<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1997
REGISTRATION NO. 333-36567
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
----------------
AMENDMENT NO. 1 TO FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
SOFTWARE AG SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 54-1167173
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
5734
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
11190 SUNRISE VALLEY DRIVE
RESTON, VA 20191
(703) 860-5050
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
----------------
DANIEL F. GILLIS PRESIDENT AND CHIEF EXECUTIVE OFFICER 11190 SUNRISE VALLEY
DRIVE
RESTON, VA 20191
(703) 860-5050
(NAME AND ADDRESS OF AGENT FOR SERVICE)
----------------
COPIES TO:
ROBERT B. OTT, ESQ. DANIEL A. RASKAS,
ESQ. ARNOLD & PORTER 555 TWELFTH PETER B. TARR, ESQ. BRENT B. SILER,
STREET, N.W. WASHINGTON, D.C. 20004 ESQ. HALE AND DORR LLP 1455
(202) 942-5000 PENNSYLVANIA AVENUE, N.W. WASHINGTON,
D.C. 20004
---------------- (202) 942-8400
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT 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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 15, 1997
[LOGO OF SOFWARE AG AMERICAS APPEARS HERE]
7,700,000 SHARES
COMMON STOCK
Of the 7,700,000 shares of Common Stock offered hereby, 4,600,000 shares are
being sold by Software AG Systems, Inc. (the "Company") and 3,100,000 shares
are being sold by certain stockholders of the Company (the "Selling
Stockholders"). See "Principal and Selling Stockholders." The Company will not
receive any of the proceeds from the sale of shares being sold by the Selling
Stockholders. Prior to this offering, there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price per share will be between $12.00 and $14.00 per share. See
"Underwriting" for information relating to the method of determining the
initial public offering price. The Common Stock has been approved for listing
on the New York Stock Exchange ("NYSE") under the symbol "AGS," subject to
official notice of issuance.
---------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
---------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
DISCOUNTS AND PROCEEDS TO SELLING
PRICE TO COMMISSIONS COMPANY STOCKHOLDERS
PUBLIC (1) (2) (3) (3)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share...................... $ $ $ $
- --------------------------------------------------------------------------------
Total (3)...................... $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters as stated herein (the "Underwriters") against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $1,100,000.
(3) The Company and the Selling Stockholders have granted to the Underwriters a
30-day option to purchase an aggregate of up to an additional 1,155,000
shares of Common Stock on the same terms as set forth above, solely to
cover over-allotments, if any. See "Underwriting." If this option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions, Proceeds to Company and Proceeds to Selling Stockholders will
be $ , $ , $ and $ , respectively.
---------
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 BancAmerica Robertson Stephens, San Francisco,
California, on or about , 1997.
DONALDSON, LUFKIN & JENRETTE
BANCAMERICA ROBERTSON STEPHENS SECURITIES CORPORATION
The date of this Prospectus is , 1997
<PAGE>
[COMPANY LOGO AND GRAPHICAL SCHEMATIC, UNDER THE CAPTION "ENTERPRISE BUSINESS
SOLUTIONS," DEPICTING HOW THE COMPANY'S PRODUCTS AND SERVICES WORK TOGETHER
AND WITH THIRD PARTY PRODUCTS IN BUSINESS COMPUTING ENVIRONMENTS TO DEVELOP
ENTERPRISE LEVEL APPLICATIONS AND TO FACILITATE ACCESS TO INFORMATION. SUB-
CAPTIONS INCLUDE "MISSION-CRITICAL SYSTEMS," "DATA WAREHOUSE," "INFORMATION
ACCESS" AND "APPLICATION COMPONENT TECHNOLOGY."]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY, INCLUDING ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
2
<PAGE>
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 STOCKHOLDER 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 SOLICITATION OF, ANY PERSON IN ANY JURISDICTION IN
WHICH 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.
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................. 4
Risk Factors............................................................. 7
Company Background....................................................... 15
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Capitalization........................................................... 17
Dilution................................................................. 18
Selected Consolidated Financial Data..................................... 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 32
Management............................................................... 44
Certain Relationships and Transactions................................... 50
Principal and Selling Stockholders....................................... 52
Description of Capital Stock............................................. 54
Shares Eligible for Future Sale.......................................... 57
Underwriting............................................................. 59
Legal Matters............................................................ 61
Experts.................................................................. 61
Additional Information................................................... 61
Index to Consolidated Financial Statements............................... F-1
</TABLE>
----------------
The Company's principal executive offices are located at 11190 Sunrise
Valley Drive, Reston, Virginia 20191, and its telephone number is (703) 860-
5050. The Company intends to mail to all of its stockholders an annual report
containing financial statements audited by its independent accountants for
each year and quarterly reports containing unaudited financial data for each
of the first three quarters of each year.
ENTIRE(R), SourcePoint(R), PREDICT(R), ADAPLEX +(R), ENTIRE NET-WORK(R) and
ENTIRE ACCESS(R) are registered trademarks of the Company, and iXpress(TM),
EntireX DCOM(TM), ENTIRE BROKER(TM), ENTIRE BROKER SDK(TM), ENTIRE BROKER
APPC(TM), ENTIRE SAF Gateway(TM), INSIGHT 2000 (SM), INSIGHT 2000 Tool Kit(TM),
CONSTRUCT(TM), NATURAL Lightstorm(TM), CONSTRUCT Spectrum(TM), CONSTRUCT
Spectrum SDK(TM), CONSTRUCT Extract Service(TM), ADABAS Delta Save
Facility(TM), ADABAS FASTPATH(TM), ADABAS SQL Server(TM), ADABAS Vista(TM) are
trademarks or service marks of the Company. Trade names and trademarks of
other companies appearing in this Prospectus are the property of their
respective owners.
3
<PAGE>
SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including information set forth in "Risk Factors" and the
Consolidated Financial Statements and Notes thereto, appearing elsewhere in
this Prospectus. This Prospectus contains forward-looking statements which
involve risks and uncertainties. The Company's actual results may differ
materially from those results discussed in these forward-looking statements and
from the results historically experienced. Factors that might cause such a
difference include, but are not limited to, those discussed in "Risk Factors."
THE COMPANY
Software AG Systems, Inc. is an enterprise solutions company that provides
robust software products and related professional services to large
organizations with complex computing requirements. The Company's products are
used to build and enhance mission-critical applications that require
reliability, scaleability and security, such as customer billing systems,
financial accounting systems and inventory management systems. To complement
its products, the Company has a comprehensive professional services offering,
including consulting, software integration, systems implementation and large
project management services. The Company has over 24 years of experience in
addressing the needs of organizations with complex enterprise level computing
environments.
The Company provides enterprise development software products and related
professional services used by organizations to develop new mission-critical
applications and enterprise enablement software products and related
professional services used to extend existing applications to new technologies.
The Company's enterprise development products include ADABAS, a high-
performance database management system designed to operate with a variety of
data types and computer platforms, and NATURAL, a 4GL programming language that
enables the development of applications that are portable, scaleable and
interoperable across multiple computing platforms. The Company also provides
software products and professional services that enable organizations to extend
existing mission-critical applications to the Internet and intranets and to
create new applications. Products in this area include ENTIRE, a family of
middleware products that facilitates the communication between application
components across heterogeneous computing environments; SourcePoint, an
automated data warehouse management product; iXpress, a Web application
assembly and deployment platform; and EntireX DCOM, a product that uses
Microsoft's ActiveX technology to bridge applications written in a variety of
programming languages. The Company's professional services that complement its
products include application development and enhancement, application
reengineering, application porting and rightsizing, Web integration and data
warehouse design and implementation.
The Company has a rapidly growing Year 2000 Program which offers a new,
internally developed software product, INSIGHT 2000 Tool Kit, as well as
project management and consulting services to assist customers in the
resolution of their year 2000 problem. The Company believes that there are over
one billion lines of NATURAL code in the United States alone, most of which are
candidates for year 2000 analysis, remediation and testing. To address this
opportunity, the Company has hired 78 new consultants in the first nine months
of 1997 and has opened three Millenium Centers for code analysis, remediation
and testing.
The Company's strategy is to further leverage its current leadership position
in building enterprise applications and data access solutions for large
organizations by extending its product and professional service offerings into
the Web integration, data warehouse, middleware and year 2000 markets. Key
elements of this strategy include enhancing and extending product offerings
through acquisitions of complementary products or technologies; internal
product development and licensing additional products; leveraging the Company's
current base of over 1,500 customers; expanding the Company's professional
service offerings; and selling additional products and professional services
through the Company's distribution channels.
On March 31, 1997, the senior management of the Company and Thayer Equity
Investors III, L.P. ("Thayer") acquired approximately 89% of the outstanding
Common Stock of the Company (the
4
<PAGE>
"Recapitalization"). Prior to the Recapitalization, the Company was a wholly
owned subsidiary of Software AG, a large German software company ("SAG"), and
the Company's management was constrained in its ability to develop new
products, license third-party software, retain capital for expansion and make
acquisitions of companies, products or technologies. Management has undertaken
several strategic initiatives since the Recapitalization to increase revenue
growth and profitability including building a product development organization,
developing a product and professional services offering that addresses the year
2000 problem and acquiring R. D. Nickel and Associates Incorporated ("R.D.
Nickel"), a software company with a family of application development products.
The Company believes that, as an independent entity, it will continue to have
significant opportunities to enhance growth.
Immediately prior to the Recapitalization, the Company renegotiated its
licensing agreement with SAG (as renegotiated, the "Cooperation Agreement") to
provide the Company the exclusive and perpetual right to license and service in
North America, South America, Japan and Israel (collectively, the "Territory")
both existing and future products developed or acquired by SAG.
The Company sells and markets its software products and professional services
through direct and indirect channels. In North America, the Company sells and
markets its products through a direct channel that includes over 120 people in
19 offices. The Company sells its products in over 20 additional countries
through six exclusive distributorships in South America, Japan and Israel. In
addition, the Company has access to the distribution channels of SAG in over 50
countries outside the Territory for the Company's products (other than those
licensed from SAG). The Company recently implemented a reorganization of its
sales force into three groups that focus separately on selling Enterprise
License Agreements ("ELAs"), professional services and the Year 2000 Program.
The Company believes that this reorganization and the resulting productivity
improvements in its sales force have contributed to its revenue growth since
the Recapitalization.
The Company has over 1,500 customers, consisting primarily of major
corporations, government agencies and educational institutions. The Company's
customers include Morgan Stanley, Dean Witter, Discover & Co., Delta Air Lines,
Inc., Sprint Corporation, Federal Express Corp., Nissan Motor Co., LTD., Cable
and Wireless, PLC, Banorte Bank (Mexico), State of California, State of New
Jersey, Federal Bureau of Investigation, Brown University and the University of
Texas. Most of the Company's customers have been long term users of its
products and services. For the twelve months ended September 30, 1997,
approximately 96% of the Company's customers who were eligible renewed at least
one of their maintenance agreements.
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company................. 4,600,000 shares
Common Stock Offered by the Selling Stockholders.... 3,100,000 shares
Common Stock to be Outstanding after the Offering
(1)................................................ 28,937,500 shares
Use of Proceeds..................................... To repay indebtedness;
to fund an acquisition
payment; and for working
capital and other
general corporate
purposes. See "Use of
Proceeds."
Proposed NYSE Symbol................................ AGS
</TABLE>
- --------
(1) Excludes (i) 4,947,525 shares of Common Stock issuable upon the exercise of
stock options outstanding at October 15, 1997, granted under the Software
AG Systems, Inc. 1997 Stock Option Plan (the "Stock Option Plan") at a
weighted average exercise price of $4.90 per share and (ii) 1,927,475
additional shares of Common Stock reserved for future issuance under the
Stock Option Plan. See "Management--Stock Option Plan."
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
PREDECESSOR COMBINED PREDECESSOR
-------------------------------------------------------- --------- -----------
NINE NINE THREE
MONTHS MONTHS MONTHS
YEARS ENDED DECEMBER 31, ENDED ENDED ENDED
---------------------------------------------- SEPT. 30, SEPT. 30, MARCH 31,
1992 1993 1994 1995 1996 1996 1997 1997
-------- -------- -------- -------- -------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA (1):
Software license fees........... $ 50,498 $ 51,672 $ 51,832 $ 52,061 $ 52,163 $ 31,763 $ 40,053 $ 7,341
Maintenance fees................ 51,162 57,264 65,871 65,307 69,702 51,778 53,288 17,352
Professional service fees....... 24,139 31,175 29,552 35,194 34,975 26,980 30,976 9,948
-------- -------- -------- -------- -------- -------- -------- -------
Total revenues................. 125,799 140,111 147,255 152,562 156,840 110,521 124,317 34,641
Gross profit.................... 70,866 70,149 77,429 81,239 83,869 56,861 63,720 17,127
Operating expenses before
write-off...................... 78,739 75,120 76,534 78,051 78,588 55,983 55,198 15,817
Write-off of acquired in-process
research and development
costs (2)...................... -- -- -- -- -- -- 6,051 --
Income (loss) from operations... (7,873) (4,971) 895 3,188 5,281 878 2,471 1,310
Net income (loss)............... (5,587) 6,380 1,382 3,326 6,209 1,910 297 1,373
======== ======== ======== ======== ======== ======== ======== =======
Net income (loss) per share
(3)............................ $ (0.18) $ 0.21 $ 0.05 $ 0.11 $ 0.20 $ 0.06 $ 0.01 $ 0.04
======== ======== ======== ======== ======== ======== ======== =======
<CAPTION>
SUCCESSOR
---------
SIX
MONTHS
ENDED
SEPT. 30,
1997
---------
<S> <C>
Software license fees........... $32,712
Maintenance fees................ 35,936
Professional service fees....... 21,028
---------
Total revenues................. 89,676
Gross profit.................... 46,593
Operating expenses before
write-off...................... 39,381
Write-off of acquired in-process
research and development
costs (2)...................... 6,051
Income (loss) from operations... 1,161
Net income (loss)............... (1,076)
=========
Net income (loss) per share
(3)............................ $ (0.04)
=========
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
----------------------------
ACTUAL AS ADJUSTED (4)
-------- --- ---------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.......................... $ 18,322 $ 67,411
Working capital ................................... 3,119 57,273
Total assets....................................... 141,056 190,505
Total stockholders' equity......................... 36,401 90,915
</TABLE>
- --------
(1) The historical financial data set forth for the periods ended, or as of
dates, on or prior to March 31, 1997 reflect the results of operations and
balance sheet data of the Company prior to the Recapitalization when the
Company was a wholly owned subsidiary of SAG and is captioned as
"Predecessor." The historical financial data subsequent to March 31, 1997
reflect the results of operations and balance sheet data subsequent to the
Recapitalization and is captioned as "Successor." "Combined" data combines
financial data for the three months ended March 31, 1997 (prior to the
Recapitalization) with financial data for the six months ended September
30, 1997 (subsequent to the Recapitalization). See "Company Background."
(2) The write-off of acquired in-process research and development costs for the
nine months ended September 30, 1997 relates to the Company's acquisition
of R.D. Nickel. Before deducting the nonrecurring write-off for this
period, income from operations was approximately $8.5 million, net income
was approximately $6.3 million and net income per share was $0.23 (based on
weighted average fully diluted shares outstanding of 27,421,472).
(3) Shares used in computing net income (loss) per share for all periods
presented are 30,583,942, except for the three month period ended March 31,
1997 and the six and nine month periods ended September 30, 1997, which are
27,421,472. See Note 1 of Notes to Consolidated Financial Statements.
(4) As adjusted to give effect to the sale by the Company of 4,600,000 shares
of Common Stock offered hereby by it at an assumed initial public offering
price of $13.00 per share and the application of the net proceeds
therefrom. See "Use of Proceeds."
Except as otherwise indicated, the information contained in this Prospectus
assumes no exercise of the Underwriters' over-allotment option and reflects a
275-for-1 stock split to be effected as a stock dividend prior to the closing
of this offering. Unless the context otherwise requires, all references in this
Prospectus to the "Company" or "Software AG Systems, Inc." refer to Software AG
Systems, Inc., a Delaware corporation, and its consolidated subsidiaries.
6
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements and from the results
historically experienced as a result of certain factors, including those in
the following risk factors and elsewhere in this Prospectus. In addition to
the other information contained in this Prospectus, the following risk factors
should be considered carefully in evaluating the Company and its business
before purchasing shares of the Common Stock offered hereby.
POTENTIAL FLUCTUATIONS IN QUARTERLY PERFORMANCE
The Company has experienced significant quarterly and other fluctuations in
revenues and results of operations and expects these fluctuations to continue
in the future. The Company believes that these fluctuations have been
primarily attributable to the budgeting and purchasing practices of its
customers, and, to a lesser extent, the Company's sales commission practices,
which are based partly on annual quotas, and other factors. The Company's
revenues and results of operations may also be affected by seasonal trends
which have resulted in higher revenues in the Company's third and fourth
quarters and lower revenues in its first and second quarters. The Company's
professional services fees tend to fluctuate due to the completion or
commencement of significant projects, the number of working days in a quarter
and the Company's ability to attract, retain and efficiently utilize
professional services personnel. The Company's future revenues and operating
results may fluctuate as a result of these and other factors, including the
demand for the Company's products and services, the timing and cost of new
product and service introductions and product enhancements by the Company or
its competitors, changes in the mix of products and services sold by the
Company and in the mix of sales by distribution channels, commencement or
conclusion of significant service contracts, timing of any acquisitions and
associated costs, the size, timing and terms of customer orders, including
delays in significant orders, changes in pricing policies by the Company or
its competitors, the timing of collection of accounts receivable, changes in
foreign currency exchange rates, competitive conditions in the industry and
general economic conditions.
The Company's expense levels are based, in part, on its expectation of
future revenues, and expense levels are, to a large extent, fixed in the short
term. The Company may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. If revenue levels are below
expectations for any reason, the Company's results of operations are likely to
be materially and adversely affected. The Company's net income may be
disproportionately affected by a reduction in revenue because a large portion
of the Company's expenses cannot be easily reduced. In addition, the Company
intends to increase its operating expenses by expanding its software product
development staff, increasing its professional services and sales and
marketing operations, expanding its distribution channels and hiring personnel
in other operating areas. The Company expects to experience a significant time
lag between the date professional services, sales and technical personnel are
hired and the date such personnel become fully productive. The timing of such
expansion and the rate at which new technical, professional services and sales
personnel become productive as well as the timing of the introduction and the
productivity of new distribution channels could cause material fluctuations in
quarterly results of operations. Furthermore, to the extent such increased
operating expenses precede or are not subsequently followed by increased
revenues, the Company's business, financial condition and results of
operations could be materially and adversely affected.
Due to all of the foregoing factors, it is likely that in some future
periods the Company's revenues or results of operations will be below the
expectations of securities analysts or investors, in which case the market
price of the Common Stock would likely be materially and adversely affected.
See "Management's Discussion and Analysis of Financial Conditions and Results
of Operations--Quarterly Results of Operations."
RELATIONSHIP WITH SAG
The Company has the exclusive and perpetual right to license and service in
North America, South America, Japan and Israel both existing and future
products developed or acquired by SAG and, historically,
7
<PAGE>
substantially all of the Company's revenues have been derived from the
licensing and servicing of products developed or acquired by SAG. As a result,
a materially adverse change in the financial condition, or a change in
control, of SAG could have a material adverse effect on the business,
financial condition and results of operations of the Company. In the past, SAG
has reported operating losses. In addition, the failure of SAG to develop new
products or enhancements to existing products in a timely manner, to provide
ongoing technical support for its products or to adequately protect its
proprietary rights could have a material adverse effect on the business,
financial condition and results of operations of the Company. In the past, the
Company has experienced delays in receiving products from SAG in a timely
manner. The Cooperation Agreement requires SAG to ensure that its products are
year 2000 compliant in accordance with a specific timetable and any failure by
SAG to adhere to that timetable also could have a material adverse effect on
the Company's business, financial condition and results of operations. In 1995
and 1996, the Company's aggregate royalty payments to SAG were $23.9 million
and $26.1 million, respectively. To the extent that the Company's aggregate
royalty payments to SAG fall below $21.0 million in any calendar year through
the year 2000, the Company generally is required to pay the differential to
SAG, and any such payment could have a material adverse effect on the
Company's business, financial condition and results of operations.
SAG has the exclusive and perpetual right to license and service in all
territories other than North America, South America, Japan and Israel both
existing and future products developed or acquired by the Company. As a
result, the Company is dependent on SAG for the distribution of these products
outside of North America, South America, Japan and Israel. Any failure by SAG
to distribute such products in a timely and effective manner could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Company Background."
TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCTS AND PRODUCT ENHANCEMENTS
The Company operates in a rapidly changing technological environment in
which it must keep pace with new technologies and competitive forces in order
to be successful. The Company's success will depend in part on its ability to
acquire and/or develop product enhancements and new products that keep pace
with continuing changes in technology and evolving customer preferences. There
can be no assurance that the Company will be successful in acquiring and/or
developing product enhancements or new products to adequately address changing
technologies, that it can introduce such products or enhancements on a timely
basis or that any such products or enhancements will be successful in the
marketplace. The Company's failure to acquire and/or develop technological
improvements or to adapt its products to technological change may have a
material adverse effect on the Company's business, financial condition and
results of operations.
DEPENDENCE ON THE YEAR 2000 MARKET
The Company believes that its future growth depends, in part, on increased
demand for the Company's products and professional services relating to the
resolution of the year 2000 problem. The Company had no revenues from its Year
2000 Program in 1996. For the nine months ended September 30, 1997, the
Company had revenues of $3.7 million from its Year 2000 Program. Although the
Company believes that the market for products and professional services
relating to the year 2000 problem will grow as the year 2000 approaches, there
can be no assurance that this market will develop to the extent anticipated by
the Company. Significant expenses for sales and marketing may be required to
educate potential clients of the year 2000 problem and the need for products
and professional services addressing the problem. There can be no assurance
that potential clients will understand or acknowledge the problem. In
addition, affected organizations may not be willing or able to allocate the
resources, financial or otherwise, to address the problem in a timely manner.
Many organizations may attempt to resolve the problem internally rather than
by contracting with outside firms such as the Company and value added
integrators to which the Company may license its software products. Due to
these and other factors, development of the market for the Company's year 2000
products and professional services is uncertain and unpredictable. In
addition, the Company anticipates that demand for products and professional
services that address the year 2000 problem will decline, perhaps rapidly,
following the year 2000.
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If the market for year 2000 products and professional services fails to grow,
or grows more slowly than anticipated, the Company's business, financial
condition and results of operations could be materially adversely affected. In
addition, competition for personnel qualified to perform professional services
relating to the year 2000 problem is intense, and there can be no assurance
that the Company will be able to retain its employees who provide such
professional services or be able to attract and retain such personnel in the
future.
RELIANCE ON ACQUISITIONS
The Company believes that its future growth will depend, in part, on its
ability to successfully identify, acquire and then develop promising
technologies and products. In addition, the Company intends to build its
product development staff in part through acquisitions. On September 30, 1997,
the Company acquired R.D. Nickel. The integration of R.D. Nickel or any other
future acquisitions into the Company's existing business could result in
certain unanticipated difficulties that could require a disproportionate
amount of management's attention and the Company's resources. Furthermore,
there can be no assurance that the anticipated benefits of acquiring R.D.
Nickel or any other future acquisition will be realized. The Company has
limited experience in completing acquisitions and integrating acquired
technologies or products into its operations. The Company may compete for
future acquisition opportunities with other companies that have significantly
greater financial and management resources. While the Company is continually
searching for acquisition opportunities, the Company is not currently a party
to any agreements, understandings or negotiations with respect to any material
acquisition, and there can be no assurance that the Company will be successful
in identifying, acquiring and developing products and technology. Acquisitions
could also have adverse short-term effects on the Company's operating results,
and could result in dilutive issuances of equity securities and the incurrence
of debt and contingent liabilities. In addition, many business acquisitions
must be accounted for as purchases and, because most software-related
acquisitions involve the purchase of significant intangible assets, these
acquisitions typically result in substantial amortization charges and may also
involve charges for acquired research and development projects, which could
have a material adverse effect on the Company's operating results. The Company
has incurred significant charges of this nature in connection with its
acquisition of R.D. Nickel. See "Company Background."
MANAGEMENT OF PROFESSIONAL SERVICES GROWTH
The Company recently has experienced a period of growth in its professional
services business, with revenues from such business increasing from $27.0
million for the nine months ended September 30, 1996 to $31.0 million for the
nine months ended September 30, 1997. The Company's ability to staff and
effectively manage any future growth in this business will require it to
continue to improve its operational, financial and management controls and
reporting systems and procedures, and to hire, train, motivate and manage its
professional services employees. There can be no assurance that the Company
will be able to manage these challenges in an efficient or timely manner. If
management of the Company is unable to manage growth effectively, the
Company's business, financial condition and results of operations could be
materially adversely affected.
DEPENDENCE ON CUSTOMER BASE
Most of the Company's sales are made to its existing customers. Customers
typically pay a one-time licensing fee for use of the Company's products and
generally pay an annual charge for maintenance services which include software
updates and technical support. There can be no assurance that customers will
continue to purchase the Company's products and services, that the Company's
historic maintenance renewal rates will continue, or that the Company will be
able to maintain its current pricing levels for products and maintenance
services. Customers' decisions not to renew their maintenance agreements or to
renew them on different terms could have a material adverse effect on the
Company's business, financial condition and results of operations.
RELIANCE ON MAINFRAME COMPUTING ENVIRONMENT
The majority of the Company's products are purchased by customers using IBM
and IBM-compatible mainframe computing platforms. Worldwide, an increasing
proportion of computing functions are being
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performed on alternative computing platforms, including mid-range computers
and client/server networks. A significant shift in the way the Company's
customers use computing platforms may have a material adverse effect on the
Company's business, financial condition and results of operations. In
addition, although the Company believes that any migration away from mainframe
computing platforms is subsiding as a result of more cost effective mainframe
technology and other factors, any further significant reduction in the role of
mainframe or other legacy systems could have a material adverse effect on the
Company's business, financial condition and results of operations.
PROPRIETARY TECHNOLOGY
The Company's success is dependent to a significant extent on its ability to
protect its proprietary rights. The Company has no patents and depends upon a
combination of trade secret, copyright and trademark laws, license agreements,
nondisclosure, assignment of invention and other contractual provisions, and
various security measures to protect its proprietary rights. The Company is
also dependent on SAG and other third parties that license products to the
Company to protect their respective proprietary rights in such products. There
can be no assurance that the legal protections afforded to, or the precautions
taken by, the Company or its third-party licensors will be adequate to prevent
misappropriation of their respective proprietary rights. In addition, these
protections do not prevent independent third-party development of functionally
equivalent or superior technologies, products or professional services. Any
infringement or misappropriation of the Company's proprietary rights, or those
of its third-party licensors, could have a material adverse effect on the
Company's business, financial condition and results of operations.
In the future, litigation may be necessary to enforce and protect the
Company's trade secrets, copyrights and other intellectual property or
proprietary rights. The Company may also be subject to litigation to defend
against claimed infringement of, or to determine the scope and validity of,
the intellectual property or proprietary rights of others. In the event of
litigation involving the use of technology by the Company, the Company could
be required to expend significant resources to develop non-infringing
technology or to obtain licenses to technology involved in litigation. There
can be no assurance that the Company would be successful in such development
or that any such licenses would be available on commercially reasonable terms,
if at all. Although the Company is not aware that its products, trademarks or
other proprietary rights infringe upon the proprietary rights of third
parties, there can be no assurance that third parties will not assert
infringement claims against the Company and that such claims will not have a
material adverse effect on the Company's business, financial condition and
results of operations. Any litigation involving the use of technology by the
Company could result in substantial cost to the Company and divert
management's attention from the Company's operations, either of which could
have a material adverse effect on the Company's business, financial condition
and results of operations. Adverse determinations in such litigation could
result in the loss of the Company's proprietary rights, subject the Company to
significant liabilities, require the Company to seek licenses from third
parties or prevent the Company from selling its products, any one of which
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Proprietary Rights."
DEPENDENCE ON THIRD-PARTY TECHNOLOGY
The Company's products are currently designed, and may in the future be
designed, to work on or in conjunction with certain third-party hardware
and/or software products. If any of these current or future third- party
vendors were to discontinue making their products available to the Company or
to licensees of the Company's products or to increase materially the cost to
the Company or its licensees to acquire, license or purchase such third-party
vendor's products, or if a material problem were to arise in connection with
the ability of the Company's products to properly use or operate with third-
party hardware and/or software products, the Company's products would have to
be redesigned by the Company, or the licensor of the product to the Company,
to function with or on alternative third-party products. There can be no
assurance that an alternative source of suitable technology would be available
or that the Company, or the licensor of the product to the Company, would be
able to develop an alternative product on a timely basis or at a reasonable
cost. The failure of the Company to license, acquire or develop alternative
technologies or products
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on a timely basis and at a reasonable cost could have a material adverse
effect on the Company's business, financial condition and results of
operations.
COMPETITION
The markets for the Company's software products and professional services
are highly competitive and characterized by continual change and improvement
in technology. The Company provides products and professional services to
several markets within the computer industry and encounters competitors within
each such market. Many of the Company's competitors have significantly greater
financial, marketing and other competitive resources than the Company. The
Company's principal competitors currently include IBM Corporation ("IBM"),
Oracle Corporation ("Oracle"), Microsoft Corporation ("Microsoft"), Informix
Corporation ("Informix"), PLATINUM Technology, Inc. ("PLATINUM"), Sybase, Inc.
("Sybase"), VIASOFT, Inc. ("Viasoft"), Sterling Software, Inc. ("Sterling
Software"), Visigenic Software, Inc. ("Visigenic"), SAS Institute, Inc.
("SAS"), Formal Systems, Inc. ("Formal Systems"), BDM International, Inc.
("BDM") and Electronic Data Systems Corporation ("EDS"). Few of the Company's
competitors compete in all of the same markets as the Company. In certain
markets in which the Company competes, such as the year 2000 market, there are
no significant barriers to entry. Current and potential competitors may
introduce new and better products, make strategic acquisitions, or establish
cooperative relationships among themselves or with third parties, thereby
increasing the ability of their products to address the needs of the Company's
current and prospective customers. There can be no assurance that the Company
will be able to compete successfully against current and future competitors,
and its failure to do so would have a material adverse effect upon the
Company's business, financial condition and results of operations. In
addition, no assurance can be given that the Company will not be required to
make substantial additional investments in connection with its research,
development, marketing, sales and customer service efforts in order to meet
any competitive threat, or that such required investments will not have a
material adverse effect on operating margins. Increased competition could
result in reduction in market share, pressure for price reductions and related
reductions in gross margins, any of which could materially adversely affect
the Company's business, financial condition and results of operations. See
"Business--Competition."
RISK ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS
The Company holds the exclusive and perpetual right to license SAG products
in North America, South America, Japan and Israel. In South America, Japan and
Israel, the Company has entered into exclusive distributorship arrangements
with local firms. The Company's distributorships in South America, Japan and
Israel have been in place for 25, 21 and 19 years, respectively, and
collectively accounted for 11.3% and 11.2% of the Company's total revenues in
1996 and the first nine months of 1997, respectively. There can be no
assurance that such distributors will continue to perform as they have
historically and that they will not offer products that compete with the
Company's products. Additionally, the distributorships generally may be
terminated by either party at any time upon compliance with applicable notice
provisions. In the event that any of the distributorships were terminated or
expired, there can be no assurance that the Company could find an adequate
replacement, and such a termination or expiration could have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company is currently renegotiating its distributorship
arrangements in Japan and South America.
Sales of products and the provision of services to customers outside the
United States accounted for 15.2% and 17.8% of the Company's total revenues in
1996 and the first nine months of 1997, respectively. The Company anticipates
that revenues from international sales and services will continue to account
for a material portion of its total revenues in the foreseeable future. As a
result, the Company may be subject to certain risks associated with
international operations, including risks associated with foreign currency
exchange rate fluctuations and risks associated with the application and
imposition of protective legislation and regulations relating to import or
export (including export of high technology products) or otherwise resulting
from foreign policy or the variability of foreign economic conditions. To
date, the Company has not engaged in any hedging transactions to mitigate its
risks relating to exchange rate fluctuations. Additional risks associated with
international operations include costs of localizing products for foreign
countries, lack of acceptance of localized products in foreign countries,
difficulties in enforcing intellectual property, proprietary
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and contract rights, the burdens of complying with a wide variety of foreign
laws, potentially adverse tax consequences, tariffs, quotas and other
barriers, and potential difficulties in collecting accounts receivable. There
can be no assurance that these and other factors will not have a material
adverse effect on the Company's business, financial condition and results of
operations.
RISK OF SOFTWARE DEFECTS
Software products as 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 product testing, new products
may contain defects or software errors and, as a result, the Company may
experience delayed or lost revenues during the period required to correct any
defects or errors. Any such defects or errors could result in adverse customer
reactions, negative publicity regarding the Company and its products, harm to
the Company's reputation, or loss of or delay in market acceptance, or could
require expensive product changes, any of which could have a material adverse
effect upon the Company's business, financial condition and results of
operations. The Company's Cooperation Agreement with SAG provides for only
limited warranties by SAG with respect to the software products licensed by it
to the Company and, therefore, the Company may be primarily liable to its
customers for defects in SAG-supplied software.
POTENTIAL FOR CONTRACT LIABILITY
The Company markets its products and professional services to customers for
developing, building, deploying, maintaining and managing mission-critical
computer software applications and for addressing the year 2000 problem. The
Company's license and other agreements with its customers typically contain
provisions designed to limit the Company's exposure to potential liability
claims relating to the Company's products or professional services. Despite
this precaution, there can be no assurance that the limitations of liability
set forth in the Company's agreements would be enforceable or would otherwise
protect the Company from liability for damages. Although the Company has not
experienced any material liability claims to date, the sale and support of the
Company's products and professional services may entail the risk of such
claims, which could be substantial in light of the use of such products in
mission-critical applications. A material liability claim against the Company,
regardless of its outcome, could result in substantial cost to the Company and
divert management's attention from the Company's operations. Therefore, any
material liability claim could have a material adverse effect on the Company's
business, financial condition and results of operations.
DEPENDENCE ON STATE, LOCAL AND OTHER GOVERNMENT CONTRACTS
The Company derived 23.5% of its total revenues in 1996 and 27.6% of its
total revenues for the first nine months of 1997 from selling its products and
professional services directly or indirectly to state and local government
agencies. In addition, the Company derived 8.9% of its total revenues in 1996
and 9.7% of its total revenues for the first nine months of 1997 from selling
its products and professional services directly or indirectly to federal
government agencies. Any failure to obtain a contract award, or a delay on the
part of a government agency in making the award or in ordering products and
professional services under an awarded contract, could have a material adverse
effect on the Company's business, financial condition and results of
operations. Other risks generally involved in government sales include the
larger discounts (and thus lower margins) typically involved in government
sales, the dependence of the Company on the ability of a prime contractor, if
any, to obtain the award and perform the contract, the unpredictability of
funding for various government programs, the ability of the government agency
to unilaterally terminate the contract, and the dependence on the
creditworthiness of any prime contractor (some of which are relatively small
organizations without substantial funds). The Company anticipates that state,
local and other government sales will continue to represent a significant but
fluctuating portion of its revenues in the future.
FIXED PRICE CONTRACTS
Revenues from fixed price contracts represented approximately 8.0% and 10.3%
of the Company's total revenues for 1996 and the first nine months of 1997,
respectively. In making proposals for fixed price contracts, the Company
relies on its estimated costs for completing the project. These estimates
reflect, among
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other factors, judgments as to the efficiencies of the Company's technology
and services as applied to the project. Any increased or unexpected costs or
unanticipated delays in connection with the performance of fixed price
contracts could have a material adverse effect on the Company's business,
financial condition and results of operations. In the past, the Company has
suffered material losses on fixed price contracts.
DEPENDENCE ON KEY PERSONNEL; NEED TO HIRE ADDITIONAL PERSONNEL
The Company's future performance depends to a significant degree upon the
continued service of the key members of its management, as well as marketing,
sales, consulting and product development personnel, and its ability to
attract and retain new management and other personnel. The loss of any one or
more of the Company's key personnel could have a material adverse effect on
the Company's business, financial condition and results of operations. Company
employees are employed at-will and the Company has no fixed-term employment
agreements with any of its employees.
While historically the Company primarily has relied on SAG for product
development, the Company believes its future success will also depend in part
upon its ability to develop its own technologies and products and,
consequently, upon its ability to attract and retain highly skilled technical
and product development personnel. Competition for such personnel is intense,
and there can be no assurance that the Company will be able to retain its key
employees or that it will be successful in attracting, integrating and
retaining new personnel in the future. Failure to attract, integrate and
retain such personnel could have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, at
September 30, 1997, the Company had 106 independent contractors working as
technical consultants primarily in connection with the Company's professional
service offerings. Competition for such contractors is intense and the failure
to continue to attract and hire such contractors when they are needed could
have a material adverse effect on the Company's business, financial condition
and results of operations.
CONTROL BY OFFICERS, DIRECTORS AND THAYER
Upon completion of this offering, the Company's officers and directors, and
their affiliates, in the aggregate, will have voting control over
approximately 73% of the Company's outstanding Common Stock. In particular,
Thayer and its affiliates will have voting control over approximately 60% of
the Company's outstanding Common Stock. As a result, these stockholders will
be able to control all matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions. The
voting power of Thayer and the Company's officers and directors under certain
circumstances could have the effect of preventing or delaying a change in
control of the Company. See "Principal and Selling Stockholders."
ANTI-TAKEOVER EFFECT OF CERTAIN PROVISIONS
The Company's Second Amended and Restated Certificate of Incorporation and
Second Amended and Restated Bylaws contain certain provisions that may have
the effect of discouraging a third party from making an acquisition proposal
for the Company. Such provisions could limit the price that investors might be
willing to pay in the future for shares of the Company's Common Stock. For
example, the Board of Directors is authorized to issue, without stockholder
approval, up to 25,000,000 shares of preferred stock, $.01 par value, of the
Company (the "Preferred Stock") with voting, conversion and other rights and
preferences that may be superior to the Common Stock and that could adversely
affect the voting power or other rights of the holders of Common Stock. The
issuance of Preferred Stock or of rights to purchase Preferred Stock could be
used to discourage an unsolicited acquisition proposal. Other provisions
impose various procedural and other requirements that could make it more
difficult for shareholders to effect certain corporate actions. In addition,
the Company's Board of Directors is divided into three classes, the members of
each of which will serve for a staggered three-year term, which may make it
more difficult for a third party to gain control of the Company's Board of
Directors. Certain provisions of the Cooperation Agreement with SAG may also
have the effect of discouraging a third party from making an acquisition
proposal for the Company. See "Company Background" and "Description of Capital
Stock--Certain Provisions of Delaware Law, the Certificate of Incorporation
and the Bylaws."
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NO PRIOR MARKET FOR COMMON STOCK AND POSSIBLE VOLATILITY OF COMMON STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will
develop following this offering. The initial public offering price will be
determined through negotiations among the Company and the Underwriters and may
not be indicative of the market price of the Common Stock after the completion
of this offering. See "Underwriting" for factors to be considered in
determining the initial public offering price. The market price for the Common
Stock after this offering may be volatile and may be affected by a number of
factors, including the announcement of new products, product enhancements or
services by the Company or its competitors, quarterly variations in the
Company's or its competitors' results of operations, changes in earnings
estimates or recommendations by securities analysts, developments in the
Company's industry, general market conditions and other factors, including
factors unrelated to the operating performance of the Company or its
competitors. In addition, stock prices for many companies in the technology
sector have experienced wide fluctuations that often have been unrelated to
the operating performance of such companies. Such factors and fluctuations, as
well as general economic, political and market conditions, such as recessions,
may materially adversely affect the market price of the Company's Common
Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
28,937,500 shares of Common Stock. Of these shares, the 7,700,000 shares
offered hereby will be freely tradable without restriction in the public
market. An additional 2,750,000 shares will be eligible for sale beginning 90
days after the date of this Prospectus (all of which will be subject to 180-
day lock-up agreements between certain shareholders and the Representatives of
the Underwriters), and 18,487,500 shares will be eligible for sale beginning
March 31, 1998 (all of which will be subject to 180-day lock-up agreements).
BancAmerica Robertson Stephens may, in its sole discretion and at any time
without notice, release all or any portion of the securities subject to the
lockup agreements. In addition, the Company intends to file registration
statements on Form S-8 under the Securities Act of 1933, as amended (the
"Securities Act"), as soon as practicable after consummation of this offering,
in order to register all shares of Common Stock issuable or reserved for
issuance under the Stock Option Plan. Sales of substantial amounts of Common
Stock or the availability of such shares for sale could adversely affect
prevailing market prices of the Common Stock. See "Shares Eligible for Future
Sale" and "Underwriting."
DILUTIVE EFFECT OF THE OFFERING
Purchasers of Common Stock in this offering will experience immediate and
significant dilution of approximately $11.01 in the net tangible book value
per share of the Common Stock so purchased, based on an assumed initial public
offering price of $13.00 per share. This will result in the existing
stockholders of the Company realizing an immediate accretion in the net
tangible book value of their investment. See "Dilution."
DIVIDENDS
The Company does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future. See "Dividend Policy."
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COMPANY BACKGROUND
In February 1981, the Company was incorporated as a Delaware corporation and
established as a holding company for Software AG Americas, Inc. Since 1973,
Software AG Americas, Inc. has primarily licensed and serviced SAG products in
the United States and other countries through a series of licensing agreements
with SAG. In June 1981, the Company sold approximately 30% of its outstanding
common stock in an initial public offering. In 1988, SAG purchased all of the
outstanding stock of the Company, thereby acquiring control of the Company.
On March 31, 1997, the Company consummated the Recapitalization, pursuant to
which the senior management of the Company and Thayer acquired approximately
89% of the outstanding Common Stock of the Company. See "Certain Relationships
and Transactions." The Company believes that the Recapitalization provides
several significant benefits to the Company, such as access to growth and
development capital, equity ownership incentives for management and other key
employees, and the opportunity and ability to pursue acquisitions and internal
product development.
Immediately prior to the Recapitalization, the Company and SAG entered into
the Cooperation Agreement which generally (i) provides the Company the
exclusive and perpetual right to license and service in North America, South
America, Japan and Israel (the "Territory") both existing and future products
developed or acquired by SAG and (ii) provides SAG the exclusive and perpetual
right to license and service outside the Territory both existing and future
products developed or acquired by the Company. Each of the Company and SAG
must pay the other 24% of the net revenues derived from such licenses. This
24% royalty rate is fixed for 20 years. Except under certain circumstances,
the Company's minimum annual royalty payment to SAG through the year 2000 must
equal at least $21 million. In 1994, 1995 and 1996, the Company's aggregate
royalty payments to SAG were approximately $29.0 million, $23.9 million and
$26.1 million, respectively. See "Certain Relationships and Transactions." The
Company anticipates that the Cooperation Agreement and SAG's equity interest
in the Company will promote close collaboration between the Company and SAG.
See "Principal and Selling Stockholders."
The Cooperation Agreement contains certain safeguards to ensure that the
Company and SAG are able to continue to exercise their respective rights to
license and service each other's products in their respective territories.
These safeguards include rights of first refusal with respect to transfers of
proprietary rights to third parties and restrictions on SAG from competing
against the Company in the Territory and on the Company from competing against
SAG outside the Territory. The Cooperation Agreement also prohibits either
party from consummating a change of control unless such party's successor
agrees to be bound by the terms of the Cooperation Agreement with respect to
all existing products of such party and future products that are materially
derived therefrom. In addition, SAG is precluded from consummating a change of
control unless its successor agrees to continue supporting the research and
development of SAG's then existing and planned products for two years
following the change in control. The Company is precluded from consummating a
change in control in which certain specified entities would be its successor
unless such entities agree to pay the Company's minimum annual royalty
payments to SAG until the later of December 31, 2000 or two years following
the change in control.
On September 30, 1997, the Company acquired R.D. Nickel, a software company
that develops, licenses and supports a family of application development
products, including CONSTRUCT and CONSTRUCT Spectrum. Additionally, R.D.
Nickel has served as the exclusive distributor of the Company's products in
Canada since 1973. In the year ended November 30, 1996 and for the ten months
ended September 30, 1997, R.D. Nickel had revenues of US$13.6 million and
US$12.6 million, respectively. The Company purchased R.D. Nickel for Cdn$14.0
million (approximately US$10.1 million), consisting of a Cdn$7.0 million
promissory note and Cdn$7.0 million in cash. The Company is required to repay
the promissory note with proceeds from this offering. Upon consummation of
this offering, the Company will owe an additional payment of Cdn$500,000
(approximately US$360,000) in connection with the acquisition, which also will
be paid with proceeds from this offering. In connection with this acquisition,
in the quarter ended September 30, 1997, the Company recorded approximately
US$4.9 million of goodwill, which will be amortized on a straight-line basis
over 10 years, and took a one-time charge of approximately US$6.1 million
associated with the purchase of incomplete or in-process research and
development.
