shall ultimately be determined that he is entitled to
indemnification and a determination that the facts then known to those making
the advance would not preclude indemnification.
The MBCA permits a corporation to purchase insurance on behalf of its
directors and officers against liabilities arising out of their positions with
the corporation, whether or not such liabilities would be within the
indemnification provisions of the MBCA.
Indemnification under the MBCA is not exclusive of other rights to
indemnification to which a person may be entitled under a corporation's articles
of incorporation or bylaws, or under contract executed by such corporation.
Article X of the Company's Articles of Incorporation provides for the
II-1
<PAGE> 78
indemnification of directors and officers of the Company and authorizes the
Board to extend such indemnity to others to the full extent permitted by the
aforesaid sections of the MBCA. Subject to the exceptions recited in the
following sentence, the Company's Articles of Incorporation provide that no
director shall be personally liable to the Company or its shareholders for
damages for breach of his or her duty as a director. Such exculpatory language
does not, however, eliminate or limit the liability of a director for (a) breach
of the duty of loyalty, (b) acts or omissions that are not in good faith or
involve intentional misconduct or a knowing violation of law, (c) certain other
violations of the MBCA, (d) responsibility in respect of any transaction from
which the director has derived an improper personal benefit, or (e) an act or
omission occurring before the date that Article X became effective.
The Articles of Incorporation of the Company provide that the Company shall
indemnify its directors and officers ("indemnitees") against all expenses,
judgments, penalties, fines, and amounts paid or to be paid in settlement, which
were reasonably incurred by the indemnitee while acting in his or her capacity
as a director or officer. The Articles of Incorporation also authorize the
Company to purchase and maintain directors' and officers' liability insurance.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to officers and directors pursuant to the foregoing provisions,
the Company has been informed that, in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
ITEM 16. EXHIBITS
A list of exhibits included as part of this Registration Statement is set
forth in the Exhibit Index which immediately precedes such exhibits and is
incorporated herein by reference.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
1. That for purposes of determining any liability under the Securities Act,
each filing of the registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act that is incorporated by reference in this
Registration Statement 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.
2. That insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
3. That for purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance on Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective and, that for the purpose of
determining any liability under the Securities Act, 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.
II-2
<PAGE> 79
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused Amendment No. 1 to this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Ann Arbor, State of Michigan on October 24,
1995.
Comshare, Incorporated
By: /s/ KATHRYN A. JEHLE
----------------------------------
Kathryn A. Jehle
Senior Vice President
Chief Financial Officer
Treasurer and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, Amendment No. 1
to this Registration Statement has been signed below by the following persons in
the capacities indicated on October 24, 1995.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- ---------------------------------------------
<S> <C>
* President, Chief Executive
- --------------------------------------------- Officer, and a Director
T. Wallace Wrathall (Principal Executive Officer)
/s/ KATHRYN A. JEHLE Senior Vice President,
- --------------------------------------------- Chief Financial Officer,
Kathryn A. Jehle Treasurer and Assistant Secretary
(Principal Financial Officer)
* Director of Finance,
- --------------------------------------------- Chief Accounting Officer,
R. Michael Mahoney (Principal Accounting Officer)
* Chairman of the Board
- ---------------------------------------------
Richard L. Crandall
* Director
- ---------------------------------------------
Claude H. Allard
* Director
- ---------------------------------------------
Daniel T. Carroll
* Director
- ---------------------------------------------
Stanley R. Day
* Director
- ---------------------------------------------
W. John Driscoll
* Director
- ---------------------------------------------
Alan G. Merten
* Director
- ---------------------------------------------
John F. Rockart
* Director
- ---------------------------------------------
Brian Sullivan
*By: /s/ KATHRYN A. JEHLE
---------------------------------------
Kathryn A. Jehle
Attorney-in-fact
</TABLE>
II-3
<PAGE> 80
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NO. DESCRIPTION OF EXHIBITS NO.
- ------- ----------------------------------------------------------------------------- ----
<S> <C> <C>
1 Underwriting Agreement.......................................................
5 Opinion of Dykema Gossett PLLC...............................................
23(a) Consent of Arthur Andersen LLP...............................................
23(b) Consent of Dykema Gossett PLLC (included in Exhibit 5).......................
23(c) Consent of Geoffrey B. Bloom.................................................
23(d) Consent of George R. Mrkonic*................................................
24(a) Power of Attorney of T. Wallace Wrathall*....................................
24(b) Power of Attorney of Richard L. Crandall*....................................
24(c) Power of Attorney of Claude H. Allard*.......................................
24(d) Power of Attorney of Daniel T. Carroll*......................................
24(e) Power of Attorney of Stanley R. Day*.........................................
24(f) Power of Attorney of W. John Driscoll*.......................................
24(g) Power of Attorney of Alan G. Merten*.........................................
24(h) Power of Attorney of John F. Rockart*........................................
24(i) Power of Attorney of Brian Sullivan*.........................................
24(j) Power of Attorney of R. Michael Mahoney*.....................................
24(k) Power of Attorney of Geoffrey B. Bloom.......................................
24(l) Power of Attorney of George R. Mrkonic.......................................
99(a) Affidavit of Comshare, Incorporated*.........................................
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
EXHIBIT 1
2,170,000 SHARES(1)
COMSHARE, INCORPORATED
COMMON STOCK
UNDERWRITING AGREEMENT
November ___, 1995
ROBERTSON, STEPHENS & COMPANY, L.P.
VOLPE, WELTY & COMPANY
THE CHICAGO CORPORATION
As Representatives of the several Underwriters
c/o Robertson, Stephens & Company, L.P.
555 California Street
Suite 2600
San Francisco, California 94104
Ladies/Gentlemen:
Comshare, Incorporated, a Michigan corporation (the "Company"), and
certain shareholders of the Company named in Schedule B hereto (hereafter
called the "Selling Shareholders") address you as the Representatives of each
of the persons, firms and corporations listed in Schedule A hereto (herein
collectively called the "Underwriters") and hereby confirm their respective
agreements with the several Underwriters as follows:
1. Description of Shares. The Company proposes to issue and sell
1,125,000 shares of its authorized and unissued Common Stock, $1.00 par value,
to the several Underwriters. The Selling Shareholders, acting severally and
not jointly, propose to sell an aggregate of 1,045,000 shares of the Company's
authorized and outstanding Common Stock, $1.00 par value, to the several
Underwriters. The 1,125,000 shares of Common Stock, $1.00 par value, of the
Company to be sold by the Company are hereinafter called the "Company Shares"
and the 1,045,000 shares of Common Stock, $1.00 par value, to be sold by the
Selling Shareholders are hereinafter called the "Selling Shareholder Shares."
The Company Shares and the Selling Shareholder Shares are hereinafter
collectively referred to as the "Firm Shares." The Company and certain Selling
Shareholders also propose to grant, severally and not jointly, to the
Underwriters an option to purchase up to 325,500 additional shares of the
Company's Common Stock, $1.00 par value (the "Option Shares"), as provided in
Section 7 hereof. As used in this Agreement, the term "Shares" shall include
the Firm Shares and the Option Shares. All shares of Common Stock, $1.00 par
value, of the Company to be outstanding after giving effect to the sales
contemplated hereby, including the Shares, are hereinafter referred to as
"Common Stock."
__________________________________
(1) Plus an option to purchase up to 325,500 additional shares from the
Company and certain shareholders of the Company to cover over-
allotments.
<PAGE> 2
2. Representations, Warranties and Agreements of the Company
and the Selling Shareholders.
I. The Company represents and warrants to and agrees with each
Underwriter and each Selling Shareholder that:
(a) A registration statement on Form S-3 (File No.
33-63335) with respect to the Shares, including a prospectus subject to
completion, has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
applicable rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Act and has
been filed with the Commission; such amendments to such registration statement,
such amended prospectuses subject to completion and such abbreviated
registration statements pursuant to Rule 462(b) of the Rules and Regulations as
may have been required prior to the date hereof have been similarly prepared
and filed with the Commission; and the Company will file such additional
amendments to such registration statement, such amended prospectuses subject to
completion and such abbreviated registration statements as may hereafter be
required. Copies of such registration statement and amendments, of each
related prospectus subject to completion (the "Preliminary Prospectuses"),
including all documents incorporated by reference therein, and of any
abbreviated registration statement pursuant to Rule 462(b) of the Rules and
Regulations have been delivered to you. The Company and the transactions
contemplated by this Agreement meet the requirements for using Form S-3 under
the Act.
If the registration statement relating to the Shares has
been declared effective under the Act by the Commission, the Company will
prepare and promptly file with the Commission the information omitted from the
registration statement pursuant to Rule 430A(a) or, if Robertson, Stephens &
Company, L.P., on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the information required
to be included in any term sheet filed pursuant to Rule 434(b) or (c), as
applicable, of the Rules and Regulations pursuant to subparagraph (1), (4) or
(7) of Rule 424(b) of the Rules and Regulations or as part of a post-effective
amendment to the registration statement (including a final form of prospectus).
If the registration statement relating to the Shares has not been declared
effective under the Act by the Commission, the Company will prepare and
promptly file an amendment to the registration statement, including a final
form of prospectus, or, if Robertson, Stephens & Company, L.P., on behalf of
the several Underwriters, shall agree to the utilization of Rule 434 of the
Rules and Regulations, the information required to be included in any term
sheet filed pursuant to Rule 434(b) or (c), as applicable, of the Rules and
Regulations. The term "Registration Statement" as used in this Agreement shall
mean such registration statement, including financial statements, schedules and
exhibits, in the form in which it became or becomes, as the case may be,
effective (including, if the Company omitted information from the registration
statement pursuant to Rule 430A(a) or files a term sheet pursuant to Rule 434
of the Rules and Regulations, the information deemed to be a part of the
registration statement at the time it became effective pursuant to Rule 430A(b)
or Rule 434(d) of the Rules and Regulations) and, in the event of any amendment
thereto or the filing of any abbreviated registration statement pursuant to
Rule 462(b) of the Rules and Regulations relating thereto after the effective
date of such registration statement, shall also mean (from and after the
effectiveness of such amendment or the filing of such abbreviated registration
statement) such registration statement as so amended, together with any such
abbreviated registration statement. The term "Prospectus" as used in this
Agreement shall mean the prospectus relating to the Shares as included in such
Registration Statement at the time it becomes effective (including, if the
Company omitted information from the Registration Statement pursuant to Rule
430A(a) of the Rules and Regulations, the information deemed to be a part of
the Registration Statement at the time it became effective pursuant to Rule
430A(b) of the Rules and Regulations); provided, however, that if in reliance
on Rule 434 of the Rules and Regulations and with the consent of Robertson,
Stephens & Company, L.P., on behalf of the several Underwriters, the Company
shall have provided to the Underwriters a term sheet pursuant to Rule 434(b) or
(c), as applicable, prior to the time that a confirmation is sent or given for
purposes of Section 2(10)(a) of the Act, the term "Prospectus" shall mean the
"prospectus subject to completion" (as defined in Rule 434(g) of the Rules and
-2-
<PAGE> 3
Regulations) last provided to the Underwriters by the Company and circulated by
the Underwriters to all prospective purchasers of the Shares (including the
information deemed to be a part of the Registration Statement at the time it
became effective pursuant to Rule 434(d) of the Rules and Regulations).
Notwithstanding the foregoing, if any revised prospectus shall be provided to
the Underwriters by the Company for use in connection with the offering of the
Shares that differs from the prospectus referred to in the immediately
preceding sentence (whether or not such revised prospectus is required to be
filed with the Commission pursuant to Rule 424(b) of the Rules and
Regulations), the term "Prospectus" shall refer to such revised prospectus from
and after the time it is first provided to the Underwriters for such use. If
in reliance on Rule 434 of the Rules and Regulations and with the consent of
Robertson, Stephens & Company, L.P., on behalf of the several Underwriters, the
Company shall have provided to the Underwriters a term sheet pursuant to Rule
434(b) or (c), as applicable, prior to the time that a confirmation is sent or
given for purposes of Section 2(10)(a) of the Act, the Prospectus and the term
sheet, together, will not be materially different from the prospectus in the
Registration Statement. Any reference to the Registration Statement or the
Prospectus shall be deemed to refer to and include the documents incorporated
by reference therein pursuant to Item 12 of Form S-3 under the Act, as of the
date of the Registration Statement or the Prospectus, as the case may be, and
any reference to any amendment or supplement to the Registration Statement or
the Prospectus shall be deemed to refer to and include any documents filed
after such date under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), which, upon filing, are incorporated by reference therein, as
required by paragraph (b) of Item 12 of Form S-3. As used in this Agreement,
the term "Incorporated Documents" means the documents which at the time are
incorporated by reference in the Registration Statement, the Prospectus or any
amendment or supplement thereto.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings for
that purpose, and each such Preliminary Prospectus has conformed in all
material respects to the requirements of the Act and the Rules and Regulations
and, as of its date, has not included any untrue statement of a material fact
or omitted to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading;
and at the time the Registration Statement became or becomes, as the case may
be, effective and at all times subsequent thereto up to and on the Closing Date
(hereinafter defined) and on any later date on which Option Shares are to be
purchased, (i) the Registration Statement and the Prospectus, and any
amendments or supplements thereto, contained and will contain all material
information required to be included therein by the Act and the Rules and
Regulations and will in all material respects conform to the requirements of
the Act and the Rules and Regulations, (ii) the Registration Statement, and any
amendments or supplements thereto, did not and will not include any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
(iii) the Prospectus, and any amendments or supplements thereto, did not and
will not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that none of the representations and warranties contained in this subparagraph
(b) shall apply to information contained in or omitted from the Registration
Statement or Prospectus, or any amendment or supplement thereto, in reliance
upon, and in conformity with, written information relating to any Underwriter
furnished to the Company by such Underwriter specifically for use in the
preparation thereof.