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the 4,600,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$54.5 million, assuming an initial public offering price of $13.00 per share
and after deducting the underwriting discounts and commissions and estimated
offering expenses payable by the Company. The Company will not receive any
proceeds from the sale of Common Stock by the Selling Stockholders.
The principal purposes of this offering are to increase the Company's equity
capital, to establish a public market for the Company's Common Stock, to
provide enhanced equity incentives to attract and retain key employees, to
increase the Company's visibility in its markets, to facilitate future access
to public capital markets and to obtain additional working capital. The
Company will use a portion of the net proceeds to repay a promissory note
issued by the Company in connection with the acquisition of R.D. Nickel. This
note bears simple interest at a rate of 9% per annum and will have an
outstanding balance of principal and accrued interest at November 15, 1997 of
approximately Cdn$7.1 million (US$5.1 million). It has a stated maturity date
of September 30, 1999, but requires prepayment upon consummation of this
offering. In accordance with the terms of the acquisition of R.D. Nickel, upon
consummation of this offering, the Company will owe an additional payment of
Cdn$500,000 (approximately US$360,000), which will be paid from the net
proceeds of this offering. See "Company Background."
The remainder of the net proceeds of this offering will be used for working
capital and other general corporate purposes, including financing product
development and augmenting the Company's professional services business. A
portion of the net proceeds may also be used to fund acquisitions of
complementary businesses, products or technologies. The Company is not
currently a party to any agreements, understandings or negotiations with
respect to any material acquisitions. Pending such uses, the Company intends
to invest the net proceeds in short-term, interest bearing, investment grade
securities.
DIVIDEND POLICY
In 1995 and 1996, while a wholly owned subsidiary of SAG, the Company paid
aggregate cash dividends to SAG of $1.7 million and $9.0 million,
respectively. The Company does not anticipate paying any cash dividends on its
Common Stock in the foreseeable future. Certain of the Company's lines of
credit have the effect of restricting the ability of the Company to pay cash
dividends. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources" and Note 6 of
Notes to Consolidated Financial Statements.
16
<PAGE>
CAPITALIZATION
The following table sets forth as of September 30, 1997 the capitalization
and short term debt of the Company on an actual basis and on an as adjusted
basis to give effect to the sale by the Company of the 4,600,000 shares of
Common Stock offered by it hereby at an assumed initial public offering price
of $13.00 per share and the application of the net proceeds therefrom. See
"Use of Proceeds." This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and Notes thereto appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
--------------------
ACTUAL AS ADJUSTED
------- -----------
(in thousands)
<S> <C> <C>
Short term debt........................................... $ 5,065 $ --
======= =======
Stockholders' equity:
Preferred Stock, $.01 par value; 25,000,000 shares
authorized; none issued and outstanding actual or as
adjusted ............................................. $ -- $ --
Common Stock, $.01 par value; 75,000,000 shares
authorized; 24,337,500 shares issued and outstanding
actual, and 28,937,500 shares issued and outstanding as
adjusted (1)............................................. 243 289
Additional paid-in capital................................ 37,234 91,702
Retained earnings (deficit)............................... (1,076) (1,076)
------- -------
Total stockholders' equity.............................. 36,401 90,915
------- -------
Total capitalization................................... $36,401 $90,915
======= =======
</TABLE>
- --------
(1) Excludes (i) 4,947,525 shares of Common Stock issuable upon the exercise
of stock options outstanding at September 30, 1997, granted under the
Stock Option Plan at a weighted average exercise price of $4.90 per share,
and (ii) 1,927,475 shares of Common Stock reserved for future issuance
pursuant to the Stock Option Plan. See "Management--Stock Option Plan."
17
<PAGE>
DILUTION
The net tangible book value of the Company as of September 30, 1997 was $3.0
million, or $0.12 per share of outstanding Common Stock. Net tangible book
value per share is equal to the Company's total tangible assets less total
liabilities, divided by the total number of shares of Common Stock
outstanding. After giving effect to the sale of the 4,600,000 shares of Common
Stock offered by the Company hereby at an assumed initial public offering
price of $13.00 per share and the receipt of the estimated net proceeds
therefrom, the adjusted net tangible book value of the Company as of September
30, 1997 would have been $57.5 million, or $1.99 per share. This represents an
immediate increase in net tangible book value of $1.87 per share to existing
stockholders and an immediate dilution of $11.01 per share to investors
purchasing shares of Common Stock in this offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............. $13.00
------
Net tangible book value per share at September 30, 1997.... $0.12
Increase per share attributable to new investors........... 1.87
-----
Net tangible book value per share after this offering........ 1.99
------
Dilution per share to new investors.......................... $11.01
======
</TABLE>
The following table summarizes as of September 30, 1997 the differences
between the number of shares of Common Stock purchased from the Company, the
total consideration paid and the average price per share paid by existing
stockholders and by the new investors at an assumed initial public offering
price of $13.00 per share.
<TABLE>
<CAPTION>
SHARES PURCHASED (1) TOTAL CONSIDERATION
------------------------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ --------------------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders
(1).................... 24,337,500 84.1% $34,765,000 36.8% $ 1.43
New investors........... 4,600,000 15.9 59,800,000 63.2 13.00
------------ ------- ----------- -----
Total................. 28,937,500 100.0% $94,565,000 100.0%
============ ======= =========== =====
</TABLE>
- --------
(1) Sales by the Selling Stockholders in this offering will cause the number
of shares of Common Stock held by existing stockholders to be reduced to
21,237,500 shares, or 73.4% of the total number of shares of Common Stock
to be outstanding after this offering (20,660,000 shares, or 68.7%, if the
Underwriters' over-allotment option is exercised in full), and will
increase the number of shares of Common Stock held by the new investors to
7,700,000 shares, or 26.6% of the total number of shares of Common Stock
to be outstanding immediately after this offering (8,855,000 shares, or
29.4%, if the Underwriters' over-allotment option is exercised in full).
See "Principal and Selling Stockholders."
The calculation of net tangible book value per share and the other
computations above assume no exercise of outstanding options under the Stock
Option Plan. As of October 15, 1997, 4,947,525 shares of Common Stock were
issuable upon exercise of outstanding stock options at a weighted average
exercise price of $4.90 per share. To the extent the outstanding options are
exercised, or additional stock options are granted and exercised at a price
per share below the initial public offering price in the future, there will be
further dilution to new investors. See "Management--Stock Option Plan."
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The consolidated statement of operations data set forth below for each of the
years ended December 31, 1994, 1995 and 1996 and the consolidated balance sheet
data as of December 31, 1995 and 1996 have been derived from the Company's
consolidated financial statements, which statements have been audited by KPMG
Peat Marwick LLP, independent certified public accountants, and are included
elsewhere in this Prospectus. The consolidated balance sheet data at December
31, 1994 is derived from the Company's consolidated financial statements, which
statements have been audited by KPMG Peat Marwick LLP and are not included in
this Prospectus. The financial data presented as of and for the years ended
December 31, 1992 and 1993 are derived from the Company's financial statements,
which statements have been audited by other auditors and are not included in
this Prospectus. The financial data presented as of September 30, 1997 and for
the nine months ended September 30, 1996 and 1997 are derived from unaudited
consolidated financial statements included elsewhere in this Prospectus, which,
in the opinion of management, include all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the financial data
for such periods. The results of operations for the nine months ended September
30, 1997 are not necessarily indicative of the results to be expected for the
full year or for any future period. The selected consolidated financial data
set forth below should be read in conjunction with the Consolidated Financial
Statements and Notes thereto and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" appearing elsewhere in this
Prospectus. The historical financial data set forth below for the periods
ended, or as of the dates prior to, March 31, 1997 reflect the results of
operations and balance sheet data of the Company prior to the Recapitalization
when the Company was a wholly owned subsidiary of SAG and is captioned as
"Predecessor." The historical financial information subsequent to March 31,
1997 reflect the results of operations and balance sheet data subsequent to the
Recapitalization and is captioned as "Successor." See "Company Background."
<TABLE>
<CAPTION>
PREDECESSOR COMBINED (1) PREDECESSOR SUCCESSOR
-------------------------------------------------------- ------------ ----------- ---------
NINE NINE THREE SIX
MONTHS MONTHS MONTHS MONTHS
YEAR ENDED DECEMBER 31, ENDED ENDED ENDED ENDED
---------------------------------------------- SEPT. 30, SEPT. 30, MARCH 31, SEPT. 30,
1992 1993 1994 1995 1996 1996 1997 1997 1997
-------- -------- -------- -------- -------- --------- ------------ ----------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues:
Software license fees....... $ 50,498 $ 51,672 $ 51,832 $ 52,061 $ 52,163 $ 31,763 $ 40,053 $ 7,341 $32,712
Maintenance fees............ 51,162 57,264 65,871 65,307 69,702 51,778 53,288 17,352 35,936
Professional service fees... 24,139 31,175 29,552 35,194 34,975 26,980 30,976 9,948 21,028
-------- -------- -------- -------- -------- -------- -------- ------- -------
Total revenues............ 125,799 140,111 147,255 152,562 156,840 110,521 124,317 34,641 89,676
-------- -------- -------- -------- -------- -------- -------- ------- -------
Cost of revenues:
Software license............ 12,046 14,331 13,513 15,244 14,120 8,543 12,600 2,098 10,502
Maintenance................. 23,457 29,796 29,823 23,488 25,885 19,263 20,844 6,205 14,639
Professional services....... 19,430 25,835 26,490 32,591 32,966 25,854 27,153 9,211 17,942
-------- -------- -------- -------- -------- -------- -------- ------- -------
Total cost of revenues ... 54,933 69,962 69,826 71,323 72,971 53,660 60,597 17,514 43,083
-------- -------- -------- -------- -------- -------- -------- ------- -------
Gross profit................. 70,866 70,149 77,429 81,239 83,869 56,861 63,720 17,127 46,593
-------- -------- -------- -------- -------- -------- -------- ------- -------
Operating expenses:
Software product
development................ 6,219 3,045 900 900 1,372 1,372 595 -- 595
Sales and marketing......... 36,239 43,439 50,422 52,512 48,677 31,139 27,854 7,317 20,537
Administrative and
general.................... 36,281 28,636 25,212 24,639 28,539 23,472 26,749 8,500 18,249
Write-off of acquired in-
process research and
development costs (2)...... -- -- -- -- -- -- 6,051 -- 6,051
-------- -------- -------- -------- -------- -------- -------- ------- -------
Total operating expenses.. 78,739 75,120 76,534 78,051 78,588 55,983 61,249 15,817 45,432
-------- -------- -------- -------- -------- -------- -------- ------- -------
Income (loss) from
operations.................. (7,873) (4,971) 895 3,188 5,281 878 2,471 1,310 1,161
Other income and expense,
net......................... 1,431 7,599 1,882 2,449 5,230 2,173 2,354 978 1,376
-------- -------- -------- -------- -------- -------- -------- ------- -------
Income (loss) before
cumulative effect of change
in accounting principle and
income taxes................ (6,442) 2,628 2,777 5,637 10,511 3,051 4,825 2,288 2,537
Cumulative effect of change
in accounting principle..... -- 5,070 -- -- -- -- -- -- --
Income tax provision
(benefit) .................. (855) 1,318 1,395 2,311 4,302 1,141 4,528 915 3,613
-------- -------- -------- -------- -------- -------- -------- ------- -------
Net income (loss)............ $ (5,587) $ 6,380 $ 1,382 $ 3,326 $ 6,209 $ 1,910 $ 297 $ 1,373 $(1,076)
======== ======== ======== ======== ======== ======== ======== ======= =======
Net income (loss) per share
(3)......................... $ (0.18) $ 0.21 $ 0.05 $ 0.11 $ 0.20 $ 0.06 $ 0.01 $ 0.04 $ (0.04)
======== ======== ======== ======== ======== ======== ======== ======= =======
Dividends.................... $ -- $ -- $ 600 $ 1,700 $ 9,000 $ -- $ -- $ -- $
======== ======== ======== ======== ======== ======== ======== ======= =======
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
------------------------------------------ ---------
DECEMBER 31,
------------------------------------------ SEPT. 30,
1992 1993 1994 1995 1996 1997
------- ------- ------- -------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA:
Working capital
(deficit).............. $ 7,239 $ 6,355 $ 5,167 $ (2,465) $ 30,421 $ 3,119
Total assets............ 75,647 74,175 86,466 125,612 158,088 141,056
Long-term debt, less
current maturities..... 5,942 3,212 431 -- -- --
Total stockholders'
equity................. 23,810 30,190 30,972 32,599 29,808 36,401
</TABLE>
- --------
(1) Reflects combined data for the three months ended March 31, 1997 (prior to
the Recapitalization) and for the six months ended September 30, 1997
(subsequent to the Recapitalization).
(2) The write-off of acquired in-process research and development costs for the
nine months ended September 30, 1997 relates to the Company's acquisition
of R.D. Nickel. Before deducting the nonrecurring write-off for this
period, income from operations was approximately $8.5 million, net income
was approximately $6.3 million and net income per share was $0.23 (based on
weighted average fully diluted shares outstanding of 27,421,472).
(3) Shares used in computing net income (loss) per share for all periods
presented are 30,583,942, except for the six and nine month periods ended
September 30, 1997 which are 27,421,472. See Note 1 of Notes to
Consolidated Financial Statements.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements which involve
risks and uncertainties. The Company's actual results may differ significantly
from the results discussed in the forward-looking statements. Factors that
might cause such a difference include, but are not limited to, those discussed
in "Risk Factors."
OVERVIEW
The Company is an enterprise solutions company that provides robust software
products and related professional services to large organizations with complex
computing requirements. The Company's revenues are primarily derived from
license fees for the use of software products, fees for maintenance related to
those products and fees for professional services. Since 1973, the Company has
primarily licensed and serviced SAG products in the United States and other
countries through a series of licensing agreements with SAG. In 1981, the
Company sold approximately 30% of its outstanding Common Stock in an initial
public offering. In 1988, SAG purchased all of the outstanding Common Stock of
the Company, thereby acquiring control of the Company.
On March 31, 1997, the Company consummated the Recapitalization, pursuant to
which the senior management of the Company and Thayer acquired approximately
89% of the outstanding Common Stock of the Company. The Company believes the
Recapitalization provides several significant benefits to the Company such as
access to growth and development capital, equity ownership incentives for
management and other key employees, and the opportunity and ability to pursue
acquisitions and internal product development. See "Company Background" and
"Certain Relationships and Transactions."
Prior to the Recapitalization, the Company's management team was constrained
by SAG in its ability to develop new products, license third-party software,
retain capital for expansion and make acquisitions of companies, products or
technologies. The Company's relatively low software product development
expenditures resulted, in part, from these constraints. Management has
undertaken several strategic initiatives since the Recapitalization to
increase revenue growth and profitability, including building a product
development organization, developing a product and professional services
offering that addresses the year 2000 problem and acquiring R.D. Nickel.
Software license fees are generated through the licensing of enterprise
development and enterprise enablement products. Enterprise development
products include ADABAS, a high-performance data management system, and
NATURAL, a 4GL programming language. Enterprise enablement software products
include ENTIRE, a family of middleware products; INSIGHT 2000 Tool Kit, a
software product that addresses the year 2000 problem; and a number of Company
and third-party products which address the data warehouse and Web enablement
markets. The Company recognizes license fee revenues in accordance with
Statement of Position 91-1, "Software Revenue Recognition" issued by the
American Institute of Certified Public Accountants. Software license fee
revenues are recognized upon shipment of the software if the software is not
subject to customer acceptance or significant post-delivery obligations. If
the license is subject to customer acceptance or significant post-delivery
obligations, the recognition of license fees is deferred until customer
acceptance or the significant post-delivery obligations have been met.
The Company also provides maintenance and support services to its customers.
Such maintenance services are typically provided in accordance with annual
agreements, with maintenance fees charged as a percentage of current software
license fees. Maintenance fees are recognized ratably over the term of the
agreement.
Software license and maintenance fees are derived from both direct and
indirect channels. In North America, a direct sales and support structure is
utilized through the Company's wholly
21
<PAGE>
owned subsidiaries. In the remainder of the Territory, exclusive distributors
sell the Company's products and provide maintenance support and pay the
Company a royalty on the revenues derived therefrom. The Company has
historically derived the majority of its revenues from sales within the United
States. Sales outside of the United States represented 13.9%, 16.2% and 17.8%
of the Company's total revenues in 1995, 1996 and the nine months ended
September 30, 1997, respectively.
The Company also generates revenues through the provision of professional
services associated with the implementation and deployment of the Company's
enterprise development and enterprise enablement products and through
educational services. The Company recognizes revenue from professional
services as such services are performed. The Company's professional services
offerings include consulting, software integration, system implementation,
large project management and year 2000 analysis and remediation. These
services are delivered on either a time and materials basis or a fixed price
basis. The Company is currently moving away from fixed price professional
services contracts. However, year 2000 business will continue to be conducted
using primarily fixed price contracts based on the number of lines of code
analyzed or remediated, as opposed to a specific and defined set of
deliverables as is the case in traditional fixed price contracts.
The Company offers its products and professional services to certain
customers under Enterprise License Agreements ("ELAs"). ELAs are typically
long term contracts of three to five years which include the provision of
software products, professional services and maintenance support. Revenues
from software licenses sold as part of an ELA are recognized as revenue when
such products are shipped and revenue from professional services and
maintenance support are recognized as provided. As of September 30, 1997, 106
of the Company's customers had entered into ELAs with the Company.
22
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain financial data for the periods
indicated expressed as a percentage of total revenues.
<TABLE>
<CAPTION>
PREDECESSOR COMBINED (1)
----------------------------------------------- ------------
NINE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPT. 30, SEPT. 30,
---------------------------------- ----------- ------------
1992 1993 1994 1995 1996 1996 1997
----- ----- ----- ----- ----- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license
fees................. 40.1% 36.9% 35.2% 34.1% 33.3% 28.7% 32.2%
Maintenance fees...... 40.7 40.9 44.7 42.8 44.4 46.8 42.9
Professional services
fees................. 19.2 22.2 20.1 23.1 22.3 24.5 24.9
----- ----- ----- ----- ----- ----- -----
Total revenues...... 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ----- -----
Cost of revenues:
Software license...... 9.6 10.2 9.2 10.0 9.0 7.7 10.1
Maintenance........... 18.6 21.3 20.3 15.4 16.5 17.4 16.8
Professional
services............. 15.4 18.4 18.0 21.4 21.0 23.4 21.8
----- ----- ----- ----- ----- ----- -----
Total cost of
revenues........... 43.6 49.9 47.5 46.8 46.5 48.5 48.7
----- ----- ----- ----- ----- ----- -----
Gross profit............ 56.4 50.1 52.5 53.2 53.5 51.5 51.3
----- ----- ----- ----- ----- ----- -----
Operating expenses:
Software product
development.......... 4.9 2.2 0.6 0.6 0.9 1.2 0.5
Sales and marketing... 28.8 31.0 34.2 34.4 31.0 28.2 22.4
Administrative and
general.............. 28.8 20.4 17.1 16.2 18.2 21.2 21.5
Write-off of acquired
in-process research
and development costs
(2).................. -- -- -- -- -- -- 4.9
----- ----- ----- ----- ----- ----- -----
Total operating ex-
penses............. 62.5 53.6 51.9 51.2 50.1 50.6 49.3
----- ----- ----- ----- ----- ----- -----
Income (loss) from
operations............. (6.1) (3.5) 0.6 2.0 3.4 0.9 2.0
Other income and
expense, net .......... 1.1 5.4 1.3 1.6 3.3 2.0 1.9
----- ----- ----- ----- ----- ----- -----
Income (loss) before
cumulative effect of
change in accounting
principle and
income taxes........... (5.0) 1.9 1.9 3.6 6.7 2.9 3.9
Cumulative effect of
change in accounting
principle.............. -- 3.6 -- -- -- -- --
Income tax provision
(benefit).............. (0.7) 0.9 0.9 1.5 2.6 1.0 3.6
----- ----- ----- ----- ----- ----- -----
Net income (loss)....... (4.3)% 4.6% 1.0% 2.1% 4.1% 1.9% 0.3%
===== ===== ===== ===== ===== ===== =====
The following table sets forth, for each component of revenues, the cost of
such revenues as a percentage of such revenues for the periods indicated:
<CAPTION>
PREDECESSOR COMBINED (1)
----------------------------------------------- ------------
NINE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER 31, SEPT. 30, SEPT. 30,
---------------------------------- ----------- ------------
1992 1993 1994 1995 1996 1996 1997
----- ----- ----- ----- ----- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Software license...... 23.9% 27.7% 26.1% 29.3% 27.1% 26.9% 31.5%
Maintenance........... 45.8 52.0 45.3 36.0 37.1 37.2 39.1
Professional
services............. 80.5 82.9 89.6 92.6 94.3 95.8 87.7
</TABLE>
- --------
(1) Reflects combined data for the three months ended March 31, 1997 (prior to
the Recapitalization) and for the six months ended September 30, 1997
(subsequent to the Recapitalization).
(2) The write-off of acquired in-process research and development costs for the
nine months ended September 30, 1997 relates to the Company's acquisition
of R.D. Nickel. Before deducting the nonrecurring write-off for this
period, income from operations as a percentage of total revenues was 6.9%
and net income as a percentage of total revenues was 5.1%.
23
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Revenues
Total Revenues. The Company's revenues are currently derived from fees from
licensing the Company's software products, fees for providing maintenance to
customers which have licensed the Company's software products and fees from
professional services. The Company's total revenues were $124.3 million and
$110.5 million for the nine months ended September 30, 1997 and 1996,
respectively, representing an increase of 12.5%.
Software License Fees. The Company's software license fees are derived
primarily from the licensing of the Company's enterprise development and
enterprise enablement products. Software license fees were $40.1 million and
$31.8 million for the nine months ended September 30, 1997 and 1996,
respectively, representing an increase of 26.1%. This increase was primarily
attributable to the reorganization of the direct sales force at the beginning
of 1997 into three groups, with one group focused on software products,
another on professional services and a third on the Year 2000 Program. As a
result of this reorganization, the Company has experienced increased
acceptance of ELAs by its customer base. For the nine months ended September
30, 1997, the Company has entered into 30 new ELAs, compared to 14 new ELAs
for the nine months ended September 30, 1996.
Maintenance Fees. The Company's maintenance fees are derived primarily from
providing technical support to customers which have licensed the Company's
enterprise development and enterprise enablement products. Maintenance is
available in various levels of support and priced as a percentage of the
software license fees. The most commonly contracted level is priced at 18% of
the applicable license fee at the time of renewal. Software customers are not
required to renew their maintenance agreements and renewals can be expected
only if the customer continues to use the licensed product. Maintenance fees
were $53.3 million and $51.8 million for the nine months ended September 30,
1997 and 1996, respectively, representing an increase of 2.9%. This increase
was due primarily to the effect of price increases, combined with an increase
in the maintenance base from the sale of new software licenses.
Professional Services Fees. The Company's professional services fees are
derived primarily from work performed by the Company on behalf of customers
who have licensed the Company's software products. Professional services fees
were $31.0 million and $27.0 million for the nine months ended September 30,
1997 and 1996, respectively, representing an increase of 14.8%. This increase
was primarily attributable to the Company's Year 2000 Program, which began in
1997 and contributed $3.7 million of professional services fees in the nine
months ended September 30, 1997.
Cost of Revenues
Software License. Software license costs consist primarily of royalties paid
to third parties. Software license costs were $12.6 million and $8.5 million
for the nine months ended September 30, 1997 and 1996, respectively,
representing 31.5% and 26.9% of software license fees for each respective
period. The increase in dollar amount was due primarily to an increase in
sales volume. The percentage increase was primarily due to a shift in product
mix since royalty rates on third-party products vary from 24% to 40%.
Maintenance. Maintenance costs consist of royalties paid to third parties,
the costs of providing customer support and the distribution costs of new
releases. Maintenance costs were $20.8 million and $19.3 million for the nine
months ended September 30, 1997 and 1996, respectively, representing 39.1% and
37.2% of maintenance fees for each respective period. This increase was
primarily attributable to the addition of staff to support new enterprise
enablement products.
24
<PAGE>
Professional Services. Professional services costs consist of labor and
related overhead costs for the people performing the services. Such costs
include costs for project management, quality control, proposal writing and
project review. Professional services costs were $27.2 million and $25.9
million for the nine months ended September 30, 1997 and 1996, respectively,
representing 87.7% and 95.8% of professional services fees for each respective
period. The improvement in margin was primarily attributable to improved
performance on fixed price contracts combined with improved utilization of
resources. Both of these improvements were derived from process changes
initiated in late 1995 that included enhanced infrastructure and tools for
project management, improved estimating and bidding processes and expanded
quality control procedures.
Operating Expenses
Software Product Development. Software product development expenses include
all labor and overhead costs related to the development of software products
owned by the Company. Software product development costs were $0.6 million and
$1.4 million for the nine months ended September 30, 1997 and 1996,
respectively, representing 1.4% and 4.3% of software license fees for each
respective period. This decrease was the result of a sale, with transfer of
the applicable software product development costs, of one of the Company's
products in 1996 to a third party. Prior to the Recapitalization, the
Company's ability to invest in software product development was constrained.
The Company expects software product development expenses to increase in the
future as a percentage of software license fees.
Sales and Marketing. Sales and marketing expenses consist primarily of
employee salaries, benefits, commissions, and associated overhead costs, and
the cost of marketing programs, direct mailings, public relations, trade
shows, seminars, advertising and related communications. Sales and marketing
expenses were $27.9 million and $31.1 million for the nine months ended
September 30, 1997 and 1996, respectively, representing 22.4% and 28.2% of
total revenues for each respective period. This decrease was primarily
attributable to reductions in the direct sales force and related support
personnel, combined with reductions in marketing staff and programs. These
reductions were begun in 1995 and substantially implemented by June 1997. The
program reduced the number of direct sales, direct sales support and marketing
personnel from 252 at December 31, 1994 to 124 at September 30, 1997.
Administrative and General. Administrative and general expenses include
employee salaries and benefits for administration, executive, finance, legal,
human resources, data center, distribution and internal systems personnel and
associated overhead costs, as well as bad debt expenses and accounting and
legal expenses. Administrative and general expenses were $26.7 million and
$23.5 million for the nine months ended September 30, 1997 and 1996,
respectively, representing 21.5% and 21.2% of total revenues for each
respective period. The increased dollar amount was the result of increases in
personnel related expenses and infrastructure required to support an
independent company.
Write-off of Acquired In-Process Research and Development Costs. The write-
off of acquired in-process research and development costs was attributable to
certain of the products acquired in the acquisition of R. D. Nickel. See Note
4 of the Unaudited Condensed Consolidated Financial Statements.
Other
Other Income and Expense, Net. Other income and expense, net consists
primarily of interest earned on cash, cash equivalents, short term investments
and long term customer contracts carried by the Company, and miscellaneous
income, offset in part by interest expense associated with equipment
financing. Interest and investment income and expense, net was $2.4 million
and $2.2 million for the nine months ended September 30, 1997 and 1996,
respectively.
Income Tax Provision (Benefit). Income tax provision (benefit) was $4.5
million and $1.1 million for the nine months ended September 30, 1997 and
1996, respectively, resulting in effective tax rates of 41.6% (exclusive of
the write-off of acquired in-process research and development costs), and
37.4%, respectively. This increase in rate was primarily attributable to the
non-deductible expenses incurred as a result of the Recapitalization.
25
<PAGE>
YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenues
Total Revenues. The Company's total revenues were $156.8 million and $152.6
million in 1996 and 1995, respectively, representing an increase of 2.8%.
Software License Fees. Software license fees were $52.2 million in 1996 and
$52.1 million in 1995, or 33.3% and 34.1% of total revenues for each
respective period.
Maintenance Fees. Maintenance fees were $69.7 million in 1996 and $65.3
million in 1995, representing an increase of 6.7%. This increase was due
primarily to the effect of price increases combined with an increase in the
maintenance base from the sale of additional software licenses.
Professional Services Fees. Professional services fees were $35.0 million in
1996 and $35.2 million in 1995, or 22.3% and 23.1% of total revenues for each
respective period. This minimal decline from 1995 to 1996 was the result of
actions taken in the latter part of 1995 to temporarily curb growth in the
professional services operation so that the Company could build a stronger
infrastructure and control process to support the rapid growth anticipated
from the Year 2000 Program. These actions were largely accomplished and
accounted for in the first half of 1996.
Cost of Revenues
Software License. Software license costs were $14.1 million in 1996 and
$15.2 million in 1995, representing 27.1% and 29.3% of software license fees
for each respective period. This decrease was primarily attributable to lower
third-party royalty rates associated with a slight shift in product mix.
Maintenance. Maintenance costs were $25.9 million in 1996 and $23.5 million
in 1995, representing 37.1% and 36.0% of maintenance fees for each respective
period. The increase from 1995 to 1996 was primarily attributable to royalties
related to additional maintenance fees combined with a change in product mix.
Professional Services. Professional services costs were $33.0 million in
1996 and $32.6 million in 1995, representing 94.3% and 92.6% of professional
services fees in each respective period. This increase was primarily
attributable to an increase in spending for infrastructure to support the
anticipated growth in the Year 2000 Program, partially offset by improved
margins on new projects.
Operating Expenses
Software Product Development. Software product development expenses were
$1.4 million in 1996 and $0.9 million in 1995, representing 2.6% and 1.7% of
software license fees, respectively. This increase was primarily attributable
to the employment of additional staff to develop and enhance the Company's
products.
Sales and Marketing. Sales and marketing expenses were $48.7 million in 1996
and $52.5 million in 1995, representing 31.0% and 34.4% of total revenues,
respectively. This decrease in expenses was primarily attributable to
reductions made in 1995 to the direct sales force and to the direct support
personnel. As discussed previously, these reductions commenced in 1995 and
were substantially implemented by June 1997. The net effect of this reduction
during 1996 was to reduce the direct selling and support personnel from 131 at
December 31, 1995, to 98 at December 31, 1996, a net reduction of 25%.
Administrative and General. Administrative and general expenses were $28.5
million in 1996 and $24.6 million in 1995, representing 18.2% and 16.2% of
total revenues, respectively. This increase was primarily attributable to
investments in computer equipment necessary to support anticipated growth of
the Year 2000 Program and severance payments made to the Company's former
chief executive officer.
Other
Other Income and Expense, Net. Other income and expense, net was $5.2
million in 1996 and $2.4 million in 1995. The difference was attributable to
interest received on $30.0 million in loans made to SAG in three stages over
1995 and 1996, combined with income received for the sale of the rights to one
of the Company's products. The loans were retired in March 1997 prior to the
Recapitalization.
26
<PAGE>
Income Tax Provision. Income tax provision was $4.3 million and $2.3 million
in 1996 and 1995, respectively, resulting in effective tax rates of 40.9% and
41.0%, respectively.
YEARS ENDED DECEMBER 31, 1995 AND 1994
Revenues
Total Revenues. The Company's total revenues were $152.6 million and $147.3
million in 1995 and 1994, respectively, representing an increase of 3.6%.
Software License Fees. Software license fees were $52.1 million in 1995 and
$51.8 million in 1994, or 34.1% and 35.2% of total revenues for each
respective period.
Maintenance Fees. Maintenance fees were $65.3 million in 1995 and $65.9
million in 1994, or 42.8% and 44.7% of total revenues for each respective
period. This decrease was primarily attributable to the transfer in 1994 of
the rights to license SAG products in Southeast Asia from the Company to SAG.
These rights accounted for 1994 maintenance revenue of $3.0 million. Adjusting
1994 for the impact of the loss of this territory and these rights in 1995,
maintenance revenues would have grown 3.8% from $62.9 million in 1994 to $65.3
million in 1995. The increase was due primarily to the effect of price
increases, combined with an increase in the maintenance base from the sale of
new software licenses.
Professional Services Fees. Professional services fees were $35.2 million in
1995 and $29.6 million in 1994, representing an increase of 18.9%. This growth
was the result of an increased level of business in the customer base, aided
significantly by the award to the Company of several large contracts.
Costs of Revenues
Software Licenses. Software license costs were $15.2 million in 1995 and
$13.5 million in 1994, representing 29.3% and 26.1% of software license fees
for each respective period. This increase was primarily attributable to an
increase in third-party royalty rates associated with a shift in product mix.
Maintenance. Maintenance costs were $23.5 million in 1995 and $29.8 million
in 1994, representing 36.0% and 45.3% of maintenance fees for each respective
period. This decrease from 1994 to 1995 was primarily attributable to
personnel cost reductions made as a result of the transfer of the Southeast
Asian territory to SAG, combined with a significant reduction in customer
support and product release personnel. This planned reduction was combined
with changes in support processes designed to improve productivity and
customer service.
Professional Services. Professional services costs were $32.6 million in
1995 and $26.5 million in 1994, representing 92.6% and 89.6% of professional
services fees in each respective period. This increase was primarily
attributable to losses on certain fixed price contracts. As a result, the
Company temporarily slowed the growth in professional services in order to
improve its infrastructure and control processes.
Operating Expenses
Software Product Development. Software product development expenses were
$0.9 million in 1995 and $0.9 million in 1994, representing 1.7% of software
license fees in both years.
Sales and Marketing. Sales and marketing expenses were $52.5 million in 1995
and $50.4 million in 1994, representing 34.4% and 34.2% of total revenues,
respectively. The increase in expenses was attributable to higher commissions
resulting from the growth in software licenses and professional services fees.
Administrative and General. Administrative and general expenses were $24.6
million in 1995 and $25.2 million in 1994, representing 16.2% and 17.1% of
total revenues for each respective period.
27
<PAGE>
Other
Other Income and Expense, Net. Other income and expense, net was $2.4
million in 1995 and $1.9 million in 1994.
Income Tax Provision. Income tax provision was $2.3 million and $1.4 million
for 1995 and 1994, respectively, resulting in effective tax rates of 41.0% and
50.2%, respectively.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly statement of
operations data for each of the eight most recent quarters. In the opinion of
management, this information has been prepared on the same basis as the
audited financial statements appearing elsewhere in this Prospectus, and all
necessary adjustments, consisting only of normal recurring adjustments, have
been included in the amounts stated below to present fairly the unaudited
quarterly results when read in conjunction with the audited Consolidated
Financial Statements and Notes thereto. The operating results for any quarter
are not necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
--------------------------------------------------------- ------------------
QUARTER ENDED
----------------------------------------------------------------------------
DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1995 1996 1996 1996 1996 1997 1997 1997
-------- --------- -------- --------- -------- --------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license fees............. $17,309 $ 6,609 $12,369 $12,785 $20,400 $ 7,341 $14,254 $18,458
Maintenance fees.................. 17,744 17,171 17,225 17,382 17,924 17,352 18,394 17,542
Professional services fees........ 8,206 8,506 7,515 10,959 7,995 9,948 10,299 10,729
------- ------- ------- ------- ------- ------- ------- -------
Total revenues.................... 43,259 32,286 37,109 41,126 46,319 34,641 42,947 46,729
------- ------- ------- ------- ------- ------- ------- -------
Cost of revenues:
Software license.................. 5,020 1,758 3,291 3,494 5,577 2,098 4,074 6,428
Maintenance....................... 6,389 6,614 6,376 6,273 6,622 6,205 6,577 8,062
Professional services............. 7,689 8,480 7,291 10,083 7,112 9,211 9,451 8,491
------- ------- ------- ------- ------- ------- ------- -------
Total cost of revenues............ 19,098 16,852 16,958 19,850 19,311 17,514 20,102 22,981
------- ------- ------- ------- ------- ------- ------- -------
Gross profit....................... 24,161 15,434 20,151 21,276 27,008 17,127 22,845 23,748
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Software product development...... 260 410 591 371 -- -- 283 312
Sales and marketing............... 14,431 8,576 12,851 9,712 17,538 7,317 11,477 9,060
Administrative and general........ 6,774 7,349 8,784 7,339 5,067 8,500 8,932 9,317
Write-off of acquired in-process
research and development costs
(1).............................. -- -- -- -- -- -- -- 6,051
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses.......... 21,465 16,335 22,226 17,422 22,605 15,817 20,692 24,740
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from operations...... 2,696 (901) (2,075) 3,854 4,403 1,310 2,153 (992)
Other income and expense, net...... 576 592 1,048 533 3,057 978 1,597 (221)
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes.. 3,272 (309) (1,027) 4,387 7,460 2,288 3,750 (1,213)
Income tax provision (benefit)..... 1,070 (97) (404) 1,642 3,161 915 1,599 2,014
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss).................. $ 2,202 $ (212) $ (623) $ 2,745 $ 4,299 $ 1,373 $ 2,151 $(3,227)
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- --------
(1) The write-off of acquired in-process research and development costs for
the quarter ended September 30, 1997 relates to the Company's acquisition
of R.D. Nickel. Before deducting the nonrecurring write-off for this
period, income from operations was approximately $5.1 million and net
income was approximately $2.8 million.
28
<PAGE>
The following table sets forth certain unaudited consolidated quarterly
statement of operations data expressed as a percentage of total revenues for
each of the eight most recent quarters.
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
--------------------------------------------------------- ------------------
QUARTER ENDED
----------------------------------------------------------------------------
DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1995 1996 1996 1996 1996 1997 1997 1997
-------- --------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license
fees.................. 40.0% 20.5% 33.3% 31.1% 44.0% 21.2% 33.2% 39.5%
Maintenance fees....... 41.0 53.2 46.4 42.3 38.7 50.1 42.8 37.5
Professional service
fees.................. 19.0 26.3 20.3 26.6 17.3 28.7 24.0 23.0
----- ----- ----- ----- ----- ----- ----- -----
Total revenues....... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ----- ----- -----
Cost of revenue:
Software license....... 11.6 5.4 8.9 8.5 12.0 6.1 9.5 13.8
Maintenance............ 14.8 20.5 17.2 15.3 14.3 17.9 15.3 17.3
Professional service... 17.8 26.3 19.6 24.5 15.4 26.6 22.0 18.2
----- ----- ----- ----- ----- ----- ----- -----
Total cost of
revenues............ 44.2 52.2 45.7 48.3 41.7 50.6 46.8 49.3
----- ----- ----- ----- ----- ----- ----- -----
Gross profit............ 55.8 47.8 54.3 51.7 58.3 49.4 53.2 50.7
----- ----- ----- ----- ----- ----- ----- -----
Operating expenses:
Software product
development........... 0.6 1.3 1.6 0.9 -- -- 0.7 0.7
Sales and marketing.... 33.4 26.6 34.6 23.6 37.9 21.1 26.7 19.4
Administrative and
general............... 15.7 22.8 23.7 17.8 10.9 24.5 20.8 19.9
Write-off of acquired
in-process research
and development costs
(1)................... -- -- -- -- -- -- -- 12.9
----- ----- ----- ----- ----- ----- ----- -----
Total operating
expenses............ 49.7 50.7 59.9 42.3 48.8 45.6 48.2 52.9
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from oper-
ations................. 6.1 (2.9) (5.6) 9.4 9.5 3.8 5.0 (2.2)
Other income and
expense, net........... 1.3 1.8 2.8 1.3 6.6 2.8 3.7 (0.5)
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before
income taxes........... 7.4 (1.1) (2.8) 10.7 16.1 6.6 8.7 (2.7)
Income tax provision
(benefit).............. 2.5 (0.3) (1.1) 4.0 6.8 2.6 3.7 4.3
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss)....... 4.9% (0.8)% (1.7)% 6.7% 9.3% 4.0% 5.0% (7.0)%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
(1)The write-off of acquired in-process research and development costs for the
quarter ended September 30, 1997 relates to the Company's acquisition of
R.D. Nickel. Before deducting the nonrecurring write-off for this period,
income from operations as a percentage of total revenues was 10.8% and net
income as a percentage of total revenues was 6.0%.
As a result of the Recapitalization on March 31, 1997, the Company is no
longer a wholly owned subsidiary of SAG. Management has undertaken several
strategic initiatives since the Recapitalization to increase revenue growth
and profitability including building a product development organization,
developing a product and professional services offering that addresses the
year 2000 problem and acquiring R.D. Nickel. The revenue and profit
improvements from the first quarter to the second and third quarters may be
partially attributable to these changes, but there can be no assurance that
this trend will continue in future quarters. Due in part to these initiatives,
the Company expects that product development costs as a percentage of software
license fees will increase and that administrative and general expenses as a
percentage of total revenues will decrease.
The Company's results of operations have historically fluctuated on a
quarterly basis and are expected to be subject to quarterly fluctuations in
the future. The Company's software license fees have tended to increase
through each successive quarter of the year, with software license fees in the
first quarter of a year being lower than those in the immediately preceding
fourth quarter. Third quarter results have been favorably affected by
increased end of the year spending by the Company's government customers.
Fourth quarter results benefit from those customers who operate on a calendar
year basis, combined with the Company's sales compensation plans which include
incentives for achieving annual targets. In addition, due to the
reorganization of the sales force and the increase in the number of ELAs, the
Company's historic trend of third and fourth quarter revenues that are
significantly larger than previous first and second quarter revenues may not
continue. The Company typically does not have a material backlog of unfilled
orders, and revenues in any quarter are substantially dependent on orders
booked in that quarter.
Maintenance fees generally have not fluctuated on a quarterly basis to the
same degree as software license fees due to the large percentage of
maintenance fees generated from renewals of annual maintenance contracts which
are recognized ratably over the contract period.
Revenues from professional services are influenced by the number of
personnel providing such services, the utilization rates of such personnel and
the number of billable days in a quarter. Other factors being equal,
29
<PAGE>
a quarter ending December 31 will generally reflect lower professional
services fees than other quarters due to the relatively large number of
holidays falling in that quarter. In addition, the completion or commencement
of significant professional services projects may affect the revenues from
professional services in a particular quarter.
Software license costs have varied from period to period and can be expected
to fluctuate in the future primarily due to shifts in product mix since
royalty rates on third party products vary from 24% to 40%.
Historically, sales and marketing expenses have varied from quarter to
quarter in absolute dollar terms and as a percentage of revenues, as a result
of the size and timing of marketing programs. A significant portion of
marketing program costs are variable in nature and subject to management
discretion as to their timing and amount.
The Company's quarterly operating results may continue to fluctuate due to
numerous factors, including the demand for the Company's products and
services, the timing and cost of new product and service introductions and
product enhancements by the Company or its competitors, changes in the mix of
products and services sold by the Company and in the mix of sales by
distribution channels, commencement or conclusion of significant service
contracts, timing of any acquisitions and associated costs, the size, timing
and terms of customer orders, including delays in significant orders, changes
in pricing policies by the Company or its competitors, the timing of
collection of accounts receivable, changes in foreign currency exchange rates,
competitive conditions in the industry and general economic conditions. The
Company's expenses are generally fixed and do not vary significantly in the
short term with revenues. As a result, operating and net income in a given
quarter may be disproportionately affected by a reduction in revenues. See
"Risk Factors--Potential Fluctuations in Quarterly Performance."
LIQUIDITY AND CAPITAL RESOURCES
Since 1988, when the Company became a wholly owned subsidiary of SAG, the
Company has financed its operations principally through cash flow from
operating activities. In order to meet its short term cash needs and to pay
dividends to SAG, in 1992 the Company began to periodically sell long term
customer receivable contracts. Sales of long term customer receivable
contracts increased in subsequent years in order to meet SAG's directives and
in connection with the Recapitalization. Since the Recapitalization, the
Company has sold $27.9 million of long term customer receivable contracts,
primarily to fund the repayment of certain obligations incurred in connection
with the Recapitalization and to fund the acquisition of R.D. Nickel. The
Company does not expect to sell additional long term customer receivable
contracts in the foreseeable future.
Investing activities used net cash of $3.1 million, $23.8 million, $4.3
million and $27.1 million during 1994, 1995, 1996 and the nine months ended
September 30, 1997, respectively, primarily to fund capital expenditures
needed to support expansion of the Company's business, to provide loans to SAG
and as consideration for the Cooperation Agreement. Financing activities used
net cash of $4.5 million, $4.8 million, $9.0 million and $2.2 million during
1994, 1995, 1996 and the nine months ended September 30, 1997, respectively,
primarily for the repayment of long term obligations, the payment of
dividends, and the repurchase of Common Stock.
The Company has no long term debt, and as of September 30, 1997 had
approximately $18.3 million in cash and investments. The Company has two
accounts receivable lines of credit. Under these lines, the Company may sell
long term receivable contracts. These transactions are treated as sales by the
Company as the economic interest in the contract is transferred to the buyer.
The Company's accounts receivable days sales outstanding at September 30, 1997
was 60.
The Company's international distributors report and pay in U.S. dollars. In
addition, royalties reported and paid by the Company to SAG under the
Cooperation Agreement are in U.S. dollars. The Company's Mexican operations
commenced in 1996 and represented less than 3% of total revenues in 1996. The
30
<PAGE>
Company, therefore, has not to date engaged in foreign currency hedging
transactions. In the event of significant growth in international operations,
the Company may enter into hedging transactions.
The Company traditionally leases all major equipment, and has no investment
in inventory or facilities other than leasehold improvements.
The Company believes that the proceeds from the sale of the Common Stock
offered hereby, together with its existing cash balances, funds generated from
operations and available accounts receivable lines of credit will be
sufficient to finance the Company's operations for at least the next twelve
months. Although operating activities may provide cash in certain periods, to
the extent the Company grows in the future, its operating and investing
activities may use such cash. There can be no assurances that any necessary
additional financing will be available to the Company on commercially
reasonable terms.
31
<PAGE>
BUSINESS
Software AG Systems, Inc. is an enterprise solutions company that provides
robust software products and related professional services to large
organizations with complex computing requirements. The Company's products are
used to build and enhance mission-critical applications that require
reliability, scaleability and security, such as customer billing systems,
financial accounting systems and inventory management systems. To complement
its products, the Company has a comprehensive services offering, including
consulting, software integration, systems implementation and large project
management services. The Company has over 24 years of experience in addressing
the needs of organizations with complex enterprise level computing
environments.
The Company provides enterprise development software products and related
professional services used by organizations to develop new mission-critical
applications and enterprise enablement software products and related
professional services used to extend existing applications to new
technologies. The Company's enterprise development products include ADABAS, a
high-performance database management system designed to operate with a variety
of data types and computer platforms, and NATURAL, a 4GL programming language
that enables the development of applications that are portable, scaleable and
interoperable across multiple computing platforms. The Company also provides
software products and professional services that enable organizations to
extend existing mission-critical applications to the Internet and intranets
and to create new applications. Products in this area include ENTIRE, a family
of middleware products that facilitates the communication between application
components across heterogeneous computing environments; SourcePoint, an
automated data warehouse management product; iXpress, a Web application
assembly and deployment platform; and EntireX DCOM, a product that uses
Microsoft's ActiveX technology to bridge applications written in a variety of
programming languages. The Company has also developed a software product,
INSIGHT 2000 Tool Kit, and professional services that address the year 2000
problem. The Company's professional services that complement its products
include application development and enhancement, application reengineering,
application porting and rightsizing, Web integration and data warehouse design
and implementation.
The Company markets and sells its software products and services through
direct and indirect channels in North America, South America, Japan and
Israel. Over 1,500 customers in North America, South America, Japan and Israel
have licensed the Company's products or purchased the Company's professional
services since January 1996. These customers include large corporations,
government agencies and educational institutions, such as Nabisco, Inc.,
Sprint Corporation, the National Aeronautics and Space Administration, the
Federal Aviation Administration, Brown University, USX Corporation, the
University of Texas and the State of California.
INDUSTRY BACKGROUND
Worldwide, large business and governmental organizations rely on large-scale
computer applications to help manage their businesses. These applications,
many of which are mission-critical, contain the core knowledge and processes
that support the major operations of these organizations. Examples of such
applications include customer billing systems, financial accounting systems
and inventory management systems.
Mainframes are the predominant computing platform for running mission-
critical applications because they provide the high levels of reliability,
scaleability, security, manageability and control required by such
applications. Recently, with the proliferation of intranets, the growth of the
Internet and the decreasing cost of operating mainframe systems, mainframes
have gained increased importance as servers capable of managing and providing
widespread access to corporate data. Large organizations are also seeking to
leverage investments in existing systems by integrating their mainframe
systems with distributed computing environments. International Data
Corporation estimated that worldwide software revenue for the mainframe
segment exceeded $26 billion in 1996.
32
<PAGE>
Organizations must continually build, modify and maintain their information
systems in order to respond to competitive pressures, regulatory changes and
technological advances. For example, many organizations have initiated
significant modifications of their information systems to address the
increasing demands of management for more information for decision making and
the needs of customers and suppliers for greater access to information.
Organizations are constantly updating their information systems to exploit
advances in database management, communication and software technologies and
to maximize the return on their investments in existing systems. In addition,
the size and complexity of the year 2000 problem, a problem expected in the
year 2000 when applications with two-digit entries in the date code field will
need to accept four-digit entries to distinguish twenty-first century dates
from twentieth century dates, has created significant demand for technology
and professional services that address that problem.
The need to continually adapt information systems is placing increased
demands on organizations. Already suffering from a shortage of qualified
technical professionals, information technology ("IT") organizations are
required to work more productively, to distribute information to users more
quickly and to preserve the investments that have already been made in
computing assets. The Company estimates that there are over one billion lines
of NATURAL code in the United States alone. IT organizations are seeking to
integrate new technologies into their mainframe systems to avoid the downtime,
expense and risks involved in replacing these systems and the applications
running on these systems. In many cases, IT organizations lack the resources
and expertise required to cost-effectively implement and maintain distributed
computing systems. The inability of these organizations to fully utilize
available technology, together with the limited functionality of many existing
processes and tools, has increased demand for integrated software development
products and professional services.
As a result, organizations are increasingly seeking to achieve the
reliability, scaleability and interoperability of legacy systems while
leveraging the speed, cost effectiveness and flexibility of new technologies.
The Company believes that organizations are meeting this challenge by working
with vendors that: (i) provide enterprise level performance; (ii) enhance and
extend existing computing investments; and (iii) provide a comprehensive
solution of products, professional services and support.
THE COMPANY'S SOLUTIONS
Over its 24 year history, the Company has developed significant expertise in
addressing the needs of large, complex computing environments at the
enterprise level. The Company's solutions enable its customers to leverage
their investments in existing information systems and personnel, and to
enhance and expand these systems to meet the changing needs of the enterprise.
The Company believes its solutions provide the following benefits:
Provide Enterprise Level Performance. The Company's solutions consist of
software products and related professional services that are used for the
development and enhancement of mission-critical enterprise applications. The
Company's products are used to build, maintain and extend business
applications that require reliability, scaleability and security, and
constitute the core technology behind mission-critical systems, such as those
used for customer billing, financial accounting and inventory management.
Enhance and Extend Existing Computing Investments. The Company's application
development and enablement products and related professional services allow
its customers to preserve their investments in mainframe systems by updating
and evolving their systems to meet changing business processes and needs.
Enable New Enterprise Applications. The Company's products and
professional services enable its customers to implement new enterprise
applications that require access to existing corporate data wherever it
resides. For example, the Company's software products and professional
services expertise in building data warehousing applications allow IT
organizations to create data warehouses that enable managers and knowledge
workers to access and analyze corporate data previously unavailable to them
for improved decision making.
33
<PAGE>
Extend Mission-Critical Applications to Distributed Computing
Environments. The Company's solutions allow its customers to extend their
mission-critical applications to distributed computing environments.
Organizations can use the Company's products and professional services to
connect their network-based architectures, including Internet and intranet-
based systems, to their mainframe applications, providing improved access
to corporate data. In this manner, existing applications need not be
rewritten in order to extend them to the network or the Web, and the
security, extensibility and scaleability of mainframe environments can be
extended.
Provide Solutions to the Year 2000 Problem. The Company's year 2000
product, INSIGHT 2000 Tool Kit, and professional services assist its
customers in resolving their year 2000 problem. Organizations can use the
Company's year 2000 product and professional services to analyze the amount
of remediation needed and to develop and implement a remediation and
testing plan. In this manner, existing applications need not be abandoned
or replaced upon the arrival of the year 2000.
Provide a Comprehensive Solution of Products, Professional Services and
Support. The Company's solutions represent a comprehensive offering of
products, professional services and support from a single vendor. While many
"point" products exist in the form of connectivity tools, programming
languages and data management products, most are limited in their ability to
support the enterprise computing environment. The Company's extensive
experience in enterprise software and related professional services enables it
to address customers' mission-critical computing needs.
THE COMPANY'S STRATEGY
The Company's strategy is to further leverage its current leadership
position in building enterprise applications and data access solutions for
large organizations by extending its product and professional services
offerings into the Web integration, data warehouse, middleware and year 2000
markets. Key elements of the Company's strategy include the following:
Enhance and Extend Product Offerings. The Company believes that a
substantial opportunity exists to provide software products and professional
services that assist organizations in building, modifying and maintaining
mainframe systems. To pursue this opportunity, the Company intends to enhance
its existing product offerings with added features and functionality. The
Company also intends to broaden its product offerings through internal product
development, additional licensed products from third parties and acquisitions.
In furtherance of this strategy, the Company recently acquired R.D. Nickel, a
software company with the CONSTRUCT family of application development products
which are used in conjunction with NATURAL. In addition, pursuant to the
Cooperation Agreement, the Company has an exclusive and perpetual right to
license in North America, South America, Japan and Israel (the "Territory")
any new products developed or acquired by SAG. The Company expects to continue
to benefit from SAG's product development efforts, which in 1996 totaled
approximately $56 million. See "Company Background."
Leverage Customer Base. Most of the Company's customers are large,
sophisticated organizations with complex information systems in dispersed,
heterogeneous computing environments. Over 1,500 customers in North America,
South America, Japan and Israel have licensed the Company's products or
purchased the Company's professional services since January 1996. Typically,
the IT budget of a customer of the Company substantially exceeds the annual
amount that customer spends with the Company. The Company believes it can
expand its share of its customers' IT budgets through increased and improved
product and professional services offerings.
Expand Professional Services Offerings. The Company believes that, due to
the strategic nature of its products, customers require the Company to provide
comprehensive professional services and support. The Company's strategy is to
expand its key professional services offerings, which are centered around
application development, data warehousing, Web integration and the year 2000
problem. The Company expects to hire additional consultants and to develop new
professional services offerings to meet its customers' evolving service needs.
The Company intends to expand its efforts to cross sell its professional
services to its product customers.
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<PAGE>
Leverage Distribution Channels. The Company directly and indirectly sells its
products in over 20 countries throughout the Territory through exclusive
distributors. Through the Cooperation Agreement with SAG, the Company has
access to SAG's distribution channels for the Company's products (other than
those licensed from SAG) in over 50 additional countries outside the Territory.
The Company intends to leverage this distribution channel by developing and
acquiring additional products for distribution by SAG.
PRODUCTS AND SERVICES
The following diagram depicts how the Company provides enterprise solutions
for its customers. The Company works at the highest level of IT organizations
to evaluate the overall needs of the enterprise and develop solutions that use
its products and professional services to effectively build, extend and enable
complex computing environments. Typically, the Company's solutions focus either
on building and deploying new mission-critical applications or enhancing and
extending existing business-critical applications through building data
warehouses and integrating with the Internet and intranets. The Company's
products and professional services allow its customers to leverage their
investments in existing information systems and personnel and to enhance and
expand these systems to meet the changing needs of their organizations.
[FLOW CHART APPEARS HERE]
- -------------------------------------------------------------------------------
UNDERSTAND BUSINESS PROBLEMS
- -------------------------------------------------------------------------------
IDENTIFY BUSINESS SOLUTIONS
- -------------------------------------------------------------------------------
Build and Deploy Enhance and Extend
ENTERPRISE DEVELOPMENT ENTERPRISE ENABLEMENT
Mission-critical Business-critical
APPLICATIONS DECISION SUPPORT WEB INTEGRATION
Buy . Rightsize . Migrate . Build . Deploy Data Warehouse Internet/Intranet
PLATFORMS
MVS/VSE . UNIX . Windows NT . Windows
NATURAL ADABAS ENTIRE YEAR 2000
4GL Development Data Middleware & Remediation
Language Management Web Enabling
PROFESSIONAL SERVICES
Core Product . Web Integration . Data Warehouse . Year 2000 . Education
Technology . Support
35
<PAGE>
The following table summarizes the Company's product offerings by category,
indicating the year the product was introduced, the shipment date of the
product's current version, and the platforms supported by the product.
<TABLE>
<CAPTION>
YEAR OF CURRENT PLATFORMS
PRODUCTS (1) INTRODUCTION VERSION SUPPORTED
ENTERPRISE DEVELOPMENT
- -------------------------------------------------------------
<S> <C> <C> <C>
NATURAL Product Line
NATURAL 1979 12/95 MVS/VSE
NATURAL 1993 7/96 UNIX
NATURAL 1996 11/96 WIN NT
NATURAL Lightstorm 1995 2/97 WIN
CONSTRUCT 1988 9/97 MVS/VSE
CONSTRUCT 1993 10/96 UNIX
CONSTRUCT Spectrum 1997 8/97 MVS/VSE
CONSTRUCT Spectrum 1997 8/97 WIN NT
CONSTRUCT Spectrum SDK 1997 8/97 MVS/VSE
CONSTRUCT Spectrum SDK 1997 8/97 WIN NT
PREDICT 1983 2/97 MVS/VSE
PREDICT 1993 2/97 UNIX
- -------------------------------------------------------------
ADABAS Product Line
ADABAS 1972 1/97 MVS/VSE
ADABAS 1993 7/97 UNIX
ADABAS Delta Save Facility 1996 2/96 MVS/VSE
ADABAS FASTPATH 1991 12/96 MVS/VSE
ADABAS SQL Server 1992 10/95 MVS/VSE
ADABAS Vista 1997 9/97 MVS/VSE
ADABAS ADAPLEX + 1996 2/97 MVS/VSE
- -------------------------------------------------------------
ENTERPRISE ENABLEMENT
- -------------------------------------------------------------
ENTIRE Product Line
iXpress 1996 8/97 WIN NT
ENTIRE ACCESS 1994 12/96 UNIX
ENTIRE ACCESS 1995 12/96 WIN NT
ENTIRE BROKER 1994 4/97 MVS/VSE
ENTIRE BROKER 1996 8/97 UNIX
ENTIRE BROKER 1996 7/97 WIN NT
ENTIRE BROKER SDK 1997 9/97 WIN NT
ENTIRE BROKER APPC 1991 2/95 MVS/VSE
ENTIRE NET-WORK 1987 8/97 MVS/VSE
ENTIRE NET-WORK 1993 9/97 UNIX
ENTIRE NET-WORK 1995 3/97 WIN NT
ENTIRE SAF Gateway 1997 4/97 MVS/VSE
EntireX DCOM 1997 9/97 UNIX
- -------------------------------------------------------------
Data Warehouse Product Line
SourcePoint 1995 6/97 UNIX
PASSPORT 1995 8/97 MVS/VSE
CONSTRUCT Extract Service 1997 5/97 MVS/VSE
CONSTRUCT Extract Service 1997 3/97 UNIX
ESPERANT 1994 2/97 WIN
DSS AGENT 1995 8/96 WIN
- -------------------------------------------------------------
Year 2000 Product
INSIGHT 2000 Tool Kit 1997 9/97 WIN
</TABLE>
- --------
(1) CONSTRUCT, CONSTRUCT Spectrum, CONSTRUCT Spectrum SDK and INSIGHT 2000
Tool Kit are products owned by the Company. iXpress, PASSPORT, ESPERANT
and DSS AGENT are products which the Company has the right to license
pursuant to agreements with third parties other than SAG. The Company has
the exclusive right to license and service all other products listed in
this table in North America, South America, Japan and Israel pursuant to
the Cooperation Agreement with SAG.
36
<PAGE>
Enterprise Development Products and Professional Services
The Company provides a family of enterprise development software products
and related professional services that allow its customers to develop and
deploy enterprise solutions that are integrated with existing data and
applications.
. NATURAL, the Company's 4GL programming language for the enterprise
environment, is designed to increase productivity in application software
design, development and deployment. NATURAL supports Rapid Application
Development to RDBMS environments with applications that are portable,
scaleable and interoperable across multiple computing platforms.
. Add-on products for the NATURAL environment include: NATURAL LightStorm,
for repository-based development environments; CONSTRUCT, for model-based
Rapid Application Development; and CONSTRUCT Spectrum, for automated
development of distributed components.
The Company's family of data management solutions delivers access to data
and are designed to ensure the reliability, integrity, and security of such
data throughout an organization's computing environment.
. ADABAS, the Company's flagship high-performance database management
product, is designed to handle large volumes of changing data requiring
high levels of availability. It provides multi-data model support, multi-
platform support, comprehensive SQL support, and a variety of extended
capabilities that take advantage of technological advances in both hardware
and software.
. Add-on products for the ADABAS environment include: ADABAS SQL Server, an
SQL interface to ADABAS data; ADABAS ADAPLEX +, a technology that
distributes and presents a single view of multiple databases; ADABAS
FASTPATH, which optimizes database and application performance; and ADABAS
Delta Save Facility, a product for reducing backup time and database
recovery processing.
. Core Product Services. These professional services focus on the deployment
and use of the Company's database management and application development
products, including application development and enhancement, application
reengineering, application porting and rightsizing.
Enterprise Enablement Products and Professional Services
The Company's ENTIRE middleware products and professional services minimize
the complexity of integrating a distributed computing environment that
encompasses a variety of platforms, protocols, programming languages and
databases.
. The ENTIRE product family includes: ENTIRE BROKER, a cross-platform
messaging middleware product that links mainframe applications and
components to ActiveX- and Java-enabled desktops; and ENTIRE SAF Gateway, a
central security administration environment. The Company also offers ENTIRE
BROKER APPC, a product that links Advanced Program-to-Program Communication
and IBM's MQSeries-enabled mainframe applications to ActiveX- and Java-
enabled desktops; ENTIRE BROKER SDK, a set of software products for
building and deploying distributed applications; and EntireX DCOM, a
product that allows applications or pieces of applications to work together
transparently on Windows and/or UNIX platforms.
. iXpress is an Internet-enablement technology that combines component
technology, such as Java and ActiveX, with enterprise systems, allowing
organizations to deliver and manage business-critical information solutions
via the Web.
. Web Integration Services. The Company offers its customers a variety of Web
integration professional services, such as integrating an organization's
Internet site with an order entry system; integrating multiple sources of
data, applications and services from multiple platforms; enabling secure
access for suppliers to specific data and applications; and distributing
application components across the network.
37
<PAGE>
The Company's data warehousing solutions include both products and
professional services for implementing a data warehouse, and its approach
encompasses six elements: data acquisition, data warehouse administration,
services and support, education, business analysis tools and database
management.
. SourcePoint is an administration product for automating data extraction,
transportation and loading from operational data sources to data warehouse
servers. SourcePoint works separately or in an integrated fashion with
PASSPORT, a data extraction and transformation product. In addition, the
Company's CONSTRUCT Extract Service offers a Rapid Application Development
approach to creating NATURAL extraction programs that integrate directly
with SourcePoint.
. ESPERANT, a query and reporting product, and DSS AGENT, a relational online
analytical processing (OLAP) product, offer users decision support tools
for accessing and analyzing data for improved decision making.
. Data Warehouse Services. The Company provides consulting services and
methodologies for building and implementing data warehouses, with a focus
on rapid delivery of scaleable data warehouses.
The Company offers a software product and a professional services capability
that address the year 2000 problem.
. INSIGHT 2000 Tool Kit is a product that allows developers to analyze and
remediate NATURAL code by providing a picture of how much code needs to be
fixed and helping project managers break year 2000 projects into segments
and develop a comprehensive work plan for executing remediation.
. Year 2000 Services. The Company's year 2000 professional services offerings
include impact assessment, analysis and implementation to assist customers
in resolving their year 2000 problem. These services are provided through a
professional staff with expertise in managing large projects and in the
methodologies and products that underlie software integration and systems
management. The Company also recently established Millennium Centers in
Denver, Colorado, Fort Lee, New Jersey and Dallas, Texas to provide
remediation and testing for its Year 2000 Program and plans to establish
additional centers in the future. Year 2000 remediation can be done at one
of the Company's Millennium Centers or at the customer's site.
Other Services
Education Services. The Company provides customers with in-depth training in
the Company's products, with courses available through scheduled and
customized classes. In addition, the Company offers programs to accelerate the
implementation of application development, Web integration, data warehouse and
year 2000 projects.
Technology Services. The Company also provides system engineering services,
supplementary database administration services and database application and
network performance and tuning services.
SOFTWARE PRODUCT DEVELOPMENT
Prior to the Recapitalization, the Company was a wholly owned subsidiary of
SAG and the Company's research and development efforts were directed by SAG.
The Company's software product development expenses were $0.9 million, $0.9
million and $1.4 million in 1994, 1995 and 1996, respectively.
Since the Recapitalization, the Company has begun building its internal
product development group, which currently consists of 17 people, including 11
people added as a result of the acquisition of R.D. Nickel. The first product
resulting from the Company's recent internal product development efforts is
INSIGHT 2000 Tool Kit, which was released in September 1997. The Company
intends to continue expanding its product development group through additional
acquisitions and internal hiring.
38
<PAGE>
Since the Cooperation Agreement provides the Company with an exclusive and
perpetual right to license in the Territory products developed by SAG, the
Company also expects to continue to benefit from SAG's product development
efforts. In 1996, SAG's product development costs were approximately $56
million. In September 1997, SAG released EntireX DCOM, the first product
resulting from SAG's strategic relationship with Microsoft.
PRODUCT MAINTENANCE AND CUSTOMER SUPPORT
The Company offers a wide range of product maintenance and customer support
services. The Company believes that its future success is dependent in part on
its ability to provide high levels of customer service in order to cultivate
advocacy by the Company's installed customer base. For the twelve months ended
September 30, 1997, approximately 96% of the Company's customers who were
eligible renewed at least one of their maintenance agreements. As of September
30, 1997, the Company had 119 employees devoted to its maintenance and
customer support services.
Customers may choose from three levels of service and support offerings:
basic, extended and custom, which are differentiated by service deliverables
and access to support persons. Some of these customer support services
include:
. Support during product proof-of-concept/trial
. Technical support 24 hours a day, seven days a week
. Customized support offerings
. Onsite installation and implementation
. Remote analysis
. Automated customer assistance and Web-based electronic services
CUSTOMERS AND MARKETS
Over 1,500 customers in North America, South America, Japan and Israel have
licensed the Company's products or purchased the Company's professional
services since January 1996. These customers consist primarily of major
corporations, government agencies and educational institutions.
The following examples are representative of how customers use the Company's
products and professional services to build and enable enterprise level,
mission-critical applications for large organizations.
Utility Business Services, Incorporated ("UBS"). An information service
bureau for water and wastewater companies, UBS needed to develop a new
customer information system to handle approximately 600,000 customer accounts
for 15 clients in New Jersey and New York. UBS decided to use the Company's
ADABAS, NATURAL and CONSTRUCT products and related services to develop a
system of enhanced services and applications that could be sold as an
independent software package to UBS's water utility clients handling their own
billing and information tracking. According to UBS, six of its programmers
developed the entire system in less than two years at a cost of approximately
$420,000 and the system resulted in savings of approximately $1.7 million
compared to projected COBOL development costs.
Federal Aviation Administration ("FAA"). In 1994, the FAA decided to migrate
its 400 mainframe COBOL financial and accounting modules to a client/server
windows architecture. To facilitate conversion of the online portion of the
system, the FAA used the Company's NATURAL Lightstorm product to create new
client/server components and the ADABAS product to manage data running in
Microsoft's Windows and Windows NT environments. According to the FAA, the new
system supports 1.7 million financial transactions each month, is utilized to
pay vendors an average of $27 million a day and is used daily by approximately
2,000 employees worldwide to process departmental accounting information.
City of New York. The City of New York was using an integrated, COBOL-based
system to process various business and commercial compliance activities, such
as license processing, inspections, cash management and consumer services. In
order to keep up with the changing operational requirements of a diverse user
community, the City of New York decided to switch to a new system using the
Company's
39
<PAGE>
ADABAS and NATURAL products. According to the City of New York, the new system
produced a 60% decrease in license processing time and resulted in a 40%
increase in revenue collections.
Pepsi-Cola General Bottlers Inc. ("PCGB"). In 1990, PCGB, then one of the
largest of Pepsi-Cola's bottlers, found that its systems were unable to handle
the company's volume of transactions. PCGB decided to replace its existing
systems with a system designed to centralize and support business processes in
a single set of programs and files. PCGB chose the Company's ADABAS product
and, in the process, developed its own enterprise methodology called Open
Batch Architecture which uses the Company's NATURAL, CONSTRUCT and ADABAS
products to streamline code development. According to PCGB, its new system for
domestic operations processes approximately 40 million commands daily.
Vincent Metal Goods ("Vincent"). As a result of a merger in 1995, Vincent, a
large stainless steel and aluminum distributor, needed to consolidate and
convert its two existing computing systems into a single system for use by
Vincent's sales, warehouse and clerical employees located in 49 sites
throughout the United States. Vincent used the Company's professional services
offerings to develop, program and test new applications and selected a
mainframe system running on the Company's ADABAS and NATURAL products.
According to Vincent, its consolidated computer system is year 2000-ready and
was successfully completed three months ahead of schedule, within budget and
with minimal disruption to business functions and end-users.
The following is a representative list of some of the Company's customers
that produced revenues of at least $500,000 for the Company since January 1,
1996.
American Community Mutual Insurance Co. National Aeronautics and Space
American Electric Power Company, Inc. Administration
Banorte Bank Nissan Motor Co., LTD.
Brown University Ryerson Tull
Burlington Northern Santa Fe Corporation Rykoff-Sexton, Inc.
Cable and Wireless, PLC S.C. Johnson & Son Inc.
Centers for Disease Control Sprint Corporation
Central Hudson Gas & Electric Corporation State of California
City of New York State of Hawaii
City of Philadelphia State of Nevada
Commonwealth of Virginia State of New Jersey
Cutler-Hammer, Inc. State of Texas
Delta Air Lines, Inc. State of Washington
Duke Power Company Union Electric Company
Federal Aviation Administration University of Arkansas
Federal Bureau of Investigation University of Hawaii
Federal Express Corp. University of Texas
KN Energy, Inc. University of Toronto
Morgan Stanley, Dean Witter, Discover & Co. US Airways Group, Inc.
Nabisco Inc. US Patent & Trademark Office
USX Corporation
In 1996 and during the first nine months of 1997, no single customer
accounted for more than 10% of the Company's total revenues.
SALES AND MARKETING
The Company sells and markets its products through both direct and indirect
channels. Recently, the Company reorganized its sales organization into three
groups which focus separately on sales of ELAs, professional services and the
Year 2000 Program. The reorganization of the sales force has resulted in
significantly increased productivity per salesperson.
40
<PAGE>
In North America, the Company sells and markets its products through a
direct channel that included over 120 people in 19 offices as of September 30,
1997. The Company sells its products in over 20 additional countries through
six exclusive distributorships in South America, Japan and Israel. In
addition, the Company has access to SAG's distribution channels for the
Company's products (other than those licensed from SAG) in over 50 countries
outside North America, South America, Japan and Israel. As of September 30,
1997, in North America, the Company directly sold its professional services
through 29 people. In addition, as of September 30, 1997, the Company had nine
people in the United States focused on selling its Year 2000 Program.
As of September 30, 1997, the Company's corporate marketing organization
supported the Company's sales and professional services channels through the
efforts of 35 professionals with expertise in product marketing, marketing
communications, database marketing, inside sales and strategic development.
The Company also has strategic marketing relationships with certain vendors of
computing products and services, including IBM, Microsoft, Digital Equipment
Corporation, Andersen Consulting and BDM.
COMPETITION
The markets for the Company's software products and professional services
are highly competitive and characterized by continual change and improvement
in technology. The Company provides products and professional services to
several markets within the computer industry and encounters a variety of
competitors within each such market. Many of the Company's competitors have
significantly greater financial, marketing and other competitive resources
than the Company. In addition, in certain markets in which the Company
competes, such as the year 2000 market, there are no significant barriers to
entry. Few of the Company's competitors compete in all of the same markets as
the Company.
In the enterprise development markets, the Company's competitors with
respect to enterprise and departmental database management products include
IBM, Oracle, Informix, Sybase and Microsoft. In addition, the Company's 4GL
applications programming language, NATURAL, competes with offerings from both
large and small companies, including Oracle, Microsoft, IBM and Sterling
Software. In the enterprise enablement markets, the Company's products compete
in both the component/object and the message oriented segments of the
middleware market, where its competitors include IBM, Microsoft, and
Visigenic. The Company's competitors in the data warehousing segment of the
enablement markets include IBM, SAS, and PLATINUM and database vendors such as
Oracle, Sybase and Informix. In the market for year 2000 products and
professional services, the Company's competitors include Formal Systems,
Viasoft, BDM and EDS.
The principal competitive factors affecting the markets for the Company's
product and professional services offerings include: (1) product
functionality, performance, reliability and ease of use, (2) quality of
technical support, training and consulting services, (3) responsiveness to
customer needs, (4) reputation, experience and financial stability and (5)
cost of ownership, including initial price and deployment costs as well as
ongoing maintenance costs. Due to the continued increase in new product
licenses and professional services revenues, the Company believes that it has
competed effectively in each of these areas. Nevertheless, current and
potential competitors may introduce new and better products, make strategic
acquisitions, or establish cooperative relationships among themselves or with
third parties, thereby increasing the ability of their products to address the
needs of the Company's current and prospective customers. There can be no
assurance that the Company will be able to compete successfully against
current and future competitors, and the failure to do so would have a material
adverse effect upon the Company's business, financial condition and results of
operations. See "Risk Factors--Competition."
PROPRIETARY RIGHTS
The products sold by the Company consist of products developed by SAG (e.g.,
ADABAS, NATURAL and ENTIRE), products owned by other third parties which are
distributed by the Company (e.g.,
41
<PAGE>
ESPERANT and iXpress) and products developed or acquired by the Company (i.e.,
INSIGHT 2000 Tool Kit, CONSTRUCT, CONSTRUCT Spectrum and CONSTRUCT Spectrum
SDK). For all of these products, the Company, if not the developer, is
contractually obligated to provide appropriate security measures to protect
the proprietary materials of SAG and other third parties against
misappropriation and illegal copying.
The Company treats all of the products that it distributes as proprietary
trade secrets and confidential information. It relies primarily upon a
combination of trade secret, copyright and trademark laws, its license
agreements with customers, and its internal security systems, confidentiality
procedures and employee agreements to maintain the security of its products.
The Company typically provides its products to users under nonexclusive,
nontransferable perpetual licenses which generally permit use of the licensed
software solely for internal operations on designated computers at specific
sites. Under certain circumstances, the Company makes available the source
code for its products under an escrow arrangement which restricts access to
and use of the source code. Although the Company takes steps to protect its
trade secrets and other proprietary rights, there can be no assurance that
misappropriation will not occur. In addition, the laws of some foreign
countries do not protect proprietary rights to the same extent as the laws of
the United States.
The Company seeks to protect its software, documentation and other written
materials under copyright law, and to assert trademark rights in its product
names. The Company has not sought to protect its products under patent laws,
though SAG and some third parties have patented, in the United States, Japan
and/or the European Union, certain of the products which the Company
distributes.
Although the Company is not aware of any claims that its products,
trademarks or other proprietary rights infringe on the proprietary rights of
third parties, there can be no assurance that third parties will not assert
infringement claims against the Company in the future with respect to current
and future products or that any such assertion may not require the Company to
enter into royalty arrangements or result in costly litigation. See "Risk
Factors--Proprietary Technology."
EMPLOYEES
As of September 30, 1997, the Company employed 826 people, with 372 in
professional services and consulting, 124 in sales and marketing, 175 in
customer support, 14 in research and development and 141 in general and
administrative. As of September 30, 1997, the Company also utilized
approximately 106 individuals under independent contracts. None of the
Company's employees is represented by a labor union, and the Company has never
experienced any work stoppage. The Company considers its relations with its
employees to be good. The Company's success will depend in part on its
continued ability to attract and retain highly qualified personnel in a
competitive market for experienced software developers, professional services
staff and sales and marketing personnel. See "Risk Factors--Dependence on Key
Personnel; Need to Hire Additional Personnel."
FACILITIES
The Company's executive offices, principal marketing and data center
facility are located in approximately 170,000 square feet of space in a three
building campus that the Company leases in Reston, Virginia. The Company's
Customer Service and Support Center is located in approximately 85,000 square
feet that the Company leases in Highlands Ranch, Colorado.
The Company leases product sales and professional services branch offices in
Irvine and Sacramento, California; Atlanta, Georgia; Chicago, Illinois;
Braintree, Massachusetts; Bloomington, Minnesota; Fort Lee, New Jersey;
Plymouth Meeting, Pennsylvania; Dallas, Texas; Bellevue, Washington and
Reston, Virginia in the United States. The Company's subsidiary in Mexico
leases offices in Mexico City and Monterrey, Mexico. As a result of the
acquisition of R.D. Nickel, the Company leases product sales and professional
services branch offices in the following cities in Canada: Calgary, Cambridge,
Edmonton, Montreal, Ottawa and Toronto.
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<PAGE>
LEGAL PROCEEDINGS
From time to time, the Company is involved in legal proceedings and
litigation arising in the ordinary course of business. As of the date of this
Prospectus, the Company is not a party to any litigation or other legal
proceeding that, in the opinion of management, could have a material adverse
effect on the Company's business, financial condition or results of
operations.
43
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, and their respective
ages as of September 26, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Carl J. Rickertsen (1)
(2).................... 37 Chairman of the Board
Daniel F. Gillis........ 51 President, Chief Executive Officer and Director
Harry K. McCreery....... 51 Vice President, Treasurer and Chief Financial Officer
Timothy L. Hill......... 39 Vice President--Marketing
Derek M. Brigden........ 45 Vice President--Operations and Chief Information Officer
James H. Daly........... 54 Vice President, Secretary and General Counsel
Thomas E. Gorley........ 51 Vice President--Professional Services
Dr. Philip S. Dauber
(1).................... 56 Director
Dr. Erwin Koenigs....... 47 Director
Edward E. Lucente (2)... 57 Director
Dr. Paul G. Stern (1)
(2).................... 58 Director
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2)Member of the Audit Committee.
Carl J. Rickertsen has served as Chairman of the Board of the Company since
April 1997. Mr. Rickertsen is also a member of TC Equity Partners, LLC and TC
Management LLC, which are, respectively, the sole general partner and managing
agent of Thayer. Thayer is a private equity fund in Washington, D.C. that
targets investments in the information technology and services industries.
From September 1994 to April 1996, Mr. Rickertsen was a partner with Thayer
Capital Partners, an affiliate of Thayer. Prior to that, Mr. Rickertsen acted
as a private financial consultant from 1993 through August 1994, and was a
partner at Hancock Park Associates, a private equity investment firm based in
Los Angeles, from 1989 to 1993. Before joining Hancock Park Associates, Mr.
Rickertsen was an associate at Brentwood Associates from 1987 to 1989, and
worked in the high technology group at Morgan Stanley & Co., Inc. from 1983 to
1985. Mr. Rickertsen currently serves as a director of MLC Holdings, Inc.
Daniel F. Gillis has served as President and Chief Executive Officer of the
Company and the Company's wholly owned subsidiary, Software AG Americas, Inc.
("Software Americas"), since May 1996. He also has served as a director of the
Company since February 1997. Previously, Mr. Gillis served as Senior Vice
President of U.S. Sales of Software Americas from April 1995 to May 1996 and
as Vice President of Federal Systems Sales of Software Americas from January
1995 to March 1995. From August 1994 to January 1995, he was a private
consultant. From May 1987 through August 1994, he was Executive Vice President
at Falcon Microsystems Inc., a computer products reseller and systems
integrator. Mr. Gillis currently serves as a director of Carleton Corporation.
Harry K. McCreery has served as Vice President, Treasurer and Chief
Financial Officer of the Company since April 1997. He also has served as
Treasurer of Software Americas since May 1991, Chief Financial Officer of
Software Americas since June 1989 and Chief Information Officer of Software
Americas from June 1989 to December 1990.
Timothy L. Hill has served as Vice President--Marketing of the Company since
August 1997. Previously, Mr. Hill served from July 1994 through July 1997 as
Vice President, Worldwide Marketing & Sales for Iomega Corporation, a
manufacturer of computer storage products. From August 1993 through July 1994,
Mr. Hill served as Vice President, Marketing for Falcon Microsystems Inc. From
January 1988 to August 1993, Mr. Hill was Director of Marketing & Sales,
Consumer Business Division, at Gates Energy Products, a manufacturer of
consumer and commercial rechargeable battery products.
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<PAGE>
Derek M. Brigden has served as Vice President--Operations and Chief
Information Officer of the Company since April 1997. He has been Vice
President--Operations and Chief Information Officer of Software Americas since
December 1990.
James H. Daly has served as Vice President and General Counsel of the
Company since April 1997 and as Secretary of the Company since 1992. Mr. Daly
also has served as Vice President, General Counsel and Secretary of Software
Americas since May 1991.
Thomas E. Gorley has served as Vice President--Professional Services of the
Company since April 1997. He has served as Vice President--Professional
Services of Software Americas since February 1996. From September 1994 to June
1995, Mr. Gorley served as Senior Vice President of Electronic Data Systems
Corporation, a systems integration and consulting company. He also served as
President of Bell Atlantic Utilities Systems, a software development and
services company, from June 1992 to December 1993. Mr. Gorley was a private
consultant from June 1995 to February 1996 and from January 1994 to September
1994.
Dr. Philip S. Dauber has served as a director of the Company since April
1997. Dr. Dauber has served as a consultant at IQI, Inc., a telemarketing
firm, since November 1996, and as the acting President of IQI, Inc. from
February 1997 through August 1997. Before joining IQI, Inc., Dr. Dauber was
employed as an independent consultant, providing services to several
technology oriented businesses. Dr. Dauber served as a Senior Vice President
of Unisys Corporation from 1981 to 1987 during which time he was also Chairman
and Chief Executive Officer of Memorex, Inc., a wholly owned subsidiary of
Unisys Corporation. Before joining Unisys Corporation, Dr. Dauber was employed
by IBM from 1965 to 1981 and served as Secretary of its Corporate Management
Committee from 1980 to 1981.
Dr. Erwin Koenigs has served as a director of the Company since December
1996 and was Chairman of the Board of the Company from December 1996 through
March 1997. Dr. Koenigs has served as Chairman of the Board of SAG since
September 1996 and Chief Executive Officer of SAG since November 1996. From
April 1989 to November 1996, Dr. Koenigs was Chief Executive Officer of
Linotype-Hell AG in Eschborn, Germany, a supplier of prepress and publishing
technology.
Edward E. Lucente has served as a director of the Company since April 1997.
Since May 1995, Mr. Lucente has served as the Chief Executive Officer and
President of Liant Software Corporation, a software development company.
Previously, he was a marketing consultant from May 1994 until April 1995, and
Executive Vice President of Sales and Marketing of Digital Equipment
Corporation, a computer hardware, software and services company, from March
1993 through April 1994. From February 1991 until March 1993, Mr. Lucente was
a Member of the Executive Office of Northern Telecom Limited, a supplier of
digital telecommunications systems, serving from January 1992 until March 1993
as an Executive Vice President of Northern Telecom Limited. Mr. Lucente
currently serves as a director of Compuserve Corporation, Genicom Corporation
and Information Resources, Inc.
Dr. Paul G. Stern has served as a director of the Company since April 1997.
Dr. Stern is also a member of TC Equity Partners, LLC and TC Management LLC,
which are, respectively, the sole general partner and managing agent of
Thayer. In 1995, Dr. Stern joined Thayer as a co-founder. Prior to that, Dr.
Stern was a Special Limited Partner at Forstmann Little & Co., a private
investment firm, from June 1993 to June 1995. From March 1989 until June 1993,
Dr. Stern served as Chief Executive Officer and Chairman of the Board of
Northern Telecom Limited. Dr. Stern currently serves as a director of The Dow
Chemical Company, The LTV Corporation and Whirlpool Corporation.
The Company's Second Amended and Restated Bylaws (the "Bylaws") provide for
the Company's Board of Directors to be comprised of six directors, and permit
the Board of Directors from time to time to increase or decrease the number of
directors. Pursuant to the terms of the Company's Second Amended and Restated
Certificate of Incorporation (the "Certificate of Incorporation"), upon the
consummation of this offering the directors will be divided into three
classes. One class will hold office initially for a term expiring at the
annual
45
<PAGE>
meeting of the stockholders to be held in 1998, a second class will hold
office initially for a term expiring at the annual meeting of stockholders to
be held in 1999 and a third class will hold office initially for a term
expiring at the annual meeting of stockholders to be held in 2000. Each
director will hold office for the term to which he is elected and until his
successor is duly elected and qualified or until his earlier death,
resignation or removal. Mr. Gillis and Dr. Dauber will have terms expiring in
1998, Dr. Koenigs and Mr. Lucente will have terms expiring in 1999, and Mr.
Rickertsen and Dr. Stern will have terms expiring in 2000. At each annual
meeting of the stockholders of the Company, the successors to the class of
directors whose terms expire at such meeting will be elected to hold office
for a term expiring at the third succeeding annual meeting of stockholders
after their election.
Executive officers of the Company are elected by the Board of Directors on
an annual basis and serve until the first meeting of the Board of Directors
following the next annual meeting of stockholders following their election and
until their successors have been duly elected and qualified or until their
earlier death, resignation or removal. There are no family relationships among
any of the executive officers or directors of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
In April 1997, the Board of Directors established an Audit Committee and a
Compensation Committee. The Audit Committee makes recommendations concerning
the engagement of independent public accountants, reviews with the Company's
independent public accountants the plans and results of the audit engagement,
approves professional services provided by the Company's independent public
accountants and reviews any recommendations made by the Company's auditors
regarding the Company's accounting methods and the adequacy of the Company's
internal accounting controls. The current members of the Audit Committee are
Messrs. Lucente and Rickertsen and Dr. Stern. The Compensation Committee
establishes general guidelines regarding the compensation of the officers and
executives of the Company and its subsidiaries, and determines the
compensation of the executive officers of the Company. The Compensation
Committee also administers the Stock Option Plan. The current members of the
Compensation Committee are Mr. Rickertsen and Drs. Stern and Dauber. The Audit
Committee and the Compensation Committee are comprised solely of directors who
are not officers or employees of the Company or any of its subsidiaries
("Independent Directors").
DIRECTOR COMPENSATION
The Company's directors were not compensated during 1996 for any services
provided as directors and did not receive during such fiscal year any benefits
or other forms of compensation, cash or otherwise, from the Company for their
service as directors. The Company has no present plans to pay such benefits or
compensation to directors. The Company intends to reimburse directors for
certain out-of-pocket expenses incurred in connection with attendance at Board
of Directors and committee meetings.
Each of Dr. Dauber and Mr. Lucente has received grants of nonstatutory stock
options under the Stock Option Plan to purchase 54,450 shares of Common Stock
at an exercise price equal to $1.47 per share. The options vest in equal
annual installments over a period of four years, commencing March 31, 1998.
The options become exercisable in full upon a change in control of the
Company. See "--Stock Option Plan."
46
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning the
compensation paid to the persons who served as the Company's Chief Executive
Officer during 1996 and each of the four other most highly compensated
executive officers of the Company whose annual salary and bonus compensation
for 1996 exceeded $100,000 (collectively, the "Named Executive Officers"). The
Named Executive Officers did not receive any stock option grants in 1996, hold
any stock options at the end of 1996 or exercise any stock options during
1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION (1) COMPENSATION (2)
- --------------------------- -------- -------- ---------------- ----------------
<S> <C> <C> <C> <C>
Current Executive Officers
Daniel F. Gillis (3)
President and Chief
Executive Officer......... $249,039 $240,500 $24,000 $ 179,671
Harry K. McCreery (4)
Vice President, Treasurer
and Chief Financial
Officer................... 170,000 132,600 -- 235,933
Derek M. Brigden (4)
Vice President--Operations
and Chief Information
Officer................... 150,000 101,346 -- 7,500
James H. Daly (4)
Vice President, Secretary
and General Counsel....... 142,000 92,300 20,208 159,183
Former Executive Officers
Michael J. King (5)
President and Chief
Executive Officer......... 130,344 -- -- 2,800,874(5)
William P. Cripe (6)
Vice President--Human
Resources................. 123,613 81,900 -- 97,060(6)
</TABLE>
- -------
(1) Consists of sales commissions paid to the Named Executive Officer. In
accordance with the rules of the Securities and Exchange Commission (the
"Commission"), other compensation in the form of perquisites and other
personal benefits has been omitted because such perquisites and other
personal benefits constituted in the aggregate less than the lesser of
$50,000 or 10% of the total annual salary and bonus reported for the Named
Executive Officer during 1996.
(2) Unless otherwise indicated, consists of (i) amounts of deferred
compensation earned and credited to deferred compensation accounts of the
Named Executive Officer during 1996 and (ii) $7,500 of contributions paid
by the Company on behalf of the Named Executive Officer under the 401(k)
Plan. See "--Deferred Compensation Agreements," "--401(k) Plan" and
footnotes 5 and 6 below. The Company does not have any long term incentive
plans.
(3) Mr. Gillis served as President and Chief Executive Officer of the Company
from May 6, 1996.
(4) In 1996, these individuals served as executive officers of Software
Americas, the Company's wholly owned subsidiary, and performed policy
making functions for both Software Americas and the Company.
(5) Mr. King served as President and Chief Executive Officer of the Company
and Software Americas prior to Mr. Gillis. Amounts reported as All Other
Compensation include (i) severance payments in the amount of $950,000,
(ii) deferred compensation payments in the amount of $1,843,374 and (iii)
$7,500 of contributions paid by the Company under the 401(k) Plan.