The Incorporated Documents heretofore filed, when they were
filed (or, if any amendment with respect to any such document was filed, when
such amendment was filed), conformed in all material respects with the
requirements of the Exchange Act and the rules and regulations of the
Commission thereunder; any further Incorporated Documents so filed will, when
they are filed, conform in all material respects with the requirements of the
Exchange Act and the rules and regulations of the Commission thereunder; no
such document when it was filed (or, if an amendment with respect to any such
document was filed, when such amendment was filed), contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
-3-
<PAGE> 4
misleading; and no such further amendment will contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading.
(c) Each of the Company and its subsidiaries has been
duly incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation with full power and
authority (corporate and other) to own, lease and operate its properties and
conduct its business as described in the Prospectus; the Company owns all of
the outstanding capital stock of its subsidiaries free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest; each of the
Company and its subsidiaries is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the ownership
or leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in good
standing would not have a material adverse effect on the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company and its subsidiaries considered as one enterprise (a "Material Adverse
Effect"); to the Company's best knowledge, no proceeding has been instituted in
any such jurisdiction, revoking, limiting or curtailing, or seeking to revoke,
limit or curtail, such power and authority or qualification; each of the
Company and its subsidiaries is in possession of and operating in compliance
with all authorizations, licenses, certificates, consents, orders and permits
from state, federal and other regulatory authorities which are material to the
conduct of its business, all of which are valid and in full force and effect;
neither the Company nor any of its subsidiaries is in violation of its
respective charter or bylaws or in default in the performance or observance of
any material obligation, agreement, covenant or condition contained in any
material bond, debenture, note or other evidence of indebtedness, or in any
material lease, contract, indenture, mortgage, deed of trust, loan agreement,
joint venture or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which it or any of its subsidiaries or their
respective properties may be bound except where such violations would not have
a Material Adverse Effect; and neither the Company nor any of its subsidiaries
is in material violation of any law, order, rule, regulation, writ, injunction,
judgment or decree of any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or over their respective properties of which it has knowledge
except where such violations would not have a Material Adverse Effect. The
Company does not own or control, directly or indirectly, any corporation,
association or other entity required to be listed in Exhibit 22.01 to the
Company's Annual Report on Form 10-K filed with the Commission and incorporated
by reference into the Registration Statement other than those listed in Exhibit
22.01. The only corporations, associations or other entities required to be
listed on Exhibit 22.01 which are or have been active in the year prior to the
date hereof, hold material assets, own or lease property or otherwise conduct
business are Comshare Limited, a Canadian corporation, Comshare Limited, a
United Kingdom corporation, Comshare GmbH, a German corporation, Comshare SA, a
French corporation, and Comshare Australia Pty., Ltd., an Australian
corporation, Comshare Holdings Unlimited, a United Kingdom corporation, CSI
International Holdings, Inc., a Delaware corporation, Comshare International BV
(CIBV), a Netherlands corporation, and Comshare International Limited, a United
Kindgom corporation (collectively, the "Subsidiaries").
(d) The Company has full legal right, power and authority
to enter into this Agreement and perform the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by the Company
and is a valid and binding agreement on the part of the Company, enforceable in
accordance with its terms, except as rights to indemnification hereunder may be
limited by applicable law and except as the enforcement hereof may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by general
equitable principles; the performance of this Agreement by the Company and the
consummation by the Company of the transactions herein contemplated will not
result in a material breach or violation of any of the terms and provisions of,
or constitute a default under, (i) any bond, debenture, note or other evidence
of indebtedness, or under any lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other agreement or instrument to which
the Company or any of its subsidiaries is a party or by
-4-
<PAGE> 5
which it or any of its subsidiaries or their respective properties may be
bound, (ii) the charter or bylaws of the Company or any of its subsidiaries, or
(iii) any law, order, rule, regulation, writ, injunction, judgment or decree of
any court, government or governmental agency or body, domestic or foreign,
having jurisdiction over the Company or any of its subsidiaries or over their
respective properties, which breach, violation or default would result in a
material adverse change in the condition (financial or otherwise), earnings,
operations, business or prospects of the Company and its subsidiaries
considered as one enterprise. No consent, approval, authorization or order of
or qualification with any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or any of its
subsidiaries or over their respective properties is required for the execution
and delivery of this Agreement by the Company and the consummation by the
Company or any of its subsidiaries of the transactions herein contemplated,
except such as may be required under the Act, the Exchange Act (if applicable),
or under state or other securities or Blue Sky laws, all of which requirements
have been satisfied in all material respects.
(e) There is not any pending or, to the best of the
Company's knowledge, threatened action, suit, claim or proceeding against the
Company, any of its subsidiaries or any of their respective officers or any of
their respective properties, assets or rights before any court, government or
governmental agency or body, domestic or foreign, having jurisdiction over the
Company or any of its subsidiaries or over their respective officers or
properties or otherwise which (i) might result in any material adverse change
in the condition (financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered as one
enterprise or might materially and adversely affect their properties, assets or
rights, (ii) might prevent consummation of the transactions contemplated hereby
or (iii) is required to be disclosed in the Registration Statement or
Prospectus and is not so disclosed; and there are no agreements, contracts,
leases or documents of the Company or any of its subsidiaries of a character
required to be described or referred to in the Registration Statement or
Prospectus or any Incorporated Document or to be filed as an exhibit to the
Registration Statement or any Incorporated Document by the Act or the Rules and
Regulations or by the Exchange Act or the rules and regulations of the
Commission thereunder which have not been accurately described in all material
respects in the Registration Statement or Prospectus or any Incorporated
Document or filed as exhibits to the Registration Statement or any Incorporated
Document.
(f) All outstanding shares of capital stock of the
Company (including the Selling Shareholder Shares) have been duly authorized
and validly issued and are fully paid and nonassessable, have been issued in
compliance with all federal and state securities laws, were not issued in
violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities, and the authorized and outstanding capital stock of
the Company is as set forth in the Prospectus under the caption
"Capitalization" and conforms in all material respects to the statements
relating thereto contained in the Registration Statement and the Prospectus and
any Incorporated Document (and such statements correctly state the substance of
the instruments defining the capitalization of the Company); the Company Shares
and the Option Shares to be purchased from the Company hereunder have been duly
authorized for issuance and sale to the Underwriters pursuant to this Agreement
and, when issued and delivered by the Company against payment therefor in
accordance with the terms of this Agreement, will be duly and validly issued
and fully paid and nonassessable, and will be sold free and clear of any
pledge, lien, security interest, encumbrance, claim or equitable interest; and
no preemptive right, co-sale right, registration right, right of first refusal
or other similar right of shareholders exists with respect to any of the
Company Shares or Option Shares to be purchased from the Company hereunder or
the issuance and sale thereof other than those that have been expressly waived
prior to the date hereof and those that will automatically expire upon the
consummation of the transactions contemplated on the Closing Date. No further
approval or authorization of any shareholder, the Board of Directors of the
Company or others is required for the issuance and sale or transfer of the
Company Shares except as may be required under the Act, the Exchange Act or
under state or other securities or Blue Sky laws. All issued and outstanding
shares of capital stock of each subsidiary of the Company have been duly
authorized and validly issued and are fully paid and nonassessable, and were
not issued in violation of or subject to any preemptive right, or other rights
to subscribe for or purchase shares
-5-
<PAGE> 6
and are owned by the Company free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest. Except as disclosed in or
contemplated by the Prospectus and the financial statements of the Company, and
the related notes thereto, included or incorporated by reference in the
Prospectus, neither the Company nor any subsidiary has outstanding any options
to purchase, or any preemptive rights or other rights to subscribe for or to
purchase, any securities or obligations convertible into, or any contracts or
commitments to issue or sell, shares of its capital stock or any such options,
rights, convertible securities or obligations. The description of the
Company's stock option, stock bonus and other stock plans or arrangements, and
the options or other rights granted and exercised thereunder, set forth or
incorporated by reference in the Prospectus accurately and fairly presents the
information required to be shown with respect to such plans, arrangements,
options and rights.
(g) Arthur Andersen LLP, which has examined the
consolidated financial statements of the Company, together with the related
schedules and notes, as of June 30, 1995 and 1994 and for each of the years in
the three (3) years ended June 30, 1995 filed with the Commission as a part of
or incorporated by reference into the Registration Statement, which are
included or incorporated by reference in the Prospectus, are independent
accountants within the meaning of the Act and the Rules and Regulations; the
audited consolidated financial statements of the Company, together with the
related schedules and notes, and the unaudited consolidated financial
information, forming part of the Registration Statement and Prospectus, fairly
present the financial position and the results of operations of the Company and
its subsidiaries at the respective dates and for the respective periods to
which they apply; and all audited consolidated financial statements of the
Company, together with the related schedules and notes, and the unaudited
consolidated financial information, filed with the Commission as part of or
incorporated by reference into the Registration Statement, have been prepared
in accordance with generally accepted accounting principles consistently
applied throughout the periods involved except as may be otherwise stated
therein. The selected and summary financial and statistical data included or
incorporated by reference in the Registration Statement present fairly the
information shown therein and have been compiled on a basis consistent with the
audited financial statements presented therein. No other financial statements
or schedules are required to be included or incorporated by reference in the
Registration Statement.
(h) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, there has
not been (i) any material adverse change in the condition (financial or
otherwise), earnings, operations, business or business prospects of the Company
and its subsidiaries considered as one enterprise, (ii) any transaction that is
material to the Company and its subsidiaries considered as one enterprise,
except transactions entered into in the ordinary course of business, (iii) any
obligation, direct or contingent, that is material to the Company and its
subsidiaries considered as one enterprise, incurred by the Company or its
subsidiaries, except obligations incurred in the ordinary course of business,
(iv) any change in the capital stock or outstanding indebtedness of the Company
or any of its subsidiaries that is material to the Company and its subsidiaries
considered as one enterprise, (v) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company or any of its
subsidiaries, or (vi) any loss or damage (whether or not insured) to the
property of the Company or any of its subsidiaries which has been sustained or
will have been sustained which has a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise.
(i) Except as set forth in the Registration Statement and
Prospectus and any Incorporated Document, (i) each of the Company and its
subsidiaries has good and marketable title to all properties and assets
described in the Registration Statement and Prospectus and any Incorporated
Document as owned by it, free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest, other than such as would not have a
material adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and its subsidiaries
considered as one enterprise, (ii) the agreements to which the Company or any
of its subsidiaries is a party described in the
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<PAGE> 7
Registration Statement and Prospectus and any Incorporated Document are valid
agreements, enforceable by the Company and its subsidiaries (as applicable),
except as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles and,
to the best of the Company's knowledge, the other contracting party or parties
thereto are not in material breach or material default under any of such
agreements except such breaches or defaults which would not have a Material
Adverse Effect, and (iii) each of the Company and its subsidiaries has valid
and enforceable leases for all properties described in the Registration
Statement and Prospectus and any Incorporated Document as leased by it, except
as the enforcement thereof may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles. Except as set
forth in the Registration Statement and Prospectus and any Incorporated
Document, the Company owns or leases all such properties as are necessary to
its operations as now conducted.
(j) The Company and its subsidiaries have timely filed
all necessary federal, state and foreign income and franchise tax returns and
have paid all taxes shown thereon as due, and there is no tax deficiency that
has been or, to the best of the Company's knowledge, might be asserted against
the Company or any of its subsidiaries that might have a material adverse
effect on the condition (financial or otherwise), earnings, operations,
business or business prospects of the Company and its subsidiaries considered
as one enterprise; and all tax liabilities are adequately provided for on the
books of the Company and its subsidiaries.
(k) The Company and its subsidiaries maintain insurance
with insurers of recognized financial responsibility of the types and in the
amounts generally deemed adequate for their respective businesses and
consistent with insurance coverage maintained by similar companies in similar
businesses, including, but not limited to, insurance covering real and personal
property owned or leased by the Company or its subsidiaries against theft,
damage, destruction, acts of vandalism and all other risks customarily insured
against, all of which insurance is in full force and effect; since July 1,
1992, neither the Company nor any such subsidiary has been refused any
insurance coverage sought or applied for; and neither the Company nor any such
subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise.
(l) To the best of Company's knowledge, no labor
disturbance by the employees of the Company or any of its subsidiaries exists
or is imminent; and the Company is not aware of any existing or imminent labor
disturbance by the employees of any of its principal suppliers, agents,
authorized dealers, U.S. distributors or international distributors that might
be expected to result in a material adverse change in the condition (financial
or otherwise), earnings, operations, business or business prospects of the
Company and its subsidiaries considered as one enterprise. No collective
bargaining agreement exists with any of the Company's employees and, to the
best of the Company's knowledge, no such agreement is imminent.
(m) Each of the Company and its subsidiaries owns or
possesses adequate rights to use all patents, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names and copyrights which
are necessary to conduct its businesses as described in the Registration
Statement and Prospectus and any Incorporated Document; the expiration of any
patents or patent rights would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise; the
Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of the Company by others with
respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights except for infringements
or conflicts which would not have a Material
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<PAGE> 8
Adverse Effect; and the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of others
with respect to any patent, patent rights, inventions, trade secrets, know-how,
trademarks, service marks, trade names or copyrights which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
have a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise.
(n) The Common Stock is registered pursuant to Section
12(g) of the Exchange Act and is listed on The Nasdaq National Market, and the
Company has taken no action designed to, or likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act or
delisting the Common Stock from The Nasdaq National Market, nor has the Company
received any notification that the Commission or the National Association of
Securities Dealers, Inc. ("NASD") is contemplating terminating such
registration or listing.