(6) During 1996, Mr. Cripe served as Vice President--Human Resources of
Software Americas. His employment with Software Americas was terminated on
March 21, 1997. Amounts reported as All Other Compensation include (i)
$90,930 of deferred compensation earned and credited to Mr. Cripe's
deferred compensation account and (ii) $6,130 of contributions paid by the
Company on behalf of Mr. Cripe under the 401(k) Plan.
47
<PAGE>
Messrs. Gillis, McCreery, Brigden, Daly, Gorley and Hill have received
grants of nonstatutory stock options under the Stock Option Plan to purchase
aggregate amounts of 2,472,800 and 1,017,289 shares of Common Stock at an
exercise price per share equal to $1.47 and $12.00, respectively. The options
granted to Messrs. Gillis and McCreery vest in equal annual installments over
a period of three years, and the options granted to Messrs. Brigden, Daly,
Gorley and Hill vest in equal annual installments over a period of four years.
The options become exercisable in full upon a change in control of the Company
and may be partially accelerated in connection with the executive officer's
termination of employment with the Company. See "--Stock Option Plan." Messrs.
Gillis, McCreery, Brigden, Daly, Gorley and Hill have also received grants of
nonstatutory stock options under the Stock Option Plan to purchase an
aggregate of 618,200 shares of Common Stock at an exercise price per share
equal to $9.60, which options are fully vested.
STOCK OPTION PLAN
In connection with the Recapitalization, which was consummated on March 31,
1997, the Company authorized the granting of stock options to purchase an
aggregate of 3,300,000 shares of Common Stock at an exercise price equal to
$1.47, the per share purchase price of the Recapitalization. On April 29,
1997, the Company adopted the Software AG Systems, Inc. 1997 Stock Option Plan
(the "Stock Option Plan"). The Stock Option Plan is intended to assist the
Company and its affiliates in attracting and retaining employees, directors,
consultants and advisors (collectively, the "Eligible Individuals") and to
promote the identification of their interests with those of the stockholders
of the Company. The Stock Option Plan permits a maximum of 6,875,000 shares of
Common Stock to be issued to Eligible Individuals pursuant to grants of stock
options. Unless sooner terminated by the Company's Board of Directors, the
Stock Option Plan will terminate on April 11, 2007. Options granted under the
Stock Option Plan may be either "incentive stock options" within the meaning
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
or nonstatutory stock options. No option granted under the Stock Option Plan
is exerciseable after the tenth anniversary of the option's date of grant. The
Company has granted to Eligible Individuals nonstatutory stock options to
acquire an aggregate of 4,947,525 shares of Common Stock at a weighted average
exercise price of $4.90 per share.
401(K) PLAN
Software Americas provides a 401(k) plan (the "401(k) Plan") giving eligible
employees, including executive officers, the opportunity to accrue additional
income and to save for retirement on a before-tax basis. The 401(k) Plan is
qualified as a 401(k) plan under the Code. Software Americas employees are
generally eligible to participate in the plan after six months of full-time
employment. The 401(k) Plan provides that each participant may contribute up
to 15% of the participant's annual pre-tax compensation, but not more than the
annual maximum prescribed by law. The 401(k) Plan provides for Software
Americas to make matching contributions equal to 100% of pre-tax contributions
up to 5% of the participant's compensation for the payroll period or other
period over which contributions are made, as further limited by law. The
401(k) Plan also permits Software Americas to make discretionary employer
contributions, which if made, are allocated in proportion to the compensation
of each employee to the total compensation for the year of all employees. The
401(k) Plan does not allow contributions to exceed 6% of compensation.
Earnings under the 401(k) Plan accumulate tax free until distributed.
DEFERRED COMPENSATION AGREEMENTS
Software Americas has entered into deferred compensation agreements with
Messrs. Gillis, McCreery and Daly (the "Deferred Compensation Agreements").
Pursuant to these agreements, each of Messrs. Gillis, McCreery and Daly
annually receives a credit of $41,838, $46,000 and $24,000, respectively, to
his deferred compensation account plus an additional credit to such account
equal to 53%, 100% and 120%, respectively, of his bonus for such year. The
deferred compensation accounts earn interest at an annual rate of 6%. Under
the Deferred Compensation Agreements, no additional credits, other than
interest, will be made to any of the deferred compensation accounts after
December 31, 1998. The deferred compensation accounts of Messrs. McCreery and
Daly are fully vested. Mr. Gillis' deferred compensation account is currently
40% vested and will vest in full as of December 31, 1998. Except under certain
circumstances, upon termination of employment, each of Messrs. Gillis,
McCreery and Daly is entitled to receive from Software Americas payments
totaling the vested portion of his deferred compensation account.
48
<PAGE>
SEVERANCE AGREEMENTS
Mr. Gillis has entered into a memorandum of understanding with the Company
with respect to the termination of his employment as President and Chief
Executive Officer of the Company. Under this agreement, the Company is
required to pay Mr. Gillis a severance benefit equal to twelve months of his
then-current salary plus annual bonus ($460,000 minimum payment), and, for a
period not to exceed twelve months, to continue to make available his health
and other fringe benefits if (i) the Company terminates his employment other
than for cause or (ii) he resigns within ninety days of a substantial change
in his title or a substantial reduction in his compensation and benefits or
job responsibilities.
Each of Messrs. McCreery, Brigden and Daly has entered into a memorandum of
understanding with Software Americas with respect to the termination of his
employment on terms and conditions substantially similar to Mr. Gillis'
memorandum of understanding with the Company, provided, however, that (i) the
severance benefit due each such executive officer upon termination under his
respective memorandum of understanding is equal to twelve months of his then-
current salary plus a pro-rated bonus payment and (ii) no severance or other
benefits are due under these agreements if the executive officer resigns
within ninety days of a substantial reduction in his compensation and benefits
related to a company wide reduction or a substantial reduction in his job
responsibilities that is deemed to be in the best business interests of
Software Americas.
Pursuant to the terms of a Shareholders Agreement dated as of April 1, 1997,
each of Messrs. Gillis, McCreery, Brigden, Daly and Gorley has agreed that (i)
prior to the fifth anniversary of the termination of his employment with the
Company, he will not influence any employee to leave the Company and (ii)
prior to the third anniversary of the termination of his employment with the
Company (unless such termination is by the Company without cause), he will not
directly or indirectly compete with the Company by soliciting any of its
customers, clients or suppliers. Mr. Hill has agreed to similar restrictions
pursuant to a subscription agreement between Mr. Hill and the Company dated as
of August 22, 1997, as amended.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to April 1997, the Company did not have a Compensation Committee or
other committee of the Board of Directors performing an equivalent function,
and the compensation of the Company's executive officers was determined by the
Company's Board of Directors. Since April 29, 1997, the Compensation Committee
of the Company's Board of Directors has been comprised of Mr. Rickertsen and
Drs. Stern and Dauber, each of whom is an Independent Director. Mr. Rickertsen
and Dr. Stern are members of TC Equity Partners, LLC, which is the sole
general partner of Thayer, a stockholder of the Company.
49
<PAGE>
CERTAIN RELATIONSHIPS AND TRANSACTIONS
At the closing of the Recapitalization, the senior management of the Company
and Thayer acquired approximately 89% of the outstanding voting equity of the
Company pursuant to an agreement among the Company, SAG, Thayer and the
following officers of the Company: Daniel F. Gillis, Harry K. McCreery, Gary
Hayes, James H. Daly, Derek M. Brigden and Thomas E. Gorley (collectively,
such individuals are referred to as the "Managers"). Prior to the
Recapitalization, SAG owned all of the Company's 27,500,000 outstanding shares
of Common Stock. In connection with the Recapitalization, the Company (i)
repurchased 24,750,000 shares of Common Stock from SAG for an aggregate
purchase price of 57,000,000 Deutsche Marks ($33.9 million) and (ii) issued
and sold 20,678,350 shares of Common Stock to Thayer and an aggregate of
771,650 shares of Common Stock to the Managers for an aggregate purchase price
of $31,526,820, or $1.47 per share. Of the Common Stock purchased by the
Managers, Messrs. Gillis and McCreery each purchased 204,050 shares and
Messrs. Hayes, Daly, Brigden and Gorley purchased 84,975, 108,625, 67,925 and
102,025 shares, respectively. After the Recapitalization, SAG retained
2,750,000 shares of Common Stock, representing approximately 11% of the
outstanding Common Stock. Dr. Erwin Koenigs, the Chairman of the Board and
Chief Executive Officer of SAG, is currently a director of the Company. As a
result of the Recapitalization, Thayer and the Managers respectively owned
85.4% and 3.2% of the outstanding Common Stock. Dr. Stern and Mr. Rickertsen,
directors of the Company, are members of TC Equity Partners, LLC, which is the
sole general partner of Thayer. In addition, Mr. Gillis is currently, and was
at the time of the Recapitalization, a director of the Company.
In connection with the Recapitalization, on March 31, 1997, Software
Americas borrowed $5,000,000 from Thayer under a short term note agreement for
working capital requirements. This note accrued interest at a simple rate
equal to 10% per annum and was repaid on April 11, 1997. In addition, Software
Americas paid to TC Management LLC ("TC Management") a financial advisory fee
of $840,000 in consideration for investment banking and advisory services
provided by TC Management in connection with the Recapitalization, and
reimbursed TC Management for its out-of-pocket expenses in connection with the
Recapitalization. On April 1, 1997, Software Americas also agreed to pay on a
quarterly basis an annual fee of $300,000 to TC Management for management and
consulting services to be provided by TC Management to Software Americas in
connection with the operation and conduct of Software Americas' business.
Through September 30, 1997, Software Americas has paid $150,000 of such fees.
TC Management is the managing agent of and provides management services to
Thayer. Dr. Stern and Mr. Rickertsen, directors of the Company, are members of
TC Management. In connection with the Recapitalization, Software Americas also
paid a one-time advisory fee of $250,000 to MLC Group, Inc., a wholly owned
operating subsidiary of MLC Holdings, Inc. Mr. Rickertsen, a director of the
Company, is a director of MLC Holdings, Inc.
Prior to the Recapitalization, the Company licensed and serviced SAG
products pursuant to a license agreement entered into by SAG and Software
Americas on January 1, 1995 (the "License Agreement"). The License Agreement
gave Software Americas the exclusive rights to license and service SAG
products in North America, South America, Japan and Israel, and gave SAG the
exclusive rights to license and service Software Americas products in all
other areas. Immediately prior to the Recapitalization, Software Americas and
SAG entered into a Cooperation Agreement dated March 31, 1997, which
terminated and superseded the License Agreement. The Cooperation Agreement
generally provides (i) Software Americas the exclusive and perpetual right to
license and service in North America, South America, Japan and Israel (the
"Territory") both existing and future products developed or acquired by SAG
and (ii) SAG the exclusive and perpetual right to license and service outside
the Territory both existing and future products developed or acquired by
Software Americas. Each of Software Americas and SAG must pay the other 24% of
the net revenues derived from such licenses. Except in certain circumstances,
Software Americas' minimum annual royalty payment to SAG through the year 2000
must at least equal $21 million. This 24% royalty rate is fixed for 20 years.
In 1994, 1995, 1996 and the first nine months of 1997, Software Americas'
royalty payments to SAG were approximately $29.0 million, $23.9 million, $26.1
million and $19.8 million, respectively. In the same periods,
50
<PAGE>
SAG's royalty payments to Software Americas were approximately $0.0, $0.3
million, $0.3 million and $0.5 million, respectively. As consideration for the
Cooperation Agreement, Software Americas paid SAG 38,000,000 Deutsche Marks
(approximately $22.6 million) on March 31, 1997. See "Company Background."
On December 5, 1993, Software Americas and SAG entered into a Products and
Research & Development Operations Transfer Agreement (the "R&D Agreement")
which required Software Americas to provide certain services relating to
certain SAG employees who utilized Software Americas facilities. In connection
with the Recapitalization, on March 31, 1997, Software Americas entered into
an Administrative Services Agreement (the "ASA") with SAG, terminating the R&D
Agreement and requiring that Software Americas provide services similar to
those required under the R&D Agreement. SAG is required under the ASA to
reimburse Software Americas for its costs incurred in connection with the ASA
and to pay Software Americas $500,000 per year during the years 1997, 1998 and
1999 for the use of certain machinery leased by Software Americas. In 1994,
1995, 1996 and the first nine months of 1997, payments to Software Americas
under the R&D Agreement and the ASA were approximately $7.5 million, $8.8
million, $15.9 million and $8.7 million, respectively.
From 1988 until the Recapitalization, the Company was a wholly owned
subsidiary of SAG. Accordingly, during that period, there were a variety of
intercompany transactions, including loans and dividends, between the Company
and SAG. In 1994, 1995 and 1996, the Company paid aggregate dividends to SAG
of $0.6 million, $1.7 million and $9.0 million, respectively. Except as
described above, all of these transactions that were material terminated in
connection with the Recapitalization. See "Dividend Policy" and Note 6 of the
Notes to the Consolidated Financial Statements.
On August 22, 1997, the Company entered into a subscription agreement with
Timothy L. Hill, the Company's Vice President--Marketing, pursuant to which
the Company issued and sold to Mr. Hill 137,500 shares of Common Stock for an
aggregate purchase price of $202,095. Pursuant to the subscription agreement,
the Company has the right to repurchase Mr. Hill's shares at $1.47 per share
if Mr. Hill's employment with the Company is terminated for cause or if Mr.
Hill voluntarily terminates his employment prior to August 17, 1999. The
Company's repurchase right terminates in the event of a change of control of
the Company. In addition, the Company has issued options to purchase an
aggregate of 94,325 shares of Common Stock at an exercise price of $1.47 to
the members of Thayer's Advisory Board.
The Company and Thayer have entered into a registration rights agreement for
the benefit of all holders as of September 26, 1997 of "restricted securities"
of the Company within the meaning of Rule 144 of the Commission, and certain
transferees of such holders. Pursuant to this agreement, a majority-in-
interest of such holders has the right to require the Company to register
their restricted securities for resale under the Securities Act on up to five
occasions (only one of which may be on Form S-1) and such holders have been
granted certain "piggy-back" registration rights with regard to certain
securities offerings initiated by the Company. The Company has agreed to pay
certain expenses in connection with such registrations.
Messrs. Gillis, McCreery, Daly and Gorley borrowed $250,000, $250,000,
$182,605 and $75,000, respectively, from Software Americas under individual
promissiory notes, each of which is dated March 24, 1997, and Messrs. McCreery
and Daly borrowed $363,000 and $120,740, respectively, from Software Americas
under individual promissory notes, each of which is dated August 9, 1996. Each
of the promissory notes accrues interest at the rate of 6% per annum and is
due and payable upon termination of its maker's employment with Software
Americas.
51
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Company's Common Stock as of October 15,
1997, and as adjusted to reflect the sale of the shares pursuant to this
offering, by (i) each person who is known by the Company to own beneficially
more than 5% of the outstanding shares of Common Stock, (ii) each director and
Named Executive Officer of the Company, (iii) all directors and executive
officers of the Company as a group and (iv) each Selling Stockholder. Except
as otherwise indicated below, to the knowledge of the Company, each person
listed below has sole voting power and investment power with respect to the
shares beneficially owned by such person, subject to community property laws
where applicable.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING (2) SHARES TO BE AFTER OFFERING (2)
------------------------- SOLD IN ------------------
NAME AND ADDRESS (1) NUMBER PERCENT OFFERING (3) NUMBER PERCENT
- -------------------- ------------- ----------------------- ---------- -------
<S> <C> <C> <C> <C> <C>
Thayer Equity Investors 20,209,200 83.0% 3,083,260 17,125,940 59.2%
III, L.P...............
1455 Pennsylvania
Avenue, N.W.
Washington, DC 20004
Software AG............. 2,750,000 11.3 -- 2,750,000 9.5
Uhlandstrasse 12, D-
64297
Darmstadt, Germany
TC Co-Investors, LLC.... 109,725 * 16,740 92,985 *
1455 Pennsylvania
Avenue, N.W.
Washington, DC 20004
Daniel F. Gillis........ 561,550 2.3 -- 561,550 1.9
Harry K. McCreery....... 396,550 1.6 -- 396,550 1.4
James H. Daly........... 125,675 * -- 125,675 *
Derek M. Brigden........ 84,975 * -- 84,975 *
Carl J. Rickertsen (4).. 20,318,925 83.5 3,100,000 17,218,925 60.0
Dr. Philip S. Dauber 67,925 * -- 67,925 *
(5)....................
Dr. Erwin Koenigs (6)... 2,852,025 11.7 -- 2,852,025 9.9
Edward E. Lucente....... -- -- -- -- --
Dr. Paul G. Stern (4)... 20,318,925 83.5 3,100,000 17,218,925 60.0
Michael J. King......... -- -- -- -- --
William Cripe........... -- -- -- -- --
All directors and
executive officers as a
group (11 persons)
(7).................... 24,664,200 98.9% 3,100,000 21,564,200 73%
</TABLE>
- --------
* Less than 1% of the outstanding Common Stock.
(1) The business address for Messrs. Gillis, McCreery, Brigden and Daly is
11190 Sunrise Valley Drive, Reston, Virginia 20191. The business address
for Mr. Rickertsen and Dr. Stern is c/o Thayer Equity Investors III, L.P.,
1455 Pennsylvania Avenue, N.W., Washington, DC 20004. The business address
for Dr. Koenigs is c/o Software AG, Uhlandstrasse 12, D-64297, Darmstadt,
Germany.
52
<PAGE>
(2) The number of shares of Common Stock outstanding prior to this offering
includes (i) 24,337,500 shares outstanding as of October 15, 1997 and (ii)
with respect to each person, the shares issuable by the Company pursuant
to options held by such person which may be exercised within 60 days
following October 15, 1997 ("Presently Exercisable Options"). The number
of shares of Common Stock deemed outstanding after this offering includes
an additional 4,600,000 shares that are being offered for sale by the
Company in this offering. Beneficial ownership is determined in accordance
with the rules of the Commission that deem shares to be beneficially owned
by any person or group who has or shares voting and investment power with
respect to such shares. Presently Exercisable Options are deemed to be
outstanding and to be beneficially owned by the person holding such
options for the purpose of computing the percentage ownership of such
person, but are not treated as outstanding for the purpose of computing
the percentage ownership of any other person or group.
(3) If the Underwriters exercise their over-allotment option to purchase up to
1,155,000 shares, the following stockholders named in the table above will
sell up to the following number of additional shares: Thayer Equity
Investors III, L.P., 574,381 shares; and TC Co-Investors, LLC 3,119
shares.
(4) Consists of 20,209,200 shares held of record by Thayer and 109,725 shares
held of record by TC Co- Investors, LLC ("TC Co-Investors"). Thayer is a
Delaware limited partnership whose sole general partner is TC Equity
Partners, LLC, a Delaware limited liability company ("TC Equity
Partners"). TC Equity Partners beneficially owns, and has sole voting and
investment power with respect to, the shares of Common Stock held of
record by Thayer. TC Co-Investors is a Delaware limited liability company
whose managing member is TC Management LLC ("TC Management"). TC
Management beneficially owns, and has sole voting and investment power
with respect to, the shares of Common Stock held of record by TC Co-
Investors. The members of each of TC Equity Partners and TC Management are
Frederic V. Malek, Dr. Paul G. Stern and Carl J. Rickertsen. Dr. Stern and
Mr. Rickertsen may be deemed to be the beneficial owners of the shares of
Common Stock held by each of Thayer and TC Co-Investors.
(5) All of the reported shares are held of record by PSERD Trust, of which Dr.
Dauber is a trustee. Dr. Dauber shares voting and investment power with
respect to all shares held by PSERD Trust and may be deemed to be the
beneficial owner of all such shares.
(6) 2,750,000 of the reported shares are held of record by Software AG
("SAG"). Dr. Koenigs, a director of the Company, is the Chairman of the
Board and Chief Executive Officer of SAG, and may be deemed to have or
share voting and investment power with respect to all shares held of
record by SAG. Dr. Koenigs disclaims beneficial ownership of all shares
held of record by SAG.
(7) Includes 20,209,200 shares held of record by Thayer, 2,750,000 shares held
of record by SAG, 109,725 shares held of record by TC Co-Investors and
67,925 shares held of record by PSERD Trust. See footnotes (4), (5) and
(6).
53
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 75,000,000 shares of
Common Stock, $.01 par value per share, and 25,000,000 shares of preferred
stock, $.01 par value per share (the "Preferred Stock").
The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of applicable law and by the
Company's Certificate of Incorporation, a copy of which is filed as an exhibit
to the Registration Statement of which this Prospectus is a part.
COMMON STOCK
As of October 15, 1997, there were 24,337,500 shares of Common Stock
outstanding held of record by 18 stockholders. Based on the number of shares
outstanding as of that date and giving effect to the issuance of the 4,600,000
shares of Common Stock being offered by the Company hereby, there will be
28,937,500 shares of Common Stock outstanding upon the consummation of this
offering.
Holders of Common Stock are entitled to one vote per share on all matters to
be voted on by stockholders. There are no cumulative voting rights. All
outstanding shares of Common Stock are, and all shares of Common Stock issued
and sold in this offering will be, duly authorized, validly issued, fully paid
and nonassessable. Subject to such preferential rights as may be granted by
the Board of Directors in connection with the issuance of Preferred Stock,
distributions may be paid to the holders of Common Stock when, as and if
declared by the Board of Directors out of funds legally available therefore.
The Company does not intend to pay cash dividends on its Common Stock in the
foreseeable future. See "Dividend Policy." Holders of Common Stock have no
preemptive or other rights to subscribe for additional shares of Common Stock,
redemption rights or conversion rights. Upon liquidation, dissolution or
winding up of the Company, the holders of the Common Stock are entitled to
share ratably in all assets of the Company that are legally available for
distribution after payment of all debts and other liabilities and subject to
any prior rights of holders of Preferred Stock, if any, then outstanding.
PREFERRED STOCK
The Board of Directors has authority to issue 25,000,000 shares of Preferred
Stock in one or more series and to fix the relative rights, preferences,
privileges, qualifications, limitations and restrictions thereof, including
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of
shares constituting any series or the designation of such series, without
further vote or action by the stockholders. The Board of Directors could,
without the approval of the stockholders, issue Preferred Stock having voting
or conversion rights that could adversely affect the voting power of the
holders of Common Stock, and the issuance of Preferred Stock could be used,
under certain circumstances, to render more difficult or discourage a hostile
takeover of the Company. The Company has no present plans to issue any shares
of Preferred Stock.
LIMITATION ON LIABILITY AND INDEMNIFICATION OF DIRECTORS
The Company has adopted provisions in its Certificate of Incorporation
limiting the liability of directors of the Company for monetary damages. The
effect of this provision in the Certificate of Incorporation is to eliminate
the rights of the Company and its stockholders (through stockholders'
derivative suits on behalf of the Company) to recover monetary damages against
a director for breach of the fiduciary duty of care as a director (including
breaches resulting from negligent or grossly negligent behavior) except in
certain limited situations. This provision does not limit or eliminate the
rights of the Company or any stockholder to seek nonmonetary relief such as an
injunction or rescission in the event of a breach of a director's duty of
care. The provisions of the Certificate of Incorporation described above apply
to an officer of the Company only if
54
<PAGE>
he or she is a director of the Company and is acting in his or her capacity as
director, and do not apply to officers of the Company who are not directors.
These provisions will not alter the liability of directors under federal
securities laws.
The Company's Certificate of Incorporation and Bylaws contain provisions
indemnifying the directors and officers of the Company to the fullest extent
permitted by the Delaware General Corporate Law ("DGCL"). The Company believes
that these provisions will assist the Company in attracting and retaining
qualified individuals to serve as directors and officers.
CERTAIN PROVISIONS OF DELAWARE LAW, THE CERTIFICATE OF INCORPORATION AND THE
BYLAWS
The Company is subject to the provisions of Section 203 of the DGCL. Subject
to certain exceptions, Section 203 prohibits a Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the interested stockholder attained
such status with the approval of the Board of Directors, the business
combination is approved in a prescribed manner or certain other conditions are
satisfied. A "business combination" includes, among other transactions,
mergers, asset sales and other transactions resulting in a financial benefit
to the interested stockholder. Subject to certain exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns,
or within three years did own, 15% or more of the corporation's voting stock.
The Company's Certificate of Incorporation and Bylaws contain certain
provisions that could make more difficult the acquisition of the Company by
means of a tender offer, a proxy contest or otherwise. These provisions are
intended to discourage certain types of coercive takeover practices and
inadequate takeover bids and to encourage persons seeking to acquire control
of the Company to negotiate first with the Board of Directors. The Company
believes that the benefits of these provisions outweigh the potential
disadvantages of discouraging such proposals because, among other things,
negotiation of such proposals might result in an improvement of their terms.
Classified Board of Directors. The Certificate of Incorporation provides
that, upon consummation of an underwritten public offering of the Company's
Common Stock, the Board of Directors will be divided into three classes of
directors, each class constituting approximately one-third of the total number
of directors and the classes serving staggered three-year terms. The
classification of directors will have the effect of making it more difficult
for stockholders to change the composition of the Board of Directors. The
Company believes, however, that the longer time required to elect a majority
of a classified Board of Directors will help to ensure continuity and
stability of the Company's management and policies. The classification
provisions could also have the effect of discouraging a third party from
accumulating large blocks of the Company's Common Stock or attempting to
obtain control of the Company, even though such an attempt might be beneficial
to the Company and its stockholders. Accordingly, stockholders could be
deprived of certain opportunities to sell their shares of Common Stock at a
higher market price than might otherwise be the case. See "Management--
Executive Officers and Directors."
Number of Directors; Removal; Filling Vacancies. The Certificate of
Incorporation provides that the number of directors will be fixed by, or
determined pursuant to, the Bylaws. The Bylaws provide that the Board of
Directors shall consist of six directors and that the Board of Directors may
increase or decrease the number of directors. The Bylaws also provide that,
after consummation of an underwritten public offering of the Company's Common
Stock, the number of directors shall not be increased by 50% or more in any
12-month period without the approval of at least two-thirds of the directors
then in office. The Certificate of Incorporation provides that any vacancies
will be filled only by the affirmative vote of a majority of the remaining
directors then in office, even if less than a quorum. Accordingly, the Board
of Directors could temporarily prevent any stockholder from enlarging the
Board of Directors and filling the new directorships with such stockholder's
own nominees. The Certificate of Incorporation also provides that directors
(or the entire Board) may be removed from office by the stockholders for cause
by the vote of the holders of at least a majority of the Common Stock.
55
<PAGE>
No Stockholder Action by Written Consent; Special Stockholder Meetings. The
Certificate of Incorporation provides that, after the consummation of an
underwritten public offering of the Company's Common Stock, stockholder action
can be taken only at an annual or special meeting of stockholders and can not
be taken by written consent in lieu of a meeting. The Bylaws provide that
special meetings of the stockholders may be called only by the Chairman of the
Board of Directors, a majority of the Board of Directors or the Chief
Executive Officer of the Company. These provisions may have the effect of
delaying consideration of a stockholder proposal until the next annual
stockholder meeting. These provisions may also discourage another person or
entity from making a tender offer for the Company's Common Stock.
Advance Notice Provisions for Stockholder Nominations and Stockholder
Proposals. The Bylaws establish an advance notice procedure for stockholders
to make nominations of candidates for election as directors or to bring other
business before an annual meeting of stockholders of the Company (the
"Stockholder Notice Procedure"). The Stockholder Notice Procedure provides
that (i) only persons who are nominated by, or at the direction of, the Board
of Directors, or by a stockholder who has given timely written notice
containing specified information to the Secretary of the Company prior to the
meeting at which directors are to be elected, will be eligible for election as
directors of the Company and (ii) at an annual meeting only such business may
be conducted as has been brought before the meeting by, or at the direction
of, the Board of Directors, or by a stockholder who has given timely written
notice to the Secretary of the Company of such stockholder's intention to
bring such business before the meeting. Except for stockholder proposals
submitted in accordance with the federal proxy rules as to which the
requirements specified therein shall control, notice of stockholder
nominations or business to be conducted at a meeting must be received by the
Company not less than 60 days nor more than 90 days prior to the date of the
annual meeting if the notice is to be submitted at an annual meeting, or not
later than 10 days following the day on which notice of the date of a special
meeting was given if the notice is to be submitted at a special meeting.
The purpose of requiring stockholders to give the Company advance notice of
nominations and other business is to afford the Board of Directors a
meaningful opportunity to consider the qualifications of the proposed nominees
or the advisability of the other proposed business and, to the extent deemed
necessary or desirable by the Board of Directors, to inform stockholders and
make recommendations about such qualifications or business, as well as to
provide a more orderly procedure for conducting meetings of stockholders.
Although the Bylaws do not give the Board of Directors any power to disapprove
stockholder nominations for the election of directors or proposals for action,
they may have the effect of precluding a contest for the election of directors
or the consideration of stockholder proposals if the proper procedures are not
followed and of discouraging or deterring a third party from conducting a
solicitation of proxies to elect its own slate of directors or to approve its
own proposal without regard to whether consideration of such nominees or
proposals might be harmful or beneficial to the Company and its stockholders.
Amendment of Certificate of Incorporation and Bylaws. The Certificate of
Incorporation provides that, after consummation of an underwritten public
offering of the Company's Common Stock, the provisions therein relating to the
staggered Board of Directors, the availability of action by written consent by
stockholders, removal of directors and filling of vacancies on the Board of
Directors may be amended, altered, changed or repealed only by the affirmative
vote of the holders of at least two-thirds of the voting power of all the
shares of capital stock then entitled to vote, voting as a single class. The
Certificate of Incorporation also provides that the Bylaws may be adopted,
amended, altered, changed or repealed by the affirmative vote of the majority
of the members of the Board of Directors. After consummation of an
underwritten public offering of the Company's Common Stock, any action taken
by the stockholders with respect to adopting, amending, altering, changing or
repealing any Bylaw may be taken only by the affirmative vote of the holders
of at least two-thirds of the voting power of all of the shares of capital
stock then entitled to vote generally in the election of directors, voting as
a single class.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is Bank of
New York.
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market, or the perception that such sales might occur, could adversely affect
the market price of the Common Stock and could impair the ability of the
Company to raise equity capital in the future.
Upon completion of this offering, the Company will have 28,937,500
outstanding shares of Common Stock (assuming no exercise of the Underwriters'
over-allotment option). Of these shares, the 7,700,000 shares of Common Stock
sold in this offering will be freely tradable without restriction or further
registration under the Securities Act, except for any shares purchased by
"affiliates" of the Company, as that term is defined under the Securities Act
and the regulations promulgated thereunder (an "Affiliate"). The remaining
21,237,500 shares of Common Stock (the "Restricted Shares") held by existing
stockholders were sold by the Company in reliance on exemptions from the
registration requirements of the Securities Act and are "restricted
securities" within the meaning of Rule 144.
Notwithstanding possible earlier eligibility for sale under the provisions
of Rules 144, 144(k) or 701 promulgated under the Securities Act, of the
Restricted Shares, 2,750,000 shares will be eligible for sale beginning 90
days after the date of this Prospectus (all of which will be subject to 180-
day lock-up agreements between certain shareholders and the Representatives of
the Underwriters), and 18,487,500 additional shares will be eligible for sale
beginning March 31, 1998 (all of which will be subject to 180-day lock-up
agreements).
All of the holders of Restricted Shares have agreed with the Representatives
that, until 180 days from the effective date of the Registration Statement of
which this Prospectus is a part, subject to certain limited exceptions, they
will not, directly or indirectly, sell, offer, contract to sell, pledge, grant
any option to purchase or otherwise dispose of any shares of Common Stock or
any securities convertible into, or exchangeable for, or any rights to
purchase or acquire, shares of Common Stock, owned directly by such holders or
with respect to which they have the power of disposition, without the prior
written consent of BancAmerica Robertson Stephens. BancAmerica Robertson
Stephens may, in its sole discretion and at any time without notice, release
all or any portion of the securities subject to the lockup agreements.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, any holder of Restricted Shares, including an
Affiliate of the Company, as to which at least one year has elapsed since the
later of the date of the acquisition of such Restricted Shares from the
Company or an Affiliate, would be entitled within any three-month period to
sell a number of shares that does not exceed the greater of 1% of the then
outstanding shares of Common Stock (289,375 shares immediately following the
closing of this offering) or the average weekly trading volume of the Common
Stock during the four calendar weeks preceding the date on which notice of the
sale is filed with the Commission. Sales under Rule 144 are also subject to
certain manner of sale provisions, notice requirements and the availability of
current public information about the Company. Affiliates of the Company must
comply with the restrictions and requirements of Rule 144 (except for the one-
year holding period requirement) in order to sell shares of Common Stock which
are not "restricted securities" (such as shares acquired by Affiliates in this
offering).
Further, under Rule 144(k) a person who holds restricted shares as to which
at least two years have elapsed since the later of their acquisition from the
Company or an Affiliate, and who is not deemed to have been an Affiliate of
the Company at any time during the three months preceding a sale, is entitled
to sell such shares under Rule 144 without regard to volume limitations,
manner of sale provisions, notice requirements or availability of current
public information concerning the Company.
Rule 701 permits resales of shares in reliance upon Rule 144 but without
compliance with certain restrictions, including the holding period
requirement, of Rule 144. Any employee, officer or director of or consultant
to the Company who purchased his or her shares pursuant to a written
compensatory plan or contract may be entitled to rely on the resale provisions
of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirements of Rule 144.
Rule
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<PAGE>
701 further provides that non-affiliates may sell such shares in reliance on
Rule 144 without having to comply with the holding period, public information,
volume limitation or notice provisions of Rule 144. In both cases, a holder of
Rule 701 shares is required to wait until 90 days after the date of this
Prospectus before selling such shares.
As of October 15, 1997, options to purchase 4,947,525 shares were
outstanding under the Stock Option Plan, and an additional 1,927,475 shares
were reserved for issuance under the Stock Option Plan. The Company intends to
file a registration statement on Form S-8 under the Securities Act covering
the shares issuable and reserved for issuance under the Stock Option Plan.
Such registration statement is expected to be filed and become effective as
soon as practicable after consummation of this offering. After the effective
date of such registration statement, shares of Common Stock issued under the
Stock Option Plan will be immediately eligible for sale in the public market,
subject in certain cases to the lock-up restrictions described above and to
Rule 144 volume limitations applicable to Affiliates.
All holders of Restricted Shares have been granted certain rights to have
their shares of Common Stock registered for sale under the Securities Act. See
"Certain Relationships and Transactions."
58
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representatives,
BancAmerica Robertson Stephens and Donaldson, Lufkin & Jenrette Securities
Corporation (the "Representatives"), have severally agreed, subject to the
terms and conditions of the Underwriting Agreement, to purchase from the
Company and the Selling Stockholders 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. 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.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
BancAmerica Robertson Stephens..................................
Donaldson, Lufkin & Jenrette Securities Corporation.............
---------
Total....................................................... 7,700,000
=========
</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 initial
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 $ per share may be reallowed to other dealers. After the
initial public offering, the public offering price, concession and reallowance
to dealers may be reduced by the Representatives.
The Company and the Selling Stockholders have granted to the Underwriters an
option, exercisable during the 30-day period after the date of this
Prospectus, to purchase an aggregate of up to an additional 1,155,000 shares
of Common Stock at the same price per share as the Company and the Selling
Stockholders receive for the 7,700,000 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 7,700,000 shares offered hereby. If purchased, such
additional shares will be sold by the Underwriters on the same terms as those
on which the 7,700,000 shares are being sold. The Company and the Selling
Stockholders subject to such over-allotment option will be obligated, pursuant
to the option, to sell shares to the Underwriters to the extent the option is
exercised. The Underwriters may exercise such option only to cover over-
allotments made in connection with the sale of shares of Common Stock offered
hereby.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Company and the Selling Stockholders against certain civil
liabilities, including liabilities under the Securities Act and liability
arising from breaches of representations and warranties contained in the
Underwriting Agreement or the inaccuracy of certain information set forth
herein that was provided by the Underwriters.
All current executive officers, directors and stockholders of the Company
will have agreed with the Representatives that, until 180 days from the
effective date of the Registration Statement of which this Prospectus is a
part, subject to certain limited exceptions, they will not, directly or
indirectly, offer, sell, contract to sell, grant any option to purchase,
pledge, or otherwise dispose of or transfer, any shares of Common Stock, or
any securities convertible into or exchangeable for, or any rights to purchase
or acquire, shares of Common Stock, now owned or hereafter acquired by such
holders or with respect to which they have or hereafter acquire the power of
disposition, without the prior written consent of BancAmerica Robertson
Stephens. BancAmerica
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<PAGE>
Robertson Stephens may, in its sole discretion and without notice, release all
or any portion of the securities subject to the lock-up agreements. In
addition, the Company has agreed that, until 180 days from the date of this
Prospectus, the Company will not, without the prior written consent of
BancAmerica Robertson Stephens, subject to certain exceptions, sell or
otherwise dispose of any shares of Common Stock, any options or warrants to
purchase any shares of Common Stock or any securities convertible into,
exercisable for or exchangeable for shares of Common Stock other than the
Company's sale of shares in this offering, the issuance of Common Stock upon
the exercise of outstanding options, or the Company's grant of options and
issuance of stock under the Stock Option Plan. See "Shares Eligible for Future
Sale."
The Representatives have advised the Company and the Selling Stockholders
that the Underwriters do not intend to confirm sales to accounts over which
they exercise discretionary authority.
Certain persons participating in this offering may overallot or effect
transactions which stabilize, maintain or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the
open market, including by entering stabilizing bids, effecting syndicate
covering transactions or imposing penalty bids. A stabilizing bid means the
placing of any bid or effecting of any purchase for the purpose of pegging,
fixing or maintaining the price of the Common Stock. A syndicate covering
transaction means the placing of any bid on behalf of the underwriting
syndicate or the effecting of any purchase to reduce a short position created
in connection with this offering. A penalty bid means an arrangement that
permits the Underwriters to reclaim a selling concession from a syndicate
member in connection with this offering when shares of Common Stock sold by
the syndicate member are purchased in syndicate covering transactions. Such
transactions may be effected, where permitted, on the NYSE or otherwise. Such
stabilizing, if commenced, may be discontinued at any time.
The Underwriters have reserved for sale, at the initial public offering
price, up to 5% of the shares of Common Stock offered hereby for employees of
the Company and certain individuals who have expressed an interest in
purchasing shares of Common Stock in this offering. The number of shares
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares not so purchased
will be offered by the Underwriters to the general public on the same basis as
other shares offered hereby.
Prior to this offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined through negotiations among the Company and the
Representatives. The material factors to be considered in such negotiations
will be prevailing market and economic conditions, certain financial
information of the Company for recent periods, the market valuations of other
companies engaged in activities similar to those of the Company, estimates of
the business potential and prospects of the Company, the present state of the
Company's business operations, the Company's management and other factors
deemed relevant. The estimated initial public offering price range set forth
on the cover of this preliminary prospectus is subject to change as a result
of market conditions and other factors. There can be no assurance that an
active or orderly trading market will develop for the Common Stock or that the
Common Stock will trade in the public market subsequent to this offering at or
above the initial trading price. See "Risk Factors--No Prior Market for Common
Stock and Possible Volatility of Common Stock Price".
60
<PAGE>
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Arnold & Porter,
Washington, D.C. Certain legal matters in connection with this offering will
be passed upon for the Underwriters by Hale and Dorr LLP, Washington, D.C.
EXPERTS
The consolidated financial statements and schedule of the Company as of
December 31, 1995 and 1996, and for each of the years in the three-year period
ended December 31, 1996 have been included in this Prospectus and elsewhere in
the Registration Statement in reliance upon the reports of KPMG Peat Marwick
LLP, independent certified public accountants, appearing elsewhere herein, and
upon the authority of said firm as experts in accounting and auditing.
On July 11, 1997, the Company retained KPMG Peat Marwick LLP to act as its
independent public accountants and informed the prior auditors, Gocial &
Company, P.C., the Company's independent accountants since January 1992, of
its decision. In connection with the prior auditors' audit of the consolidated
financial statements for the years ended December 31, 1995 and 1996, there
were no disagreements with the Company on any matters of accounting principles
or practices, financial statement disclosure or auditing scope or procedures.
The prior auditors' report on the Company's consolidated financial statements
for the years ended December 31, 1995 and 1996 contained no adverse opinion or
disclaimer of opinion and was not modified or qualified as to uncertainty,
audit scope, or accounting principles. The decision to change was approved by
the Board of Directors of the Company. The Company has provided the prior
auditors with a copy of the disclosure contained in this section of the
Prospectus.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement (of which
this Prospectus is a part) on Form S-1 (together with all amendments,
schedules and exhibits thereto, the "Registration Statement") under the
Securities Act with respect to the shares of Common Stock offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain portions of which have been omitted as permitted by the
rules and regulations of the Commission. Statements contained in this
Prospectus as to the content of any contract or other documents are not
necessarily complete, and in each instance reference is made to the copy of
such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference and the exhibits and schedules hereto. For further information
regarding the Company and the Common Stock offered hereby, reference is hereby
made to the Registration Statement and such exhibits and schedules which may
be obtained from the Commission at its principal office in Washington, D.C.
upon payment of the fees prescribed by the Commission. In addition, the
Company will provide without charge to each person, including any beneficial
owner, to whom this Prospectus is delivered, upon written or oral request of
such person, a copy of any and all information that is incorporated by
reference in this Prospectus. Any such requests are to be directed to Software
AG Systems, Inc., Legal Department, 11190 Sunrise Valley Drive, Reston, VA
20191; telephone (703) 860-5050.
The Registration Statement, including the exhibits and schedules forming a
part thereof, filed by the Company with the Commission can be inspected and
copies obtained from the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following regional offices of the Commission: Seven
World Trade Center, Suite 1300, New York, New York 10048, and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of
such material can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. In addition, the Commission maintains a Web site (http:\\www.sec.gov)
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission.
61
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996.............. F-3
Consolidated Statements of Operations for each of the years in the three-
year period ended December 31, 1996...................................... F-4
Consolidated Statements of Stockholder's Equity for each of the years in
the three-year period ended December 31, 1996............................ F-5
Consolidated Statements of Cash Flows for each of the years in the three-
year period ended December 31, 1996...................................... F-6
Notes to Consolidated Financial Statements................................ F-7
Unaudited Condensed Consolidated Balance Sheet as of September 30, 1997... F-18
Unaudited Condensed Consolidated Statements of Operations for the nine
months ended September 30, 1996, the three months ended March 31, 1997,
and the six months ended September 30, 1997.............................. F-19
Unaudited Condensed Consolidated Statements of Cash Flows for the nine
months ended September 30, 1996, the three months ended March 31, 1997,
and the six months ended September 30, 1997.............................. F-20
Notes to Unaudited Condensed Consolidated Financial Statements............ F-21
</TABLE>
F-1
<PAGE>
WHEN THE STOCK SPLIT TRANSACTION REFERRED TO IN NOTE 14 OF THE NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS HAS BEEN CONSUMMATED, WE WILL BE IN A
POSITION TO RENDER THE FOLLOWING REPORT.