(o) The Company has been advised concerning the
Investment Company Act of 1940, as amended (the "1940 Act"), and the rules and
regulations thereunder, and has in the past conducted, and intends in the
future to conduct, its affairs in such a manner as to ensure that it will not
become an "investment company" or a company "controlled" by an "investment
company" within the meaning of the 1940 Act and such rules and regulations.
(p) The Company has not distributed and will not
distribute prior to the later of (i) the Closing Date, or any date on which
Option Shares are to be purchased, as the case may be, and (ii) completion of
the distribution of the Shares, any offering material in connection with the
offering and sale of the Shares other than any Preliminary Prospectuses, the
Prospectus, the Registration Statement and other materials, if any, permitted
by the Act.
(q) Neither the Company nor any of its subsidiaries has
at any time during the last five (5) years (i) made any unlawful contribution
to any candidate for foreign office or failed to disclose fully any
contribution in violation of law, or (ii) made any payment to any federal or
state governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments required or permitted by the
laws of the United States or any jurisdiction thereof.
(r) The Company has not taken and will not take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
(s) Each officer and director of the Company and each
Selling Shareholder has agreed in writing that such person will not, for a
period of 90 days from the date that the Registration Statement is declared
effective by the Commission (the "Lock-up Period"), offer to sell, contract to
sell, or otherwise sell, dispose of, loan, pledge or grant any rights with
respect to (collectively, a "Disposition") any shares of Common Stock, any
options or warrants to purchase any shares of Common Stock or any securities
convertible into or exchangeable for shares of Common Stock (collectively,
"Securities") now owned or hereafter acquired directly by such person or with
respect to which such person has or hereafter acquires the power of
disposition, otherwise than (i) as a bona fide gift or gifts, provided the
donee or donees thereof agree in writing to be bound by this restriction, (ii)
as a distribution to limited partners or shareholders of such person, provided
that the distributees thereof agree in writing to be bound by the terms of this
restriction, or (iii) with the prior written consent of Robertson, Stephens &
Company, L.P., provided, that the Underwriters hereby consent to the use during
the Lock-Up Period by the Company's officers and directors of outstanding
Securities or options to purchase Securities to exercise other options or
Securities to purchase Securities held by them (provided, such consent shall
not permit any other sale, disposition, loan, pledge or grant of rights with
respect to such securities). The foregoing restriction is expressly agreed to
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<PAGE> 9
preclude the holder of the Securities from engaging in any hedging or other
transaction which is designed to or reasonably expected to lead to or result in
a Disposition of Securities during the Lock-up Period, even if such Securities
would be disposed of by someone other than such holder. Such prohibited
hedging or other transactions would include, without limitation, any short sale
(whether or not against the box) or any purchase, sale or grant of any right
(including, without limitation, any put or call option) with respect to any
Securities or with respect to any security (other than a broad-based market
basket or index) that includes, relates to or derives any significant part of
its value from Securities. Furthermore, such person will also agree and
consent to the entry of stop transfer instructions with the Company's transfer
agent against the transfer of the Securities held by such person except in
compliance with this restriction. The Company has provided to counsel for the
Underwriters a complete and accurate list of all securityholders of the Company
and the number and type of securities held by each securityholder. The Company
has provided to counsel for the Underwriters true, accurate and complete copies
of all of the agreements pursuant to which its officers, directors and Selling
Shareholders have agreed to such or similar restrictions (the "Lock-up
Agreements") presently in effect or effected hereby. The Company hereby
represents and warrants that it will not release any of its officers, directors
or other Selling Shareholders from any Lock-up Agreements currently existing or
hereafter effected without the prior written consent of Robertson, Stephens &
Company, L.P.
(t) Except as set forth in the Registration Statement and
Prospectus and any Incorporated Document, (i) the Company is in compliance with
all rules, laws and regulations relating to the use, treatment, storage and
disposal of toxic substances and protection of health or the environment
("Environmental Laws") which are applicable to its business except where such
failure would not have a Material Adverse Effect, (ii) the Company has received
no notice from any governmental authority or third party of an asserted claim
under Environmental Laws, which claim is required to be disclosed in the
Registration Statement and the Prospectus and any Incorporated Document, (iii)
the Company is not required to make any material capital expenditures to comply
with Environmental Laws and (iv) to the Company's best knowledge, no property
which is owned, leased or occupied by the Company has been designated as a
Superfund site pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601,
et seq.), or otherwise designated as a contaminated site under applicable state
or local law.
(u) The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization, and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(v) There are no outstanding loans, advances (except
normal advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of the
officers or directors of the Company or any of the members of the families of
any of them, except as disclosed in the Registration Statement and the
Prospectus and any Incorporated Document or as may have been issued under the
1994 Executive Stock Purchase Plan.
(w) The Company has complied with all provisions of
Section 517.075, Florida Statutes relating to doing business with the
Government of Cuba or with any person or affiliate located in Cuba.
II. Each Selling Shareholder, severally and not jointly,
represents and warrants to and agrees with each Underwriter and the Company
that with respect to such Selling Shareholder:
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<PAGE> 10
(a) Such Selling Shareholder now has and on the Closing
Date, and on any later date on which Option Shares are purchased, will have
valid marketable title to the Shares to be sold by such Selling Shareholder,
free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest other than pursuant to this Agreement; and upon delivery of
such Shares hereunder and payment of the purchase price as herein contemplated,
each of the Underwriters will obtain valid marketable title to the Shares
purchased by it from such Selling Shareholder, free and clear of any pledge,
lien, security interest pertaining to such Selling Shareholder or such Selling
Shareholder's property, encumbrance, claim or equitable interest, including any
liability for estate or inheritance taxes, or any liability to or claims of any
creditor, devisee, legatee or beneficiary of such Selling Shareholder.
(b) Such Selling Shareholder (except for Richard
Crandall) has duly authorized (if applicable), executed and delivered, in the
form heretofore furnished to the Representatives, a Power of Attorney ("Power
of Attorney") appointing Richard T. Holm, Michael J. Giefer and Joseph S.
Micallef as attorneys-in-fact and Custody Agreement (the "Custody Agreement")
with Fiduciary Counselling, Inc., as custodian (the "Custodian"); Richard
Crandall has executed and delivered, in the form heretofore furnished to the
Representatives, a Power of Attorney appointing Kathryn A. Jehle and T. Wallace
Wrathall as attorneys-in-fact and Custody Agreement with Kathryn A. Jehle and
T. Wallace Wrathall the Custodian Richard T. Holm, Michael J. Giefer, Joseph S.
Micallef, Kathryn A. Jehle and T. Wallace Wrathall shall be referred to
collectively as the "Attorneys" and individually as an "Attorney"); each of the
Power of Attorney and the Custody Agreement constitutes a valid and binding
agreement on the part of such Selling Shareholder, enforceable in accordance
with its terms, except as the enforcement thereof may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles; and each of such Selling Shareholder's Attorneys, acting alone, is
authorized to execute and deliver this Agreement and the certificate referred
to in Section 6(g) hereof on behalf of such Selling Shareholder, to determine
the purchase price to be paid by the several Underwriters to such Selling
Shareholder as provided in Section 3 hereof, to authorize the delivery of the
Selling Shareholder Shares and the Option Shares to be sold by such Selling
Shareholder under this Agreement and to duly endorse (in blank or otherwise)
the certificate or certificates representing such Shares or a stock power or
powers with respect thereto, to accept payment therefor, and otherwise to act
on behalf of such Selling Shareholder in connection with this Agreement.
(c) All consents, approvals, authorizations and orders
required for the execution and delivery by such Selling Shareholder of the
Power of Attorney and the Custody Agreement, the execution and delivery by or
on behalf of such Selling Shareholder of this Agreement and the sale and
delivery of the Selling Shareholder Shares and the Option Shares to be sold by
such Selling Shareholder under this Agreement (other than, at the time of the
execution hereof (if the Registration Statement has not yet been declared
effective by the Commission), the issuance of the order of the Commission
declaring the Registration Statement effective and such consents, approvals,
authorizations or orders as may be necessary under state or other securities or
Blue Sky laws) have been obtained and are in full force and effect; such
Selling Shareholder, if other than a natural person, has been duly organized
and is validly existing in good standing under the laws of the jurisdiction of
its organization as the type of entity that it purports to be; and such Selling
Shareholder has full legal right, power and authority to enter into and perform
its obligations under this Agreement and such Power of Attorney and Custody
Agreement, and to sell, assign, transfer and deliver the Shares to be sold by
such Selling Shareholder under this Agreement.
(d) Such Selling Shareholder will not, during the Lock-up
Period, effect the Disposition of any Securities now owned or hereafter
acquired directly by such Selling Shareholder or with respect to which such
Selling Shareholder has or hereafter acquires the power of disposition,
otherwise than (i) as a bona fide gift or gifts, provided the donee or donees
thereof agree in writing to be bound by this restriction, (ii) as a
distribution to limited partners or shareholders of such Selling Shareholder,
provided that the distributees thereof agree in writing to be bound by the
terms of this restriction, or (iii) with the prior
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<PAGE> 11
written consent of Robertson, Stephens & Company, L.P. The foregoing
restriction is expressly agreed to preclude the holder of the Securities from
engaging in any hedging or other transaction which is designed to or reasonably
expected to lead to or result in a Disposition of Securities during the Lock-up
Period, even if such Securities would be disposed of by someone other than the
Selling Shareholder. Such prohibited hedging or other transactions would
including, without limitation, any short sale (whether or not against the box)
or any purchase, sale or grant of any right (including, without limitation, any
put or call option) with respect to any Securities or with respect to any
security (other than a broad-based market basket or index) that includes,
relates to or derives any significant part of its value from Securities. Such
Selling Shareholder also agrees and consents to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of the
securities held by such Selling Shareholder except in compliance with this
restriction.
(e) Such Selling Shareholder is not aware that any of the
representations and warranties of the Company set forth in Section 2.I. above
is untrue or inaccurate in any material respect. However, with your consent
such Selling Shareholder has made no special investigation or inquiry as to the
truth or accuracy of any such representation or warranty.
(f) Certificates in negotiable form for all Shares to be
sold by such Selling Shareholder under this Agreement, together with a stock
power or powers duly endorsed in blank by such Selling Shareholder, have been
placed in custody with the Custodian for the purpose of effecting delivery
hereunder.
(g) This Agreement has been duly authorized by each
Selling Shareholder that is not a natural person and has been duly executed and
delivered by or on behalf of such Selling Shareholder and is a valid and
binding agreement of such Selling Shareholder, enforceable in accordance with
its terms, except as rights to indemnification hereunder may be limited by
applicable law and except as the enforcement hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by general equitable
principles; and the performance of this Agreement and the consummation of the
transactions herein contemplated will not result in a breach or violation of
any of the terms and provisions of or constitute a default under any bond,
debenture, note or other evidence of indebtedness, or under any lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument to which such Selling Shareholder is a party or
by which such Selling Shareholder, or any Selling Shareholder Shares or any
Option Shares to be sold by such Selling Shareholder hereunder, may be bound
or, to the best of such Selling Shareholders' knowledge, result in any
violation of any law, order, rule, regulation, writ, injunction, judgment or
decree of any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over such Selling Shareholder or over the
properties of such Selling Shareholder, or, if such Selling Shareholder is
other than a natural person, result in any violation of any provisions of the
charter, bylaws or other organizational documents of such Selling Shareholder.
(h) Such Selling Shareholder has not taken and will not
take, directly or indirectly, any action designed to or that might reasonably
be expected to cause or result in stabilization or manipulation of the price of
the Common Stock to facilitate the sale or resale of the Shares.
(i) Such Selling Shareholder has not distributed and will
not distribute any prospectus or other offering material in connection with the
offering and sale of the Shares.
(j) All information furnished by or on behalf of such
Selling Shareholder relating to such Selling Shareholder and the Selling
Shareholder Shares that is contained in the representations and warranties of
such Selling Shareholder in such Selling Shareholder's Power of Attorney or set
forth in the Registration Statement and the Prospectus is, and at the time the
Registration Statement became or becomes, as the case may be, effective and at
all times subsequent thereto up to and on the Closing Date, and on any
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<PAGE> 12
later date on which Option Shares are to be purchased, was or will be, true,
correct and complete, and does not, and at the time the Registration Statement
became or becomes, as the case may be, effective and at all times subsequent
thereto up to and on the Closing Date (hereinafter defined), and on any later
date on which Option Shares are to be purchased, will not, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make such information not misleading.
(k) Such Selling Shareholder will review the Prospectus
and will comply with all agreements and satisfy all conditions on its part to
be complied with or satisfied pursuant to this Agreement on or prior to the
Closing Date, or any later date on which Option Shares are to be purchased, as
the case may be, and will advise one of its Attorneys and Robertson, Stephens &
Company, L.P. prior to the Closing Date or such later date on which Option
Shares are to be purchased, as the case may be, if any statement to be made on
behalf of such Selling Shareholder in the certificate contemplated by Section
6(g) would be inaccurate if made as of the Closing Date or such later date on
which Option Shares are to be purchased, as the case may be.
(l) Such Selling Shareholder does not have, or has waived
prior to the date hereof, any preemptive right, co-sale right or right of first
refusal or other similar right to purchase any of the Shares that are to be
sold by the Company or any of the other Selling Shareholders to the
Underwriters pursuant to this Agreement; such Selling Shareholder does not
have, or has waived prior to the date hereof, any registration right or other
similar right to participate in the offering made by the Prospectus, other than
such rights of participation as have been satisfied by the participation of
such Selling Shareholder in the transactions to which this Agreement relates in
accordance with the terms of this Agreement; and such Selling Shareholder does
not own any warrants, options or similar rights to acquire, and does not have
any right or arrangement to acquire, any capital stock, rights, warrants,
options or other securities from the Company, other than those described in the
Registration Statement and the Prospectus and any Incorporated Document and
other than stock options reported as outstanding in the Registration Statement.