/s/ KPMG PEAT MARWICK LLP
INDEPENDENT AUDITORS' REPORT
Board of Directors
Software AG Systems, Inc.:
We have audited the accompanying consolidated balance sheets of Software AG
Systems, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of operations, stockholder's equity, and cash
flows for each of the years in the three-year period ended December 31, 1996.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Software
AG Systems, Inc. and subsidiaries as of December 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
McLean, Virginia
September 12, 1997, except for
note 14, which is as of
F-2
<PAGE>
SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
-------- --------
(in thousands)
<S> <C> <C>
ASSETS
Current:
Cash and cash equivalents.................................. $ 1,573 $ 25,773
Accounts receivable, net of allowance for doubtful
accounts.................................................. 58,983 67,370
Notes receivable, SAG...................................... -- 30,000
Current portion of deferred income taxes................... 3,666 3,412
Prepaid expenses........................................... 1,600 3,298
Other current assets....................................... 816 2,686
-------- --------
Total current assets..................................... 66,638 132,539
Installment accounts receivable, net of current portion...... 19,114 10,955
Note receivable, SAG......................................... 20,000 --
Property, equipment and leasehold improvements, net of
accumulated depreciation and amortization................... 15,026 8,923
Deferred income taxes........................................ -- 1,469
Other assets................................................. 4,834 4,202
-------- --------
Total assets........................................... $125,612 $158,088
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current:
Accounts payable........................................... $ 3,301 $ 6,773
Accrued payroll and employee benefits...................... 12,986 10,792
Payable to SAG............................................. 17,132 33,317
Income taxes payable....................................... 1,821 3,106
Other current liabilities.................................. 3,694 5,265
Current portion of deferred revenues, net of deferred
royalties of $7,126,000 and $7,923,000.................... 30,169 42,865
-------- --------
Total current liabilities................................ 69,103 102,118
Deferred revenues, net of deferred royalties of $7,131,000
and $7,415,000.............................................. 23,883 23,472
Deferred gain................................................ -- 2,690
Deferred income taxes........................................ 27 --
-------- --------
Total liabilities...................................... 93,013 128,280
-------- --------
Commitments and contingencies
Stockholder's equity:
Common stock ($.01 par value; 55,000,000 shares authorized,
27,500,000 shares issued and outstanding)................. 275 275
Additional paid-in capital................................. 11,877 11,877
Retained earnings.......................................... 20,447 17,656
-------- --------
Total stockholder's equity............................... 32,599 29,808
-------- --------
Total liabilities and stockholder's equity............. $125,612 $158,088
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
------------- ------------- -------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Revenues:
Software license fees............. $ 51,832 $ 52,061 $ 52,163
Maintenance fees.................. 65,871 65,307 69,702
Professional services fees........ 29,552 35,194 34,975
------------- ------------- -------------
Total revenues.................. 147,255 152,562 156,840
------------- ------------- -------------
Cost of revenues:
Software license.................. 13,513 15,244 14,120
Maintenance....................... 29,823 23,488 25,885
Professional services............. 26,490 32,591 32,966
------------- ------------- -------------
Total cost of revenues.......... 69,826 71,323 72,971
------------- ------------- -------------
Gross profit........................ 77,429 81,239 83,869
------------- ------------- -------------
Operating expenses:
Software product development...... 900 900 1,372
Sales and marketing............... 50,422 52,512 48,677
Administrative and general........ 25,212 24,639 28,539
------------- ------------- -------------
Total operating expenses........ 76,534 78,051 78,588
------------- ------------- -------------
Income from operations.............. 895 3,188 5,281
Other income and expense, net....... 1,882 2,449 5,230
------------- ------------- -------------
Income before income taxes.......... 2,777 5,637 10,511
Income tax provision................ 1,395 2,311 4,302
------------- ------------- -------------
Net income.......................... $ 1,382 $ 3,326 $ 6,209
============= ============= =============
Net income per share................ $ 0.05 $ 0.11 $ 0.20
============= ============= =============
Shares used in computing net income
per share.......................... 30,584 30,584 30,584
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK
$0.01 PAR VALUE ADDITIONAL TOTAL
---------------- PAID-IN- RETAINED STOCKHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS EQUITY
-------- ------- ---------- -------- -------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance at December 31,
1993..................... 27,500 $ 275 $11,877 $18,039 $30,191
Net income................ 1,382 1,382
Cash dividends ($0.02 per
share)................... (600) (600)
-------- ------ ------- ------- -------
Balance at December 31,
1994..................... 27,500 275 11,877 18,821 30,973
Net income................ 3,326 3,326
Cash dividends ($0.06 per
share)................... (1,700) (1,700)
-------- ------ ------- ------- -------
Balance at December 31,
1995..................... 27,500 275 11,877 20,447 32,599
Net income................ 6,209 6,209
Cash dividends ($0.33 per
share)................... (9,000) (9,000)
-------- ------ ------- ------- -------
Balance at December 31,
1996..................... 27,500 $ 275 $11,877 $17,656 $29,808
======== ====== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.................................. $ 1,382 $ 3,326 $ 6,209
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.............. 3,952 3,921 3,660
Loss on sales of property and equipment.... 139 67 156
Deferred income taxes...................... 1,509 (408) (1,242)
Deferred gain.............................. -- -- (140)
Net proceeds from sales of accounts receiv-
able...................................... -- 28,852 28,448
Change in:
Accounts receivable, excluding net pro-
ceeds from sales........................ (14,303) (47,331) (28,674)
Prepaid expenses......................... (913) 348 (1,698)
Other current assets..................... (224) 225 (1,870)
Accounts payable......................... 451 (817) 3,472
Accrued payroll and employee benefits.... 508 3,181 (2,194)
Payable to SAG........................... 6,749 8,495 16,185
Other current liabilities................ 329 646 1,571
Income taxes payable..................... 967 1,678 1,285
Deferred revenues, net................... 7,210 27,435 12,285
-------- -------- --------
Net cash provided by operating activi-
ties................................. 7,756 29,618 37,453
-------- -------- --------
Cash flows from investing activities:
Additions to property, equipment and lease-
hold improvements.......................... (2,973) (1,839) (3,740)
Proceeds from sales of property and equip-
ment....................................... 18 200 9,044
Short-term investment....................... (150) 150 --
Notes receivable, SAG....................... -- (20,000) (10,000)
Change in other assets, net................. 41 (2,287) 443
-------- -------- --------
Net cash used in investing activi-
ties................................. (3,064) (23,776) (4,253)
-------- -------- --------
Cash flows from financing activities:
Payment of long-term obligations............ (3,882) (3,124) --
Dividends paid.............................. (600) (1,700) (9,000)
-------- -------- --------
Net cash used in financing activi-
ties................................. (4,482) (4,824) (9,000)
-------- -------- --------
Net increase in cash and cash equivalents.... 210 1,018 24,200
Cash and cash equivalents, beginning......... 345 555 1,573
-------- -------- --------
Cash and cash equivalents, ending............ $ 555 $ 1,573 $ 25,773
======== ======== ========
Noncash investing and financing activity:
Deferred gain on sale leaseback of customer
support facility .......................... $ -- $ -- $ 2,830
======== ======== ========
Supplemental disclosures:
Interest paid............................... $ 446 $ 350 $ 103
======== ======== ========
Income taxes paid (refunded), net........... $ (743) $ 387 $ 3,481
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
(1) DESCRIPTION OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reporting Entity and Principles of Consolidation
Software AG Systems, Inc. and subsidiaries (the "Company") is a wholly owned
subsidiary of Software AG, a German corporation ("SAG"). Subsequent to year-
end 1996, the Company was recapitalized. See note 14.
The consolidated financial statements include the accounts of Software AG
Systems, Inc. and its wholly owned subsidiaries, including Software AG
Americas, Inc. (formerly Software AG of North America, Inc.).
All inter-company balances and transactions between the Company and its
wholly owned subsidiaries have been eliminated.
Description of Operations
The Company provides software products and professional services utilized by
organizations to build and enhance enterprise-level applications. The
Company's products are used for mission-critical applications that require
reliability, scaleability and security, such as customer billing systems,
financial accounting systems, and inventory management. The Company's business
is focused on database management and applications development products. The
Company markets and sells its software products and services, as well as
third-party products, through direct and indirect channels in North America,
South America, Japan and Israel.
Revenue Recognition
The Company recognizes revenue in accordance with the provisions of the
American Institute of Certified Public Accountants Statement of Position No.
91-1, Software Revenue Recognition.
Product license revenues are recognized when there is an executed license
agreement, the software and authorization code have been delivered,
collectibility from the customer is probable, and there are no significant
remaining obligations to the customer.
Maintenance revenues, which include unspecified when-and-if deliverable
software upgrades, user documentation, and technical support for software
products, are deferred and recognized on a straight-line basis over the term
of the maintenance agreement, generally one year.
Customer training revenues and revenues from time and material type
professional consulting and custom application contracts are recognized as the
services are provided and the work is performed. Revenues from long-term fixed
price professional consulting and custom application contracts are accounted
for under the percentage of completion method. When estimates of costs, on
long-term fixed price contracts, indicate a loss, such a loss is provided for
currently.
Sales of enterprise license agreements, which generally bundle a combination
of products, technical services, and professional consulting services, are
accounted for according to their component parts using the criteria described
above.
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are recorded at cost.
Depreciation of property and equipment is provided on a straight-line basis
over the estimated useful asset lives, generally 31.5 years for property and
three to five years for equipment. Leasehold improvements are amortized on a
straight-line basis over the lesser of the respective lease term or estimated
useful asset lives.
F-7
<PAGE>
SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
Income Taxes
The Company uses the asset and liability method to account for income taxes.
Under the asset and liability method, deferred income taxes are recognized for
the future tax consequences attributable to future years for differences
between the financial statement carrying amounts and the tax bases of existing
assets and liabilities. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The
effect on deferred taxes of a change in tax rates is recognized in income in
the period that includes the enactment date.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash Equivalents
The Company considers all highly liquid instruments with a maturity of three
months or less at time of purchase to be cash equivalents. Cash equivalents
consist of commercial paper and overnight repurchase agreements.
Net Income per Share
Net income per share is computed using the weighted average number of common
and common equivalent shares outstanding during the period. Pursuant to the
Securities and Exchange Commission Staff Accounting Bulletins and staff
policy, such computations include all common and common equivalent shares
issued within the 12 months preceding the Company's initial public offering as
if they were outstanding for all periods presented. See note 14.
(2) CONCENTRATIONS OF CREDIT RISK AND FAIR VALUES OF FINANCIAL INSTRUMENTS
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to credit risk
include accounts receivable and cash. Management believes that credit risk
related to the Company's accounts receivable is limited due to a large number
of customers in differing industries and geographic areas. The Company does
not require collateral for accounts receivable. Historically, the Company has
not experienced significant losses on accounts receivable except in isolated
situations. The Company maintains depository relationships with several banks.
At times, the Company's cash deposits may exceed federally insured limits.
Periodically, the Company invests excess cash in low risk, highly liquid
repurchase agreements and other instruments through high credit quality
financial institutions. The Company has not experienced any losses in its
depository accounts or short-term investments and management believes that the
Company is not exposed to any significant credit risks.
Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, notes receivable from
SAG, accounts payable, payable to SAG, and amounts included in other current
assets and current liabilities that meet the definition of a financial
instrument, approximate fair value because of the short-term nature of these
amounts.
F-8
<PAGE>
SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
The carrying amount of installment accounts receivable, net of related
deferred revenues approximates the fair value.
(3) ACCOUNTS RECEIVABLE
At December 31, 1995 and 1996, accounts receivable include:
<TABLE>
<CAPTION>
1995 1996
------- -------
(in thousands)
<S> <C> <C>
Domestic:
Currently billed......................................... $31,305 $25,988
Advanced billings on maintenance......................... -- 14,593
Unbilled services........................................ 2,209 6,029
Installment.............................................. 35,790 26,255
Other.................................................... 2,745 1,059
------- -------
72,049 73,924
International.............................................. 10,814 9,381
------- -------
82,863 83,305
Less: allowance for doubtful accounts...................... 4,766 4,980
------- -------
78,097 78,325
Less: long-term portion of installment accounts
receivable................................................ 19,114 10,955
------- -------
Current portion of accounts receivable..................... $58,983 $67,370
======= =======
</TABLE>
Installment Accounts Receivable
Installment accounts receivable represent unbilled receivables from
enterprise license agreements and other long-term and short-term contracts
with deferred invoicing terms.
At December 31, 1995 and 1996, installment accounts receivable include:
<TABLE>
<CAPTION>
1995 1996
------- -------
(in thousands)
<S> <C> <C>
Gross installment accounts receivable....................... $37,709 $27,258
Less: unearned interest..................................... 1,919 1,003
------- -------
35,790 26,255
Less: current portion....................................... 16,676 15,300
------- -------
$19,114 $10,955
======= =======
</TABLE>
The effective interest rate on the installment accounts receivable, net of
related deferred revenues, at December 31, 1995 and 1996 was approximately
12%.
F-9
<PAGE>
SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
At December 31, 1996, installment accounts receivable are scheduled to be
invoiced as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31, AMOUNT
------------------------- --------------
(in thousands)
<S> <C>
1997..................................................... $15,884
1998..................................................... 4,874
1999..................................................... 4,034
2000..................................................... 1,260
2001..................................................... 1,206
-------
$27,258
=======
</TABLE>
In 1995 and 1996, the Company sold installment accounts receivable relating
to certain enterprise license agreements and other long-term contracts to
unrelated financing companies, receiving net proceeds of $28,852,000 and
$28,448,000, respectively. The installment accounts receivable sold include
those relating to product and license fees, technical services, and
professional consulting services. Under the terms of the agreements with the
financing companies, the Company continues to service the receivables sold,
including invoicing and collection, and makes payments to the financing
companies under pre-determined amortization schedules based on the scheduled
invoicing dates of the receivables sold. The amortization schedules provide
rates of return to the financing companies ranging from 8.5% to 8.9%.
The agreements allow for substitution of contracts for early terminations
and require the Company to repurchase contracts that cease to meet eligibility
requirements, such as those contracts that become 90 days past due. At
December 31, 1995 and 1996, the Company remained contingently liable under the
recourse provisions for $26,468,000 and $44,801,000, respectively. The
Company's allowance for doubtful accounts is maintained at a level that
management believes is sufficient to cover potential losses under the recourse
provisions on receivables sold.
Under the terms of the agreements, the Company is required to maintain
specified amounts of net worth and cash availability, and a debt to equity
ratio that does not exceed a specified amount. If the Company fails to
maintain these specified amounts, the financing companies may assume the
servicing rights on receivables sold.
Unbilled Services
Unbilled services relate primarily to long-term professional consulting
services and custom application contracts accounted for using the percentage
of completion method. Billings on these contracts generally are tied to
achieving specific milestones.
At December 31, 1995 and 1996, unbilled services include:
<TABLE>
<CAPTION>
1995 1996
------- -------
(in thousands)
<S> <C> <C>
Unbilled work in process.................................... $ 3,712 $ 6,775
Retainage................................................... 1,008 1,474
------- -------
4,720 8,249
Less: advance billings and prepayments...................... 2,511 2,220
------- -------
$ 2,209 $ 6,029
======= =======
</TABLE>
F-10
<PAGE>
SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(4) PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1996
------- -------
(in thousands)
<S> <C> <C>
Building and land........................................... $ 6,589 $ --
Computer equipment.......................................... 16,705 18,138
Furniture and other equipment............................... 7,032 7,713
Leasehold improvements...................................... 8,410 9,021
------- -------
38,736 34,872
Less: accumulated depreciation and amortization............. 23,710 25,949
------- -------
$15,026 $ 8,923
======= =======
</TABLE>
Depreciation and amortization for 1994, 1995, and 1996, was $3,829,000,
$3,733,000, and $3,473,000, respectively.
(5) SALE OF CUSTOMER SUPPORT FACILITY
In 1996, the Company recorded a sale-leaseback transaction for its customer
support facility. In connection with the sale, the Company realized a gain of
$2,830,000, which is being recognized on a straight-line basis over the term
of the related operating lease.
(6) TRANSACTIONS WITH RELATED PARTY
Royalties
In 1994, the Company licensed and serviced SAG products under a pre-existing
license agreement pursuant to which the Company was required to make payments
to SAG based on a specified percentage of the net sales amount for licenses
of, and technical services on, SAG's products. Effective January 1, 1995, the
Company and SAG entered into a new license agreement whereby the Company was
required to pay royalties of 24% of such net sales amounts. For 1994, 1995 and
1996, royalty expense related to SAG's products was $29,026,000, $23,887,000
and $26,058,000, respectively.
Under the license agreement, SAG pays royalties to the Company on sales of
the Company's products under the same terms. For 1995 and 1996, royalty
revenues related to the Company's products were $295,000 and $294,000,
respectively.
As more fully described in note 14, prior to the Recapitalization, the
Company and SAG entered into a Cooperation Agreement on March 31, 1997.
Cost Reimbursements
As an accommodation to SAG, the Company houses certain of SAG's product
development and quality assurance personnel. SAG reimburses the Company for
the costs incurred related to such product development and quality assurance
activities. All intellectual property resulting from this work is the sole
property of SAG. The reimbursements from SAG are netted against costs incurred
and included in software product development costs in the statement of
operations. Reimbursements for 1994, 1995, and 1996, were $7,518,000,
$8,767,000, and $15,931,000, respectively.
F-11
<PAGE>
SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
Notes Receivable/Payable
In 1995, the Company loaned $20,000,000 to SAG, which originally was
scheduled to be repaid in 2000. In 1996, the Company loaned an additional
$10,000,000 to SAG, which originally was scheduled to be repaid in 2001.
Interest at 6.5% and 7%, respectively, is payable quarterly on the 1995 and
1996 loans. Interest earned for 1995 and 1996 was $280,000 and $1,590,000,
respectively.
The payable to SAG of $17,132,000 and $33,317,000 at December 31, 1995 and
1996, respectively, includes royalties due under the license agreement on
sales of both product licenses and technical services, as well as net amounts
due on other transactions between the Company and SAG. These amounts are non-
interest bearing.
In March, 1997, the Company and SAG agreed to offset the entire balance of
the notes receivable from SAG as of December 31, 1996 against the payable to
SAG.
In 1995, SAG loaned $2,500,000 to the Company, which was repaid during the
year. Interest expense on this note was $119,000, computed at 8%.
Dividends
In 1994, 1995, and 1996, the Company paid dividends of $600,000, $1,700,000
and $9,000,000, respectively, to SAG, which at the time owned 100% of the
outstanding common stock of the Company.
(7) INCOME TAXES
Income tax expense for 1994, 1995, and 1996 consisted of:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ -------
(in thousands)
<S> <C> <C> <C>
Current expense:
Federal.............................................. $ (719) $1,744 $ 4,167
State................................................ (85) 274 586
Foreign.............................................. 690 701 791
------ ------ -------
(114) 2,719 5,544
------ ------ -------
Deferred expense (benefit):
Federal.............................................. 1,350 (265) (1,136)
State................................................ 159 (143) (106)
------ ------ -------
1,509 (408) (1,242)
------ ------ -------
$1,395 $2,311 $ 4,302
====== ====== =======
</TABLE>
F-12
<PAGE>
SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(7) INCOME TAXES--(CONTINUED)
Income tax expense for 1994, 1995, and 1996, differed from the amounts
computed by applying the U.S. federal income tax rate of 34% to pretax income
as a result of the following:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
(in thousands)
<S> <C> <C> <C>
Computed "expected" tax expense:......................... $ 944 $1,917 $3,573
Increase (reduction), in income taxes resulting from:
State income taxes, net of federal benefit............. 106 181 296
Expenses, principally meals and entertainment, not de-
ductible.............................................. 310 277 224
Other, net............................................. 35 (64) 209
------ ------ ------
$1,395 $2,311 $4,302
====== ====== ======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred income tax assets (liabilities) at December 31, 1995 and
1996 consist of:
<TABLE>
<CAPTION>
1995 1996
------- -------
(in thousands)
<S> <C> <C>
Deferred tax assets arising from deductible temporary differ-
ences:
Accrued compensation costs and other expenses.............. $ 1,808 $ 1,533
Allowance for doubtful accounts............................ 1,859 1,879
Depreciation and amortization.............................. 600 917
Deferred gain--installment method.......................... 172 1,022
------- -------
4,439 5,351
Deferred tax liabilities arising from taxable temporary dif-
ferences:
Leases of product licenses................................. 800 470
------- -------
Net deferred income taxes.................................... 3,639 4,881
Less: current portion, deferred tax assets................... 3,666 3,412
------- -------
Noncurrent portion, deferred tax assets (liabilities)........ $ (27) $ 1,469
======= =======
</TABLE>
In assessing the realization of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Based upon the
level of historical taxable income and projections for future taxable income
over the periods for which the deferred tax assets are deductible, management
believes that it is more likely than not that the Company will realize the
benefits of these deductible differences. The amount of the deferred tax asset
considered realizable, however, could be reduced in the near term if estimates
of future taxable income are reduced.
(8) RETIREMENT PLANS
The Company has a retirement plan covering substantially all of its
employees. This plan meets the requirements of Section 401(k) of the Internal
Revenue Code. The Company matches employee contributions and may make
additional contributions based on the Company's profitability. For 1994, 1995,
and 1996, the Company's matching (and total) contributions were $1,967,000,
$1,789,000, and $1,854,000, respectively.
F-13
<PAGE>
SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(8) RETIREMENT PLANS--(CONTINUED)
The Company also has entered into deferred compensation agreements with
certain key executives. Under these agreements, the executives are credited
with annual pre-determined amounts and amounts based on bonuses received, and
earn interest on the deferred amounts. Total deferrals, which are included in
accrued payroll and employee benefits, were $3,038,000 and $1,504,000, at
December 31, 1995 and 1996, respectively, net of loans of $0 and $558,000,
respectively. The expense for these agreements was $653,000 and $1,218,000,
for 1995 and 1996, respectively. To assist in the funding of these agreements
the Company has purchased corporate-owned life insurance on certain of these
executives. The cash surrender value of these policies, which is included in
other assets, was $1,067,000 and $668,000, at December 31, 1995 and 1996,
respectively.
(9) OPERATING LEASE COMMITMENTS
The Company leases office space and equipment under operating lease
agreements that expire at various dates through 2015.
Future minimum rent payments under operating leases, net of aggregate rents
of $1,924,000 expected to be received from subleasing of a portion of the
customer support facility and another facility, at December 31, 1996, are:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31, FACILITIES EQUIPMENT TOTAL
- ------------------------- ---------- --------- -------
(in thousands)
<S> <C> <C> <C>
1997.............................................. $ 5,770 $1,357 $ 7,127
1998.............................................. 5,969 1,162 7,131
1999.............................................. 6,102 811 6,913
2000.............................................. 6,030 148 6,178
2001.............................................. 5,426 39 5,465
Thereafter........................................ 29,392 -- 29,392
------- ------ -------
$58,689 $3,517 $62,206
======= ====== =======
</TABLE>
Facility rent expense for 1994, 1995, and 1996, was $5,942,000, $6,105,000,
and $7,002,000, respectively. Rent expense includes the current year effect of
determinable scheduled rent increases and initial rent abatement periods
contained in certain of the Company's facility lease agreements.
Equipment lease expense for 1994, 1995, and 1996, was $706,000, $l,532,000,
and $1,678,000, respectively.
The Company's operating lease agreement for its customer support facility
requires the Company to maintain minimum amounts of net worth and retained
earnings. If the minimum amounts are not maintained, the Company will be
required to post a $500,000 irrevocable letter of credit for each $2,000,000
shortfall, to be applied by the lessor in the event of default under the
lease.
(10) CONTINGENCIES
The Company is involved in various claims and legal proceedings of a nature
considered normal to its business, primarily relating to product and contract
performance issues, and employee termination matters. While it is not feasible
to predict or determine the final outcome of these proceedings, management
does not believe that they will have a material adverse effect on the
Company's financial position or results of operations.
F-14
<PAGE>
SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(11) NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 128, "Earnings per
Share," which is effective for all interim and annual periods ending after
December 15, 1997. This statement replaces "primary" and "fully diluted"
earnings per share ("EPS") with "basic" and "diluted" EPS on the face of the
statement of operation.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which is effective for the year ending December 31, 1998. This
statement established standards for the reporting and display of comprehensive
income and its components in the financial statements. Earlier application of
this standard is permitted. However, upon its adoption the Company will be
required to reclassify previously reported annual and interim financial
statements.
The Company does not expect that the adoption of these new accounting
standards will have a material effect on the Company's financial position or
results of operation.
(12) REVENUES FROM INTERNATIONAL DISTRIBUTORS
Royalty revenues from international distributors for 1994, 1995, and 1996
are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Japan............................................... $ 8,145 $ 8,607 $ 9,207
Brazil.............................................. 2,800 5,931 7,000
Canada.............................................. 4,410 3,981 4,640
Other............................................... 8,610 3,046 6,114
-------- -------- --------
Total royalty revenues from international distrib-
utors............................................ 23,965 21,565 26,961
Domestic revenues................................. 123,290 130,997 129,879
-------- -------- --------
Total revenues.................................. $147,255 $152,562 $156,840
======== ======== ========
</TABLE>
Royalty revenues from international distributors included in software
license fees and maintenance fees on the consolidated statements of operations
were approximately $12,379,000 and $11,586,000, respectively, in 1994,
$13,316,000 and $8,249,000, respectively, in 1995, and $16,982,000 and
$9,979,000, respectively, in 1996.
(13) OTHER INCOME AND EXPENSE, NET
Other income and expense, net on the consolidated statements of operations
primarily includes interest income of $1,293,000 in 1994; interest income of
$1,406,000 in 1995; and interest income of $2,914,000, and gain on sale of
other assets of $1,000,000 in 1996.
(14) SUBSEQUENT EVENTS
On March 31, 1997, the Company consummated a Recapitalization Agreement
under which the Company repurchased from its parent 24,750,000 shares of
common stock and sold 21,450,000 shares of common stock to an unrelated entity
and certain of the Company's senior managers.
F-15
<PAGE>
SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994, 1995 AND 1996
(14) SUBSEQUENT EVENTS--(CONTINUED)
Prior to the consummation of the Recapitalization Agreement, the Company
entered into a perpetual (unless otherwise terminated by the written agreement
of the parties) Cooperation Agreement with SAG that terminated and superseded
the license agreement dated January 1, 1995. As consideration for the
Cooperation Agreement, the Company paid SAG approximately $22,600,000. Under the
Cooperation Agreement, each of the Company and SAG are required to pay the other
royalties of 24% of net revenues from sales of licenses of, and technical
services on, each other's products for the initial 20 years of the perpetual
term of the agreement. For calendar years 1997 through 2000, the Company will be
required to pay SAG minimum annual royalties of $21,000,000, provided that SAG's
worldwide product and technical services revenues for each of those years are at
least equal to SAG's 1996 worldwide revenues. In the event of a decrease in
SAG's worldwide revenues, the minimum annual royalty requirement will be reduced
proportionately.
In connection with the Recapitalization Agreement, which was consummated on
March 31, 1997, the Company authorized the granting of stock options to
acquire an aggregate of 3,300,000 shares of common stock at an exercise price
of $1.47, of which options to acquire an aggregate of 3,059,650 shares have
been granted. This exercise price represents the amount per share that Thayer
and management paid to acquire approximately an 89% interest in the Company on
March 31, 1997 pursuant to the Recapitalization Agreement. The Company adopted
the Software AG Systems, Inc. 1997 Stock Option Plan (the "Plan") on April 29,
1997. On August 8, 1997, 749,650 and 106,975 options were granted with
exercise prices of $9.60 and $1.47 per share, respectively, under the Plan. On
September 23, 1997, 1,031,250 options were granted with an exercise price of
$12.00 per share, under the Plan.
On September 30, 1997, the Company acquired 100% of the issued and
outstanding shares of the common stock of R.D. Nickel and Associates, Inc.
("Nickel"). The transaction was accounted for using the purchase method of
accounting for a business combination. The aggregate purchase price of
Cdn$14,000,000 (US$10,130,000) was funded through a cash payment of
Cdn$7,000,000 (US$5,065,000) and a note payable of Cdn$7,000,000
(US$5,065,000).
Nickel is a software company that has a family of application development
products and that has been the exclusive distributor of SAG's products in
Canada since 1973.
In connection with the transaction, the Company recorded a $6,051,000 non-
recurring charge against earnings for in-process research and development
costs. The remaining excess purchase price of $4,864,000 represents goodwill,
and has been recorded as other intangible assets. The related amortization
period for the goodwill is ten years.
In September, 1997, the Company's Board of Directors authorized management
of the Company to file a Registration Statement with the Securities and
Exchange Commission permitting the Company to sell shares of its common stock
to the public. The Company's Board of Directors also approved a 275-for-1
stock split to be effected prior to the closing of the initial public offering
of the Company's common stock. Common share and per share data in these
consolidated financial statements have been retroactively adjusted to reflect
the stock split. Additionally, the Company's Certificate of Incorporation was
amended and restated to authorize an additional 20,000,000 shares of $.01 par
value common stock and an additional 11,250,000 shares of $.01 par value
preferred stock, for a total of 75,000,000 authorized shares of common stock
and 25,000,000 authorized shares of $.01 par value preferred stock. The
Company had previously authorized 13,750,000 shares of $.01 par value
preferred stock on March 14, 1997.
F-16
<PAGE>
SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
DECEMBER 31, 1994, 1995 AND 1996
(15) QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited summarized financial data by quarters for 1995 and 1996 is as
follows:
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
1995 (in thousands, except per share data)
----
<S> <C> <C> <C> <C>
Revenue......................... $32,623 $38,763 $37,917 $43,259
Gross profit.................... 16,193 19,668 21,217 24,161
Net income (loss) .............. (3,637) 2,653 2,108 2,202
Net income (loss) per share..... $ (0.12) $ 0.09 $ 0.07 $ 0.07
<CAPTION>
1996
----
<S> <C> <C> <C> <C>
Revenue......................... $32,286 $37,109 $41,126 $46,319
Gross profit.................... 15,434 20,151 21,276 27,008
Net income (loss) .............. (212) (623) 2,745 4,299
Net income (loss) per share..... $ (.01) $ (.02) $ 0.09 $ 0.14
</TABLE>
F-17
<PAGE>
SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997
--------------
(in thousands)
<S> <C>
ASSETS
Current:
Cash and cash equivalents.................................... $ 18,322
Accounts receivable, net of allowance for doubtful accounts.. 58,857
Current portion of deferred income taxes..................... 3,411
Other current assets......................................... 4,721
--------
Total current assets....................................... 85,311
Installment accounts receivable, net of current portion........ 8,028
Property, equipment and leasehold improvements, net of
accumulated depreciation and amortization..................... 9,213
Deferred income taxes.......................................... 1,469
Cooperation agreement, net of accumulated amortization......... 22,325
Other intangible asset, net of accumulated amortization........ 11,042
Other assets................................................... 3,668
--------
Total assets............................................. $141,056
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current:
Accounts payable............................................. $ 6,066
Accrued payroll and employee benefits........................ 12,133
Payable to SAG............................................... 8,650
Other current liabilities.................................... 12,222
Current portion of deferred revenues, net of deferred
royalties................................................... 43,121
--------
Total current liabilities.................................. 82,192
Deferred revenues, net of deferred royalties................... 22,463
--------
Total liabilities ....................................... 104,655
--------
Stockholders' equity........................................... 36,401
--------
Total liabilities and stockholders' equity............. $141,056
========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
F-18
<PAGE>
SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
-------------------------- -------------
NINE MONTHS THREE MONTHS SIX MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, MARCH 31, SEPTEMBER 30,
1996 1997 1997
------------- ------------ -------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Revenues:
Software license fees.............................................................. $31,763 $ 7,341 $32,712
Maintenance fees................................................................... 51,778 17,352 35,936
Professional services fees......................................................... 26,980 9,948 21,028
------- ------- -------
Total revenues................................................................... 110,521 34,641 89,676
------- ------- -------
Cost of revenues:
Software license................................................................... 8,543 2,098 10,502
Maintenance........................................................................ 19,263 6,205 14,639
Professional services.............................................................. 25,854 9,211 17,942
------- ------- -------
Total cost of revenues........................................................... 53,660 17,514 43,083
------- ------- -------
Gross profit......................................................................... 56,861 17,127 46,593
------- ------- -------
Operating expenses:
Software product development....................................................... 1,372 -- 595
Sales and marketing................................................................ 31,139 7,317 20,537
Administrative and general......................................................... 23,472 8,500 18,249
Write-off of acquired in-process research and development costs.................... -- -- 6,051
------- ------- -------
Total operating expenses......................................................... 55,983 15,817 45,432
------- ------- -------
Income (loss) from operations........................................................ 878 1,310 1,161
Other income and expense, net........................................................ 2,173 978 1,376
------- ------- -------
Income (loss) before income taxes.................................................... 3,051 2,288 2,537
Income tax expense (benefit)......................................................... 1,141 915 3,613
------- ------- -------
Net income (loss).................................................................... $ 1,910 $ 1,373 $(1,076)
======= ======= =======
Net income (loss) per share.......................................................... $ 0.06 $ 0.04 $ (0.04)
======= ======= =======
Shares used in computing net income (loss) per share................................. 30,584 30,584 27,422
- --------------------------------------------------
======= ======= =======
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
F-19
<PAGE>
SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PREDECESSOR SUCCESSOR
-------------------------- -------------
NINE MONTHS THREE MONTHS SIX MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, MARCH 31, SEPTEMBER 30,
1996 1997 1997
------------- ------------ -------------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................................................. $ 1,910 $ 1,373 $ (1,076)
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization.................................................... 2,743 941 3,429
Gain on sales of property and equipment.......................................... (8) -- (4)
Deferred gain.................................................................... -- (36) --
Net proceeds from sales of accounts receivable................................... 9,258 -- 27,859
Write-off of acquired in-process research and development costs.................. -- -- 6,051
Stock options issued............................................................. -- -- 129
Changes in operating accounts, net of effect of acquisition...................... (16,068) 8,148 (25,860)
------- ------- --------
(2,165) 10,426 10,528
------- ------- --------
Cash flows from investing activities:
Additions to property, equipment and leasehold improvements........................ (2,064) (208) (2,134)
Proceeds from sales of property and equipment...................................... 8,699 -- 2
Purchase of Cooperation Agreement.................................................. -- -- (22,612)
Acquisition, net of cash received.................................................. -- -- (1,260)
------- ------- --------
6,635 (208) (26,004)
------- ------- --------
Cash flows from financing activities:
Repurchase of common stock......................................................... -- -- (33,920)
Issuance of common stock........................................................... -- -- 31,727
Dividends paid..................................................................... (3,000) -- --
------- ------- --------
(3,000) -- (2,193)
------- ------- --------
Net increase (decrease) in cash and cash equivalents................................. 1,470 10,218 (17,669)
Cash and cash equivalents, beginning................................................. 1,573 25,773 35,991
------- ------- --------
Cash and cash equivalents, ending.................................................... $ 3,043 $35,991 $ 18,322
- --------------------------------------------------
======= ======= ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial
statements.
F-20
<PAGE>
SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments, consisting of only
normal recurring accruals, necessary for a fair presentation of the financial
position of Software AG Systems, Inc. and subsidiaries (the "Company") as of
September 30, 1997, and the results of its operations for the nine months
ended September 30, 1996, and the three-month period ended March 31, 1997 and
the six month period ended September 30, 1997. These condensed consolidated
financial statements are unaudited and do not include all related footnote
disclosures. The September 30, 1997 condensed consolidated balance sheet
reflects the Recapitalization of the Company (see note 2), and is not
comparative to the financial positions of prior periods. The interim unaudited
condensed financial statements should be read in conjunction with the audited
financial statements.
The Company's results of operations for the nine months ended September 30,
1996 and the three month period ended March 31, 1997, respectively, are based
on operations which occurred prior to the acquisition of the Company by Thayer
Equity Investors III, L.P. ("Thayer") and certain members of the Company's
management and are not comparative with the results of operations for the six
month period ended September 30, 1997. The results of operations for the three
month period ended March 31, 1997 and the six month period ended September 30,
1997 are not necessarily indicative of the results of operations to be
expected in the future.
(2) RECAPITALIZATION OF THE COMPANY
On March 31, 1997, the Company consummated a Recapitalization Agreement
under which the Company repurchased from its former parent, Software AG, a
German corporation ("SAG"), 24,750,000 shares of common stock and sold
21,450,000 shares of common stock to Thayer and certain of the Company's
managers. As a result of this change in control, the acquisition by Thayer and
such managers was accounted for as a purchase business combination, and as
such the fair value of the Company's assets and liabilities was recorded as of
April 1, 1997.
Prior to the consummation of the Recapitalization Agreement, the Company
entered into a perpetual (unless otherwise terminated by the written agreement
of the parties) Cooperation Agreement with SAG that terminated and superseded
the license agreement dated January 1, 1995. As consideration for the
Cooperation Agreement, the Company paid SAG approximately $22,600,000. Under
the Cooperation Agreement, each of the Company and SAG are required to pay the
other royalties of 24% of net revenues from sales of licenses of, and
technical services on, each other's products for the initial 20 years of the
perpetual term of the agreement. For calendar years 1997 through 2000, the
Company will be required to pay SAG minimum annual royalties of $21,000,000,
provided that SAG's worldwide product and technical services revenues for each
of those years are at least equal to SAG's 1996 worldwide revenues. In the
event of a decrease in SAG's worldwide revenues, the minimum annual royalty
requirement will be reduced proportionately.
Pursuant to the Recapitalization Agreement, Thayer and certain of the
Company's managers acquired approximately an 89% interest in the Company for
approximately $31.5 million. The determination of fair value allocated to the
identifiable assets and liabilities of the Company has been estimated by
management based on the nature of the assets and liabilities acquired, and
general economic factors. Based on this preliminary allocation, the fair value
of the Company's Cooperation Agreement has been estimated at approximately
$23,500,000, based on an independent appraisal. The fair value of the
Company's remaining assets and liabilities has been presumed to be equal to
the book value as of the date of the acquisition. Based on preliminary
allocation of the purchase price to the net assets and liabilities, an excess
of purchase price over net assets acquired (goodwill) of approximately
$6,401,000 was recorded. Such goodwill is being amortized on a straight-line
basis over 10 years. In the opinion of management of the Company, the final
allocation of the purchase price will not be materially different from the
preliminary purchase price allocation.
F-21
<PAGE>
SOFTWARE AG SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) STOCK OPTION PLAN
In connection with the Recapitalization Agreement, which was consummated on
March 31, 1997, the Company authorized the granting of stock options to
acquire an aggregate of 3,300,000 shares of common stock at an exercise price
of $1.47, of which options to acquire an aggregate of 3,059,650 shares have
been granted. This exercise price represents the amount per share that Thayer
and management paid to acquire approximately an 89% interest in the Company on
March 31, 1997 pursuant to the Recapitalization Agreement. The Company adopted
the Software AG Systems, Inc. 1997 Stock Option Plan (the "Plan") on April 29,
1997. On August 8, 1997, 749,650 and 106,975 options were granted with
exercise prices of $9.60 and $1.47 per share, respectively, under the Plan. On
September 23, 1997, 1,031,250 options were granted with an exercise price of
$12.00 per share, under the Plan.
(4) ACQUISITION
On September 30, 1997, the Company acquired 100% of the issued and
outstanding shares of the common stock of R.D. Nickel and Associates, Inc.
("Nickel"). The transaction was accounted for using the purchase method of
accounting for a business combination. The aggregate purchase price of
Cdn$14,000,000 (US$10,130,000) was funded through a cash payment of
Cdn$7,000,000 (US$5,065,000) and a note payable of Cdn$7,000,000
(US$5,065,000).
Nickel is a software company that has a family of application development
products and that has been the exclusive distributor of SAG's products in
Canada since 1973.
In connection with the transaction, the Company recorded a $6,051,000 non-
recurring charge against earnings for in-process research and development
costs. The remaining excess purchase price of $4,864,000 represents goodwill,
and has been recorded as other intangible assets. The related amortization
period for the goodwill is ten years.
At September 30, 1997, the net assets acquired have been reported in the
Company's unaudited condensed consolidated financial statements.
The Nickel acquisition was not determined to be significant to the
operations or balance sheet of the Company; accordingly, the pro forma
financial information has not been presented.
(5) SUBSEQUENT EVENTS
In September, 1997, the Company's Board of Directors authorized management
of the Company to file a Registration Statement with the Securities and
Exchange Commission permitting the Company to sell shares of its common stock
to the public. The Company's Board of Directors also approved a 275-for-1
stock split to be effected prior to the closing of the initial public offering
of the Company's Common Stock. Common share and per share data in these
condensed consolidated financial statements have been retroactively adjusted
to reflect the stock split. Additionally, the Company's Certificate of
Incorporation was amended and restated to authorize an additional 20,000,000
shares of $.01 par value Common Stock and an additional 11,250,000 shares of
$.01 par value preferred stock, for a total of 75,000,000 authorized shares of
common stock and 25,000,000 authorized shares of $.01 par value preferred
stock. The Company had previously authorized 13,750,000 shares of $.01 par
value preferred stock on March 14, 1997.
F-22
<PAGE>
[Outside Back Cover]
Graphical depiction of five computer screens, one large central screen and four
smaller screens in each corner, with the text "FREE YOUR INFORMATION"
superimposed over the large screen. Each of the four smaller screens has text
that describes certain of the Company's products or services. The text for each
smaller screen is set forth below:
1. ENTERPRISE DEVELOPMENT
Application Development & Database Management Tools
. NATURAL
. NATURAL Lightstorm
. CONSTRUCT
. ADABAS
. PREDICT
2. ENTERPRISE ENABLEMENT
Middleware & Web Enabling Solutions
. iXpress
. ENTIRE BROKER
. ENTIRE NET-WORK
. ENTIRE SAF Gateway
3. DATA WAREHOUSE
Data Management & Access Technologies
. SourcePoint
. PASSPORT
. CONSTRUCT Extra Service
. ESPERANT
. DSS AGENT
4. PROFESSIONAL SERVICES
Customized Consulting
. Core Services
. Web Integration
. Data Warehouse
. Year 2000
. Education
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following are the estimated expenses in connection with the issuance and
distribution of the securities being registered, all of which will be paid by
the Company.
<TABLE>
<S> <C>
SEC registration fee............................................. $ 37,567
NASD filing fee.................................................. 12,897
New York Stock Exchange listing fee.............................. 179,100
Blue Sky fees and expenses....................................... 12,000
Printing and engraving expenses.................................. 200,000
Legal fees and expenses.......................................... 300,000
Accounting fees and expenses..................................... 300,000
Transfer agent and registrar fees................................ 12,000
Miscellaneous.................................................... 46,436
----------
Total........................................................ $1,100,000
==========
</TABLE>
--------
The Company intends to pay all expenses of registration, issuance and
distribution, excluding underwriters' discounts and commissions, with respect
to the shares being sold by the Selling Stockholders. In addition, the Company
expects to pay approximately $100,000 to obtain further director and officer
liability insurance coverage in connection with this offering.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law sets forth conditions
and limitations governing the indemnification of officers and directors of the
Company and certain other persons. The Company has adopted provisions in its
Second Amended and Restated Certificate of Incorporation and Second Amended
and Restated Bylaws which provide for indemnification of its officers and
directors to the maximum extent permitted under the Delaware General
Corporation Law.
As authorized by the Delaware General Corporation Law, the Company's Second
Amended and Restated Certificate of Incorporation limits the liability of
directors of the Company for monetary damages. The effect of this provision is
to eliminate the rights of the Company and its stockholders (through
stockholders' derivative suits on behalf of the Company) to recover monetary
damages against a director for breach of the fiduciary duty of care as a
director (including breaches resulting from negligent or grossly negligent
behavior) except in certain limited situations. This provision does not limit
or eliminate the rights of the Company or any stockholder to seek non-monetary
relief such as an injunction or rescission in the event of breach of a
director's duty of care. These provisions will not alter the liability of
directors under federal securities laws.
The Company has purchased an insurance policy which purports to insure the
officers and directors of the Company against certain liabilities incurred by
them in the discharge of their functions as such officers and directors except
for liabilities resulting from their own malfeasance.
Under the terms of the Underwriting Agreement, the Underwriters have agreed
to indemnify, under certain conditions, the Company, its directors, certain of
its officers and persons who control the Company within the meaning of the
Securities Act against certain civil liabilities and liabilities arising from
breaches of representations and warranties contained in the Underwriting
Agreement or the inaccuracy of certain information set forth herein that was
provided by the Underwriters.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Prior to February 25, 1997, the Company was an indirect wholly owned
subsidiary of Software AG ("SAG"), and on February 25, 1997, the Company
became a direct wholly owned subsidiary of SAG
II-1
<PAGE>
and SAG became the owner of the one outstanding share of the Company's common
stock, par value $1.00 per share.
On March 31, 1997, the senior management of the Company and Thayer Equity
Investors III, L.P. ("Thayer") acquired approximately 89% of the then
outstanding Common Stock of the Company (the "Recapitalization") pursuant to
an agreement among the Company, SAG, Thayer and the following officers of the
Company: Daniel F. Gillis, Harry K. McCreery, Gary Hayes, James H. Daly, Derek
M. Brigden and Thomas E. Gorley (collectively, such individuals are referred
to as the "Managers"). In connection therewith, (i) 24,750,000 shares of
Common Stock were repurchased by the Company from SAG for an aggregate
purchase price of 57,000,000 Deutsche Marks ($33.9 million), (ii) 20,678,350
shares of Common Stock were issued and sold to Thayer for an aggregate
purchase price of $30,392,662.86 and (iii) an aggregate of 771,650 shares of
Common Stock were issued and sold to the Managers for an aggregate purchase
price of $1,134,157.14. In addition, on August 22, 1997 the Company entered
into a subscription agreement with Timothy L. Hill, the Company's Vice
President--Marketing, pursuant to which the Company issued and sold to Mr.
Hill 137,500 shares of Common Stock for an aggregate purchase price of
$202,095. The Company has also granted options to purchase an aggregate of
4,947,525 shares of Common Stock at a weighted average exercise price equal to
$4.90 per share. All such options and shares of Common Stock were issued in
private placements exempt from registration under Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act"), or Rule 701
thereunder. All such shares reflect a 275-for-1 stock split with respect to
the Common Stock to be effected as a dividend prior to the effective date of
the Registration Statement. No underwriters were involved in the sales or
issuances of the securities described above.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
An index to exhibits appears on page E-1.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
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 Securities and Exchange 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 of
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.
The undersigned registrant hereby undertakes that:
(1) 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 upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
479(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, 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>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN RESTON, VIRGINIA ON
OCTOBER 15, 1997.
Software AG Systems, Inc.
/s/ Daniel F. Gillis
By: _________________________________
DANIEL F. GILLIS
Director, President and Chief
Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THIS AMENDMENT NO. 1 TO
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON OCTOBER 15, 1997.
/s/ Daniel F. Gillis
By: _________________________________
DANIEL F. GILLIS
Director, President and Chief
Executive Officer
(Principal Executive Officer)
/s/ Harry K. McCreery
By: _________________________________
HARRY K. MCCREERY
Vice President, Treasurer and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
*
By: _________________________________
CARL J. RICKERTSEN
Chairman of the Board of Directors
*
By: _________________________________
DR. PHILIP S. DAUBER
Director
*
By: _________________________________
DR. ERWIN KOENIGS
Director
*
By: _________________________________
EDWARD E. LUCENTE
Director
*
By: _________________________________
DR. PAUL G. STERN
Director
/s/ Harry K. McCreery
*By: ________________________________
Harry K. McCreery
Attorney-In-Fact
II-3
<PAGE>
ACCOUNTANT'S REPORT ON SCHEDULE
WHEN THE STOCK SPLIT TRANSACTION REFERRED TO IN NOTE 14 OF THE NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS HAS BEEN CONSUMMATED, WE WILL BE IN A
POSITION TO RENDER THE FOLLOWING REPORT.
/s/ KPMG PEAT MARWICK
LLP
The Board of Directors
Software AG Systems, Inc.
The audits referred to in our report dated September 12, 1997, except for
note 14, which is as of . . . included the related financial statement
schedule for each of the years in the three-year period ended December 31,
1996, included in the registration statement. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the consolidated financial statements taken as a whole, present
fairly in all material respects the information set forth therein.
McLean, Virginia
September 12, 1997, except for
Note 14, which is as of . . .
S-1
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
---------- ----------
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES WRITE-OFFS OF PERIOD
----------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
1/1/94 - 12/31/94
Allowance for Doubtful
Accounts 4,741,158 (262,269) 409,298 4,069,591
1/1/95 - 12/31/95
Allowance for Doubtful
Accounts 4,069,591 2,331,608 1,635,681 4,765,518
1/1/96 - 12/31/96
Allowance for Doubtful
Accounts 4,765,518 1,298,361 1,083,575 4,980,304
</TABLE>
S-2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
*** 1.1 Form of Underwriting Agreement
* 3.1 Second Amended and Restated Certificate of Incorporation of the
Registrant
* 3.2 Second Amended and Restated Bylaws of the Registrant
*** 4 Specimen Common Stock Certificate of the Registrant
*** 5 Opinion of Arnold & Porter regarding the legality of the shares of
Common Stock being registered
**10.1 Recapitalization Agreement among Software AG, Software AG Systems,
Inc., Thayer Equity Investors III, L.P. and certain Managers of
Software AG Systems, Inc. (dated as of March 18, 1997)
*10.2 Cooperation Agreement between Software AG and Software AG Americas,
Inc. (dated as of March 31, 1997)
**10.3 Share Purchase Agreement among Software AG Americas, Inc., Software
AG (Canada), Inc., Robert D. Nickel and Caelum Investments, Inc.
(dated as of September 26, 1997)
**10.4 Memorandum of Understanding between Daniel F. Gillis and Software AG
Systems, Inc. (dated as of April 24, 1997)
**10.5 Memorandum of Understanding between Harry K. McCreery and Software AG
Americas, Inc. (dated as of December 16, 1996)
**10.6 Memorandum of Understanding between Derek M. Brigden and Software AG
Americas, Inc. (dated as of December 13, 1996)
**10.7 Memorandum of Understanding between James H. Daly and Software AG
Americas, Inc. (dated as of December 18, 1996)
**10.8 Memorandum of Understanding between Thomas E. Gorley and Software AG
Americas, Inc. (dated as of August 22, 1996)
**10.9 Software AG Systems, Inc. 1997 Stock Option Plan, as amended
**10.10 Management and Consulting Agreement between TC Management LLC and
Software AG Americas, Inc. (dated as of April 1, 1997)
**10.11 Deferred Compensation Agreement between Daniel F. Gillis and Software
AG Americas, Inc. (dated as of July 1, 1995), as amended
**10.12 Deferred Compensation Agreement between James H. Daly and Software AG
Americas, Inc. (dated as of January 1, 1993), as amended
**10.13 Deferred Compensation Agreement between Harry K. McCreery and
Software AG Americas, Inc. (dated as of January 1, 1991), as amended
**10.14 Administrative Services Agreement between Software AG and Software AG
Americas, Inc. (dated as of March 31, 1997)
**10.15 Registration Rights Agreement between Software AG Systems, Inc. and
Thayer Equity Investors III, L.P. (dated as of September 26, 1997)
**10.16 Subscription Agreement between Timothy L. Hill and Software AG
Systems, Inc. (dated as of August 22, 1997), as amended
**10.17 Shareholders Agreement among Software AG Systems, Inc., Thayer Equity
Investors III, L.P. and certain shareholders of Software AG Systems,
Inc. (dated as of April 1, 1997)
**10.18 Promissory Note made by Thomas E. Gorley (effective date March 24,
1997)
**10.19 Promissory Note made by Daniel F. Gillis (effective date March 24,
1997)
**10.20 Promissory Note made by Harry K. McCreery (effective date March 24,
1997)
**10.21 Promissory Note made by James H. Daly (effective date March 24, 1997)
**10.22 Promissory Note made by Harry K. McCreery (effective date August 9,
1996)
**10.23 Promissory Note made by James H. Daly (effective date August 9, 1996)
**11 Computations of Earnings per Share
***16 Letter regarding Change in Certifying Accountant
***21 Subsidiaries of the Registrant
***23.1 Consent of Arnold & Porter (included in its opinion filed as Exhibit
5)
**23.2 Consent of KPMG Peat Marwick LLP
*24.1 Powers of Attorney
*27 Financial Data Schedule
</TABLE>
- --------
* Previously filed
** Filed herewith
*** To be filed by amendment
E-1
<PAGE>
EXHIBIT 10.1
EXECUTION COPY
RECAPITALIZATION AGREEMENT
This RECAPITALIZATION AGREEMENT (this "Agreement") is made as of March
18, 1997, by and among Software AG, a German corporation with its principal
place of business in Darmstadt, Germany (the "Seller"), Software AG Systems,
Inc., a Delaware corporation (the "Company"), Thayer Equity Investors III, L.P.,
a Delaware limited partnership ("Thayer"), and the managers of the Company
listed on Exhibit A hereto (collectively, such managers are referred to herein
as the "Managers" and together with Thayer are referred to herein as the
"Buyers").
W I T N E S S E T H:
WHEREAS, the Company has 200,000 shares of authorized common stock, par
value $.0l per share, (the "Common Stock") of which, at the date hereof, 100,000
shares have been issued and are outstanding and all of which issued and
outstanding shares are owned by the Seller;
WHEREAS, subject to the terms and the conditions specified herein, the
Buyers desire to purchase from the Company, and the Seller and the Company
desire that the Company issue to the Buyers, 78,000 shares of Common Stock (such
shares are referred to herein as the "Shares"); and
WHEREAS, simultaneously with such purchase and sale of the Shares, the
Company desires to repurchase 90,000 shares (the "Repurchase Shares") of the
Common Stock shares owned by Seller;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations, warranties and covenants contained herein and
intending to be legally bound hereby, the parties hereto hereby agree as
follows:
ARTICLE 1.
DEFINITIONS
1.1. "Claim" shall mean all actions, causes of action, suits,
Liabilities, amounts due, sums of money, accounts, reckonings, bonds, bills,
controversies, trespasses, damages, judgments, executions, claims, and demands
whatsoever, in law or equity.
<PAGE>
- 2 -
1.2. "Closing" shall mean the closing described in Article 7 hereof at
which the Parties shall consummate the transactions contemplated hereby.
1.3. "Closing Date" shall mean the date that the Closing occurs.
1.4. "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.5. "Cooperation Agreement" shall mean the Cooperation Agreement
between Seller and SAGA substantially in the form attached hereto as Exhibit B.
1.6. "Damages" shall mean any and all Liabilities, losses, damages,
fines, penalties, costs, fees and expenses of every kind, nature or description
(including without limitation interest which may be imposed in connection
therewith, court costs, costs resulting from any judgments, orders, awards,
decrees or equitable relief, and reasonable fees and disbursements of counsel,
consultants and expert witnesses).
1.7. "Encumbrance" shall mean any title defect, conflicting claim of
ownership, order, decree, judgment, stipulation, settlement, attachment,
restriction, lien, pledge, right of first refusal, option, charge, security
interest, mortgage, reservation, lease or any other encumbrance of any nature
whatsoever.
1.8. "Environmental Claims" shall mean any claim, action, suit,
proceeding, investigation, order, demand, obligation, duty or government
directive or like matter, based on any Environmental Law, which is pending or
asserted (or unasserted but considered probable of assertion) or threatened
against the Company or any Subsidiary or to which the Company or any Subsidiary
is subject, including, without limitation, claims for reimbursement,
contribution, fines, penalties and punitive damages.
1.9. "Environmental Laws" shall include all United States federal, state
and local laws, regulations, standards, rules, ordinances, binding governmental
requirements, binding judicial or administrative orders, regulatory permits, and
common law legal obligations pertaining to environmental concerns, or to
employee and occupational health and safety, or to public health, including
without limitation the federal Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. (S) 9601 et seq., the federal Resource
Conservation
<PAGE>
- 3 -
and Recovery Act, 42 U.S.C. (S) 6901 et seq., the federal Clean Water Act, 33
U.S.C. (S) 1251 et seq., the federal Clean Air Act, 42 U.S.C. (S) 7401 et seq.
and analogous state and local laws.
1.10. "Environmental Properties" shall mean all property currently or
formerly owned, leased or used by the Company or any Subsidiary, including
without limitation any property not owned by the Company or any Subsidiary but
used or affected by any of their off-site waste disposal and similar practices,
and including without limitation all surface water, ground water, subsurface
soils, and air associated with such properties.
1.11. "Equity Contribution" shall mean, with respect to each Buyer, the
dollar amount set forth opposite such Buyer's name on Exhibit A hereto.
1.12. "Financial Statements" shall mean (i) the audited consolidated
balance sheets of the Company as of December 31, 1994, and 1995 and the related
audited consolidated statements of income, cash flows and changes in
stockholders' equity (including related notes, if any) for the years ended
December 31, 1994, and 1995; and (ii) as Previously Disclosed, the consolidated
balance sheets of the Company as of December 31, 1996 and the related
consolidated statements of income, cash flows and changes in stockholders'
equity (including related notes, if any) for the year ended December 31, 1996.
1.13. "Governmental Entity" shall mean any federal, state, local or
foreign legislative authority, court, governmental agency or other regulatory,
judicial or administrative authority.
1.14. "Hazardous Substances" shall mean uncontained petroleum products
and wastes and those materials designated or defined as hazardous substances,
toxic pollutants, toxic substances, hazardous pollutants, hazardous wastes or
other similar terms in any Environmental Laws, or any other substance which by
law or regulation requires special handling in its collection, storage,
treatment, disposal or transportation.
1.15. "Intellectual Property" shall mean all of the following,
throughout the universe that is owned by, controlled by, used by, licensed by
third parties to or registered in the name of, the Company or any Subsidiary:
(i) patents and patent applications and all forms and equivalents thereof,
including divisions, continuations,
<PAGE>
- 4 -
continuations-in-part, utility patents or models, design patents, extensions,
reissued and reexamined patents, patents of addition, confirmation patents,
importation patents, registration patents, and inventor's certificates; (ii)
rights to file patent applications and other interests in inventions and
discoveries, whether reduced to practice or not, on which no patent application
has been filed; (iii) copyrights and all related and equivalent rights,
including copyright registrations, applications for copyright registration,
moral rights, and neighboring rights; (iv) common law and other trademarks,
trade names, trade dress, and service marks, and registrations and applications
for registration thereof; (v) rights in industrial designs, mask works, and the
like, and registrations and applications for registration thereof; (vi) trade
secrets; (vii) methods, processes, computer software, designs, drawings,
laboratory notebooks, technical data, research and development data, know--how,
market reports, consumer investigations, product surveys, distribution methods,
and customer lists, whether or not secret and whether or not reduced to writing;
(viii) other proprietary rights; (ix) licenses to or under and shop rights in
any of the foregoing; and (x) all other factual and proprietary information,
whether or not secret and whether or not reduced to writing.
1.16. "Liabilities" shall mean any liabilities, debts or obligations,
whether accrued, absolute, contingent or otherwise, known or unknown.
1.17. "Material Adverse Effect" shall mean, with respect to any Person,
a material adverse effect on (i) the consolidated business, results of
operations, financial condition or prospects of such Person or (ii) the ability
of such Person to consummate the transactions contemplated hereby.
1.18. "Materials of Environmental Concern" shall mean Hazardous
Substances and other chemicals, pollutants, contaminants, or wastes that present
an identifiable risk to human health or the environment.
1.19. "Parties" shall mean Seller, the Company, and each of the Buyers.
1.20. "Per Share Price" shall mean the dollar amount (rounded to two
decimal points) equal to the Purchase Price divided by 78,000.
<PAGE>
- 5 -
1.21. "Permits" shall mean permits, licenses, orders, authorizations,
certificates or approvals of any Governmental Entity
1.22. "Person" shall mean an individual, partnership, corporation,
trust, unincorporated organization, government or any department or agency
thereof and any other entity.
1.23. "Previously Disclosed" shall mean disclosed in a schedule attached
hereto.
1.24. "Purchase Price" shall mean the greater of (i) $29,035,000 or (ii)
the sum of the Equity Contributions of each Buyer as set forth on Exhibit A
hereto.
1.25. "Properties" shall mean all properties (real or personal) and
other assets (tangible or intangible) owned, leased or used by the Company or
any Subsidiary.
1.26. "Related Agreements" shall mean the Cooperation Agreement, Release
and Tax Matters Agreement.
1.27. "Release" shall mean the Release executed by Seller, substantially
in the form attached hereto as Exhibit C.
1.28. "Rights" shall mean warrants, options, rights, convertible
securities and other arrangements or commitments which obligate an entity to
issue or dispose of any of its capital stock, and stock appreciation rights,
performance units, repurchase rights and other similar stock-based rights
whether they obligate the issuer thereof to issue stock or other securities or
to pay cash.
1.29. "SAGA" shall mean Software AG Americas, Inc., a Virginia
corporation that is a wholly-owned subsidiary of the Company.
1.30. "Securities Act" shall mean the Securities Act of 1933, as
amended.
1.31. "Tax Matters Agreement" shall mean the Tax Matters Agreement
between Seller, the Company and Thayer substantially in the form attached hereto
as Exhibit D.
Other capitalized terms used herein are defined in the preamble and the
recitals to this Agreement and in the other Articles hereof.
<PAGE>
- 6 -
ARTICLE 2.
PURCHASE AND SALE; REPURCHASE
At the Closing, on the terms and subject to the conditions set forth
herein, the following actions shall occur simultaneously:
(i) The Company shall issue and sell to the Buyers, and each Buyer
shall purchase severally and not jointly, at a purchase price per
Share equal to the Per Share Price, the number of Shares equal to
(x) the Equity Contribution of such Buyer, divided by (y) the Per
Share Price, provided, however, that any fractional Share to which
any Buyer (other than Thayer) would otherwise be entitled to
hereunder shall be purchased by Thayer instead of such Buyer;
(ii) The Company shall deliver to each Buyer stock certificates
representing the Shares purchased by such Buyer and shall take and
cause to be taken all actions necessary to transfer to each Buyer
good and valid title to the Shares purchased by such Buyer and to
record the issuance of such Shares to such Buyer on the books and
records of the Company;
(iii) Each Buyer shall pay his, her or its Equity Contribution (adjusted
for each Buyer to account for Thayer's purchase of any fractional
Shares pursuant to clause (i) of this Article) to the Company in
immediately available funds by wire transfer to the account
designated by the Company in writing at least two business days
prior to the Closing; and
(iv) The Company shall repurchase from Seller the Repurchase Shares for
an aggregate price of Fifty--Seven Million (57,000,000) Deutsche
Marks. The Company shall pay the amount owed to Seller pursuant to
this clause (iv) in immediately available funds by wire transfer to
the account designated by Seller in writing at least two business
days prior to the Closing. Seller shall deliver to the Company
stock certificates representing the
<PAGE>
- 7 -
Repurchase Shares, and the Company shall take and cause to be taken
all actions necessary to cancel such shares.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF SELLER
Except as Previously Disclosed, Seller represents and warrants to the
Buyers as follows:
3.1. Capital Structure of the Company
The authorized capital stock of the Company (the "Capital Stock")
consists solely of (i) 200,000 shares of Common Stock, of which 100,000 shares
are issued and outstanding and no shares are held in treasury and (ii) 50,000
shares of preferred stock, $.0l par value per share (the "Preferred Stock"), of
which none are issued and outstanding. No shares of Capital Stock are reserved
for issuance. All outstanding shares of Common Stock have been duly authorized
and issued and are validly outstanding, fully paid and nonassessable. The
Company does not have and is not bound by any Rights which are authorized,
issued or outstanding with respect to the Capital Stock, and there are no
agreements, understandings or commitments relating to the right of Seller to
vote or to dispose of any of such Capital Stock. None of the shares of the
Company's Capital Stock has been issued in violation of the preemptive or other
rights of any Person. Seller owns all of the outstanding shares of Common Stock,
with good and marketable title thereto free and clear of all Encumbrances.
3.2. Organization, Standing and Authority
Each of Seller and the Company and each Subsidiary is a duly organized
corporation, validly existing and in good standing under the laws of its
jurisdiction of incorporation. Each of Seller and the Company and each
Subsidiary (i) has full corporate power and authority to carry on its business
as now conducted and (ii) is duly licensed or qualified to do business in all
jurisdictions of the United States and foreign jurisdictions where its ownership
or leasing of property or the conduct of its business requires such licensing or
qualification, except where the failure to be so licensed or qualified would not
have a Material Adverse Effect on the Company.
<PAGE>
- 8 -
3.3. Subsidiaries and Related Interests
The Company owns, directly or indirectly, all of the outstanding capital
stock or other voting securities or interests of the corporations listed on
Exhibit E hereto (collectively the "Subsidiaries" and individually a
"Subsidiary"). The Company does not own, directly or indirectly, any capital
stock or other voting securities or interests of any other corporation,
partnership, limited liability company or other organization or entity. The
outstanding shares of capital stock or other voting securities or interests of
each Subsidiary are duly authorized and issued and are validly outstanding,
fully paid and nonassessable; all such shares are directly or indirectly owned
by the Company with good and marketable title thereto free and clear of all
Encumbrances. No Subsidiary has or is bound by any Rights which are authorized,
issued or outstanding with respect to the capital stock of any Subsidiary and
there are no agreements, understandings or commitments relating to the right of
the Company to vote or to dispose of any such capital stock. None of the shares
of capital stock of any Subsidiary has been issued in violation of the
preemptive rights of any Person.
3.4. Authorized and Effective Agreement
(a) Each of Seller, the Company and SAGA has all requisite corporate
power and authority to enter into and perform all of its obligations under this
Agreement and the Related Agreements to which it is a party. The execution and
delivery of this Agreement and the Related Agreements to which Seller, the
Company or SAGA is a party, and the consummation of the transactions
contemplated hereby and thereby, have been duly and validly authorized by all
necessary corporate action in respect thereof on the part of Seller, the Company
and SAGA. This Agreement has been, and each of the Related Agreements to which
Seller, the Company or SAGA is a party when executed and delivered by Seller,
the Company or SAGA, as the case may be, shall be, executed and delivered by a
duly authorized agent of Seller, the Company or SAGA, as the case may be. The
Shares, when issued, sold and delivered in accordance with this Agreement, shall
be duly authorized, validly issued, fully paid and nonassessable and will not
have been issued in violation of any preemptive rights. Upon consummation of the
purchase of the Shares, Buyers will acquire from the Company good and marketable
title to the Shares, free and clear of all Encumbrances.
<PAGE>
- 9 -
(b) Assuming the accuracy of the representations contained in Sections
4.2(a) and 4.2(c) hereof, this Agreement and the Related Agreements to which
Seller, the Company or SAGA is a party, constitute legal, valid and binding
obligations of Seller, the Company and SAGA, as the case may be, enforceable
against it in accordance with their respective terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency, moratorium,
reorganization, bulk sales, or similar laws from time to time in effect which
affect the enforcement of creditors' rights generally and by general equity
principles.
(c) Neither the execution and delivery of this Agreement or any of the
Related Agreements, nor consummation of the transactions contemplated hereby or
thereby, nor compliance by Seller, the Company or SAGA with any of the
provisions hereof or thereof shall (i) conflict with or result in a breach of
any provision of the certificate of incorporation or bylaws (or similar charter
documents) of Seller, the Company or any Subsidiary, (ii) constitute or result
in a breach of any term, condition or provision of, or constitute a default
under, or give rise to any right of termination, cancellation or acceleration
with respect to, or result in the creation of any Encumbrance upon any property
or asset of the Company or any Subsidiary pursuant to, any note, bond, mortgage,
indenture, license, lease, contract, agreement or other instrument or
obligation, or (iii) violate any order, writ, injunction, decree, statute, rule
or regulation applicable to Seller, the Company or any Subsidiary, except (in
the case of clauses (ii) and (iii) above) for such violations, rights, breaches,
Encumbrances or defaults which, either individually or in the aggregate, will
not have a Material Adverse Effect on the Company or any Subsidiary.
(d) No consent, approval or authorization of, or declaration, notice,
filing or registration with, any Governmental Entity or any other Person, is
required to be made or obtained by Seller, the Company or any Subsidiary in
connection with the execution, delivery and performance of this Agreement or the
Related Agreements or the consummation of the transactions contemplated hereby
or thereby, other than (i) any applicable filings under federal or state
securities laws or state anti-takeover laws and (ii) filings required pursuant
to the Hart Scott Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act").
<PAGE>
- 10 -
3.5. Constitutive Documents
Seller has delivered to Buyers complete and correct copies of the
Company's and each Subsidiary's certificate of incorporation and bylaws (or
similar charter documents), each as amended as of the date hereof, and all
resolutions of the boards of directors of the Company and any Subsidiary (or any
committees thereof) relating to this Agreement or any Related Agreement or any
of the transactions contemplated hereby or thereby. The minute book of the
Company, a copy of which has been delivered to Buyers, contains a complete,
correct and current record of all meetings and other corporate actions of the
stockholders and the board of directors (and any committee thereof) of the
Company since its incorporation.
3.6. Compliance with Laws; Regulatory Filings
The Company and each Subsidiary is in compliance in all material respects
with all statutes and regulations applicable to the conduct of its business. The
Company and each Subsidiary has filed all reports required by statute,
regulation or other requirement to be filed with any Governmental Entity, except
where the failure to so file would not have a Material Adverse Effect on the
Company, and such reports were prepared in all material respects in accordance
with the applicable statutes, regulations and instructions in existence as of
the date of filing of such reports. Neither the Company nor any Subsidiary has
received notification from any Governmental Entity (i) asserting a violation of
any, statute, regulation or other requirement or (ii) restricting or in any way
limiting its operations. Neither the Company nor any Subsidiary is subject to
any regulatory or supervisory order, agreement, directive, memorandum of
understanding, commitment or similar requirements and none of them has received
any communication requesting that it enter into any of the foregoing.
3.7. Financial Statements; Books and Records
(a) The Financial Statements fairly present the financial position of the
Company as of the dates indicated and the results of operations, changes in
stockholders' equity and cash flows of the Company for the periods presented,
all in conformity with U.S. generally accepted accounting principles applied on
a consistent basis except as disclosed therein. The books and records of the
Company fairly reflect in all material respects the transactions to which it is
a party or by which its Properties are subject or bound. All accounts receivable
<PAGE>
- 11 -
included in the Financial Statements dated as of December 31, 1996 (the "1996
Financial Statements") are valid and enforceable and, to the knowledge of
Seller, the Company and the Subsidiaries (collectively, the "Seller's
Knowledge"), collectible net of reserves. Such reserves have been established in
accordance with U.S. generally accepted accounting principles.
(b) Seller's Previously Disclosed consolidated balance sheet as of
December 31, 1996 and its related, Previously Disclosed consolidated statement
of income (including related notes, if any) for the year ended December 31,
1996, fairly present Seller's financial position as of the date indicated and
the results of operations of Seller for the period presented, all in conformity
with generally accepted accounting principles applied on a consistent basis
except as disclosed therein.
3.8. Material Adverse Change
The Company has not, on a consolidated basis, suffered any material
adverse change in its financial condition, results of operations, business or
prospects since December 31, 1996.
3.9. Absence of Undisclosed Liabilities
Except as disclosed in the 1996 Financial Statements, neither the
Company nor any Subsidiary has any Liability that is material to the Company on
a consolidated basis, or that, when combined with all similar Liabilities, would
be material to the Company on a consolidated basis; to the Seller's Knowledge,
no set of circumstances exist that are reasonably likely to give rise to any
such Liability.
3.10. Properties
The Company or a Subsidiary has good title, free and clear of all
Encumbrances, to all of the Properties which, individually or in the aggregate,
are material to the business of the Company and its Subsidiaries taken as a
whole, and which are reflected on the 1996 Financial Statements or acquired
after December 31, 1996, except (i) liens for taxes not yet due and payable for
which adequate reserves have been established on the books of the Company and
(ii) such imperfections of title as are not material in character, amount or
extent. All leases pursuant to which the Company or any Subsidiary, as lessee,
leases Properties which, individually or in the aggregate, are material to the
business of the Company and
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its Subsidiaries taken as a whole (x) have been Previously Disclosed and (y) are
valid, in full force and effect and enforceable in accordance with their
respective terms.
3.11. Permits
Seller has Previously Disclosed a list and description of all material
Permits which are issued to, held or used by the Company or any Subsidiary, or
for which the Company or any Subsidiary has applied. There are no other required
Permits which are material to (i) the operation of the Company's or any
Subsidiary's business as now conducted or (ii) the ownership or use of any of
the Properties. All Permits Previously Disclosed by Seller are in good standing
and are valid and effective in accordance with their respective terms; such
Permits will continue in effect after the Closing. The Company and its
Subsidiaries are in material compliance with all Permits Previously Disclosed by
Seller, and no governmental proceedings or investigations are pending or, to the
Seller's Knowledge, threatened against Seller, the Company or any Subsidiary
relating to noncompliance with such Permits.
3.12. Employment Benefit Plans
Seller has Previously Disclosed true and complete copies of all qualified
pension or profit-sharing plans, any deferred compensation, consulting, bonus or
group insurance contract or any other incentive, welfare or employee benefit
plan or agreement maintained for the benefit of employees or former employees of
the Company or any Subsidiary (collectively, the "Plans"). No liability under
Title IV of the Employment Retirement Income Security Act of 1974, as amended
("ERISA") has been incurred by the Company or any of its Subsidiaries that has
not been satisfied in full, and no condition exists that presents a material
risk of the Company or any Subsidiary incurring any such liability. With respect
to each Plan that is subject to Title IV of ERISA, the present value of accrued
benefits under such Plan, based upon the actuarial assumptions used for funding
purposes in the most recent actuarial report prepared with respect to such Plan,
did not, as of the valuation date used in such report, exceed the current value
of such Plan's assets allocable to such accrued benefits, and no material
adverse change in the funded status of any such Plan has occurred since such
valuation date. Full payment has been made of all amounts that the Company or
any of its Subsidiaries is required to pay under section 412 of the
<PAGE>
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Code or under the terms of the Plans. To the Seller's Knowledge, each Plan that
is intended to be "qualified" within the meaning of section 401(a) of the Code
is so qualified and each Plan that is intended to satisfy the requirements of
section 125 or 501(c) (9) of the Code satisfies such requirements. Each of the
Plans has been operated and administered in all material respects in accordance
with its terms and applicable laws. There are no actions, suits, claims, or
actions pending, or, to the Seller's Knowledge, threatened or anticipated (other
than routine claims for benefits) against any Plan or any related trust or
against the Company or any of its Subsidiaries. None of the Plans is the subject
of an audit, investigation, or examination by the IRS, Pension Benefit Guaranty
Corporation, Department of Labor or any other Governmental Entity. None of the
Plans is a multiemployer plan within the meaning of section 3(37) of
ERISA.
3.13. Certain Contracts
Neither the Company nor any Subsidiary is a party to, or is bound by, (i)
any material contract or any other contract pursuant to which any party thereto
has an obligation or commitment of greater than $3,000,000, (ii) any agreement
restricting the nature or geographic scope of its business activities in any
material respect, other than the Cooperation Agreement (iii) any agreement,
indenture or other instrument relating to the borrowing of more than $1,000,000
by the Company or any Subsidiary or the guarantee by the Company or any
Subsidiary of any such obligation, (iv) any agreement, arrangement or commitment
relating to the employment of a consultant who was formerly a director or
executive officer or the employment, election, retention in office or severance
of any present or former director or officer, or (v) any agreement, contract or
other instrument relating to or involving any swap, hedge or other similar off-
balance sheet transaction. Neither the Company nor any Subsidiary is in default
under any material agreement, commitment, arrangement, lease, insurance policy
or other instrument whether written or oral, and there has not occurred any
event (including the execution, delivery and performance of this Agreement or
any of the Related Agreements) that, with the lapse of time or giving of notice
or both, would constitute such a default, except for such defaults which would
not, individually or in the aggregate, have a Material Adverse Effect on the
Company.
<PAGE>
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3.14. Legal Proceedings
There are no actions, suits or proceedings instituted, pending or, to the
Seller's Knowledge, threatened (or unasserted but considered probable of
assertion) against the Seller, Company or any Subsidiary or against any asset,
interest or right of Seller, the Company or any Subsidiary which could have a
Material Adverse Effect on the Company and, to the Seller's Knowledge, there are
no other such actions, suits or proceedings instituted, pending or threatened
(or unasserted but considered probable of assertion). To the Seller's
Knowledge, there are no instituted, pending or threatened actions, suits or
proceedings that present a claim to restrain or prohibit the transactions
contemplated in this Agreement or any of the Related Agreements or to impose any
material liability in connection therewith.
3.15. Labor and Related Matters
Neither the Company nor any Subsidiary is a party to, or is bound by, any
contract, agreement or understanding with any labor union, organization, group
or association, and none of them has engaged in any unfair labor practice. Since
January 1, 1995, neither the Company nor any Subsidiary has experienced any
attempt by organized labor or its representatives to make the Company or any
Subsidiary conform to demands of organized labor relating to employees of the
Company or any Subsidiary or enter into a binding agreement with organized labor
that would cover employees of the Company or any Subsidiary. There is no pending
or threatened charge of unfair labor practice or any other action, complaint or
investigation by or before any Governmental Entity brought by or on behalf of
any employee, prospective employee or former employee of the Company or any
Subsidiary. There is no labor strike or labor disturbance pending against the
Company or any Subsidiary; and neither the Company nor any Subsidiary has
experienced any organized work stoppage or other labor difficulty since January
1, 1995. Neither the Company nor any Subsidiary is a party to or affected by or
threatened with any dispute or controversy with any supplier, subcontractor, or
customer, the outcome of which could have a Material Adverse Effect on the
Company.
3.16. Brokers and Finders
None of Seller, the Company, the Subsidiaries or any of their respective
officers, directors or employees, has employed any broker, finder or financial
advisor or
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incurred any Liability for any brokerage or finders fees or commissions in
connection with the transactions contemplated in this Agreement or the Related
Agreements.
3.17. Environmental Matters
(a) Except as disclosed in the 1996 Financial Statements, and except for
liabilities incurred in the ordinary course of business subsequent to December
31, 1996, neither the Company nor any Subsidiary has any material Liability
arising under any Environmental Law, nor, to the Seller's Knowledge, is there
any basis for the assertion of any such Liabilities.
(b) There is no pending or threatened (or unasserted but considered
probable of assertion) Environmental Claim against or otherwise involving the
Company or any Subsidiary or any of their officers, directors, businesses or
assets nor, to the Seller's Knowledge, does any valid basis for such a claim or
controversy exist. There is no judgment, order, injunction, award or consent
decree outstanding against or affecting the Company or any Subsidiary which
arises from or relates to an Environmental Claim.
(c) The Environmental Properties are free from any and all contamination
by Materials of Environmental Concern for which material remedial action is
required under Environmental Laws.
(d) Neither the Company nor any Subsidiary has conducted, engaged in or
permitted others to conduct or engage in any business, operation or activity on
or at the Environmental Properties that involved the manufacture, treatment,
processing or on-site disposal of any Materials of Environmental Concern.
(e) The Company and the Subsidiaries are in compliance with all
Environmental Laws in all material respects.
(f) Seller has Previously Disclosed a true and complete list of all
environmental permits, authorizations and licenses required under all
Environmental Laws for the conduct of the business of the Company or the
Subsidiaries (collectively, the "Authorizations") and the expiration dates, if
any, of such Authorizations. All Authorizations necessary for the Company or
the Subsidiaries to continue to conduct their business in compliance with all
Environmental Laws are in full force and effect.
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(g) Neither the Company nor any Subsidiary has received or anticipates
receiving any notice, letter, citation, order, warning, complaint, inquiry,
claim or demand alleging or asserting that: (a) the Company or any Subsidiary
has violated, or is about to violate, any Environmental Laws; (b) there has been
a release or there is a threat of a release of any Material of Environmental
Concern at, from or onto any of the Environmental Properties; (c) the Company or
any Subsidiary may be or is liable, in whole or in part, for the costs of
cleaning up, remediating, removing or responding to a release or threat of a
release of any Material of Environmental Concern at, from or onto any of the
Environmental Properties or, as a result of its operation of such Environmental
Properties, at, from or onto any other property wherever located; or (d) any of
the Environmental Properties are subject to a lien in favor of any Governmental
Entity for any Damages, under Environmental Laws, arising from costs incurred by
such Governmental Entity.
3.18. Intellectual Property
(a) Seller has Previously Disclosed (i) all of the Intellectual Property
that has been registered in, filed in or issued by the United States Patent and
Trademark Office or the United States Copyright Office or any similar office in
any country and (ii) all Intellectual Property that is not so registered, filed
or issued, but the use of which is material to the ability of the Company to
operate the business of the Company and the Subsidiaries, taken as a whole. The
Company or a Subsidiary is the sole and exclusive owner of the entire right,
title and interest in and to the Intellectual Property; neither the Company nor
any Subsidiary has granted, nor does there exist by implication or operation of
law, any license or other right in respect thereof which does or which will,
subsequent to the Closing, permit or enable any Person other than the Company
and the Subsidiaries to use the Intellectual Property, except for software
licenses granted by the Company or a Subsidiary to a distributor or an end user
customer in the ordinary course of business. None of the Intellectual Property
is subject to any outstanding order, decree, judgment, stipulation, settlement,
lien, charge, encumbrance or attachment. There is no pending or, to the
Seller's Knowledge, threatened (or unasserted but considered probable of
assertion) Claim (A) asserting that any of the Intellectual Property, or that
the past, present or contemplated future conduct of the Company's or its
Subsidiaries' business, infringes or violates the intellectual property rights
of any third parties,
<PAGE>
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(B) asserting that any third parties have any rights to use any of the
Intellectual Property or (C) which could, if adversely determined against the
Company or any Subsidiary, adversely affect the Company's ability to use any of
the Intellectual Property upon consummation of the transactions contemplated
hereby or thereafter, and to the Seller's Knowledge, there is no basis for any
claim of the foregoing types. Neither Seller nor the Company nor any Subsidiary
has given any notice to any third parties asserting infringement by such third
parties of any of the Intellectual Property. Neither the Company nor any
Subsidiary is subject to any bars or other restrictions with respect to its
rights to utilize any of the Intellectual Property, and, to the Seller's
Knowledge, no bars or other restrictions on such rights will be created by the
consummation of the transactions contemplated herein.
(b) Seller has Previously Disclosed a list of all Intellectual Property
owned by third parties and licensed to the Company or any Subsidiary (the
"Licensed Intellectual Property"). All of the Licensed Intellectual Property is
licensed pursuant to valid written agreements (the "License Agreements"),
enforceable in accordance with their terms, except as may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting or relating
to the enforcement of creditors' rights generally and by general principles of
equity. There is no pending or, to the Seller's Knowledge, threatened claim
that the Company, any Subsidiary or any licensor is in breach of any of the
License Agreements and, to the Seller's Knowledge, no basis for any such claim
exists. There is no pending or, to the Seller's Knowledge, threatened claim
against the Company, any Subsidiary or the licensor of any Licensed Intellectual
Property asserting that any of the Licensed Intellectual Property infringes or
conflicts with the rights of third parties, or that the present, past or
contemplated future conduct of the business of the Company and its Subsidiaries
infringes or violates the rights of third parties, and to the Seller's
Knowledge, no basis for any such claim exists.
3.19. Insurance
The Company and each Subsidiary currently maintains insurance in amounts
reasonably necessary for its operations. Such policies (i) are valid and
enforceable in accordance with their terms with financially sound and reputable
insurance companies and are in full force and effect, (ii) are sufficient for
compliance with all requirements of law and all agreements to which the
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Company or any Subsidiary is a party or is subject, and (iii) provide insurance
coverage of the Properties, operations and employees of the Company and its
Subsidiaries generally comparable in type and amount to that which is
customarily carried by other corporations engaged in similar businesses. Neither
the Company nor any Subsidiary has received any notice of a premium increase or
cancellation with respect to any of its insurance policies or bonds, and within
the last three years, neither the Company nor any Subsidiary has been refused
any insurance coverage sought or applied for. The Company and the Subsidiaries
have no reason to believe that existing insurance coverage cannot be renewed as
and when the same shall expire, upon terms and conditions as favorable as those
presently in effect, other than possible increases in premiums or unavailability
in coverage that have not resulted from any extraordinary loss experience of the
Company or any Subsidiary.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF BUYERS
Except as Previously Disclosed, each Buyer hereby severally represents
and warrants (but only with respect to the representations and warranties in
this Article applicable to him, her or it) to Seller as follows:
4.1. Organization, Standing and Authority of Thayer
Thayer is duly organized, validly existing and in good standing under the
laws of Delaware. Thayer (i) has all requisite partnership power and authority
to carry on its business as now conducted or proposed to be conducted and (ii)
is duly licensed or qualified to do business in all jurisdictions of the United
States and foreign jurisdictions where its ownership or leasing of property or
the conduct of its business requires such licensing or qualification, except
where the failure to be so licensed or qualified would not have a Material
Adverse Effect on Thayer.
4.2. Authorized and Effective Agreement
(a) Each of the Managers has the legal capacity to enter into and perform
all of his or her obligations under this Agreement and the Related Agreements to
which he or she is a party. Upon execution and delivery by each Manager of this
Agreement and each of the Related Agreements to which such Manager is a party,
assuming the accuracy of the representations contained in
<PAGE>
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Section 3.4(b) hereof, the Agreement and each such Related Agreement shall
constitute the legal, valid and binding obligations of such Manager, enforceable
against him or her in accordance with their respective terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency, moratorium,
reorganization, bulk sales, or similar laws from time to time in effect which
affect the enforcement of creditors' rights generally and by general equity
principles.
(b) Thayer has all requisite partnership power and authority to enter
into and perform all of its obligations under this Agreement. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized by all necessary partnership action
in respect thereof on the part of Thayer. This Agreement, when executed and
delivered by Thayer, shall be executed and delivered by a duly authorized agent
of Thayer.
(c) Assuming the accuracy of the representations contained in Sections
3.4(b) hereof, this Agreement constitutes a legal, valid and binding obligation
of Thayer, enforceable against it in accordance with the terms thereof, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
moratorium, reorganization, bulk sales, or similar laws from time to time in
effect which affect the enforcement of creditors' rights generally and by
general equity principles.
(d) Neither the execution and delivery of this Agreement nor consummation
of the transactions contemplated hereby, nor compliance by Thayer with any of
the provisions hereof, shall (i) conflict with or result in a breach of Thayer's
charter documents, (ii) constitute or result in a breach of any term, condition
or provision of, or constitute a default under, or give rise to any right of
termination, cancellation or acceleration with respect to, or result in the
creation of any Encumbrance upon any property or asset of Thayer pursuant to,
any note, bond, mortgage, indenture, license, lease, contract, agreement or
other instrument or obligation, or (iii) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to Thayer, except (in the
case of clauses (ii) and (iii) above) for such violations, rights, breaches,
Encumbrances or defaults which, either individually or in the aggregate, will
not have a Material Adverse Effect on Thayer.
(e) No consent, approval or authorization of, or declaration, notice,
filing or registration with, any
<PAGE>
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Governmental Entity or any other Person, is required to be made or obtained by
Thayer in connection with the execution, delivery and performance of this
Agreement or the consummation of the transactions contemplated hereby, other
than (i) any applicable filings under federal or state securities laws or state
anti-takeover laws and (ii) filings required pursuant to the HSR Act.
4.3. Brokers and Finders
Thayer has not employed any broker, finder or financial advisor or
incurred any Liability for any brokerage or finders fees or commissions in
connection with the transactions contemplated in this Agreement or the Related
Agreements, other than payments made or to be made to MLC Group, Inc.
4.4. Access; Sophistication
Seller has provided to each Buyer copies of the Financial Statements and
each Buyer has reviewed such documents. Each Buyer acknowledges that all
documents, books and records requested by such Buyer pertaining to the Company
or the Shares have been made available for inspection by such Buyer and his, her
or its agents and representatives; that such Buyer and his, her or its agents
and representatives have had a reasonable opportunity to ask questions of and
receive answers from Seller, the Company or officers or employees acting on
behalf of the Company and Seller, concerning the terms and conditions of the
offering of the Shares and the business and prospects of the Company. Each
Buyer is an "accredited investor," as such term is defined in Rule 501 under the
Securities Act. Each Buyer and his, her or its respective agents and
representatives have such knowledge and experience in financial and business
matters as to enable them to utilize the information made available to them in
connection with the transactions contemplated hereby, to evaluate the merits and
risks of an investment in the Shares and to make an informed decision with
respect thereto, and such an evaluation and informed decision have been made.
The questionnaires Previously Disclosed to Seller relating to each of the
Managers are accurate and complete in all material respects.
4.5. Investment Representation
Each Buyer is acquiring the Shares to be received by such Buyer at the
Closing for such person's own account for investment only and not with a view to
<PAGE>
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making a distribution thereof within the meaning of the Securities Act. Each
Buyer agrees not to sell or transfer such Shares, except in accordance with the
terms of the legend set forth below. Each Buyer is aware that the Shares have
not been registered under the Securities Act or any state or other
jurisdiction's securities laws, and that the Shares must be held indefinitely
unless subsequently registered or an exemption from such registration is
available. Each Buyer acknowledges that investment in the Shares involves
substantial risks, including the risk of total loss of his, her or its
investment in the Shares. Each Buyer represents that he, she or it (i) is able
to hold the Shares for an indefinite period of time; (ii) has adequate means,
other than the Shares or funds invested therein, of providing for his, her or
its current and foreseeable needs; (iii) has no foreseeable need to sell or
otherwise dispose of any of the Shares; and (iv) has sufficient net worth to
sustain a loss of his, her or its entire investment in the Shares in the event
such loss should occur. Each Manager is a bona fide resident of Virginia,
Maryland, or the District of Columbia and has no present intention of changing
his or her residence. Each Buyer understands and agrees that the certificate or
certificates representing the Shares to be received by such Buyer will bear a
legend substantially to the effect set forth below and that a stop transfer
order may be placed with respect thereto.
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE SECURITIES LAW OF ANY JURISDICTION AND MAY NOT BE TRANSFERRED
UNTIL (A) A REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND SUCH
APPLICABLE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD
THERETO OR (B) IN THE OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE
COMPANY, REGISTRATION UNDER SUCH SECURITIES ACT AND SUCH APPLICABLE
SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
TRANSFER.
<PAGE>
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ARTICLE 5.
COVENANTS
5.1. Conduct of the Company's Business
(a) Prior to the earlier of termination of this Agreement or the Closing
Date, and except as otherwise provided for by this Agreement or as consented to
or approved by Thayer in writing, Seller and the Company shall cause the Company
and each Subsidiary to, use its best efforts to preserve its Properties,
business and relationships with customers, employees, suppliers, licensors,
licensees, advertisers, distributors and other Persons.