3. Purchase, Sale and Delivery of Shares. On the basis of the
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company and the Selling Shareholders
agree, severally and not jointly, to sell to the Underwriters, and each
Underwriter agrees, severally and not jointly, to purchase from the Company and
the Selling Shareholders, respectively, at a purchase price of $_____ per
share, the respective number of Firm Shares as hereinafter set forth. The
obligation of each Underwriter to the Company and to each Selling Shareholder
shall be to purchase from the Company or such Selling Shareholder that number
of Company Shares or Selling Shareholder Shares, as the case may be, which (as
nearly as practicable, as determined by you) is in the same proportion to the
number of Company Shares or Selling Shareholder Shares, as the case may be, set
forth opposite the name of the Company or such Selling Shareholder in Schedule
B hereto as the number of Firm Shares which is set forth opposite the name of
such Underwriter in Schedule A hereto (subject to adjustment as provided in
Section 10) is to the total number of Firm Shares to be purchased by all the
Underwriters under this Agreement.
The certificates in negotiable form for the Selling Shareholder
Shares have been placed in custody (for delivery under this Agreement) under
the Custody Agreement. Each Selling Shareholder agrees that the certificates
for the Selling Shareholder Shares of such Selling Shareholder so held in
custody are subject to the interests of the Underwriters hereunder, that the
arrangements made by such Selling Shareholder for such custody, including the
Power of Attorney is to that extent irrevocable and that the obligations of
such Selling Shareholder hereunder shall not be terminated by the act of such
Selling Shareholder or by operation of law, whether by the death or incapacity
of such Selling Shareholder or the occurrence of any other event, except as
specifically provided herein or in the Custody Agreement. If any Selling
Shareholder should die or be incapacitated, or if any other such event should
occur, before the delivery of the certificates for the Selling Shareholder
Shares hereunder, the Selling Shareholder Shares to be
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<PAGE> 13
sold by such Selling Shareholder shall, except as specifically provided herein
or in the Custody Agreement, be delivered by the Custodian in accordance with
the terms and conditions of this Agreement as if such death, incapacity or
other event had not occurred, regardless of whether the Custodian shall have
received notice of such death or other event.
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 shall be made against
payment of the purchase price therefor by the several Underwriters by certified
or official bank check or checks drawn in next-day funds, payable to the order
of the Company with regard to the Shares being purchased from the Company, and
to the order of the Custodian for the respective accounts of the Selling
Shareholders with regard to the Shares being purchased from such Selling
Shareholders (and the Company and such Selling Shareholders agree not to
deposit and, in the case of the Selling Shareholders, to cause the Custodian
not to deposit any such check in the bank on which it is drawn, and not to take
any other action with the purpose or effect of receiving immediately available
funds, until the business day following the date of its delivery to the Company
or the Custodian, as the case may be, and, in the event of any breach of the
foregoing, the Company or the Selling Shareholders, as the case may be, shall
reimburse the Underwriters for the interest lost and any other expenses borne
by them by reason of such breach), at the offices of Dykema Gossett PLLC, Suite
100, 315 East Eisenhower Parkway, Ann Arbor, Michigan 48108-3306 (or at such
other place as may be agreed upon among the Representatives and the Company and
the Selling Shareholders), at 7:00 A.M., San Francisco time (a) on the third
(3rd) full business day following the first day that Shares are traded, (b) if
this Agreement is executed and delivered after 1:30 P.M., San Francisco time,
the fourth (4th) full business day following the day that this Agreement is
executed and delivered or (c) at such other time and date not later than seven
(7) full business days following the first day that Shares are traded as the
Representatives and the Company and the Selling Shareholders may determine (or
at such time and date to which payment and delivery shall have been postponed
pursuant to Section 10 hereof), such time and date of payment and delivery
being herein called the "Closing Date;" provided, however, that if the Company
has not made available to the Representatives copies of the Prospectus within
the time provided in Section 4(d) hereof, the Representatives may, in their
sole discretion, postpone the Closing Date until no later than two (2) full
business days following delivery of copies of the Prospectus to the
Representatives. The certificates for the Firm Shares to be so delivered will
be made available to you at such office or such other location including,
without limitation, in New York City, as you may reasonably request for
checking at least one (1) full business day prior to the Closing Date and will
be in such names and denominations as you may request, such request to be made
at least two (2) full business days prior to the Closing Date. If the
Representatives so elect, delivery of the Firm Shares may be made by credit
through full fast transfer to the accounts at The Depository Trust Company
designated by the Representatives.
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated
to) make payment of the purchase price on behalf of any Underwriter or
Underwriters whose check or checks shall not have been received by you prior to
the Closing Date for the Firm Shares to be purchased by such Underwriter or
Underwriters. Any such payment by you shall not relieve any such Underwriter
or Underwriters of any of its or their obligations hereunder.
After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 11 hereof) of the Firm Shares at an initial public
offering price of $_____ per share. After the initial public offering, the
several Underwriters may, in their discretion, vary the public offering price.
The information set forth in the last paragraph on the front
cover page (insofar as such information relates to the Underwriters), under the
last two paragraphs on page 2, concerning stabilization and over-allotment by
the Underwriters, and under the first, second, third, fourth, sixth and seventh
paragraphs under the caption "Underwriting" in any Preliminary Prospectus and
in the final form of
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<PAGE> 14
Prospectus filed pursuant to Rule 424(b) constitutes the only information
furnished by the Underwriters to the Company for inclusion in any Preliminary
Prospectus, the Prospectus or the Registration Statement or any Incorporated
Document, and you, on behalf of the respective Underwriters, represent and
warrant to the Company and the Selling Shareholders that the statements made
therein do not include any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
4. Further Agreements of the Company. The Company agrees with the
several Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto,
to become effective as promptly as possible; the Company will use its best
efforts to cause any abbreviated registration statement pursuant to Rule 462(b)
of the Rules and Regulations as may be required subsequent to the date the
Registration Statement is declared effective to become effective as promptly as
possible; the Company will notify you, promptly after it shall receive notice
thereof, of the time when the Registration Statement, any subsequent amendment
to the Registration Statement or any abbreviated registration statement has
become effective or any supplement to the Prospectus has been filed; if the
Company omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A(a) of the Rules and
Regulations, the Company will provide evidence satisfactory to you that the
Prospectus contains such information and has been filed, within the time period
prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule
424(b) of the Rules and Regulations or as part of a post-effective amendment to
such Registration Statement as originally declared effective which is declared
effective by the Commission; if the Company files a term sheet pursuant to Rule
434 of the Rules and Regulations, the Company will provide evidence
satisfactory to you that the Prospectus and term sheet meeting the requirements
of Rule 434(b) or (c), as applicable, of the Rules and Regulations, have been
filed, within the time period prescribed, with the Commission pursuant to
subparagraph (7) of Rule 424(b) of the Rules and Regulations; if for any reason
the filing of the final form of Prospectus is required under Rule 424(b)(3) of
the Rules and Regulations, it will provide evidence satisfactory to you that
the Prospectus contains such information and has been filed with the Commission
within the time period prescribed; it will notify you promptly of any request
by the Commission for the amending or supplementing of the Registration
Statement or the Prospectus or for additional information; promptly upon your
request, it will prepare and file with the Commission any amendments or
supplements to the Registration Statement or Prospectus which, in the opinion
of counsel for the several Underwriters ("Underwriters' Counsel"), may be
necessary or advisable in connection with the distribution of the Shares by the
Underwriters; it will promptly prepare and file with the Commission, and
promptly notify you of the filing of, any amendments or supplements to the
Registration Statement or Prospectus which may be necessary to correct any
statements or omissions, if, at any time when a prospectus relating to the
Shares is required to be delivered under the Act, any event shall have occurred
as a result of which the Prospectus or any other prospectus relating to the
Shares as then in effect would include any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading; in
case any Underwriter is required to deliver a prospectus nine (9) months or
more after the effective date of the Registration Statement in connection with
the sale of the Shares, it will prepare promptly upon request, but at the
expense of such Underwriter, such amendment or amendments to the Registration
Statement and such prospectus or prospectuses as may be necessary to permit
compliance with the requirements of Section 10(a)(3) of the Act; and it will
file no amendment or supplement to the Registration Statement or Prospectus or
the Incorporated Documents, or, prior to the end of the period of time in which
a prospectus relating to the Shares is required to be delivered under the Act,
file any document which upon filing becomes an Incorporated Document, which
shall not previously have been submitted to you a reasonable time prior to the
proposed filing thereof or to which you shall reasonably object in writing,
subject, however, to compliance with the Act and the Rules and Regulations, the
Exchange Act and the rules and regulations of the Commission thereunder and the
provisions of this Agreement.
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<PAGE> 15
(b) The Company will advise you, promptly after it shall
receive notice or obtain knowledge, of the issuance of any stop order by the
Commission suspending the effectiveness of the Registration Statement or of the
initiation or threat of any proceeding for that purpose; and it will promptly
use its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal at the earliest possible moment if such stop order should be issued.
(c) The Company will use its best efforts to qualify the
Shares for offering and sale under the securities laws of such jurisdictions as
you may designate and to continue such qualifications in effect for so long as
may be required for purposes of the distribution of the Shares, except that the
Company shall not be required in connection therewith or as a condition thereof
to qualify as a foreign corporation or to execute a general consent to service
of process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be reasonably required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as
available, and, in the case of the Prospectus and any term sheet or abbreviated
term sheet under Rule 434, in no event later than the first (1st) full business
day following the first day that Shares are traded, copies of the Registration
Statement (three of which will be signed and which will include all exhibits),
each Preliminary Prospectus, the Prospectus and any amendments or supplements
to such documents, including any prospectus prepared to permit compliance with
Section 10(a)(3) of the Act, and the Incorporated Documents (three of which
will include all exhibits), all in such quantities as you may from time to time
reasonably request. Notwithstanding the foregoing, if Robertson, Stephens &
Company, L.P., on behalf of the several Underwriters, shall agree to the
utilization of Rule 434 of the Rules and Regulations, the Company shall provide
to you copies of a Preliminary Prospectus updated in all respects through the
date specified by you in such quantities as you may from time to time
reasonably request.
(e) The Company will make generally available to its
securityholders as soon as practicable, but in any event not later than the
forty-fifth (45th) day following the end of the fiscal quarter first occurring
after the first anniversary of the effective date of the Registration
Statement, an earnings statement (which will be in reasonable detail but need
not be audited) complying with the provisions of Section 11(a) of the Act and
covering a twelve (12) month period beginning after the effective date of the
Registration Statement.
(f) During a period of five (5) years after the date
hereof, the Company will furnish to its shareholders as soon as practicable
after the end of each respective period, annual reports (including financial
statements audited by independent certified public accountants) and unaudited
quarterly reports of operations for each of the first three quarters of the
fiscal year, and will furnish to you and the other several Underwriters
hereunder, upon request (i) concurrently with furnishing such reports to its
shareholders, statements of operations of the Company for each of the first
three (3) quarters in the form furnished to the Company's shareholders, (ii)
concurrently with furnishing to its shareholders, a balance sheet of the
Company as of the end of such fiscal year, together with statements of
operations, of shareholders' equity, and of cash flows of the Company for such
fiscal year, accompanied by a copy of the certificate or report thereon of
independent certified public accountants, (iii) as soon as they are available,
copies of all reports (financial or other) mailed to shareholders, (iv) if
requested by the Underwriters as soon as they are available, copies of all
reports on Forms 10-K, 10-Q or 8-K and financial statements furnished to or
filed with the Commission, any securities exchange or the National Association
of Securities Dealers, Inc. ("NASD"), (v) every material press release and
every material news item or article in respect of the Company or its affairs
which was generally released to shareholders by the Company or any of its
subsidiaries, and (vi) any additional information of a public nature concerning
the Company or its subsidiaries, or its business which you may reasonably
request. During such five (5) year period, if the
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<PAGE> 16
Company shall have active subsidiaries, the foregoing financial statements
shall be on a consolidated basis to the extent that the accounts of the Company
and its subsidiaries are consolidated, and shall be accompanied by similar
financial statements for any significant subsidiary which is not so
consolidated.
(g) The Company will apply the net proceeds from the sale
of the Shares being sold by it in the manner set forth under the caption "Use
of Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
(which may be the same entity as the transfer agent) for its Common Stock.
(i) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company or any Selling Shareholder to perform any agreement on their respective
parts to be performed hereunder or to fulfill any condition of the
Underwriters' obligations hereunder, or if the Company shall terminate this
Agreement pursuant to Section 11(a) hereof, or if the Underwriters shall
terminate this Agreement pursuant to Section 11(b)(i), the Company will
reimburse the several Underwriters for all reasonable out-of-pocket expenses
(including fees and disbursements of Underwriters' Counsel) incurred by the
Underwriters in investigating or preparing to market or marketing the Shares.
(j) If at any time during the ninety (90) day period
after the Registration Statement becomes effective, any rumor, publication or
event relating to or affecting the Company shall occur as a result of which in
your opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
after written notice from you advising the Company to the effect set forth
above, forthwith prepare, consult with you concerning the substance of and
disseminate a press release or other public statement, reasonably satisfactory
to both parties, responding to or commenting on such rumor, publication or
event. Such press release may state that the announcement is made at the
request of the Underwriters.
(k) During the Lock-up Period, the Company will not,
without the prior written consent of Robertson Stephens & Company, L.P., effect
the Disposition of, directly or indirectly, any Securities other than the sale
of the Company Shares and the Option Shares to be sold by the Company hereunder
and Securities sold by the KSOP in accordance with the instructions of
participants therein and the Company's issuance of options or Common Stock
under the Company's presently authorized 1988 Stock Option Plan, Employee Stock
Purchase Plan, Directors' Stock Purchase Plan, Executive Stock Purchase Program
or KSOP (the "Stock Plans").
(l) During a period of ninety (90) days from the
effective date of the Registration Statement, the Company will not file a
registration statement registering shares under the Stock Plans or any other
employee benefit plan which shares could be sold, disposed of, loaned, pledged
within such ninety day period; provided the Company shall be permitted to
register shares under its KSOP.
5. Expenses.
(a) The Company and the Selling Shareholders agree,
severally and not jointly, with each Underwriter that:
(i) The Company and the Selling Shareholders will
pay and bear all costs and expenses in connection with the preparation,
printing and filing of the Registration Statement (including financial
statements, schedules and exhibits), Preliminary Prospectuses and the
Prospectus and the
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<PAGE> 17
Incorporated Documents and any amendments or supplements thereto; the printing
of this Agreement, the Agreement Among Underwriters, the Selected Dealer
Agreement, the Preliminary Blue Sky Survey and any Supplemental Blue Sky
Survey, the Underwriters' Questionnaire and Power of Attorney, and any
instruments related to any of the foregoing; the issuance and delivery of the
Shares hereunder to the several Underwriters, including transfer taxes (which
taxes will be paid by the Selling Shareholder whose transfer resulted in the
incurrence of the same), if any, the cost of all certificates representing the
Shares and transfer agents' and registrars' fees; the fees and disbursements of
counsel for the Company; all fees and other charges of the Company's
independent certified public accountants; the cost of furnishing to the several
Underwriters copies of the Registration Statement (including appropriate
exhibits), Preliminary Prospectus and the Prospectus and the Incorporated
Documents, and any amendments or supplements to any of the foregoing; NASD
filing fees and the cost of qualifying the Shares under the laws of such
jurisdictions as you may designate (including filing fees and fees and
disbursements of Underwriters' Counsel not to exceed $10,000 in connection with
such Blue Sky qualifications); and all other expenses directly incurred by the
Company and the Selling Shareholders in connection with the performance of
their obligations hereunder. Any additional expenses incurred as a result of
the sale of the Shares by the Selling Shareholders will be borne collectively
by the Company and the Selling Shareholders. The provisions of this Section
5(a)(i) are intended to relieve the Underwriters from the payment of the
expenses and costs which the Selling Shareholders and the Company hereby agree
to pay, but shall not affect any agreement which the Selling Shareholders and
the Company may make, or may have made, for the sharing of any of such expenses
and costs. Such agreements shall not impair the obligations of the Company and
the Selling Shareholders hereunder to the several Underwriters.
(ii) In addition to its other obligations under
Section 8(a) hereof, the Company agrees that, as an interim measure during the
pendency of any claim, action, investigation, inquiry or other proceeding
described in Section 8(a) hereof, it will reimburse the Underwriters on a
monthly basis for all reasonable legal or other expenses incurred in connection
with investigating or defending any such claim, action, investigation, inquiry
or other proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the Company's obligation to reimburse
the Underwriters for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To
the extent that any such interim reimbursement payment is so held to have been
improper, the Underwriters shall promptly return such payment to the Company
together with interest, compounded daily, determined on the basis of the prime
rate (or other commercial lending rate for borrowers of the highest credit
standing) listed from time to time in The Wall Street Journal which represents
the base rate on corporate loans posted by a substantial majority of the
nation's thirty (30) largest banks (the "Prime Rate"). Any such interim
reimbursement payments which are not made to the Underwriters within thirty
(30) days of a request for reimbursement shall bear interest at the Prime Rate
from the date of such request.
(iii) In addition to their other obligations under
Section 8(b) hereof, each Selling Shareholder agrees that, as an interim
measure during the pendency of any claim, action, investigation, inquiry or
other proceeding described in Section 8(b) hereof relating to such Selling
Shareholder, it will reimburse the Underwriters on a monthly basis for all
reasonable legal or other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of such Selling Shareholder's obligation to reimburse the
Underwriters for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To
the extent that any such interim reimbursement payment is so held to have been
improper, the Underwriters shall promptly return such payment to the Selling
Shareholders, together with interest, compounded daily, determined on the basis
of the Prime Rate. Any such interim reimbursement payments which are not made
to the Underwriters within thirty (30) days of a request for reimbursement
shall bear interest at the Prime Rate from the date of such request.
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<PAGE> 18
(b) In addition to their other obligations under Section
8(c) hereof, the Underwriters severally and not jointly agree that, as an
interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding described in Section 8(c) hereof, they will
reimburse the Company and each Selling Shareholder on a monthly basis for all
reasonable legal or other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Underwriters' obligation to reimburse the Company and
each such Selling Shareholder for such expenses and the possibility that such
payments might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement payment is so
held to have been improper, the Company and each such Selling Shareholder shall
promptly return such payment to the Underwriters together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company and each such Selling
Shareholder within thirty (30) days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.
(c) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in Sections
5(a)(ii), 5(a)(iii) and 5(b) hereof, including the amounts of any requested
reimbursement payments, the method of determining such amounts and the basis on
which such amounts shall be apportioned among the reimbursing parties, shall be
settled by arbitration conducted under the provisions of the Constitution and
Rules of the Board of Governors of the New York Stock Exchange, Inc. or
pursuant to the Code of Arbitration Procedure of the NASD. Any such
arbitration must be commenced by service of a written demand for arbitration or
a written notice of intention to arbitrate, therein electing the arbitration
tribunal. In the event the party demanding arbitration does not make such
designation of an arbitration tribunal in such demand or notice, then the party
responding to said demand or notice is authorized to do so. Any such
arbitration will be limited to the operation of the interim reimbursement
provisions contained in Sections 5(a)(ii), 5(a)(iii) and 5(b) hereof and will
not resolve the ultimate propriety or enforceability of the obligation to
indemnify for expenses which is created by the provisions of Sections 8(a),
8(b) and 8(c) hereof or the obligation to contribute to expenses which is
created by the provisions of Section 8(e) hereof.
6. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein
shall be subject to the accuracy, as of the date hereof and the Closing Date
and any later date on which Option Shares are to be purchased, as the case may
be, of the representations and warranties of the Company and the Selling
Shareholders herein, to the performance by the Company and the Selling
Shareholders of their respective obligations hereunder and to the following
additional conditions:
(a) The Registration Statement shall have become
effective not later than 2:00 P.M., San Francisco time, on the date following
the date of this Agreement, or such later date as shall be consented to in
writing by you; and no stop order suspending the effectiveness thereof shall
have been issued and no proceedings for that purpose shall have been initiated
or, to the knowledge of the Company, any Selling Shareholder or any
Underwriter, threatened by the Commission, and any request of the Commission
for additional information (to be included in the Registration Statement or the
Prospectus or any Incorporated Document or otherwise) shall have been complied
with to the satisfaction of Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issue, sale and delivery of
the Shares, shall have been reasonably satisfactory to Underwriters' Counsel,
and such counsel shall have been furnished with such papers and information as
they may reasonably have requested to enable them to pass upon the matters
referred to in this Section.
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<PAGE> 19
(c) Subsequent to the execution and delivery of this
Agreement and prior to the Closing Date and prior to any later date on which
Option Shares are purchased, there shall not have been any change in the
condition (financial or otherwise), earnings, operations, business or business
prospects of the Company and its subsidiaries considered as one enterprise from
that set forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus.
(d) You shall have received on the Closing Date and on
any later date on which Option Shares are purchased, as the case may be, the
following opinion of counsel for the Company, dated the Closing Date or such
later date on which Option Shares are purchased addressed to the Underwriters
and with reproduced copies or signed counterparts thereof for each of the
Underwriters, to the effect that:
(i) The Company and each Subsidiary has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation;
(ii) The Company and each Subsidiary has the
corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the
Prospectus;
(iii) The Company and each Subsidiary is duly
qualified to do business as a foreign corporation and is in good
standing in each jurisdiction, if any, in which the ownership or
leasing of its properties or the conduct of its business requires
such qualification, except where the failure to be so qualified
or be in good standing would not have a material adverse effect
on the condition (financial or otherwise), earnings, operations
or business of the Company and its subsidiaries considered as one
enterprise. To such counsel's knowledge, the Company does not
own or control, directly or indirectly, any corporation,
association or other entity other than the entities listed on
Exhibit 22.01 to the Company's Annual Report on Form 10-K filed
with the Commission and incorporated by reference into the
Registration Statement; to such counsel's knowledge, the only
corporations, associations or other entities required to be
listed on Exhibit 22.01 which are or have been active in the year
prior to the date hereof, hold substantial assets, own or lease
property or otherwise conduct business are the Subsidiaries;
(iv) The authorized, and, to such counsel's
knowledge (based upon a certificate of the transfer agent),
issued and outstanding capital stock of the Company is as set
forth in the Prospectus under the caption "Capitalization" as of
the dates stated therein, the issued and outstanding shares of
capital stock of the Company (including the Selling Shareholder
Shares) have been duly and validly issued and are fully paid
(based on a certificate of the Treasurer) and nonassessable, and,
to such counsel's knowledge, will not have been issued in
violation of or subject to any preemptive right, co-sale right,
registration right, right of first refusal or other similar
right;
(v) All issued and outstanding shares of capital
stock of each Subsidiary of the Company have been duly authorized
and validly issued and are fully paid and nonassessable, and, to
such counsel's knowledge, have not been issued in violation of or
subject to any preemptive right, co-sale right, registration
right, right of first refusal or other similar right and are
owned by the Company free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest;
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<PAGE> 20
(vi) The Firm Shares or the Option Shares, as the
case may be, to be issued by the Company pursuant to the terms of
this Agreement have been duly authorized and, upon issuance and
delivery against payment therefor in accordance with the terms
hereof, will be duly and validly issued and fully paid and
nonassessable, and will not have been issued in violation of or
subject to any preemptive right, co-sale right, registration
right, right of first refusal or other similar right of
shareholders;
(vii) The Company has the corporate power and
authority to enter into this Agreement and to issue, sell and
deliver to the Underwriters the Shares to be issued and sold by
it hereunder;
(viii) This Agreement has been duly authorized by all
necessary corporate action on the part of the Company and has
been duly executed and delivered by the Company and, assuming due
authorization, execution and delivery by you, is a valid and
binding agreement of the Company, enforceable in accordance with
its terms, except insofar as indemnification and contribution
provisions may be limited by applicable law and except as
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or
affecting creditors' rights generally or by general equitable
principles;
(ix) The Registration Statement has become
effective under the Act and, to such counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement
has been issued and no proceedings for that purpose have been
instituted or are pending or threatened under the Act;
(x) The Registration Statement and the Prospectus,
and each amendment or supplement thereto (other than the
financial statements (including supporting schedules) and
financial data derived therefrom as to which such counsel need
express no opinion), as of the effective date of the Registration
Statement, complied as to form in all material respects with the
requirements of the Act and the applicable Rules and Regulations;
and each of the Incorporated Documents (other than the financial
statements (including supporting schedules) and the financial
data derived therefrom as to which such counsel need express no
opinion) complied when filed pursuant to the Exchange Act as to
form in all material respects with the requirements of the Act
and the Rules and Regulations and the Exchange Act and the
applicable rules and regulations of the Commission thereunder;
(xi) The information in the Prospectus under the
caption "Description of Capital Stock," to the extent that it
constitutes matters of law or legal conclusions, has been
reviewed by such counsel and is a fair summary of such matters
and conclusions; and the forms of certificates evidencing the
Common Stock and filed as exhibits to the Registration Statement
comply with Michigan law;
(xii) The description in the Registration Statement
and the Prospectus of the charter and bylaws of the Company and
of statutes are accurate and fairly present the information
required to be presented by the Act and the applicable Rules and
Regulations;
(xiii) To such counsel's knowledge, there are no
agreements, contracts, leases or documents to which the Company
is a party of a character required to be described or referred to
in the Registration Statement or Prospectus or any Incorporated
Document or to be filed as an exhibit to the Registration
Statement or any Incorporated Document which are not described or
referred to therein or filed as required;
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<PAGE> 21
(xiv) The performance of this Agreement and the
consummation of the transactions herein contemplated (other than
performance of the Company's indemnification obligations
hereunder, concerning which no opinion need be expressed) will
not (a) result in any violation of the Company's charter or
bylaws or (b) to such counsel's knowledge, result in a material
breach or violation of any of the terms and provisions of, or
constitute a default under, any bond, debenture, note or other
evidence of indebtedness, or under any lease, contract,
indenture, mortgage, deed of trust, loan agreement, joint venture
or other agreement or instrument known to such counsel to which
the Company is a party or by which its properties are bound, or
any applicable statute, rule or regulation known to such counsel
or, to such counsel's knowledge, any order, writ or decree of any
court, government or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries, or over
any of their properties or operations;
(xv) No consent, approval, authorization or order
of or qualification with any court, government or governmental
agency or body of the United States or of any state of the United
States, or, to such counsel's knowledge, any other jurisdiction,
having jurisdiction over the Company or any of its Subsidiaries,
or over any of their properties or operations is necessary in
connection with the consummation by the Company of the
transactions herein contemplated, except such as have been
obtained under the Act or such as may be required under state or
other securities or Blue Sky laws in connection with the purchase
and the distribution of the Shares by the Underwriters;
(xvi) To such counsel's knowledge, there are no
legal or governmental proceedings pending or threatened against
the Company or any of its Subsidiaries of a character required to
be disclosed in the Registration Statement or the Prospectus or
any Incorporated Document by the Act or the Rules and Regulations
or by the Exchange Act or the applicable rules and regulations of
the Commission thereunder, other than those described therein;
(xvii) To such counsel's knowledge, neither the
Company nor any of its Subsidiaries is presently (a) in material
violation of its respective charter or bylaws, or (b) in material
breach of any applicable statute, rule or regulation known to
such counsel or, to such counsel's knowledge, any order, writ or
decree of any court or governmental agency or body having
jurisdiction over the Company or any of its subsidiaries, or over
any of their properties or operations, which breach, with respect
to (b), would have a Material Adverse Effect;
(xviii) To such counsel's knowledge, except as set
forth in the Registration Statement and Prospectus and any
Incorporated Document, no holders of Common Stock or other
securities of the Company have registration rights with respect
to securities of the Company and, except as set forth in the
Registration Statement and Prospectus, all holders of securities
of the Company having rights known to such counsel to
registration of such shares of Common Stock or other securities,
because of the filing of the Registration Statement by the
Company have, with respect to the offering contemplated thereby,
waived such rights or such rights have expired by reason of lapse
of time following notification of the Company's intent to file
the Registration Statement or have included securities in the
Registration Statement pursuant to the exercise of and in full
satisfaction of such rights;
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representatives, Underwriters' Counsel and the independent
certified public accountants of the Company, at which such conferences the
contents of the Registration Statement and Prospectus and related matters were
discussed, and although they have not
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<PAGE> 22
verified the accuracy or completeness of the statements contained in the
Registration Statement or the Prospectus, nothing has come to the attention of
such counsel which leads them to believe that, at the time the Registration
Statement became effective and at all times subsequent thereto up to and on the
Closing Date and on any later date on which Option Shares are to be purchased,
the Registration Statement and any amendment or supplement thereto and any
Incorporated Document, when the Registration Statement and any amendment or
supplement thereto became effective or were filed with the Commission (other
than the financial statements including supporting schedules and other
financial and statistical information derived therefrom, as to which such
counsel need express no comment), contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or at the Closing Date
or any later date on which the Option Shares are to be purchased, as the case
may be, the Registration Statement, the Prospectus and any amendment or
supplement thereto and any Incorporated Document (except as aforesaid)
contained any untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. Such counsel shall
also state that the conditions for the use of Form S-3 set forth in the General
Instructions thereto have been satisfied.