(b) Prior to the earlier of termination of this Agreement or the
Closing Date, Seller and the Company shall cause the Company and each Subsidiary
only to carry on its business in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted. Prior to the earlier of
termination of this Agreement or the Closing Date, Seller and the Company shall
not permit the Company Or any of the Subsidiaries to, except with the prior
written consent of Thayer or except as expressly contemplated or permitted by
this Agreement:
(i) declare, set aside, make or pay any dividend or other
distribution in respect of its capital stock;
(ii) issue any shares of its capital stock or permit any treasury
shares to become outstanding;
(iii) enter into any swap, hedge or other similar off-balance
sheet transaction;
(iv) incur any additional debt obligation or other obligation for
borrowed money or guarantee any indebtedness of another Person;
(v) fail to comply with any of the representations, warranties,
covenants, conditions or other terms of any existing obligation for borrowed
money;
(vi) make any loans, advances or capital contributions to, or
investments in, any other Person, other than to any of the Subsidiaries;
(vii) issue, grant or authorize any Rights or effect any
recapitalization, reclassification, stock
<PAGE>
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dividend, stock split or like change in capitalization, or redeem, repurchase or
otherwise acquire any shares of its capital stock;
(viii) amend its certificate of incorporation or bylaws (or similar
charter documents); impose, or suffer the imposition, on any share of its
capital stock or stock held by it, of any Encumbrance, or permit any such
Encumbrance to exist;
(ix) merge with any other Person, permit any other Person to merge
into it, consolidate with any other Person, acquire control over any Person, or
create any subsidiary;
(x) waive, transfer or release any material right, modify or
change in any material respect any material agreement, or cancel, settle or
compromise any material debt, claim or litigation;
(xi) enter into any material contract, agreement or other
arrangement that is not terminable at will, with less than 30 days notice,
without payment or penalty, except in the ordinary course of business consistent
with past practice;
(xii) liquidate, sell, license, mortgage, lease or otherwise
encumber or dispose of any material assets, except sales of inventory in the
ordinary course of business; or acquire any material assets;
(xiii) increase the rate of compensation of, pay or agree to pay any
bonus to, or provide any other employee benefit or incentive to, any of its
directors, officers or employees, except as Previously Disclosed; enter into or
modify any employment or severance contract; or enter into or substantially
modify (except as may be required by applicable law) any pension, retirement,
stock option, stock purchase, stock appreciation right, savings, profit sharing,
deferred compensation, consulting, bonus, group insurance or other employee
benefit, incentive or welfare contract, plan or arrangement, or any trust
agreement related thereto;
(xiv) change its methods of accounting in effect at December 31,
1996, except as required by changes in U.S. generally accepted accounting
principles concurred in by its independent certified public accountants, or
change any of its methods of reporting income and deductions for U.S. federal
income tax purposes from those employed in the preparation of its federal income
tax
<PAGE>
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returns for the year ended December 31, 1995, except as required by law; or
(xv) agree to do any of the matters specified in clauses (i)
through (xiv) of this Section 5.1(b).
5.2. Other Offers.
Neither Seller nor the Company shall solicit or encourage inquiries or
proposals with respect to, furnish any information relating to, participate in
any negotiations or discussions concerning, or enter into any transaction
involving, (i) any acquisition or purchase of all or a substantial portion of
the assets of, or a substantial equity interest in, the Company or any
Subsidiary, or (ii) any business combination with the Company or any Subsidiary,
except as contemplated in this Agreement. Each of Seller and the Company will
instruct its officers, directors, agents, subsidiaries and other affiliates to
refrain from doing any of the above. Seller and the Company will notify Thayer
if any such inquiries or proposals are received by, any such information is
received from, or any such negotiations or discussions are sought to be
initiated with Seller, the Company or any of the other persons or entities
referred to above. Seller and the Company will promptly inform Thayer in
writing of all of the relevant details with respect to the foregoing. Each of
Seller and the Company acknowledges and agrees that any remedy at law for breach
of the foregoing covenant will be inadequate, and in addition to any other
relief which may be available, Buyers will be entitled to temporary and
permanent injunctive relief without the necessity of proving actual damages and
without regard to the adequacy of any remedy at law.
5.3. Buyer's Access
Following the execution and delivery of this Agreement, and prior to the
Closing, Seller and the Company will (a) continue to provide to Buyers and their
authorized representatives reasonable access during normal business hours to the
Company's books, records and Properties, (b) make reasonably available to Buyers
and their authorized representatives, during normal business hours and at their
normal places of work, additional personnel of the Company having knowledge of
any matters to be investigated by Buyers and (c) furnish to Buyers promptly upon
request such generally available financial and operating data and other
information relating to the Company's business and Properties as Buyers or their
<PAGE>
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authorized representatives may reasonably request. Buyers shall conduct their
investigations in such a manner as to minimize any disruption of the Company's
normal business operations.
5.4. Compliance
The Parties covenant and agree that between the date hereof and the
Closing, none of them shall take any action that would cause their
representations and warranties made herein not to be true and correct, in all
material respects, as of such Closing. Seller and the Company shall promptly
inform Thayer in writing of (i) any matter that has caused the representations
and warranties of Seller to become untrue or incorrect in any material respect
or (ii) any materially adverse change in the Company's financial condition,
results of operations, business or prospects since December 31, 1996. Each
Buyer shall promptly inform Seller and the Company in writing of any matter that
has caused the representations and warranties of such Buyer to become untrue or
incorrect in any material respect.
5.5. Best Efforts
Subject to the terms and conditions of this Agreement, each Party shall
use its reasonable best efforts and shall cooperate with the other Parties as
promptly as practicable to take, or cause to be taken, all actions, and to do,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations or otherwise to consummate, as soon as practicable, the
transactions contemplated hereby and by the Related Agreements. Seller and the
Company shall use all reasonable efforts to secure approvals and consents of any
Person necessary to the consummation of the transactions contemplated by this
Agreement and by the Related Agreements and to obtain any consent or approval
required for the continued effectiveness after the Closing of any contract,
agreement or customer relationship to which the Company or any Subsidiary is a
party.
5.6. Right of First Refusal
(a) Before any Common Stock shares (or securities convertible into or
exercisable or exchangeable for such shares) owned or controlled by Seller
("Seller Shares") may be sold or otherwise disposed or transferred
(collectively, "Transferred"), Thayer and the Company shall be offered the
following rights with respect to such shares:
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(i) Seller shall first deliver a written notice (a "Seller
Notice") to Thayer and the Company stating (i) the number of Seller Shares that
Seller proposes to Transfer and (ii) the price and other material terms of the
proposed Transfer. The Seller Notice shall be accompanied by a certificate of
the Seller certifying that it has received from a third party (the "Third
Party") a bona fide offer to acquire such Seller Shares at such price and on
such terms as are set forth in the Seller Notice and shall identify such Third
Party.
(ii) Within thirty (30) days after receipt of a Seller Notice (the
"Company Period"), the Company may elect, by delivering to Seller and Thayer a
written notice of its election, to purchase all or any part of the Seller Shares
to which the Seller Notice refers, on the same terms and conditions specified in
such notice. In the event that the Company does not elect to purchase any of
such shares, the Company shall send a notice to such effect to Seller and Thayer
prior to the end of the Company Period.
(iii) In the event that the Company does not elect during the
Company Period to purchase all of the Seller Shares to which the Seller Notice
refers, then Thayer may elect, by delivering to Seller a written notice (a
"Thayer Notice") of its election, within forty-five (45) days after receipt of
the Seller Notice (the "Thayer Period"), to acquire on the same terms and
conditions specified in the Seller Notice, any of the Seller Shares to which the
Seller Notice refers that are not acquired by the Company.
(iv) In the event that the Company and/or Thayer elects to acquire
Seller Shares pursuant to this Section 5.7, the Company, Thayer and Seller shall
consummate the sale and purchase of such shares within ninety (90) days after
the date that the Company and Thayer have received the Seller Notice.
(v) To the extent the Company and Thayer do not exercise their
respective rights under this Section 5.7 within the specified time periods,
Seller may Transfer the Seller Shares specified in the Seller Notice (and not
purchased by the Company or Thayer) to the Third Party specified in such Seller
Notice at the price and on the terms specified in such notice, provided that (i)
such Transfer is consummated within one hundred twenty (120) days of the date of
delivery of such Seller Notice and (ii) prior to the Transfer, such Third Party
agrees in
<PAGE>
- 27 -
writing, in a form satisfactory to the Company and Thayer and as a condition of
the Transfer, that such Third Party shall receive and hold such shares subject
to the rights of first refusal of the Company and Thayer set forth in this
section.
(b) Seller agrees that all certificates representing shares of Common
Stock owned or controlled by Seller will contain the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED
AS TO TRANSFER IN ACCORDANCE WITH AN AGREEMENT DATED AS OF
MARCH 18, 1997 AMONG SOFTWARE AG, SOFTWARE AG SYSTEMS, INC.
(THE "COMPANY"), THAYER EQUITY INVESTORS, III, L.P., AND
CERTAIN MANAGERS OF THE COMPANY, A COPY OF WHICH MAY BE
OBTAINED FROM THE COMPANY.
(c) The rights and obligations set forth in this Section 5.7 shall
terminate upon consummation of an underwritten public offering of Common Stock
pursuant to an effective registration statement under the Securities Act that is
underwritten by one or more nationally-recognized investment banking firms.
ARTICLE 6.
INDEMNIFICATION
6.1. Indemnification by Seller
Subject to the limitations set forth in Sections 6.4 and 6.5 hereof,
Seller hereby indemnifies and holds harmless Buyers and their respective
affiliates, directors, officers, employees and agents from and against any and
all Damages (other than consequential and punitive damages that do not result
from third party Claims) arising out of, based upon or with respect to:
(i) any breach of any representation or warranty made by Seller in
this Agreement or the Related Agreements or any material misrepresentation
in or omission from any certificate, schedule, exhibit or other document
delivered to Buyers pursuant to this Agreement or the Related Agreements;
or
(ii) any failure, on the part of the Company prior to the Closing
and on the part of
<PAGE>
- 28 -
Seller at any time, to perform any material covenant, agreement or
undertaking contained in this Agreement or the Related Agreements.
6.2. Indemnification By Buyers
Subject to the limitations set forth in Sections 6.4 and 6.5 hereof,
Buyers hereby jointly and severally indemnify and hold harmless Seller and each
of its affiliates, directors, officers, employees and agents from and against
any and all Damages (other than consequential and punitive damages that do not
result from third party Claims) arising out of, based upon or with respect to:
(i) any breach of any representation or warranty made by Buyers in
this Agreement or the Related Agreements or any material misrepresentation
in or omission from any certificate, schedule, exhibit or other document
delivered to Seller pursuant to this Agreement or the Related Agreements;
or
(ii) any failure of Buyers to perform any material covenant,
agreement or undertaking of Buyers contained in this Agreement or the
Related Agreements.
6.3. Indemnification Procedures
(a) Promptly after the occurrence of any event or the discovery of any
facts which could give rise to a right to indemnification under this Article 6,
the person who may be entitled to indemnification (the "Indemnified Person")
shall promptly give notice to the Party required to indemnify the Indemnified
Person (the "Indemnitor"), in writing, describing in reasonable detail the facts
and circumstances giving rise to the claim for indemnification, the Damages
suffered or incurred, including the amount of such Damages, if known, or as
estimated, and the provisions of this Agreement relating to such claim for
indemnification. The failure of an Indemnified Person to give prompt notice in
the manner provided herein shall not relieve the Indemnitor of its obligations
under this Article 6, except to the extent that the Indemnitor is actually
prejudiced by such failure to give prompt notice. Upon receipt of a notice of a
claim for indemnification, the Indemnitor shall promptly pay to the Indemnified
Person the amount of such Damages in accordance with and subject to the
provisions of this Article 6; provided, however, that no such payment shall
<PAGE>
- 29 -
be due during any period in which the Indemnitor is contesting in good faith
either its obligation to make such indemnification or the amount of Damages
payable.
(b) If any Claim is instituted by a third party with respect to which an
Indemnified Person intends to, or may be entitled to, claim a right to
indemnification under this Article 6, the Indemnified Person shall promptly
notify the Indemnitor of such Claim. The failure of an Indemnified Person to
give notice in the manner provided herein shall not relieve the Indemnitor of
its obligations under this Article 6, except to the extent that the Indemnitor
is actually prejudiced by such failure to give notice. The Indemnitor shall
have the right to control, at its expense and through counsel of its choosing,
the defense of any such third party Claim, but may compromise or settle the same
only with the consent of the Indemnified Person, which consent shall not be
unreasonably withheld. The Indemnified Person shall cooperate fully with the
Indemnitor and its counsel in the defense of any such third party Claim and
shall make available to the Indemnitor any books, records or other documents
within its control that are necessary or appropriate for such defense. After
providing notice of its intent to exercise its right to control such defense,
the Indemnitor shall not be responsible for any legal or other expenses
subsequently incurred by the Indemnified Person in connection therewith;
provided, however, that an Indemnified Person shall have the right to control
its defense of any such third party Claim and retain its own counsel, with the
reasonable fees and expenses to be paid by the Indemnitor, if such Indemnitor
shall have consented to such retention of counsel or the Indemnified Party shall
have reasonably concluded that representation of such Indemnified Person by the
counsel retained by the Indemnitor would be inappropriate due to actual or
potential differing interests between such Indemnified Person and any other
party represented by such counsel in such proceeding.
(c) At no time may an Indemnitor assert as a defense to its obligation
to provide indemnification as set forth in this Article 6 that, prior to the
Closing, the Indemnified Person or any of its employees, agents or affiliates
had any knowledge of the matter to which the claim for indemnification relates,
or conducted any investigation relating thereto, and each Party hereby
irrevocably waives all such defenses.
<PAGE>
- 30 -
6.4. Limitations on Recoveries
Notwithstanding anything to the contrary contained herein, no
indemnification claim under this Article 6 shall be (i) enforced against any
Indemnitor to the extent any insurance proceeds or other recoveries actually are
received by the Indemnified Person with respect to any Damages otherwise payable
by the Indemnitor or (ii) valid against an Indemnitor unless a written notice
pursuant to Section 6.3 of this Agreement (a "Claims Notice") has been delivered
to such Indemnitor with respect to such claim.
6.5. Remedies for Damages
The right to indemnification under this Article 6 constitutes an
Indemnified Person's sole remedy for damages with respect to the breach of any
representation or warranty contained in this Agreement. In circumstances where
Seller is the Indemnitor, an Indemnified Person shall have the right to seek
indemnification under this Article either (i) directly from Seller or (ii)
indirectly from Seller by causing the Company to (x) pay such indemnification
claim and (y) make a corresponding deduction in the amount payable or to be paid
by the Company to Seller pursuant to the Cooperation Agreement. In circumstances
where the Seller is the Indemnitor, the Indemnified Person shall specify in its
Claims Notice the indemnification source from which the Indemnified Person
intends to recover.
ARTICLE 7.
CLOSING; CONDITIONS
7.1. Closing
The transactions contemplated by this Agreement shall be consummated at a
Closing to be held at the offices of Arnold & Porter, 555 Twelfth Street, N.W.,
Washington, D.C. 20004 or at such other place as Seller and Thayer shall agree,
at the close of business on the first business day following satisfaction of the
conditions set forth in Sections 7.2 and 7.3 hereof or such later date within 14
days thereafter as shall be specified by Thayer. All actions taken at the
Closing shall be deemed to occur simultaneously, and no document shall be deemed
to be delivered until all documents are delivered. Unless otherwise indicated,
each document delivered at the Closing shall be dated as of the date of the
Closing.
<PAGE>
- 31 -
7.2. Conditions to the Obligations of Buyers
The obligations of Buyers under this Agreement are subject to the
satisfaction at or prior to Closing of the following conditions, but compliance
with any such conditions may be waived by Thayer:
(a) The representations and warranties of Seller contained in this
Agreement shall be true and correct, in all material respects, at and as of the
Closing, and Seller and the Company shall have performed and complied with all
the covenants and agreements and satisfied all the conditions, in all material
respects, required by this Agreement to be performed or complied with or
satisfied by Seller and the Company at or prior to the Closing. Thayer shall
have received a certificate signed by Dr. Erwin Koenigs and Daniel Gillis
stating that, to the best of their knowledge, the conditions specified in this
Section 7.2(a) have been satisfied.
(b) No order, judgment or decree shall have been issued restraining or
prohibiting the consummation of the transactions contemplated by this Agreement
or any of the Related Agreements. No inquiry, action or proceeding which, in
the opinion of Thayer, is material shall have been instituted to restrain or
prohibit the consummation of the transactions contemplated by this Agreement or
any of the Related Agreements, or to challenge the validity of such transactions
or any part thereof, or seeking damages on account or as a result thereof.
(c) There shall have been no material adverse change in the financial
condition, results of operations, business or prospects of the Company since
December 31, 1996.
(d) All required consents and approvals shall have been obtained, all
other requirements prescribed by law which are necessary to the consummation of
the transactions contemplated hereby or by any Related Agreement shall have been
satisfied, and all statutory waiting periods in respect thereof shall have
expired or been terminated.
(e) Buyers shall have received one or more opinions from counsel to
Seller and the Company, in form and substance reasonably satisfactory to Thayer
addressing the matters set forth in Exhibit F hereto.
(f) Seller and SAGA shall have executed and delivered the Cooperation
Agreement.
<PAGE>
- 32 -
(g) The Company shall have received the resignations of (i) all of the
directors of the Company, other than Dr. Erwin Koenigs and Daniel Gillis, (ii)
all of the officers of the Company, other than Daniel Gillis, and (iii) all of
the directors of SAGA, other than Daniel Gillis, in each case effective as of
the Closing.
(h) Seller shall have executed and delivered to the Company and Thayer
the Release.
(i) Seller and the Company shall have executed and delivered to Thayer
the Tax Matters Agreement.
(j) The Products and Research and Development Operations Transfer
Agreement dated as of December 5, 1993 between Seller and SAGA shall have been
amended in a manner satisfactory to Thayer.
(k) Buyers shall have received from Seller and the Company such other
documents confirming the accuracy and completeness of the representations and
warranties of Seller as Buyers may reasonably request.
7.3. Conditions to the Obligations of Seller
The obligations of Seller under this Agreement are subject to the
satisfaction at or prior to Closing of the following conditions, but compliance
with any such conditions may be waived by Seller:
(a) The representations and warranties of Buyers contained in this
Agreement shall be true and correct, in all material respects, at and as of the
Closing, and Buyers shall have performed and complied with all the covenants and
agreements and satisfied all the conditions, in all material respects, required
by this Agreement to be performed or complied with or satisfied by Buyers at or
prior to the Closing.
(b) No order, judgment or decree shall have been issued restraining or
prohibiting the consummation of the transactions contemplated by this Agreement
or any of the Related Agreements .
(c) All required consents and approvals shall have been obtained, all
other requirements prescribed by law which are necessary to the consummation of
the transactions contemplated hereby or by any Related Agreement shall have been
satisfied, and all statutory
<PAGE>
- 33 -
waiting periods in respect thereof shall have expired or been terminated.
(d) Seller shall have received from Buyers such other documents
confirming the accuracy and completeness of the representations and warranties
of Buyers as Seller may reasonably request.
ARTICLE 8.
TERMINATION
8.1. Termination
This Agreement may be terminated and the transactions contemplated hereby
abandoned at any time prior to the Closing Date, only as follows:
(a) By the mutual consent in writing of Seller and Thayer;
(b) By Thayer in writing, if Seller or the Company has, or by Seller in
writing, if any Buyer has, in any material respect, breached (i) any covenant or
agreement contained herein or (ii) any representation or warranty contained
herein, and in either case if such breach has not been cured by the earlier of
15 business days after the date on which written notice of such breach is given
to the Party committing such breach or the Closing Date;
(c) By any party hereto in writing, if the Closing Date has not occurred
by the close of business on May 1, 1997, unless the failure of the Closing to
occur by such date shall be due to the failure of the Party seeking to terminate
this Agreement to perform or observe the covenants and agreements set forth
herein; or
(d) By Seller or Thayer in writing, if any Governmental Entity of
competent jurisdiction shall have issued a final non-appealable order enjoining
or otherwise prohibiting the transactions contemplated hereby.
8.2. Effect of Termination
In the event this Agreement is terminated pursuant to Section 8.1 hereof,
this Agreement shall become void and have no effect, provided, however, that
nothing herein shall relieve any Party from liability for the breach of any
representations or warranties or the breach of, or failure to perform, any
covenant made by it herein.
<PAGE>
- 34 -
ARTICLE 9.
MISCELLANEOUS
9.1. Survival of Representations and Warranties
The representations, warranties and covenants contained in this Agreement
shall survive the Closing and any and all investigations and inquiries by the
Parties made prior to the Closing Date in connection with this Agreement and the
transactions contemplated hereby. The representations, warranties, covenants
and agreements of the Parties contained in this Agreement and the Related
Agreements shall not be affected by or diminished in any way by any
investigation (or failure to investigate) made at any time by or on behalf of
the Party for whose benefit such representations, warranties, covenants and
agreements were made.
9.2. Amendment
This Agreement may be amended or supplemented at any time by the mutual
agreement in writing of Seller, the Company and Thayer. Seller and the Company
agree to approve, execute and deliver any amendment to this Agreement and any
additional plans and agreements requested by Thayer to modify the structure of,
or to substitute parties to, the transactions contemplated hereby; provided,
however, that no such change shall (i) alter or change the amount or kind of
consideration to be delivered to the Seller in connection with the transactions
contemplated hereby, or (ii) materially impede or delay the consummation of the
transactions contemplated by this Agreement. Notwithstanding anything to the
contrary herein, Thayer shall have the right, at any time prior to the Closing,
to modify or amend Exhibit A hereto without the consent of any other party
hereto, provided that (x) Thayer shall provide notice of any such amendment or
modification to all the other parties hereto and (y) no such amendment or
modification shall increase the Equity Contribution of any Manager without such
Manager's consent.
9.3. No Waiver of Rights
No failure or delay on the part of any Party in the exercise of any power
or right hereunder shall operate as a waiver thereof. No single or partial
exercise of any right or power hereunder shall operate as a waiver of such right
or of any other right or power. The waiver by any Party of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
other or
<PAGE>
- 35 -
subsequent breach hereunder. Except as otherwise expressly provided herein, all
rights and remedies existing under this Agreement are cumulative with, and not
exclusive of, any rights or remedies otherwise available.
9.4. Expenses
Each Party hereto shall bear and pay all costs and expenses incurred by
it in connection with the transactions contemplated in this Agreement, including
fees and expenses of its own financial consultants, accountants and counsel.
9.5. Entire Agreement; Successors; Third Parties
This Agreement and the Related Agreements contain the entire agreement
between the Parties with respect to the transactions contemplated hereunder and
thereunder and supersede all prior arrangements or understandings with respect
thereto, written or oral, other than documents referred to herein or therein.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the Parties hereto and their respective successors and permitted
assigns. Except as specifically set forth herein or in any Related Agreement,
nothing in this Agreement or any Related Agreement, expressed or implied, is
intended to confer upon any party, other than the parties hereto and thereto,
and their respective successors and permitted assigns, any rights, remedies,
obligations or liabilities.
9.6. No Assignment
No Party hereto may assign any of its rights or obligations under this
Agreement to any other Person, except that Thayer may assign its rights and/or
obligations to an affiliate of Thayer.
9.7. Notices
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally, by
facsimile or sent by overnight express or by registered or certified mail,
postage prepaid, addressed as follows:
<PAGE>
- 36 -
If to Seller to:
Software AG
Uhlandstrasse 12, D-64297
Darmstadt, Germany
Attention: Dr. Erwin Koenigs
Facsimile: 49-6151-921868
with a required copy to:
Software AG
Uhlandstrasse 12, D-64297
Darmstadt, Germany
Attention: Christine Schwab
Facsimile: 49-6151-921600
If to the Company:
Software AG Systems, Inc.
11190 Sunrise Valley Drive
Reston, VA 20191
Attention: Harry Mccreery
Facsimile: 703-391-6504
If to Thayer:
Thayer Equity Investors, III, L.P.
1455 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: Robert E. Michalik
Facsimile: (202) 371-0391
With a required copy to:
Arnold & Porter
555 Twelfth Street, N.W.
Washington, D.C. 20004
Attention: Robert B. Ott, Esq.
Facsimile: (202) 942-5999
If to any of the Managers, to the address set forth beneath the signature of
such Manager on the signature page hereof.
All such deliveries shall be deemed effective when received by the Persons
entitled to such receipt or when delivery has been attempted but refused by such
Person or Persons. Any Party may change the Persons or addresses to which such
deliveries shall be made with respect to such Party by delivering notice thereof
to the other Parties hereto in accordance with this Section 9.7.
<PAGE>
- 37 -
9.8. Captions
The captions contained in this Agreement are for reference purposes only
and are not part of any such agreement.
9.9. Counterparts
This Agreement may be executed in any number of counterparts, and each
such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
9.10. Governing Law and Venue
The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the Commonwealth of Virginia
applicable to agreements made and entirely to be performed within such
jurisdiction. The Party bringing any action under this Agreement shall only be
entitled to choose the federal or state courts in the Commonwealth of Virginia
as the venue for such action, and each Party consents to the jurisdiction of the
court chosen in such manner for such action.
9.11. Severability
The provisions of this Agreement are severable, and the unenforceability
of any provision of this Agreement shall not affect the enforceability of the
remainder of this Agreement. The parties acknowledge that it is their intention
that if any provision of this Agreement is determined by a court to be invalid,
illegal or unenforceable as drafted, that provision should be construed in a
manner designed to effectuate the purpose of that provision to the greatest
extent possible under applicable law.
9.12. Specific Performance
The rights of the Parties under this Agreement and the Related Agreements
are unique and the failure of a Party to perform its obligations hereunder or
thereunder would irreparably harm the other Parties hereto. Accordingly, the
Parties shall, in addition to such other remedies as may be available at law or
in equity, have the right to enforce their rights hereunder by actions for
specific performance to the extent permitted by law.
<PAGE>
- 38 -
9.13. Further Assurances
Subject to the terms and conditions herein provided, each of the Parties
hereto shall use reasonable efforts to take, or cause to be taken, such action,
to execute and deliver, or cause to be executed and delivered, such additional
documents and instruments and to do, or cause to be done, all things necessary,
proper or advisable under the provisions of this Agreement and the Related
Agreements and under applicable law to consummate and make effective the
transactions contemplated by this Agreement and the Related Agreements.
9.14. Publicity
Any general notices, releases, statements or communications to employees,
suppliers, distributors, licensees or customers of the Company or Seller, or to
the general public or the press, relating to the purchase price of either the
Shares or the Repurchase Shares pursuant to this Agreement, shall be made only
at such times and in such manner as may be mutually agreed upon by Seller and
Thayer.
<PAGE>
- 39 -
IN WITNESS WHEREOF, the Parties hereto, intending to be legally bound
hereby, have caused this Agreement to be executed as of the day and year first
above written.
SOFTWARE AG
By:
----------------------------------
Dr. Erwin Koenigs
Chairman of the Board
and
By:
----------------------------------
Volker Dawedeit
Board Member
SOFTWARE AG SYSTEMS, INC.
By:
----------------------------------
Dr. Erwin Koenigs
President
THAYER EQUITY INVESTORS, III, L.P.
By: TC Equity Partners, L.L.C.,
its General Partner
By: /s/ Rick Rickertsen
------------------------------
Rick Rickertsen
Member
<PAGE>
- 40 -
MANAGERS:
/s/ Daniel Gillis
-----------------------------------
Daniel Gillis
9513 Fox Hollow Drive
Potomac, MD 20854
Facsimile: (703) 391-6782
/s/ Harry McCreery
-----------------------------------
Harry McCreery
10727 Midsummer Drive
Reston, VA 20191
Facsimile: (703) 391-6504
/s/ James Daly
-----------------------------------
James Daly
2606 Barnside Ct.
Herndon, VA 20171
Facsimile: (7O3) 391-6980
/s/ Derek Brigden
-----------------------------------
Derek Brigden
11317 Bright Pond Lane
Reston, VA 20194
Facsimile: (703) 391-6504
/s/ Gary Hayes
-----------------------------------
Gary Hayes
7924 Longridge Ct.
Cabin John, MD 20818
Facsimile: (7O3) 391-8111
/s/ Thomas Gorley
-----------------------------------
Thomas Gorley
12801 Cross Creek Lane
Oak Hill, VA 20171
Facsimile: (703) 391-6760
<PAGE>
- 39 -
IN WITNESS WHEREOF, the Parties hereto, intending to be legally bound
hereby, have caused this Agreement to be executed as of the day and year first
above written.
SOFTWARE AG
By: /s/ Dr. Erwin Koenigs
-------------------------------
Dr. Erwin Koenigs
Chairman of the Board
and
By: /s/ Volker Dawedeit
-------------------------------
Volker Dawedeit
Board Member
SOFTWARE AG SYSTEMS, INC.
By: /s/ Dr. Erwin Koenigs
-------------------------------
Dr. Erwin Koenigs
President
THAYER EQUITY INVESTORS, III, L.P.
By: TC Equity Partners, L.L.C.,
its General Partner
By:
---------------------------
Rick Rickertsen
<PAGE>
AMENDED EXHIBIT A
Equity
Contribution
Buyers ($)
- ----------------------------------- ------------
Thayer Equity Investors III, L.P. 30,392,662.86
Managers
Daniel Gillis 299,908.98
Harry McCreery 299,908.98
Gary Hayes 124,894.71
James Daly 159,655.05
Derek Brigden 99,834.93
Thomas Gorley 149,954.49
----------
Total Equity Contributions: 31,526,820.00
<PAGE>
EXHIBIT 10.3
SHARE PURCHASE AGREEMENT
THIS AGREEMENT is entered into this 26/th/ day of September, 1997, among
Software AG Americas, Inc., a corporation incorporated under the laws of the
Commonwealth of Virginia (the "Guarantor"), Software AG Systems (Canada) Inc., a
corporation incorporated under the Business Corporations Act (Ontario) (the
"Buyer"), Robert D. Nickel and Joyce Nickel, of the Township of Puslinch in the
Province of Ontario (collectively, the "Principals"), and Caelum Investments
Inc., a corporation incorporated under the Business Corporations Act (Ontario)
(the "Seller");
WITNESSETH:
WHEREAS the Seller is the holder of all of the issued and outstanding securities
in the capital of R.D. Nickel & Associates Incorporated, a corporation
amalgamated under the Business Corporations Act (Ontario) (as hereinafter
further defined, the "Corporation");
AND WHEREAS the Corporation is the successor corporation resulting from the
amalgamation effective September 26, 1997 of R. D. Nickel & Associates
Incorporated (the "Predecessor Corporation") and its wholly-owned subsidiary
R.D. Nickel & Associates International Inc. (the "Subsidiary");
AND WHEREAS the Corporation continues to carry on the software and information
services businesses formerly carried on by the Predecessor Corporation and the
Subsidiary (the "Software Business") comprised of the marketing, distribution,
licensing, maintenance, and support of certain of the systems and applications
computer programs described in the Disclosure Schedule attached hereto (the
"Distributed Software Programs") and the acquisition, development, marketing,
distribution, licensing, maintenance and support of certain of the systems and
applications computer programs described in the Disclosure Schedule attached
hereto (the "Owned Software Programs") (the Distributed Software Programs and
the Owned Software Programs being referred to collectively herein as the
"Software Programs");
AND WHEREAS the Seller desires to sell to the Buyer, and the Buyer desires to
buy from the Seller, the Purchased Securities (as hereinafter defined) being all
of the issued and outstanding securities in the capital of the Corporation
(other than the Special Share, as hereinafter defined, to be redeemed prior to
the Closing Date) thereby acquiring ownership of the Software Business, all upon
the terms and conditions set forth herein;
AND WHEREAS the Guarantor is the registered and beneficial owner of all of the
issued and outstanding securities of the Buyer, and the Principals are the
registered and beneficial owners of all of the securities of the Seller;
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants, and agreements of the Parties hereinafter set forth, the Parties,
intending to be legally bound, do hereby agree as follows:
<PAGE>
--2--
ARTICLE I
INTERPRETATION
1.01 Defined Terms.
As used in this Agreement, the following terms have the following meanings:
"AG Security Agreement" means the general security agreement of the Buyer in
favour of the Seller securing the payment and performance by the Buyer of its
obligations under the Note and the Other Obligations to be entered into on the
Closing Date substantially in the form of the agreement attached hereto as
Exhibit "1";
"Agreement" means this share purchase agreement and all schedules, exhibits and
instruments in amendment or confirmation of it; "hereof", "hereto" and
"hereunder" and similar expressions mean and refer to this Agreement and not to
any particular Article, Section, Subsection or other subdivision; "Article",
"Section", "Subsection" or other subdivision of this Agreement followed by a
number means and refers to the specified Article, Section, Subsection or other
subdivision of this Agreement;
"Amalgamation" means the amalgamation of the Predecessor Corporation and the
Subsidiary implemented under the OBCA pursuant to certificate and articles of
amalgamation dated September 26, 1997;
"Americas Guarantee" means the guarantee of the Guarantor in favour of the
Seller of the obligations of the Buyer under the Note and the Other Obligations
to be entered into on the Closing Date substantially in the form of the
agreement annexed hereto as Exhibit "2";
"Americas Security Agreement" means the security agreement of the Guarantor in
favour of the Seller securing the payment and performance of its obligations
under the AG Guarantee, to be entered into on the Closing Date substantially in
the form attached hereto as Exhibit "3";
"Ancillary Agreements" means the AG Security Agreement, the Americas Guarantee,
the Americas Security Agreement, the Consulting Agreement, the Lease, the Note,
the Non-Compete Agreement, the RD Guarantee, the RD Security Agreement and all
other agreements, certificates and other instruments delivered or given pursuant
to this Agreement and "Ancillary Agreement" means any one of such agreements,
certificates or other instruments;
"Auditor" means Messrs. KPMG Peat Marwick, Chartered Accountants;
"Authorization" means, with respect to any person, any governmental
authorization, order, permit, approval, grant, license, consent, right,
franchise, privilege, certificate, judgement, writ, injunction, award,
determination, direction, decree, variance, permission, to or from, or filings,
notices, or recordings to or with or by rule or regulation of any Governmental
Entity having jurisdiction over such person;
<PAGE>
--3--
"Balance Sheet Date" means November 30, 1996;
"business day" means any day of the year, other than a Saturday, Sunday or any
other day on which Canadian chartered banks are required or authorized to close
in Toronto, Ontario;
"Claim" means, in respect of any person, any claim of any nature whatsoever
against such person, including any demand, liability, obligation, debt, cause of
action, suit, proceeding, judgement, award, assessment, or reassessment;
"Closing" means the completion of the transaction of purchase and sale
contemplated by this Agreement on the Closing Date;
"Closing Date" means September 30, 1997, or such earlier or later date as the
Parties may mutually agree upon in writing;
"Consents" means the consents of each contracting party to each Material
Contract that requires the consent of such party to the change in control of the
Corporation contemplated by either or both of the Amalgamation and this
Agreement and the consummation of the transactions contemplated thereby and
hereby in order to preserve and maintain the rights of the Corporation
thereunder after the Closing Date, and "Consent" means any one of such Consents;
"Consulting Agreement" means the consulting agreement among the Guarantor, the
Buyer and the Principals to be entered into on the Closing Date substantially in
the form of the agreement annexed hereto as Exhibit "4";
"Corporation" means, as of and after the date hereof, the corporation resulting
from the Amalgamation and includes, for all purposes of this Agreement in
respect of all periods referred to herein prior to the effective date of the
Amalgamation, each of the Predecessor Corporation and the Subsidiary;
"Disclosure Schedule" means the disclosure schedule attached hereto as
Schedule "1" providing full disclosure of all matters required or permitted to
be disclosed by the Seller to the Buyer under this Agreement with respect to the
Principals, the Seller, the Corporation, the Predecessor Corporation, the
Subsidiary and the Software Business;
"Dividend Refund" has the meaning specified in Section 2.04;
"Encumbrances" means liens, charges, mortgages, pledges, security interests,
Claims, defects of title, restrictions and any other rights of third parties
relating to any property, including rights of set-off, and other encumbrances of
any kind and "Encumbrance" means any of the foregoing;
"Excluded Assets" means the assets listed in Schedule "2";
<PAGE>
--4--
"Financial Statements" means the balance sheets of the Predecessor Corporation
for the fiscal year ending November 30, 1996 and of the Subsidiary for the
fiscal year ended December 31, 1996 and the accompanying statements of income,
retained earnings and changes in financial position for the year then ended and
all notes thereto copies of which are attached as Schedule "3";
"GAAP" means, at any time, accounting principles generally accepted in Canada
at such time;
"Governmental Entity" means (i) any multinational, federal, provincial, state,
municipal, local or other governmental or public department, court, commission,
board, bureau, agency or instrumentality, domestic or foreign; (ii) any
subdivision, agent, commission, board, or authority of any of the foregoing; or
(iii) any quasi-governmental or private body exercising any regulatory,
expropriation or taxing authority under or for the account of any of the
foregoing;
"Interim Period" means the period between the date hereof and the Closing Date;
"Interim Statement Date" means July 31, 1997;
"Interim Financial Statements" means the unaudited combined balance sheet of
the Predecessor Corporation and the Subsidiary as at July 31, 1997 and the
accompanying unaudited statements of income and retained earnings for the 8
months then ended, copies of which are attached hereto as Schedule "4";
"knowledge" means, with reference to any information that is provided or any
statement that is made by any person under this Agreement or any Ancillary
Agreement, and that is qualified as being "to their knowledge", that such
information or statement has been provided or made to the best of their
knowledge, information and belief (and, in the case of the Seller and
Principals, is based on their own knowledge and after making inquiries of Andrew
Coutts and Allan Foerster), without concealment, suppression or omission of any
material information relevant to such statement or information;
"laws" means all statutes, codes, ordinances, decrees, rules, regulations,
municipal by-laws, judicial or arbitral or administrative or ministerial or
departmental or regulatory judgements, orders, decisions, rulings or awards,
policies, voluntary restraints, guidelines, or any provisions of such laws,
including general principles of common and civil law and equity, binding on or
affecting the person referred to in the context in which such word is used; and
"law" means any of the foregoing.
"Lease" means the lease agreement between the Corporation and Deanel Corp. to be
entered into as of the Closing Date providing for the lease by Deanel Corp. to
the Corporation of the real property, including buildings, structures, and other
improvements located thereon, fixtured therein, and appurtenances thereto, and
easements and other rights relative to the building located at 151 Savage Drive,
Cambridge, Ontario, substantially in the form of the agreement annexed hereto as
Exhibit "5";
<PAGE>
--5--
"loss" means any loss whatsoever, including expenses, costs, damages,
penalties, fines, any and all legal fees and disbursements, interest, and debt;
"material", "material information", "material facts", "material change", and
words having similar meaning, mean, unless the context otherwise requires,
information relating to the business and affairs of the Corporation, the
Predecessor Corporation, the Subsidiary and their respective properties, assets
and liabilities that, if generally disclosed, would result in, or would
reasonably be expected to result in, a significant decrease in the market price
or value of the Purchased Securities or the Software Business, and for purposes
of this Agreement, each reference to any material adverse effect upon the
financial condition, operation, or prospects of the Software Business or the
Material Assets, or any other reference to a material item or circumstance,
shall be construed to include any act, omission, event, or circumstances that
would entail loss, liability, damage, or expense to the Buyer (with respect to
the rights and benefits expected by the Buyer to be obtained under this
Agreement) of $5,000 in any single instance, whether under one or more
representations, warranties, covenants, or agreements contained herein, or
$25,000 in the aggregate, taken as a whole under all representations,
warranties, covenants, and agreements contained herein;
"Material Assets" has the meaning specified in Section 3.12;
"Material Contracts" means all material contracts with respect to the Software
Business to which the Corporation (including the Predecessor Corporation and the
Subsidiary) is a party, including all contracts, leases of personal property,
licenses, undertakings, engagements or commitments of any nature, written or
oral, to which the Corporation is entitled in connection with the Software
Business, including (a) contracts that either involve expenditure of more than
$50,000 or require performance by any party thereto more than six (6) months
after the Closing Date; (b) unfilled purchase orders; (c) forward commitments
for supplies or materials entered into the ordinary course of the Software
Business; (d) all restrictive agreements and negative covenant agreements which
the Corporation may have with its employees, past or present; and (e) all of the
contracts specifically listed in the Disclosure Schedule;
"Non-Compete Agreement" means the non-compete agreement of the Principals and
the Seller in favour of the Guarantor and the Buyer to be entered into on the
Closing Date substantially in the form of the agreement attached hereto as
Exhibit "6"
"Note" means the secured promissory note of the Buyer in favour of the Seller
referred to in Section 2.03 to be entered into on the Closing Date in the form
of the note attached hereto as Exhibit "7";
"OBCA" means the Business Corporations Act (Ontario);
"Other Obligations" means, collectively, (i) the obligations of the Buyer (if
any) under the Consulting Agreement; (ii) the obligations of the Buyer (if any)
under Section 2.07; and (iii) the obligations of the Buyer (if any) under
Section 8.05(c);
<PAGE>
--6--
"Parties" means the Seller, Buyer, Principals and Guarantor and "Party" means
any one of them;
"Permitted Encumbrances" means (i) Encumbrances for taxes, assessments or
governmental charges or levies on property not yet due and delinquent; (ii)
easements, encroachments and other minor imperfections of title which do not,
individually or in the aggregate, materially detract from the value of, or
impair the use or marketability of, any property so encumbered; and (iii) the
Encumbrances disclosed in the Disclosure Schedule;
"person" means an individual, partnership, corporation, trust, unincorporated
association, joint venture or other entity or any Governmental Entity, and
pronouns have a similarly extended meaning;
"Public Offering" means the completion of an initial public offering of its
securities completed in accordance with the requirements of the Securities Act
of 1933, as amended by (i) Software AG Systems, Inc.; (ii) the Guarantor; (iii)
any successor corporation resulting from the merger or reorganization of either
or both of such corporations which does not result from a third party
acquisition of control of such corporations; and (iv) in the case of an
acquisition of control under (iii), any successor corporation that is not, at
the time of such acquisition of control, already a public company;
"Purchase Price" has the meaning specified in Section 2.02;
"Purchased Securities" means 1,000 common shares in the capital of the
Corporation;
"RD Guarantee" means the guarantee of the Corporation in favour of the Seller of
the obligations of the Buyer under the Note and the Other Obligations to be
entered into on the Closing Date substantially in the form of the agreement
annexed hereto as Exhibit "8";
"RD Security Agreement" means the security agreement of the Guarantor in favour
of the Seller securing the payment and performance of its obligations under the
RD Guarantee, to be entered into on the Closing Date substantially in the form
attached hereto as Exhibit "9";
"Redemption Amount" means the amount for which the Special Share is redeemable;
"Software AG Canada" means Software AG of Canada Inc., a corporation
incorporated under the Canada Business Corporations Act;
"Special Dividend" means the special dividend declared by the Corporation in the
amount of $5,000,000 to be paid to the Seller prior to the Closing Date as
contemplated by Section 2.04;
"Special Share" means the special share of the Corporation held as of the date
hereof by the Seller;
<PAGE>
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"Special Share Redemption" means the special share redemption completed in
accordance with Section 2.04;
"subsidiary" has the meaning specified in the OBCA; and
"Time of Closing"' means 1:00 p.m. (Toronto time) on the Closing Date or such
other time on the Closing Date as the Closing may occur.
1.02 Gender and Number.
Any reference in this Agreement to gender shall include all genders, and words
importing the singular number only shall include the plural and vice versa.
1.03 Headings, Etc.
The provision of a Table of Contents, the division of this Agreement into
Articles, Sections, Subsections and other subdivisions and the insertion of
headings are for convenience of reference only and shall not affect or be
utilized in the construction or interpretation of this Agreement.
1.04 Currency.
All references in this Agreement or any Ancillary Agreement to dollars, unless
otherwise specifically indicated, are expressed in Canadian dollars.
1.05 Severability.
Any Article, Section, Subsection or other subdivision of this Agreement or any
Ancillary Agreement or any other provision of this Agreement or any Ancillary
Agreement which is, or becomes, illegal, invalid or unenforceable shall be
severed from this Agreement and any Ancillary Agreement and be ineffective to
the extent of such illegality, invalidity or unenforceability and shall not
affect or impair the remaining provisions hereof or thereof.
1.06 Entire Agreement.
This Agreement together with the Ancillary Agreements constitutes the entire
agreement between the Parties pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the Parties including, without limitation, the
letter of intent dated August 20, 1997 among, inter alia, Thayer Capital
Partners and Robert Nickel. There are no representations, warranties, conditions
or other agreements, express or implied, statutory or otherwise, between the
Parties in connection with the subject matter of this Agreement, except as
specifically set forth herein and therein. If there is any conflict between the
provisions of this Agreement and the provisions of any Ancillary Agreement, the
provisions of this Agreement shall govern.
<PAGE>
--8--
1.07 Amendments.
This Agreement and any Ancillary Agreement may only be amended, modified or
supplemented by a written agreement signed by all of the Parties to such
agreement.
1.08 Waiver.
Any of the terms or conditions of this Agreement may be waived in writing at any
time by the party that is entitled to the benefits thereof. No waiver of any of
the provisions of this Agreement shall be deemed to or shall constitute a waiver
of any other provision hereof (whether or not similar). No waiver of any of the
provisions of this Agreement or any Ancillary Agreement shall be deemed to
constitute a waiver of any other provision (whether or not similar), nor shall
such waiver constitute a waiver or continuing waiver unless otherwise expressly
provided in writing duly executed by the party to be bound thereby.
1.09 Governing Law.
This Agreement and all Ancillary Agreements shall be governed by and interpreted
and enforced in accordance with the laws of the Province of Ontario and the laws
of Canada applicable therein which apply to contracts made and to be performed
entirely in Ontario without giving effect to the principles of conflicts of law
thereof.
1.10 Inclusion.
Where the word "including" or "includes" is used in this Agreement it means
"including (or includes) without limitation". Words of inclusion shall not be
construed as terms of limitation herein, so that references to "included"
matters shall be regarded as nonexclusive, noncharacterizing illustrations.