In rendering such opinion, such counsel may state that they
are relying upon the certificate of KeyCorp Shareholder Services, Inc., the
transfer agent for the Common Stock, as to the number of shares of Common Stock
at any time outstanding. Counsel rendering the foregoing opinion may rely as
to questions of law not involving the laws of the United States or the State of
Michigan upon opinions of local counsel, and as to questions of fact upon
representations or certificates of officers of the Company, the Selling
Shareholders or officers of the Selling Shareholders (when the Selling
Shareholder is not a natural person), and of government officials, in which
case their opinion is to state that they are so relying and that they have no
knowledge of any material misstatement or inaccuracy in any such opinion,
representation or certificate. Copies of any opinion, representation or
certificate so relied upon shall be delivered to you, as Representatives of the
Underwriters, and to Underwriters' Counsel. "To such counsel's knowledge"
shall refer to information obtained by legal counsel which relates to matters
such legal counsel gave substantive legal attention to on behalf of the Company
or its Subsidiaries.
(e) You shall have received on the Closing Date and on
any later date on which Option Shares are purchased, as the case may be, the
following opinion of counsel for each of the Selling Shareholders, dated the
Closing Date or such later date on which Option Shares are purchased addressed
to the Underwriters and with reproduced copies or signed counterparts thereof
for each of the Underwriters, to the effect that:
(i) Each Selling Shareholder which is not a
natural person has full right, power and authority to enter into
and to perform its obligations under the Power of Attorney and
Custody Agreement to be executed and delivered by it in
connection with the transactions contemplated herein; the Power
of Attorney and Custody Agreement of each Selling Shareholder
that is not a natural person has been duly authorized by such
Selling Shareholder; the Power of Attorney and Custody Agreement
of each Selling Shareholder has been duly executed and delivered
by or on behalf of such Selling Shareholder; and the Power of
Attorney and Custody Agreement of each Selling Shareholder
constitutes the valid and binding agreement of such Selling
Shareholder, enforceable in accordance with its terms, except as
the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable
principles;
(ii) Each of the Selling Shareholders which is not
a natural person has full right, power and authority to enter
into and to perform its obligations under this Agreement and to
sell, transfer, assign and deliver the Shares to be sold by such
Selling Shareholder
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<PAGE> 23
hereunder, and such counsel is not aware of any fact or facts
indicating a material breach of the representation contained in
the last clause of Section 2.II(c) hereof;
(iii) This Agreement has been duly authorized by
each Selling Shareholder that is not a natural person and has
been duly executed and delivered by or on behalf of each such
Selling Shareholder; and
(iv) Upon the delivery of and payment for the
Shares as contemplated in this Agreement, each of the
Underwriters will receive valid marketable title to the Shares
purchased by it from such Selling Shareholder, free and clear of
any pledge, lien, security interest, encumbrance, claim or
equitable interest. In rendering such opinion, such counsel may
assume that the Underwriters are without notice of any defect in
the title of the Shares being purchased from the Selling
Shareholders.
Counsel rendering the foregoing opinion may rely as to questions of law not
involving the laws of the United States or the State of Minnesota upon opinions
of local counsel, and as to questions of fact upon representations or
certificates of officers of the Company, the Selling Shareholders or officers
of the Selling Shareholders (when the Selling Shareholder is not a natural
person), and of government officials, in which case their opinion is to state
that they are so relying and that they have no knowledge of any material
misstatement or inaccuracy in any such opinion, representation or certificate.
Copies of any opinion, representation or certificate so relied upon shall be
delivered to you, as Representatives of the Underwriters, and to Underwriters'
Counsel.
(f) You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may be,
an opinion of Brobeck, Phleger & Harrison, in form and substance reasonably
satisfactory to you, with respect to the sufficiency of all such corporate
proceedings and other legal matters relating to this Agreement and the
transactions contemplated hereby as you may reasonably require, and the Company
shall have furnished to such counsel such documents as they may have requested
for the purpose of enabling them to pass upon such matters.
(g) You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may be,
a letter from Arthur Andersen LLP addressed to the Company and the
Underwriters, dated the Closing Date or such later date on which Option Shares
are to be purchased, as the case may be, confirming that they are independent
certified public accountants with respect to the Company within the meaning of
the Act and the applicable published Rules and Regulations and based upon the
procedures described in such letter delivered to you concurrently with the
execution of this Agreement (herein called the "Original Letter"), but carried
out to a date not more than five (5) business days prior to the Closing Date or
such later date on which Option Shares are to be purchased, as the case may be,
(i) confirming, to the extent true, that the statements and conclusions set
forth in the Original Letter are accurate as of the Closing Date or such later
date on which Option Shares are to be purchased, as the case may be, and (ii)
setting forth any revisions and additions to the statements and conclusions set
forth in the Original Letter which are necessary to reflect any changes in the
facts described in the Original Letter since the date of such letter, or to
reflect the availability of more recent financial statements, data or
information. The letter shall not disclose any change in the condition
(financial or otherwise), earnings, operations, business or business prospects
of the Company and its subsidiaries considered as one enterprise from that set
forth in the Registration Statement or Prospectus, which, in your sole
judgment, is material and adverse and that makes it, in your sole judgment,
impracticable or inadvisable to proceed with the public offering of the Shares
as contemplated by the Prospectus. The Original Letter from Arthur Andersen
LLP shall be addressed to or for the use of the Underwriters in form and
substance satisfactory to the Underwriters and shall (i) represent, to the
extent true, that they are independent certified public accountants with
respect to the Company within the meaning of the Act and the applicable
published Rules and
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<PAGE> 24
Regulations, (ii) set forth their opinion with respect to their examination of
the consolidated balance sheet of the Company as of June 30, 1995 and 1994 and
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the years in the three years ended June 30, 1995, (iii) state
that Arthur Andersen LLP has performed the procedure set out in Statement on
Auditing Standards No. 71 ("SAS 71") for a review of interim financial
information and providing the report of Arthur Andersen LLP as described in SAS
71 on the financial statements for each of the quarters ended September 30,
1994 and September 30, 1995 and (iv) address other matters agreed upon by
Arthur Andersen LLP and you. In addition, you shall have received from Arthur
Andersen LLP a letter addressed to the Company and made available to you for
the use of the Underwriters stating that their review of the Company's system
of internal accounting controls, to the extent they deemed necessary in
establishing the scope of their examination of the Company's consolidated
financial statements as of June 30, 1995, did not disclose any weaknesses in
internal controls that they considered to be material weaknesses.
(h) You shall have received on the Closing Date and on
any later date on which Option Shares are to be purchased, as the case may be,
a certificate of the Company, dated the Closing Date or such later date on
which Option Shares are to be purchased, as the case may be, signed by the
Chief Executive Officer and Chief Financial Officer of the Company, to the
effect that, and you shall be reasonably satisfied that:
(i) The representations and warranties of the
Company in this Agreement are true and correct, as if made on and
as of the Closing Date or any later date on which Option Shares
are to be purchased, as the case may be, and the Company has
complied with all the agreements and satisfied all the conditions
on its part to be performed or satisfied at or prior to the
Closing Date or any later date on which Option Shares are to be
purchased, as the case may be;
(ii) No stop order suspending the effectiveness of
the Registration Statement has been issued and no proceedings for
that purpose have been instituted or are pending or threatened
under the Act;
(iii) When the Registration Statement became
effective and at all times subsequent thereto up to the delivery
of such certificate, the Registration Statement and the
Prospectus, and any amendments or supplements thereto and the
Incorporated Documents, when such Incorporated Documents became
effective or were filed with the Commission, contained all
material information required to be included therein by the Act
and the Rules and Regulations or the Exchange Act and the
applicable rules and regulations of the Commission thereunder, as
the case may be, and in all material respects conformed to the
requirements of the Act and the Rules and Regulations or the
Exchange Act and the applicable rules and regulations of the
Commission thereunder, as the case may be, the Registration
Statement, and any amendment or supplement thereto, did not and
does not include any untrue statement of a material fact or omit
to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, the
Prospectus, and any amendment or supplement thereto, did not and
does not include any untrue statement of a material fact or omit
to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were
made, not misleading, and, since the effective date of the
Registration Statement, there has occurred no event required to
be set forth in an amended or supplemented Prospectus which has
not been so set forth; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and
Prospectus, there has not been (a) any material adverse change in
the condition (financial or otherwise), earnings, operations,
business or business prospects of
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<PAGE> 25
the Company and its subsidiaries considered as one enterprise,
(b) any transaction that is material to the Company and its
subsidiaries considered as one enterprise, except transactions
entered into in the ordinary course of business, (c) any
obligation, direct or contingent, that is material to the Company
and its subsidiaries considered as one enterprise, incurred by
the Company or its subsidiaries, except obligations incurred in
the ordinary course of business, (d) any change in the capital
stock or outstanding indebtedness of the Company or any of its
subsidiaries that is material to the Company and its subsidiaries
considered as one enterprise, (e) any dividend or distribution of
any kind declared, paid or made on the capital stock of the
Company or any of its subsidiaries, or (f) any loss or damage
(whether or not insured) to the property of the Company or any of
its subsidiaries which has been sustained or will have been
sustained which has a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or
business prospects of the Company and its subsidiaries considered
as one enterprise.
(i) You shall be reasonably satisfied that, and you shall
have received a certificate, dated the Closing Date, or any later date on which
Option Shares are to be purchased, as the case may be, from the Attorneys for
each Selling Shareholder to the effect that, as of the Closing Date, or any
later date on which Option Shares are to be purchased, as the case may be, they
have not been informed that:
(i) The representations and warranties made by
such Selling Shareholder herein are not true or correct in any
material respect on the Closing Date or on any later date on
which Option Shares are to be purchased, as the case may be; or
(ii) Such Selling Shareholder has not complied with
any obligation or satisfied any condition which is required to be
performed or satisfied on the part of such Selling Shareholder at
or prior to the Closing Date or any later date on which Option
Shares are to be purchased, as the case may be.
(j) The Company shall have obtained and delivered to you
an agreement from each officer and director of the Company and each Selling
Shareholder in writing prior to the date hereof that such person will not,
during the Lock-up Period, effect the Disposition of any Securities now owned
or hereafter acquired directly by such person or with respect to which such
person has or hereafter acquires the power of disposition, otherwise than (i)
as a bona fide gift or gifts, provided the donee or donees thereof agree in
writing to be bound by this restriction, (ii) as a distribution to limited
partners or shareholders of such person, provided that the distributees thereof
agree in writing to be bound by the terms of this restriction, or (iii) with
the prior written consent of Robertson, Stephens & Company, L.P. The foregoing
restriction is expressly agreed to preclude the holder of the Securities from
engaging in any hedging or other transaction which is designed to or reasonably
expected to lead to or result in a Disposition of Securities during the Lock-up
Period, even if such Securities would be disposed of by someone other than the
such holder. Such prohibited hedging or other transactions would including,
without limitation, any short sale (whether or not against the box) or any
purchase, sale or grant of any right (including, without limitation, any put or
call option) with respect to any Securities or with respect to any security
(other than a broad-based market basket or index) that includes, relates to or
derives any significant part of its value from Securities. Furthermore, such
person will have also agreed and consented to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of the
Securities held by such person except in compliance with this restriction.
(k) The Company and the Selling Shareholders shall have
furnished to you such further certificates and documents as you shall
reasonably request (including certificates of officers of the Company, the
Selling Shareholders or officers of the Selling Shareholders (when the Selling
Shareholder is not a natural person) as to the accuracy of the representations
and warranties of the Company and the Selling
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<PAGE> 26
Shareholders herein, as to the performance by the Company and the Selling
Shareholders of their respective obligations hereunder and as to the other
conditions concurrent and precedent to the obligations of the Underwriters
hereunder.
All such opinions, certificates, letters and documents will
be in compliance with the provisions hereof only if they are reasonably
satisfactory to Underwriters' Counsel. The Company and the Selling
Shareholders will furnish you with such number of conformed copies of such
opinions, certificates, letters and documents as you shall reasonably request.
7. Option Shares.
(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company and the Selling Shareholders hereby grant to the several
Underwriters, for the purpose of covering over-allotments in connection with
the distribution and sale of the Firm Shares only, a nontransferable option to
purchase up to an aggregate of 325,500 Option Shares at the purchase price per
share for the Firm Shares set forth in Section 3 hereof. Such option may be
exercised by the Representatives on behalf of the several Underwriters on one
(1) or more occasions in whole or in part during the period of thirty (30) days
after the date on which the Firm Shares are initially offered to the public, by
giving written notice to the Company. The number of Option Shares to be
purchased by each Underwriter upon the exercise of such option shall be the
same proportion of the total number of Option Shares to be purchased by the
several Underwriters pursuant to the exercise of such option as the number of
Firm Shares purchased by such Underwriter (set forth in Schedule A hereto)
bears to the total number of Firm Shares purchased by the several Underwriters
(set forth in Schedule A hereto), adjusted by the Representatives in such
manner as to avoid fractional shares.
Delivery of definitive certificates for the Option Shares
to be purchased by the several Underwriters pursuant to the exercise of the
option granted by this Section 7 shall be made against payment of the purchase
price therefor by the several Underwriters by certified or official bank check
or checks drawn in next-day funds, payable to the order of the Company or the
Selling Shareholders, as the case may be (and the Company or the Selling
Shareholders, as the case may be, agree not to deposit any such check in the
bank on which it is drawn, and not to take any other action with the purpose or
effect of receiving immediately available funds, until the business day
following the date of its delivery to the Company). In the event of any breach
of the foregoing, the Company or the Selling Shareholders, as the case may be,
shall reimburse the Underwriters for the interest lost and any other expenses
borne by them by reason of such breach. Such delivery and payment shall take
place at the offices of Dykema Gossett PLLC, Suite 100, 315 East Eisenhower
Parkway, Ann Arbor, Michigan 48108-3306, or at such other place as may be
agreed upon among the Representatives and the Company or the Selling
Shareholders, as the case may be, (i) on the Closing Date, if written notice of
the exercise of such option is received by the Company or the Selling
Shareholders, as the case may be, at least two (2) full business days prior to
the Closing Date, or (ii) on a date which shall not be later than the third
(3rd) full business day following the date the Company or the Selling
Shareholders, as the case may be, receive written notice of the exercise of
such option, if such notice is received by the Company or the Selling
Shareholders, as the case may be, less than two (2) full business days prior to
the Closing Date.
The certificates for the Option Shares to be so delivered
will be made available to you at such office or such other location including,
without limitation, in New York City, as you may reasonably request for
checking at least one (1) full business day prior to the date of payment and
delivery and will be in such names and denominations as you may request, such
request to be made at least two (2) full business days prior to such date of
payment and delivery. If the Representatives so elect, delivery of the Option
Shares may be made by credit through full fast transfer to the accounts at The
Depository Trust Company designated by the Representatives.
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<PAGE> 27
It is understood that you, individually, and not as the
Representatives of the several Underwriters, may (but shall not be obligated
to) make payment of the purchase price on behalf of any Underwriter or
Underwriters whose check or checks shall not have been received by you prior to
the date of payment and delivery for the Option Shares to be purchased by such
Underwriter or Underwriters. Any such payment by you shall not relieve any
such Underwriter or Underwriters of any of its or their obligations hereunder.
(b) Upon exercise of any option provided for in Section
7(a) hereof, the obligations of the several Underwriters to purchase such
Option Shares will be subject (as of the date hereof and as of the date of
payment and delivery for such Option Shares) to the accuracy of and compliance
with the representations, warranties and agreements of the Company and the
Selling Shareholders herein, to the accuracy of the statements of the Company,
the Selling Shareholders and officers of the Company made pursuant to the
provisions hereof, to the performance by the Company and the Selling
Shareholders of their respective obligations hereunder, and to the condition
that all proceedings taken at or prior to the payment date in connection with
the sale and transfer of such Option Shares shall be reasonably satisfactory in
form and substance to you and to Underwriters' Counsel, and you shall have been
furnished with all such documents, certificates and opinions as you may request
in order to evidence the accuracy and completeness of any of the
representations, warranties or statements, the performance of any of the
covenants or agreements of the Company and the Selling Shareholders or the
compliance with any of the conditions herein contained.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless
each Underwriter against any losses, claims, damages or liabilities, joint or
several, to which such Underwriter may become subject (including, without
limitation, in its capacity as an Underwriter or as a "qualified independent
underwriter" within the meaning of Schedule E of the Bylaws of the NASD), under
the Act, the Exchange Act or otherwise, specifically including, but not limited
to, losses, claims, damages or liabilities, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon (i) any breach of any representation, warranty, agreement or
covenant of the Company herein contained, (ii) any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement
or any amendment or supplement thereto, including any Incorporated Document, or
the omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
or (iii) any untrue statement or alleged untrue statement of any material fact
contained in any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and agrees to reimburse each Underwriter for any legal or other
expenses reasonably incurred by it in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company shall not be liable in any such case to the extent that any
such loss, claim, damage, liability or action arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in the Registration Statement, such Preliminary Prospectus or the
Prospectus, or any such amendment or supplement thereto, in reliance upon, and
in conformity with, written information relating to any Underwriter furnished
to the Company by such Underwriter, directly or through you, specifically for
use in the preparation thereof and, provided further, that the indemnity
agreement provided in this Section 8(a) with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any losses, claims, damages, liabilities or actions based upon
any untrue statement or alleged untrue statement of material fact or omission
or alleged omission to state therein a material fact purchased Shares, if a
copy of the Prospectus in which such untrue statement or alleged untrue
statement or omission or alleged omission was corrected had not been sent or
given to such
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<PAGE> 28
person within the time required by the Act and the Rules and Regulations,
unless such failure is the result of noncompliance by the Company with Section
4(d) hereof.
The indemnity agreement in this Section 8(a) shall extend
upon the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the Act or
the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which the Company may otherwise have.
(b) Each Selling Shareholder, severally and not jointly,
agrees to indemnify and hold harmless each Underwriter against any losses,
claims, damages or liabilities, joint or several, to which such Underwriter may
become subject (including, without limitation, in its capacity as an
Underwriter or as a "qualified independent underwriter" within the meaning of
Schedule E or the Bylaws of the NASD) under the Act, the Exchange Act or
otherwise, specifically including, but not limited to, losses, claims, damages
or liabilities, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon (i) any breach of
any representation, warranty, agreement or covenant of such Selling Shareholder
herein contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement or any amendment or
supplement thereto, including any Incorporated Document, or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or (iii) any untrue
statement or alleged untrue statement of any material fact contained in any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, in the case of subparagraphs (ii)
and (iii) of this Section 8(b) to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information furnished
to the Company or such Underwriter by such Selling Shareholder, directly or
through such Selling Shareholder's representatives, specifically for use in the
preparation thereof, and agrees to reimburse each Underwriter for any legal or
other expenses reasonably incurred by it in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement provided in this Section 8(b) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any losses, claims, damages, liabilities or actions
based upon any untrue statement or alleged untrue statement of a material fact
or omission or alleged omission to state therein a material fact purchased
Shares, if a copy of the Prospectus in which such untrue statement or alleged
untrue statement or omission or alleged omission was corrected had not been
sent or given to such person within the time required by the Act and the Rules
and Regulations, unless such failure is the result of noncompliance by the
Company with Section 4(d) hereof.
The indemnity agreement in this Section 8(b) shall extend
upon the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls any Underwriter within the meaning of the Act or
the Exchange Act. This indemnity agreement shall be in addition to any
liabilities which such Selling Shareholder may otherwise have.
(c) Each Underwriter, severally and not jointly, agrees
to indemnify and hold harmless the Company, and each Selling Shareholder and
each Attorney-in-Fact against any losses, claims, damages or liabilities, joint
or several, to which the Company or such Selling Shareholder and each
Attorney-in-Fact may become subject under the Act or otherwise, specifically
including, but not limited to, losses, claims, damages or liabilities, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (i) any breach of any representation, warranty,
agreement or covenant of such Underwriter herein contained, (ii) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement or any amendment or supplement thereto, including any
Incorporated Document, or the omission or alleged omission to state therein a
material fact required to be
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<PAGE> 29
stated therein or necessary to make the statements therein not misleading, or
(iii) any untrue statement or alleged untrue statement of any material fact
contained in any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or the omission or alleged omission to state therein a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, in the case of
subparagraphs (ii) and (iii) of this Section 8(c) to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such Underwriter, directly or through
you, specifically for use in the preparation thereof, and agrees to reimburse
the Company and each such Selling Shareholder for any legal or other expenses
reasonably incurred by the Company and each such Selling Shareholder in
connection with investigating or defending any such loss, claim, damage,
liability or action.
The indemnity agreement in this Section 8(c) shall extend upon
the same terms and conditions to, and shall inure to the benefit of, each
officer of the Company who signed the Registration Statement and each director
of the Company, each Selling Shareholder and each Attorney-in-Fact and each
person, if any, who controls the Company or any Selling Shareholder within the
meaning of the Act or the Exchange Act. This indemnity agreement shall be in
addition to any liabilities which each Underwriter may otherwise have.
(d) Promptly after receipt by an indemnified party under
this Section 8 of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against any
indemnifying party under this Section 8, notify the indemnifying party in
writing of the commencement thereof but the omission so to notify the
indemnifying party will not relieve it from any liability which it may have to
any indemnified party otherwise than under this Section 8. In case any such
action is brought against any indemnified party, and it notified the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it shall elect by
written notice delivered to the indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party; provided,
however, that if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have
reasonably concluded that there may be legal defenses available to it and/or
other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall
have the right to select separate counsel to assume such legal defenses and to
otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of the indemnifying party's election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 8 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section 8(a),
8(b) or 8(c) hereof who are parties to such action), (ii) the indemnifying
party shall not have employed counsel reasonably satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after notice of commencement of the action or (iii) the indemnifying party has
authorized in writing the employment of counsel for the indemnified party at
the expense of the indemnifying party. In no event shall any indemnifying
party be liable in respect of any amounts paid in settlement of any action
unless the indemnifying party shall have approved the terms of such settlement;
provided that such consent shall not be unreasonably withheld. No indemnifying
party shall, without the prior written consent of the indemnified party, effect
any settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnification could have
been sought hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party from all liability
on claims that are the subject matter of such proceeding.
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<PAGE> 30
(e) In order to provide for just and equitable
contribution in any action in which a claim for indemnification is made
pursuant to this Section 8 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the
expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 8 provides for indemnification in such case, all the parties
hereto shall contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject (after contribution from others) in such
proportion so that, except as set forth in Section 8(f) hereof, the
Underwriters severally and not jointly are responsible pro rata for the portion
represented by the percentage that the underwriting discount bears to the
initial public offering price, and the Company and the Selling Shareholders are
responsible for the remaining portion, provided, however, that (i) no
Underwriter shall be required to contribute any amount in excess of the
underwriting discount applicable to the Shares purchased by such Underwriter
(taking into account the amount of damages which such Underwriter has otherwise
been required to pay) and (ii) no person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who is not guilty of such fraudulent
misrepresentation. The contribution agreement in this Section 8(e) shall
extend upon the same terms and conditions to, and shall inure to the benefit
of, each person, if any, who controls the Underwriters or the Company or any
Selling Shareholder within the meaning of the Act or the Exchange Act and each
officer of the Company who signed the Registration Statement and each director
of the Company and each officer of the Selling Shareholders who signed the
Registration Statement.
(f) The liability of each Selling Shareholder under the
representations, warranties and agreements contained herein and under the
indemnity agreements contained in the provisions of this Section 8 shall be
limited to an amount equal to the initial public offering price of the Selling
Shareholder Shares sold by such Selling Shareholder to the Underwriters minus
the amount of the underwriting discount paid thereon to the Underwriters by
such Selling Shareholder. The Company and such Selling Shareholders may agree,
as among themselves and without limiting the rights of the Underwriters under
this Agreement, as to the respective amounts of such liability for which they
each shall be responsible.
(g) The parties to this Agreement hereby acknowledge that
they are sophisticated business persons who were represented by counsel during
the negotiations regarding the provisions hereof including, without limitation,
the provisions of this Section 8, and are fully informed regarding said
provisions. They further acknowledge that the provisions of this Section 8
fairly allocate the risks in light of the ability of the parties to investigate
the Company and its business in order to assure that adequate disclosure is
made in the Registration Statement and Prospectus as required by the Act and
the Exchange Act.
9. Representations, Warranties, Covenants and Agreements to Survive
Delivery. All representations, warranties, covenants and agreements of the
Company, the Selling Shareholders and the Underwriters herein or in
certificates delivered pursuant hereto, and the indemnity and contribution
agreements contained in Section 8 hereof shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of any
Underwriter or any controlling person within the meaning of the Act or the
Exchange Act, or by or on behalf of the Company or any Selling Shareholder, or
any of its their officers, directors or controlling persons within the meaning
of the Act or the Exchange Act, and shall survive the delivery of the Shares to
the several Underwriters hereunder or termination of this Agreement.
10. Substitution of Underwriters. If any Underwriter or Underwriters
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed
to purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective
-30-
<PAGE> 31
commitments hereunder, to take up and pay for the Firm Shares of such
defaulting Underwriter or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for
twenty-four (24) hours to allow the several Underwriters the privilege of
substituting within twenty-four (24) hours (including non-business hours)
another underwriter or underwriters (which may include any nondefaulting
Underwriter) satisfactory to the Company. If no such underwriter or
underwriters shall have been substituted as aforesaid by such postponed Closing
Date, the Closing Date may, at the option of the Company, be postponed for a
further twenty-four (24) hours, if necessary, to allow the Company the
privilege of finding another underwriter or underwriters, reasonably
satisfactory to you, to purchase the Firm Shares which the defaulting
Underwriter or Underwriters so agreed but failed to purchase. If it shall be
arranged for the remaining Underwriters or substituted underwriter or
underwriters to take up the Firm Shares of the defaulting Underwriter or
Underwriters as provided in this Section 10, (i) the Company shall have the
right to postpone the time of delivery for a period of not more than seven (7)
full business days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Company agrees promptly to file any
amendments to the Registration Statement or supplements to the Prospectus which
may thereby be made necessary, and (ii) the respective number of Firm Shares to
be purchased by the remaining Underwriters and substituted underwriter or
underwriters shall be taken as the basis of their underwriting obligation. If
the remaining Underwriters shall not take up and pay for all such Firm Shares
so agreed to be purchased by the defaulting Underwriter or Underwriters or
substitute another underwriter or underwriters as aforesaid and the Company
shall not find or shall not elect to seek another underwriter or underwriters
for such Firm Shares as aforesaid, then this Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 10, neither the Company nor any Selling
Shareholder shall be liable to any Underwriter (except as provided in Sections
5 and 8 hereof) nor shall any Underwriter (other than an Underwriter who shall
have failed, otherwise than for some reason permitted under this Agreement, to
purchase the number of Firm Shares agreed by such Underwriter to be purchased
hereunder, which Underwriter shall remain liable to the Company, the Selling
Shareholders and the other Underwriters for damages, if any, resulting from
such default) be liable to the Company or any Selling Shareholder (except to
the extent provided in Sections 5 and 8 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 10.
11. Effective Date of this Agreement and Termination.
(a) This Agreement shall become effective at the earlier
of (i) 6:30 A.M., San Francisco time, on the first full business day following
the effective date of the Registration Statement, or (ii) the time of the
initial public offering of any of the Shares by the Underwriters after the
Registration Statement becomes effective. The time of the initial public
offering shall mean the time of the release by you, for publication, of the
first newspaper advertisement relating to the Shares, or the time at which the
Shares are first generally offered by the Underwriters to the public by letter,
telephone, telegram or telecopy, whichever shall first occur. By giving notice
as set forth in Section 12 before the time this Agreement
-31-
<PAGE> 32
becomes effective, you, as Representatives of the several Underwriters, or the
Company, may prevent this Agreement from becoming effective without liability
of any party to any other party, except as provided in Sections 4(j), 5 and 8
hereof.
(b) You, as Representatives of the several Underwriters,
shall have the right to terminate this Agreement by giving notice as
hereinafter specified at any time at or prior to the Closing Date or on or
prior to any later date on which Option Shares are to be purchased, as the case
may be, (i) if the Company or any Selling Shareholder shall have failed,
refused or been unable to perform any agreement on its part to be performed
under this Agreement, or because any other condition of the Underwriters'
obligations hereunder required to be fulfilled is not fulfilled, including,
without limitation, any change in the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company and its
subsidiaries considered as one enterprise from that set forth in the
Registration Statement or Prospectus, which, in your sole judgment, is material
and adverse, or (ii) if additional material governmental restrictions, not in
force and effect on the date hereof, shall have been imposed upon trading in
securities generally, or minimum or maximum prices shall have been generally
established, on the New York Stock Exchange or on the American Stock Exchange
or in the over the counter market by the NASD, or trading in securities
generally shall have been suspended on either such exchange or in the over the
counter market by the NASD, or if a banking moratorium shall have been declared
by federal, New York or California authorities, or (iii) if the Company shall
have sustained a loss by strike, fire, flood, earthquake, accident or other
calamity of such character as to interfere materially with the conduct of the
business and operations of the Company regardless of whether or not such loss
shall have been insured, which loss or interference is reasonably expected to
have a Material Adverse Effect, or (iv) if there shall have been a material
adverse change in the general political or economic conditions, or financial
markets, in the United States as in your reasonable judgment makes it
inadvisable or impracticable to proceed with the offering, sale and delivery of
the Shares, or (v) if there shall have been an outbreak or escalation of
hostilities between the United States and any foreign power or of any other
insurrection or armed conflict involving the United States or the declaration
by the United States of a national emergency which, in the reasonable opinion
of the Representatives, makes it impracticable or inadvisable to proceed with
the public offering of the Shares as contemplated by the Prospectus. In the
event of termination pursuant to subparagraph (i) above, the Company shall
remain obligated to pay costs and expenses pursuant to Sections 4(j), 5 and 8
hereof. Any termination pursuant to any of subparagraphs (ii) through (v)
above shall be without liability of any party to any other party except as
provided in Sections 5 and 8 hereof.
If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section 11, you shall promptly
notify the Company and Selling Shareholders by telephone, telecopy or telegram,
in each case confirmed by notice to one of the Attorneys-in-Fact. If the
Company shall elect to prevent this Agreement from becoming effective, the
Company shall promptly notify you by telephone, telecopy or telegram, in each
case, confirmed by letter.
12. Notices. All notices or communications hereunder, except as
herein otherwise specifically provided, shall be in writing and if sent to you
shall be mailed, delivered, telegraphed (and confirmed by letter) or telecopied
(and confirmed by letter) to you c/o Robertson, Stephens & Company, L.P., 555
California Street, Suite 2600, San Francisco, California 94104, telecopier
number (415) 781-0278, Attention: General Counsel; if sent to the Company, such
notice shall be mailed, delivered, telegraphed (and confirmed by letter) or
telecopied (and confirmed by letter) to 555 Briarwood Circle, Ann Arbor,
Michigan 48108, telecopier number (313) 994-5895, Attention: President, with
copy to Thomas S. Vaughn, Dykema Gossett PLLC, 400 Renaissance Center, Detroit,
Michigan 48243-1668, telecopier number (313) 568-6915; if sent to one or more
of the Selling Shareholders, such notice shall be sent mailed, delivered,
telegraphed (and confirmed by letter) or telecopied (and confirmed by letter)
to Richard T. Holm, as Attorney-in-Fact for the Selling Shareholders, other
than Richard L. Crandall, at Suite 3100, 332 Minnesota Street, Saint Paul,
-32-
<PAGE> 33
Minnesota 55101-1394, telephone number (612) 228-0935 and to Richard L.
Crandall, at 555 Briarwood Circle, Ann Arbor, Michigan 48108, telecopier number
(313) 994-5895.
13. Parties. This Agreement shall inure to the benefit of and be
binding upon the several Underwriters and the Company and the Selling
Shareholders and their respective executors, administrators, successors and
assigns. Nothing expressed or mentioned in this Agreement is intended or shall
be construed to give any person or corporation, other than the parties hereto
and their respective executors, administrators, successors and assigns, and the
controlling persons within the meaning of the Act or the Exchange Act, officers
and directors referred to in Section 8 hereof, any legal or equitable right,
remedy or claim in respect of this Agreement or any provisions herein
contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of the parties
hereto and their respective executors, administrators, successors and assigns
and said controlling persons and said officers and directors, and for the
benefit of no other person or corporation. No purchaser of any of the Shares
from any Underwriter shall be construed a successor or assign by reason merely
of such purchase.
In all dealings with the Company and the Selling Shareholders
under this Agreement, you shall act on behalf of each of the several
Underwriters, and the Company and the Selling Shareholders shall be entitled to
act and rely upon any statement, request, notice or agreement made or given by
you jointly or by Robertson, Stephens & Company, L.P. on behalf of you.
14. Applicable Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California.
-33-
<PAGE> 34
15. Counterparts. This Agreement may be signed in several
counterparts, each of which will constitute an original.
If the foregoing correctly sets forth the understanding among the
Company, the Selling Shareholders and the several Underwriters, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement among the Company, the Selling
Shareholders and the several Underwriters.
Very truly yours,
COMSHARE, INCORPORATED
By
---------------------------------------------------
SELLING SHAREHOLDERS
By
---------------------------------------------------
Attorney-in-Fact for the Selling Shareholders named in
Schedule B hereto other than Richard L. Crandall
By
---------------------------------------------------
Attorney-in-Fact for Richard L. Crandall
Accepted as of the date first above written:
ROBERTSON, STEPHENS & COMPANY, L.P.
VOLPE, WELTY & COMPANY
THE CHICAGO CORPORATION
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
ROBERTSON, STEPHENS & COMPANY, L.P.
By ROBERTSON, STEPHENS & COMPANY, INC.
By
-------------------------------------------------
Authorized Signatory
-34-
<PAGE> 35
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Shares
To Be
Underwriters Purchased
- ---------------------------------------------- --------------------
<S> <C>
Robertson, Stephens & Company, L.P. . . . . . . . . . . . . . . . . . . . .
Volpe, Welty & Company . . . . . . . . . . . . . . . . . . . . . . . . . .
The Chicago Corporation . . . . . . . . . . . . . . . . . . . . . . . . . .
--------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
==============
</TABLE>
<PAGE> 36
SCHEDULE B
<TABLE>
<CAPTION>
Number of
Company Maximum
Shares To Option
Company Be Sold Shares
- -------------------------------------------------- ------------- ------------
<S> <C> <C>
------------
Total . . . . . . . . . . . . . . . . . . . . . .
=============
</TABLE>
<TABLE>
<CAPTION>
Number of
Selling
Shareholder Maximum
Shares Option
Name of Selling Shareholder To Be Sold Shares
- -------------------------------------------------- ------------ ------------
<S> <C> <C>
-------------
Total . . . . . . . . . . . . . . . . . . . . . .
=============
</TABLE>
<PAGE> 1
EXHIBIT 5
October 23, 1995
Comshare, Incorporated
555 Briarwood Circle
Ann Arbor, Michigan 48108
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel for Comshare, Incorporated, a
Michigan corporation (the "Company"), in connection with the preparation and
filing with the Securities and Exchange Commission under the Securities Act of
1933, as amended, of a Registration Statement on Form S-3 (the "Registration
Statement") relating to the offering by the Company through Robertson, Stephens
& Company, L.P., Volpe, Welty & Company and The Chicago Corporation, as
representatives of the several underwriters, on behalf of itself and certain
selling shareholders in the manner described in the Registration Statement, of
up to 2,170,000 shares of the Company's common stock (the "Common Stock").
In so acting, we have examined and relied upon the originals,
or copies certified or otherwise identified to our satisfaction, of such
corporate records, documents, certificates and other instruments as in our
judgment are necessary or appropriate to enable us to render the opinions
expressed below.
In respect of our opinion paragraph 2, we have assumed that
the Company's shareholders will approve an increase in the number of shares of
the Common Stock from 10,000,000 to 20,000,000 shares at the 1995 Annual
Meeting of Shareholders to be held November 18, 1995, and that the Company will
amend its Articles of Incorporation to reflect such increase in its authorized
shares on or about November 20, 1995.
<PAGE> 2
Compshare, Incorporated
October 23, 1995
Page 2
Based upon the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is in good
standing under the laws of the State of Michigan.
2. The shares of Common Stock to which the Registration
Statement relates are and, to the extent not yet issued, will be, when issued
in the manner specified in the Registration Statement, legally issued, fully
paid and non-assessable.
We hereby consent to the use of this opinion as an exhibit to
the Registration Statement. We further consent to the reference to our firm
under the heading "Legal Matters" in the Registration Statement.
Very truly yours,
DYKEMA GOSSETT PLLC
Marguerite M. Gritenas
<PAGE> 1
EXHIBIT 23(A)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports dated July 27, 1995 and to all references to our Firm included in or
made a part of this prospectus.
ARTHUR ANDERSEN LLP
October 20, 1995
<PAGE> 1
EXHIBIT 23(c)
CONSENT TO BE NAMED
IN REGISTRATION STATEMENT
I, Geoffrey B. Bloom, hereby consent to be named as a director
nominee in the "Management" section of the Registration Statement on Form S-3
to be filed by Comshare, Incorporated.
/s/ Geoffrey B. Bloom
---------------------
Geoffrey B. Bloom
<PAGE> 1
EXHIBIT 24(k)
COMSHARE, INCORPORATED
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned
constitutes and appoints T. Wallace Wrathall, Kathryn A. Jehle, and R. Michael
Mahoney, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution, and resubstitution for him and in his name,
place and stead, in any and all capacities, to sign a certain Registration
Statement on Form S-3 to be filed by Comshare, Incorporated, any registration
statement filed pursuant to Rule 462(b) of the Securities Act of 1933, as
amended, for registering additional shares of Comshare, Incorporated's Common
Stock comprising the same offering for which the Form S-3 will be filed, and
any and all amendments thereto, and to file the same with the Securities and
Exchange Commission, granting unto such attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that such attorneys-in-fact and agents, or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: October 17, 1995 /s/ Geoffrey B. Bloom
--------------------------- ---------------------------
Geoffrey B. Bloom, Director
<PAGE> 1
EXHIBIT 24(l)
COMSHARE, INCORPORATED
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned
constitutes and appoints T. Wallace Wrathall, Kathryn A. Jehle, and R. Michael
Mahoney, and each of them, his true and lawful attorneys-in-fact and agents,
with full power of substitution, and resubstitution for him and in his name,
place and stead, in any and all capacities, to sign a certain Registration
Statement on Form S-3 to be filed by Comshare, Incorporated, any registration
statement filed pursuant to Rule 462(b) of the Securities Act of 1933, as
amended, for registering additional shares of Comshare, Incorporated's Common
Stock comprising the same offering for which the Form S-3 will be filed, and
any and all amendments thereto, and to file the same with the Securities and
Exchange Commission, granting unto such attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that such attorneys-in-fact and agents, or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Dated: October 17, 1995 /s/ George R. Mrkonic
--------------------------- ---------------------------
George R. Mrkonic, Director