1.11 Accounting Terms.
All accounting terms not specifically defined in this Agreement shall be
construed in accordance with GAAP.
1.12 Incorporation of Exhibits and Schedules.
The following are the exhibits schedules attached to and incorporated in this
Agreement:
<TABLE>
<CAPTION>
Exhibit Schedule
- ------- --------
<S> <C>
"1" -- Form of AG Security Agreement "1" -- Disclosure Schedule
"2" -- Form of Americas Guarantee "2" -- Excluded Assets
"3" -- Form of Americas Security Agreement "3" -- Financial Statements
"4" -- Form of Consulting Agreement "4" -- Interim Financial Statements
"5" -- Form of Lease Agreement "5" -- Americas Interim Financial Statements
</TABLE>
<PAGE>
--9--
<TABLE>
<CAPTION>
Exhibit Schedule
- ------- --------
<S> <C>
"6" -- Form of Non-Compete Agreement "6" -- Employee Bonus Allocation
"7" -- Form of Note "7" -- Foreign Royalties Credit
"8" -- Form of RD Guarantee
"9" -- Form of RD Security Agreement
</TABLE>
ARTICLE II
PURCHASED SECURITIES AND PURCHASE PRICE
2.01 Purchase of Purchased Securities.
On the terms and subject to the conditions of this Agreement, the Buyer agrees
to purchase from the Seller, and the Seller agrees to sell and deliver to the
Buyer, on the Closing Date, all right, title, and interest of the Seller in and
to the Purchased Securities, being all of the issued and outstanding securities
in the capital of the Corporation as of the Closing Date.
2.02 Purchase Price.
The aggregate purchase price for the Purchased Securities (the "Purchase Price")
shall be $14,000,000.
2.03 Payment of Purchase Price.
On the Closing Date, against delivery by the Seller of certificates evidencing
the Purchased Securities duly endorsed for transfer and accompanied by
instruments of transfer in the manner contemplated by this Agreement, and upon
satisfaction of all other terms and conditions to be satisfied by the Seller and
the Principals hereunder, the Buyer shall pay the Purchase Price to the Seller.
The Purchase Price shall be paid by or on behalf of the Buyer as to $7,000,000
by wire transfer in same day available funds to the Seller on the Closing Date,
and the balance of the Purchase Price shall be paid upon the terms and
conditions of the Note which shall be delivered by the Buyer to the Seller on
the Closing Date.
2.04 Special Dividend and Special Share Redemption.
The Buyer acknowledges that, prior to the Closing Date:
1. the Corporation shall pay to the Seller the Special Dividend
in cash on its common shares;
2. the Special Share is redeemable prior to the Closing Date for
an amount equal to 75% of the dividend refund received
pursuant to subsection 129(1) of the Income Tax Act (Canada)
by the Corporation in respect of dividends paid by it prior to
the Closing Date as more particularly set forth in the terms
and conditions of the
<PAGE>
--10--
Special Share contained in the articles of the Corporation (the
"Dividend Refund"); and
3. the Corporation shall redeem the Special Share prior to the Closing
Date for $773,500 by payment in cash.
The Buyer and Seller hereby acknowledge and agree that the Dividend Refund may
be subject to adjustment in the event that there shall be issued to the
Corporation a notice of assessment or reassessment pursuant to any taxing
statute, which assessment or reassessment is based upon a determination that the
Corporation was not entitled to the Dividend Refund or to some portion thereof.
Neither the Corporation nor the Buyer shall have any obligation to appeal such
assessment but the Principals and the Seller shall be able to contest such
assessment or reassessment at their own expense. In this event, the Dividend
Refund shall be deemed to be and to have always been the amount of the dividend
refund ultimately determined by the taxing authority. In the event that the
Redemption Amount is subsequently adjusted in accordance with the terms of the
Special Share as a result of an assessment or reassessment under a taxing
statute relating to the Dividend Refund, the Seller shall pay to the
Corporation, or the Corporation shall pay to the Seller, as the case may be,
within 30 days of the Corporation receiving notice from the taxation authority
of such adjustment such amount as shall be required to ensure that the Seller
has received and retained an amount equal to the Redemption Amount as so
adjusted. The Buyer shall have the right to set-off any obligations owing by the
Seller to the Corporation pursuant to this Section 2.04 against any amounts
owing by the Buyer to the Seller under the Note or otherwise under this
Agreement or any Ancillary Agreement, and the indemnities provided by the Seller
and the Principals to the Buyer under Article IX shall extend to and
specifically include any obligations of the Seller to the Corporation pursuant
to this Section 2.04.
2.05 Removal.
The Buyer acknowledges that Seller shall be entitled, on or prior to the Closing
Date, to remove the Excluded Assets from the Corporation and obtain full
ownership thereof.
2.06 AG Amalgamation.
The Seller and Principals acknowledge that the Buyer shall be entitled to
complete a short-form vertical amalgamation of the Buyer and the Corporation on
or forthwith following the Closing Date pursuant to the provisions of the OBCA
whereupon the RD Guarantee and RD Security Agreement shall terminate and the
AG Security Agreement shall continue in full force and effect to secure the
obligations due under the Note and the Other Obligations.
2.07 Royalty Repayment.
The Buyer and the Guarantor acknowledge that the Subsidiary was credited in the
amount of $1,500,000 (the "Credit") by the Guarantor in respect of estimated
royalties due to the Corporation as a result of certain sales of the
Corporation's Owned Software Programs in jurisdictions outside of North America
up to the Closing Date (the "Foreign Royalties"). The
<PAGE>
--11--
countries and the periods of time in respect of which such Credit has been
granted and the allocation of the Credit among them is set forth in
Schedule "7". The Guarantor shall, after the Closing Date, use reasonable
commercial efforts to collect ("collect", "collection" and "collected" including
the exercise of rights of set-off in respect of, or the obtaining of other
equivalent compensation for) Foreign Royalties and, in doing so, shall use
currently available site audit procedures for license compliance customary in
the industry. The Guarantor shall provide the Seller with semi-annual reporting,
by March 31, 1998 and September 30, 1998, as to Foreign Royalties collected and
the efforts made by the Guarantor to do so. In the event that the actual amount
of Foreign Royalties due to the Corporation (determined in accordance with
current practice and based upon the royalties actually collected by the
Guarantor) in respect of the countries and the periods of time identified in
Schedule "7", exceeds the amount of the Credit, the Guarantor and the
Corporation shall pay such excess amount to the Seller within 30 days following
the final determination of the actual amount of such Foreign Royalties collected
by the Guarantor. In the event that the Guarantor collects Foreign Royalties
which relate to countries and/or periods of time other than those identified in
Schedule "7" due to the Corporation (determined in accordance with current
practice and based upon the royalties actually collected by the Guarantor), the
Guarantor shall pay such Foreign Royalties collected, that would have otherwise
been payable to the Corporation, to the Seller. Such payments shall be made in
full within 30 days following the collection by the Guarantor of such Foreign
Royalties. In the event that the Seller disagrees with the calculation by the
Corporation and/or the Guarantor of the amount of Foreign Royalties collected or
the amount due to the Seller hereunder (if any), the Seller may, at its own
expense, audit the records of the Guarantor and the Corporation relating to the
collection of Foreign Royalties and related records on reasonable notice and
during normal business hours. Any difference between the amount actually paid by
the Corporation and/or the Guarantor to the Seller hereunder and the amount
determined upon such audit to have been collected by the Guarantor and/or the
Corporation shall be payable by the Corporation and/or the Guarantor to the
Seller, or by the Seller to the Corporation and/or the Guarantor, as the case
may be. In the event that, as a result of such audit, the Corporation and/or the
Guarantor is required to pay to the Seller an amount in excess of 5% of the
amount previously paid by the Corporation and/or the Guarantor to the Seller
hereunder, the Corporation and/or the Guarantor shall reimburse the Seller for
the cost of such audit up to a maximum of $10,000. The payment and performance
by the Corporation of its obligations (if any) to pay such amount hereunder
shall be secured pursuant to the guarantees and security of the Guarantor, the
Buyer and the Corporation forming part of the Ancillary Documents. The
Corporation shall cease to have any obligation hereunder after November 30, 1998
provided that such final determination has been made as of September 30, 1998,
the reports required hereunder have been provided to the Seller, and any amounts
due to the Seller hereunder have been paid. The Seller shall thereafter have the
right, in consultation with the Guarantor, acting reasonably (and the Guarantor
having no obligation to assist the Seller) to directly pursue the collection of
unpaid Foreign Royalties, at its own cost and expense, until March 3 1, 1999 if
it determines, acting reasonably, that additional amounts may be payable.
<PAGE>
--12--
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PRINCIPALS AND SELLER
The Principals and Seller hereby jointly and severally represent and warrant to
the Buyer, acknowledging the Buyer is relying thereon in entering into this
Agreement and completing the transactions contemplated hereby, as follows:
3.01 Organization of Corporation and Seller.
The Corporation is, and each of the Predecessor Corporation and the Subsidiary
prior to the Amalgamation were, corporations validly existing and in good
standing under the OBCA with the corporate power and authority to conduct the
Software Business and to own and lease their respective properties and assets.
As to the conduct of the Software Business and the use and ownership of the
Material Assets specifically, the Corporation is and each of the Predecessor
Corporation and the Subsidiary prior to the Amalgamation were, duly qualified or
licensed to do business and is in good standing to do business in the
jurisdictions identified in the Disclosure Schedule which are the only
jurisdictions in which the failure to be so qualified or licensed would be
material. The Seller is validly existing and in good standing under the laws of
the Province of Ontario, Canada with the corporate power and authority to
conduct its business and to own the Purchased Securities.
3.02 Capacity, Power and Authority.
The Principals have the capacity, and the Seller has the power and authority, in
each case to execute, deliver, and perform its obligations under this Agreement
and the Ancillary Agreements to be executed and delivered by it in connection
with the transactions contemplated hereby. The Principals and the Seller have
taken all necessary corporate and other action to authorize the execution and
delivery of this Agreement and such other Ancillary Agreements and the
consummation of the transactions contemplated hereby and thereby. This Agreement
is, and the Ancillary Agreements shall be, the legal, valid, and binding
obligations of the Principals and the Seller, enforceable against each of them
in accordance with their respective terms. The Principals have executed and
delivered this Agreement after having obtained such independent legal and other
professional advice as they deemed necessary or appropriate, on a fully informed
basis, and without duress or coercion.
3.03 Restrictive Documents.
None of the Corporation, the Predecessor Corporation, the Subsidiary or the
Seller is subject to, or a party to, any charter or by-law restriction, any law,
any Claim, any shareholders agreement, voting trust, contract or instrument, any
Encumbrance or any other restriction of any kind or character which would
prevent the consummation of the transactions contemplated by this Agreement or
compliance with the terms, conditions and provisions of this Agreement and the
Ancillary Agreements, or the continued operation of the Software Business after
the date hereof on substantially the same basis as heretofore operated, or which
would restrict the ability of the Buyer to acquire any of the Purchased
Securities, except for the necessity of obtaining the
<PAGE>
--13--
Consents required or contemplated by this Agreement, provided that the Buyer
acknowledges that it has directed the Seller not to obtain the Consents
otherwise required in connection with the Material Contracts marked "*" in
Section 3.12 (c)(l) of the Disclosure Schedule.
3.04 Authorized and Issued Capital.
The authorized capital of the Corporation, after giving effect to the
Amalgamation, consists solely of the securities identified in the articles of
amalgamation of the Corporation dated as of September 26, 1997, true and
complete copies of which have been provided to the Buyer as of the date hereof.
The issued capital of the Corporation at the date hereof, after giving effect to
the Amalgamation, consists solely of the Purchased Securities and the Special
Share which is to be redeemed by the Corporation prior to the Closing Date as
contemplated by Section 2.04. The Purchased Securities have been duly issued and
are outstanding as fully paid and non-assessable shares in the capital of the
Corporation and the Seller is their sole registered and beneficial holder.
All of the issued and outstanding securities of Software AG Canada are owned by
the Principals.
3.05 Options, etc.
Except for the Buyer's right hereunder, no person has or will have any option,
warrant, right, call, commitment, conversion right, right of exchange or other
agreement or any right, privilege or entitlement (whether by law, pre-emptive or
contractual) capable of becoming an option, warrant, right, call, commitment,
conversion right, right of exchange or other agreement for the purchase from the
Seller of any of the Purchased Securities or the Special Share, or from the
Principals of the securities of Software AG Canada or for the purchase,
subscription, allotment or issuance of any unissued securities in the capital of
the Corporation (in each case both before and after giving effect to the
Amalgamation), or of Software AG Canada.
3.06 Title to Purchased Shares.
The Purchased Securities are owned by the Seller with a good and marketable
title thereto, free and clear of all Encumbrances other than the rights of the
Buyer under this Agreement. The Seller has the right, power and authority to
enter into this Agreement and to sell such Purchased Securities as contemplated
herein. The delivery of the Purchased Securities to the Buyer pursuant to the
provisions hereof on the Closing Date will transfer to the Buyer valid title
thereto, free and clear of all Encumbrances.
3.07 Dividends and Distributions.
Since the Balance Sheet Date, except for the Special Dividend, the Special Share
Redemption and the payment of a dividend in December, 1996 in the amount of
$800,000 from the Subsidiary to the Predecessor Corporation and from the
Predecessor Corporation to the Seller, none of the Corporation, the Predecessor
Corporation, the Subsidiary or Software AG Canada has, directly or indirectly,
declared, paid or otherwise become obligated to make any dividend or
<PAGE>
--14--
other distribution on any of its securities, redeemed, purchased or otherwise
acquired any of its securities of any class or agreed to do any of the
foregoing.
3.08 Corporate Records.
The corporate records of each of the Corporation, the Predecessor Corporation,
the Subsidiary and Software AG Canada are materially complete and accurate, and
all material corporate proceedings and actions reflected therein have been
conducted or taken in compliance with all applicable laws and with their
articles and by-laws, in each case in all material respects, and without
limiting the generality of the foregoing, (i) the minute books contain complete
and accurate minutes of all meetings and written resolutions of the directors
and shareholders held since the date of incorporation of the Corporation for
which minutes or other records of proceedings exist; (ii) all material acts and
proceedings of such shareholders, directors and officers of each of such
corporations have been duly approved or ratified by the directors or
shareholders of the Corporation in compliance with applicable laws; (iii) the
share certificate books, register of shareholders and register of transfers are
complete and accurate, in all material respects, and all such transfers have
been duly completed and approved and any exigible tax payable in connection with
the transfer of any of their securities has been duly paid; and (iv) the
registers of directors and officers are complete and accurate in all material
respects and all former and present directors and officers were duly elected or
appointed as the case may be.
3.09 Residence of the Seller.
The Seller is not a non-resident of Canada within the meaning of the Income Tax
Act (Canada).
3.10 Required Government Consent.
No Authorization of any Governmental Entity is required to be obtained by the
Seller or the Corporation for the execution and delivery of this Agreement and
the Ancillary Agreements, the consummation of the transactions contemplated
hereby and thereby.
3.11 Title to Tangible Property.
Except for Permitted Encumbrances, the Corporation holds good and marketable
title to all of the properties and assets of the Corporation used in connection
with the Software Business, including without limitation all of the Material
Assets formerly owned and used by the Predecessor Corporation and the Subsidiary
(other than the Excluded Assets), free and clear of all Claims and Encumbrances
of any nature whatsoever.
3.12 Disclosure of Properties and Material Assets.
The Disclosure Schedule contains complete lists of the following:
(a) Software Business. All Distributed Software Programs, all Owned Software
Programs and all software programs currently under development;
<PAGE>
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(b) [Intentionally Deleted]
(c) Software Contracts. All contracts, with any person respecting the
ownership, license, acquisition, design, development, distribution,
marketing, use, or maintenance of computer program code, related
technical or user documentation, and databases, including all the
software contracts consisting of (1) licenses from third parties
(development and/or marketing); (2) licenses from third parties (internal
use only); (3) development contracts, work-for-hire agreements, and
consulting and employment agreements; (4) distributorships, dealerships,
franchises, and manufacturer's representative contracts; (5) licenses and
sublicenses to others; and (6) maintenance, support, or enhancement
agreements (the "Software Contracts");
(d) Computer Equipment. All equipment and devices (including data processing
hardware and related telecommunications equipment, media, and tools) and
the Corporation's rights under all related warranties;
(e) Other Fixed Assets. All office furniture, fixtures and other fixed
assets;
(f) [Intentionally Deleted]
(g) Authorizations. All Authorizations currently applicable to the Software
Business other than such Authorization as are required to carry on
business generally;
(h) Intellectual Property. All patents, trademarks, service marks and trade
names (including registrations and applications pertaining thereto) (the
"Intellectual Property");
(i) Leases. All personal property leases or rental contracts agreements, and
other commitments and arrangements currently in effect to which the
Corporation is a party that either (1) have an annual rental, if any
individual instance, in excess of $15,000, or (2) continue in effect for
a period of twelve (12) months or longer without allowing the Corporation
to terminate without penalty for any reason upon the delivery of any
required action with respect to:
1. equipment, including data processing hardware and associated
telecommunications equipment, media, and tools;
2. office furnishings and fixtures; and
3. other personal property used in the Software Business (the "Leases").
(j) General Contracts. All other material contracts, agreements, licenses,
commitments, arrangements, and permissions with respect to the Software
Business (the "General Contracts") to the extent not otherwise disclosed
in this Agreement.
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(k) Accounts Receivable. All accounts receivable, including all license fees
and maintenance fees and charges owing or to become owing to the
Corporation under Software Contracts, in each case relating to or arising
from the Software Business (the "Accounts Receivable").
(1) Claims. All Claims the Corporation may have against any person relating
to or arising from the Material Assets or the Software Business,
including rights to recoveries for damages or defective goods, to
refunds, insurance claims, and choices in action.
(m) [Intentionally Deleted]
(n) Business Interests, Participations, and Ownership Positions. All
interests, participations, and ownership positions held by the
Corporation in any corporation, partnership, joint venture, co-marketing
arrangement, or similar enterprise or undertaking relating to the
Software Business.
3.13 Condition of Properties and Material Assets.
All of the Material Assets of the Software Business, to the extent that they are
tangible property, are in good operating order, condition, and repair, ordinary
wear and tear excepted, are suitable for use in the Software Business in the
ordinary course.
3.14 Intellectual Property.
(a) Ownership. Except for the rights and licenses validly and effectively
established by the Software Contracts in favour of third parties, the
Corporation owns or has the right to use, and will continue to own after the
Closing Date, all Intellectual Property. The Disclosure Schedule sets forth all
registered trademarks and service marks, all reserved trade names, all
registered copyrights, and all filed patent applications and issued patents
listed in the Disclosure Schedule used in the Software Business or otherwise
necessary for the conduct of the Software Business as heretofore conducted.
(b) Procedures for Trade Secret Protection. The Corporation has used its best
efforts to enforce an adequate trade secret protection program through
contractual agreements with officers, employees, developers, consultants and
other persons dealing with the Software Business. To the knowledge of the
Principals and the Seller, there has been no material violation of such program
by any person. The source code and system documentation relating to the Software
Programs (1) to the best knowledge of the Principals and the Seller have at all
times been maintained in confidence and (2) have been disclosed by the
Corporation only to employees and consultants having "a need to know" the
contents thereof in connection with the performance of their duties.
(c) Personnel Agreements. All personnel, including employees, agents,
consultants, and contractors, who have contributed to or participated in the
conception and development of the Owned Software Programs, technical
documentation, or Intellectual Property on behalf of the Corporation have
executed the agreement included in the Disclosure Schedule in
Section 3.12(c)(3).
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(d) Absence of Claims. No Claims have been asserted by any person to the use
of the Intellectual Property, and the Principals and the Seller do not know of
any valid basis for any such Claim. The use of the Intellectual Property, such
as patents and trademarks, by the Corporation does not infringe on the rights of
any person.
(e) Name. Software AG Canada has not received any notification that it does
not have the right to the use of the name "Software AG" within Canada as its
corporate name and shall continue to have such right following the Closing Date.
3.15 Adequacy of Technical Documentation.
The technical documentation with respect to the current versions of the Owned
Software Programs includes the source code, generation and administration
user's manuals and specifications and written procedures for all such Owned
Software Programs as may be necessary to render such materials understandable
and usable by a trained computer programmer. The technical documentation also
includes any program (including compilers), "workbenches," tools, and higher
level (or "proprietary") language used for the development, maintenance, and
implementation of the Owned Software Programs.
3.16 Third-Party Components in Software Programs.
The Corporation has validly and effectively obtained the right and license to
use, copy, modify, and distribute the third-party programming and materials
contained in the Owned Software Programs and is in possession of related
technical documentation. The Owned Software Programs and related technical
documentation contain no other programming or materials in which any third party
may claim superior, joint, or common ownership, including any right or license.
The Software Programs and related technical documentation do not contain
derivative works of any programming or materials not owned in their entirety by
the Corporation except for derivative works which result from the inclusion of
Software licensed by the Corporation from Apex Software Corporation in the
Corporation's CONSTRUCT SPECTRUM software.
3.17 Third-Party Interests or Marketing Rights in Software Programs.
The Corporation has not granted, transferred, or assigned any right or interest
in the Owned Software Programs, the related technical documentation, or the
Intellectual Property to any person, except pursuant to the Software Contracts
identified as "distributorships, dealerships, franchises, and manufacturer's
representative contracts" or "licenses and sublicenses to others" in the
Disclosure Schedule. Except as set forth in the Disclosure Schedule, all
Software Contracts identified as "licenses and sublicenses to others" in the
Disclosure Schedule constitute only end-user agreements, each of which grants
the end-user thereunder solely the nonexclusive right and license to use
identified Software Programs and related user documentation for internal
purposes only except that some of such Software Contracts provide that (a) a
service bureau may use the Software Programs and related technical documentation
to process data for an end-user; (b) subsidiaries, affiliates and related
corporations of an end-user may use the Software Programs and
<PAGE>
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related technical documentation; and (c) the end-user may assign such Software
Contract to a purchaser of all or substantially all of the assets of such
end-user. There are no contracts, agreements, licenses, and other commitments
and arrangements in effect with respect to the marketing, distribution,
licensing, or promotion of the Software Programs, the related technical
documentation, or the Intellectual Property by any independent salesperson,
distributor, sublicensor, or other remarketer or sales organization, except for
the Software Contracts identified as "distributorships, dealerships, franchises,
and manufacturer's representative contracts" in the Disclosure Schedule.
3.18 Leases.
All of the Leases are valid, binding, and enforceable in accordance with their
terms and are in full force and effect. There are no existing defaults by the
Corporation thereunder, and no act, event, or omission has occurred that,
whether with or without notice, lapse of time, or both, would constitute a
default thereunder. Full, true and complete copies of the Leases, other than the
proposed lease for the Toronto site, have been provided to the Buyer.
3.19 Leased Property.
The Corporation is not a party to, or under any agreement or option to become a
party to, any lease with respect to real property, whether as landlord or
tenant, other than the leased premises identified in the Disclosure Schedule
(the "Leased Premises"). Full, true and complete copies of the leases with
respect to the Leased Premises have been provided to the Buyer.
3.20 Subsidiaries and Investments.
Except as disclosed in the Disclosure Schedule, the Corporation does not have
any subsidiaries or any agreements of any nature to establish or acquire any
subsidiary or to acquire or lease any other business operations and the
Corporation has not made or agreed to make any loan to or investment in any
other person. None of the Corporation, the Seller or the Principals is a party
to any joint venture or other similar agreement or arrangement that involves any
sharing of profits of the Software Business or is similar to or competitive with
the Software Business, other than the Software Contracts identified as "licenses
from third parties (development and/or marketing)" or "distributorships,
dealerships, franchises, and manufacturer's representative contracts" in the
Disclosure Schedule.
3.21 Material Contracts.
The contracts listed in the Disclosure Schedule, full, true and complete copies
of which have been provided to the Buyer, constitute all the Material Contracts
of the Corporation. Except as disclosed in the Disclosure Schedule, Financial
Statements and Interim Financial Statements and as contemplated by this
Agreement the Corporation is not a party to or bound (including as a result of
the Amalgamation) by any agreement not identified as a Material Contract that
involves:
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(a) any employment agreement, bonus, deferred compensation, pension, profit
sharing, stock option, phantom stock plan, employee stock purchase,
health, insurance, retirement or other employee benefit plan, any
collective agreements or any agreement (oral or written) providing for
compensation to be paid to any employee consequent upon the sale of any
substantial portion of outstanding securities in its capital or any
direct or indirect change in its ownership or control;
(b) any material agreement or commitment relating to the borrowing of money;
(c) any material agreement or commitment relating to capital expenditures
other than capital expenditures incurred in the ordinary course of
business consistent with past practice;
(d) any loan or advance to, or investment in, any other person or any
agreement or commitment relating to the making of any such loan, advance
or investment;
(e) any bonds, debentures, mortgages, notes or other similar indebtedness or
liabilities whatsoever or any agreement to create or issue any bonds,
debentures, mortgages, notes or other similar indebtedness;
(f) any guarantee or other contingent liability in respect of any
indebtedness or obligation of any other person (other than the
endorsement of negotiable instruments for collection in the ordinary
course of business);
(g) any management, consulting or any other similar agreement or commitment;
(h) any non-competition, non-solicitation or similar agreement or commitment
limiting its freedom or that of any successor to the ownership of the
assets or the Software Business to engage in any line of business or to
compete with any other person;
(i) any licensing or other agreement or commitment relating to intellectual
property used in the conduct of the Software Business;
(j) any agreement or commitment entered into in the ordinary course of the
Software Business involving an expenditure or commitment of more than
$25,000 (other than purchase orders accepted from time to time consistent
with current practice) which is not cancelable without penalty within
thirty (30) days;
(k) any material agreement or commitment not entered into in the ordinary
course of the Software Business; and
(1) any agreement or arrangement with any person with whom the Corporation or
the Seller (or their directors, officers or employees) does not deal at
arm's length within the meaning of the Income Tax Act (Canada).
<PAGE>
--20--
All of the Material Contracts are valid, binding, and enforceable in accordance
with their terms and are in full force and effect. There are no existing
material defaults by the Corporation (or, to their knowledge material defaults
by the other parties hereto) under any such contracts and no act, event, or
omission has occurred that, whether with or without notice, lapse of time, or
both, would constitute a default thereunder. The customers of the Corporation
who are, to the knowledge of the Corporation, currently in default of their
license obligations with respect to the Software Programs are identified in the
Disclosure Schedule.
3.22 Accounts Receivable.
All Accounts Receivable are fully collectible within the customary collection
cycle, subject only to bad debts that will not exceed the amount of bad debt
reserves set forth in the Interim Financial Statements. All Accounts Receivable
call for payment to be made within ninety (90) days to the principal office of
the Corporation.
3.23 Financial Matters.
(a) Financial Statements. The Financial Statements have been prepared in
accordance with GAAP, consistently applied with the principles and procedures
employed in prior periods by the Predecessor Corporation and the Subsidiary. The
Financial Statements properly reflect all properties, assets and liabilities of
the Corporation. The Financial Statements fairly present the results of
operation and the financial position of the Corporation as of the Balance Sheet
Date in conformity with GAAP consistently applied with the principles and
procedures employed in prior periods.
(b) Interim Financial Statements. The Interim Financial Statements have
been prepared in accordance with GAAP, consistently applied with the principles
and procedures employed in prior interim periods by the Predecessor Corporation
and the Subsidiary except that: (i) such statements are not accompanied by
notes; (ii) no provision has been made in the Interim Financial Statements for
taxes payable; (iii) no provision has been made in the Interim Financial
Statements for foreign royalties receivable; and (iv) no provision has been made
in the Interim Financial Statements for employee bonuses. The Interim Financial
Statements properly reflect all properties, assets and liabilities of the
Corporation. The Interim Financial Statements fairly present the results of
operation and the financial position of the Corporation as of the Interim
Statement Date in conformity with GAAP consistently applied with the principles
and procedures employed in prior periods.
(c) Cash Balances. As of September 23, 1997, the cash balances of the
Corporation, comprised of deposits with the Corporation's banker and readily
marketable securities on deposit with Royal Bank of Canada and RBC Dominion
Securities Ltd., are approximately $5 million, after payment of the amounts
permitted under Article II hereof, after assuming that all cheques and similar
obligations that have been issued by the Corporation have been presented for
payment as of September 23, 1997. Between such date and the date hereof, there
has been no material changes in such cash balances.
<PAGE>
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(d) Capital Expenditures. No material capital expenditures have been made or
authorized by the Corporation since the Balance Sheet Date, other than as
disclosed in the Interim Financial Statements and the Disclosure Schedule.
(e) Undisclosed Liabilities. Except as set forth in this Agreement, or in the
Disclosure Schedule, there are no liabilities or obligations, secured or
unsecured (whether absolute, accrued, contingent, or otherwise, and whether due
or to become due), of a nature required by GAAP to be reflected in a balance
sheet of the Corporation, except such liabilities and obligations that either
(1) are accrued and reserved against in the Interim Financial Statements or (2)
have arisen or been incurred in the ordinary course of business since the
Interim Statement Date.
3.24 Conduct of Software Business.
(a) Ordinary Course of Business; No Removal or Disposal of Material Assets.
Except as set forth in the Interim Financial Statements and the Disclosure
Schedule, the Corporation has operated the Software Business in the ordinary
course consistent with past practices since the Balance Sheet Date, and has not
disposed of any Material Assets (other than the Excluded Assets);
(b) No Material Adverse Change. Except as set forth in the Disclosure
Schedule and the Interim Financial Statements, since the Balance Sheet Date,
there has been no material adverse change in the Software Business or in the
financial condition, operations, or prospects of the Software Business without
restricting the foregoing, the Seller has not (1) suffered any damage or
destruction adversely affecting the Software Business or involving the Material
Assets in the amount of $10,000 in any one instance; (2) increased the
compensation payable or to become payable to employees of the Seller involved in
the Software Business or declared any bonus (except for a general increase in
compensation rates effective December 1, 1996 the terms of which have been
disclosed to the Buyer and an increase in the compensation of Stan Dushko to
$60,000 per annum); (3) incurred any liability or obligation relating to the
Software Business other than in the ordinary course consistent with past
practice; (4) made any change in any method, practice, or principle of
accounting involving the Software Business (other than changes to US generally
accepted accounting principles requested by the Buyer); (5) paid, loaned, or
advanced any material monetary amount or other asset to, or sold, transferred,
or leased any asset to, any employee involved in the Software Business except
for normal compensation involving salary and benefits; or (6) agreed to take any
action described in this Section 3.24(b).
3.25 Vendors and Customers.
The Disclosure Schedule lists each licensor, developer, remarketer, distributor,
and supplier of property or services to whom the Corporation, the Predecessor
Corporation or the Subsidiary paid in the aggregate $50,000 or more during the
fiscal year ended November 30, 1996 (none of which have been paid more than
$200,000), and each licensee, end-user, or customer of, the Corporation as of
the Balance Sheet Date. None of such customers or suppliers has terminated, or
materially changed or reduced, its relationship with the Corporation since such
date or advised the Corporation, the Seller or the Principals that it intends to
do so.
<PAGE>
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3.26 Legal Matters.
(a) Litigation. Except as set forth in the Disclosure Schedule, no Claim is
pending, or, to the best of their knowledge, threatened against the Corporation,
its present or former directors, officers, or employees, or any party to any
Software Contract, affecting, involving, or relating to the Software Business.
The Corporation is not, to their knowledge, subject to any judgement, order or
decree entered in respect of any Claim.
(b) Compliance With Laws. There is no outstanding or, to the best of their
knowledge, threatened order, writ, injunction, or decree of any court,
governmental agency, or arbitration tribunal against the Corporation affecting,
involving, or relating to the Software Business or the Material Assets. The
Corporation is not in violation of any applicable law affecting, involving, or
relating to the Software Business or the Material Assets except where
noncompliance has no material adverse effect upon the financial condition,
operation, or prospects of the Software Business or the Material Assets, and
they have received no notices of any allegation of any such violation.
(c) Adequacy of Authorizations. The Authorizations listed in the Disclosure
Schedule constitute all Authorizations of Governmental Entities that are
required for the ownership and use of the Material Assets and the conduct of the
Software Business under Canadian law, other than Authorizations required to
carry on business generally. The Corporation is in compliance with all terms and
conditions of such required Authorizations. All of the Authorizations are in
full force and effect, and, to the best of their knowledge, no suspension or
cancellation of any of them is being threatened, nor will any of the
Authorizations be affected by the consummation of the transactions described in
this Agreement. The Corporation is in compliance with all other applicable
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules, and timetables contained in those laws or contained in
any law, regulation, code, plan, order, decree, judgment, notice, or demand
letter issued, entered, promulgated, or approved thereunder relating to or
affecting the Software Business.
(d) Environmental Compliance. Except as set forth in the Disclosure Schedule,
neither the Seller, nor, to the best of their knowledge, any prior owner, user,
controller, or occupant, nor any tenant, subtenant, prior tenant, or prior
subtenant has ever used Hazardous Materials (as hereinafter defined) on, from,
or affecting the Material Assets or any facility, site, area, or property owned,
used, controlled, or occupied by the Software Business, in any manner that
violates any Canadian law, regulation, governmental restriction, order,
judgment, or decree governing the use, storage, treatment, transportation,
manufacture, handling, production, or disposal of Hazardous Materials. For
purposes hereof, "Hazardous Materials" include any flammable materials,
explosives, radioactive materials, hazardous materials, hazardous wastes,
hazardous or toxic substances, or related materials defined under applicable
Canadian federal and provincial environmental laws. The term "material" includes
asbestos, polychlorinated biphenyls, kerosene, and fuel oil. The term "release"
means any spilling, leaking, pumping, pouring, emitting, emptying, discharging,
injecting, escaping, leaching, dumping, or disposing into the environment. The
term "environment"
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means any surface or groundwater water supply, land, surface, or subsurface
strata or the ambient air.
3.27 Taxes and Filings.
The Corporation has filed or caused to be filed, within the times and within the
manner prescribed by law, all federal, provincial, local and foreign tax returns
and tax reports which are required to be filed by it. Such returns and reports
reflect accurately all liability for taxes for the periods covered thereby and
full, true and complete copies of such returns and reports for the past 3 fiscal
years have been provided to the Buyer. To their knowledge all federal,
provincial, local and foreign income, profits, franchise, sales, use, occupancy,
excise and other taxes and assessments (including interest and penalties)
payable by or due from the Corporation have been fully paid or are adequately
disclosed and fully provided for in the books and records and the Financial
Statements or the Interim Financial Statements (except as set forth in Section
3.23(b) above) as the case may be. The federal income tax liability of the
Corporation has been assessed for all fiscal years up to but excluding its
current fiscal year. No field audit of any tax return is currently in progress
nor has the Corporation been notified in writing that any tax returns previously
filed by it will be subject to reassessment. There are no outstanding agreements
or waivers extending the statutory period of limitation applicable to any tax
return of the Corporation, except in respect of the fiscal years 1991 through
1993. The Buyer acknowledges that in 1997 a scientific research and experimental
development tax credit claim of the Predecessor Corporation for the fiscal year
ended November 30, 1995 and the prior years was reassessed (and details of such
reassessment have been provided to the Buyer) by Revenue Canada, Taxation and
that the corresponding Ontario and Alberta claims have not yet been assessed by
the Ontario and Alberta Ministries of Revenue and the amount of such claims may
be reduced upon such assessments. The Corporation records scientific research
and experimental development tax credits on its financial statements only when
and to the extent the same was applied against income taxes otherwise payable
and the future tax benefit to the Corporation regarding such claims is not
recorded on the Financial Statements or the Interim Financial Statements. The
Buyer agrees that neither the Seller nor the Principals shall have any liability
pursuant to this Section 3.27 in respect of assessments or potential
reassessments of federal or provincial scientific research and experimental
development tax credits claimed until the amount of such liability exceeds the
amount of the Corporation's scientific research and experimental development tax
credit carry-forward as at the date hereof.
3.28 Employee Matters.
To their knowledge:
(1) The Corporation is in compliance with all laws respecting employment and
employment practices, terms and conditions of employment, pay equity and wages
and hours and has not and is not engaged in any unfair labour practice.
(2) No unfair labour practice, complaint or grievance against the Corporation is
pending or, to the best of the knowledge of the Corporation, threatened before
any labour relations board or similar Governmental Entity with respect to the
Software Business.
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(3) There is no labour strike, dispute, slowdown or stoppage actually pending or
involving or, to the best of the knowledge of the Corporation, threatened
against the Corporation with respect to the Software Business.
(4) No union representation question exists respecting the employees of the
Corporation in connection with the Software Business.
(5) No grievance which might have a material adverse effect upon the Corporation
or the conduct of the Software Business exists, no arbitration proceeding
arising out of or under any collective agreement is pending, and no Claim
therefor has been asserted.
(6) No collective bargaining agreement is currently being negotiated by the
Corporation with respect to any of its employees and true, correct and complete
copies of the only collective agreements in force with respect to employees have
been provided to the Buyer.
(7) A complete list of all permanent and full time employees of the Corporation,
their salaries and wage rates, bonus arrangements, benefits, positions and
length of service has been provided to the Buyer by the Seller.
(8) No employee of the Corporation has any agreement as to length of notice
required to terminate his or her employment, other than such agreements as have
been referred to in the Disclosure Schedule and except as results by law from
the employment of an employee without agreement as to such notice or as to
length of employment.
(9) All bonuses, commissions and other benefit payments due to current and
former employees of the Corporation are reflected and have been accrued in the
Interim Financial Statements of the Corporation. The Buyer acknowledges that (a)
the Corporation does not accrue vacation pay in its books and records; (b)
employees of the Corporation are entitled to carry forward the unused portion of
their vacation entitlement in any year into the following year only; and (c) the
Corporation only pays vacation pay to its employees upon cessation of employment
with the Corporation based on the foregoing.
(10) The aggregate amount of salaries, pensions, bonuses, or other remuneration
of any nature paid or payable by the Corporation to or for its present or former
officers, directors, shareholders, employees or persons not dealing at arm's
length (as such term is construed under the Income Tax Act (Canada)) with them
during the year ended on the Balance Sheet Date, and during the period ended
July 31, 1997 are fully reflected in the Financial Statements, or the Interim
Financial Statements, as the case may be, and since that date, payments to such
persons have been made at no greater rates except for the payments disclosed in
the Disclosure Schedule.
(11) The only benefit plans existing in respect of the employees of the
Corporation are the benefit plans identified in the Disclosure Schedule. True,
correct and complete copies of all written benefit plans and related
documentation have been provided to the Buyer and any oral or written benefit
plans are accurately described in the Disclosure Schedule. The benefit plans are
<PAGE>
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duly registered where required by, and are in good standing under, all
applicable laws. All required employer and employee contributions and premiums
under the benefit plans to the date hereof have been made, the respective fund
or funds established under the benefit plans are funded in accordance with
applicable laws, and no past service funding liabilities exist thereunder.
(12) No pension plans exist in respect of the employees of the Corporation.
(13) No payments have been made or authorized since the Balance Sheet Date
by the Corporation to its officers, directors, former directors, shareholders or
employees or to any person not dealing at arm's length (as such term is
construed under the Income Tax Act (Canada)) with any of the foregoing, except
in the ordinary course of the Software Business and at the regular rates payable
to them of salary, pension, bonuses, rents or other remuneration of any nature
and except for the bonus payments and salary increases made subsequent to
November 30, 1996 and disclosed to the Buyer, full provision for which has been
made in the Interim Financial Statements.
(14) To the best of their knowledge, no certification or decertification
question or organizational drive exists or has existed within the past
twelve (12) months respecting the Corporation, the Predecessor Corporation
or the Subsidiary or their employees.
(15) To the best of their knowledge, there are no charges, investigations,
administrative proceedings, or formal complaints of discrimination (including
discrimination based upon sex, age, marital status, race, national origin,
sexual preference, handicap, or veteran status) pending or, to their knowledge,
threatened before any Governmental Entity pertaining to the Corporation, the
Predecessor Corporation, the Subsidiary or their employees and, to their
knowledge, no basis for any such charge, investigation, administrative
proceeding, or complaint exists.
3.29 Insurance Polices.
The Disclosure Schedule lists all insurance policies of the Corporation relating
to the Software Business in force as of the date hereof, naming the Corporation
as an insured or beneficiary or as a loss-payable payee or for which the
Corporation has paid or is obligated to pay all or part of the premiums. All
such policies of insurance coverage are in full force and effect and full, true
and complete copies of such policies have been provided to the Buyer. The
Corporation is not, to their knowledge, in default with respect to any of the
provisions contained in any such insurance policy and, to their knowledge, has
not failed to give any notice or present any Claim under any such insurance
policy in due and timely fashion. The Corporation has not received notice of any
pending or threatened termination or retroactive premium increase with respect
thereto; and the Corporation is in compliance with all conditions contained
therein, the noncompliance with which could result in termination of insurance
coverage or increased premiums for prior or future periods. There are no pending
material Claims against such insurance by the Corporation as to which insurers
have denied liability or are defending under any reservation of rights, and, to
their knowledge, there exists no material Claim under such insurance that has
not been properly filed by the Corporation.
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3.30 Broker's or Finder's Fees.
Neither the Seller nor the Principals has authorized any person to act as broker
or finder or in any other similar capacity in connection with the transactions
contemplated by this Agreement in any manner that may or will impose liability
on the Buyer, the Corporation or the Software Business.
3.31 Related-Party Transactions.
Except as disclosed in the Disclosure Schedule, the Corporation is not a party
to any contract, agreement, license, lease, or arrangement with, or any other
commitment to, directly or indirectly, (1) any officer or salaried employee of
the Software Business in office within two (2) years of the date of execution
hereof; (2) any corporation, trust, or other entity in which any such officer or
salaried employee has a material equity or participating interest; or (3) or any
partnership in which any such officer or salaried employee has a partnership or
participating interest, in each case, relating to or involving the Software
Business, except, in each instance, for existing compensation arrangements
listed in the Disclosure Schedule. Each such contract, agreement, license,
lease, arrangement, and commitment was entered into by the Seller in the
ordinary course of business upon terms that are fair and reasonable to the
Software Business without regard to the status and relationship of such other
parties.
3.32 Real Property
The Corporation is not the owner of, or under any agreement or option to own,
any real property or any interest therein.
3.33 Bank Accounts and Powers of Attorney
The Disclosure Schedule contains an accurate list showing (i) the name of each
bank in which the Corporation has an account or safe deposit box and the names
of all persons authorized to draw thereon or to have access thereto; and (ii)
the names of any persons holding powers of attorney from the Corporation and a
summary statement of the terms thereof.
3.34 Amalgamation
The Amalgamation has not and will not cause or result in any material adverse
change in the ability of the Buyer to conduct the Software Business after the
Closing Date on substantially the same terms as currently conducted, whether as
a result of the right of any person to terminate any Material Contract, assert
any Claim against any Material Asset or against the Corporation, discontinue its
relationship to or dealings with the Corporation, or otherwise.
3.35 Disclosure.
No representation, warranty, or statement made by the Seller or the Principals
in this Agreement or in any Ancillary Agreement contains or will contain any
untrue statement or omits or will omit to
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state any fact necessary to make the statements contained herein or therein not
misleading. None of this Agreement or any Ancillary Agreement or any certificate
or statement in writing which has been supplied by or on behalf of the
Corporation, the Seller or the Principals, or by any of the directors, officers
or employees of the Corporation or the Seller in connection with the
transactions contemplated hereby contains any untrue statement of a material
fact, or omits any statement of a material fact necessary in order to make the
statements contained herein or therein not misleading.
3.36 Software AG Canada.
Software AG Canada does not have any material assets, liabilities (actual or
contingent), commitments, or other obligations whatsoever, and has been used
solely for purposes of preserving the rights of the Principals to the name
"Software AG". Software AG Canada is currently in good standing in respect of
its obligations under all applicable laws, including tax and similar laws, and
is not in default of any material filing or other obligation under such laws.
3.37 Truth at Closing.
Except as otherwise disclosed to and agreed to by the Buyer in writing after the
date hereof, all of the representations, warranties, and agreements of the
Seller and Principals contained in this Article III shall be true and correct
and in full force and effect on and as of the Closing Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND GUARANTOR
The Buyer and Guarantor hereby jointly and severally represent and warrant to
the Seller acknowledging the Seller is relying thereon in entering into this
Agreement and completing the transactions contemplated hereby, as follows:
4.01 Organization.
The Buyer and the Guarantor are corporations validly existing and in good
standing under the laws of their jurisdictions of incorporation with the
corporate power and authority to conduct their business and to own and lease its
properties and assets, and are duly qualified or licensed to do business and in
good standing in each jurisdiction in which the failure to be so qualified or
licensed would have a material adverse effect on its financial condition or
operations.
4.02 Power and Authority.
Each of the Buyer and the Guarantor has the power and authority to execute,
deliver, and perform this Agreement and the Ancillary Agreements to be executed
and delivered by it in connection with the transactions contemplated hereby and
thereby, and each of the Buyer and the Corporation has taken all necessary
corporate action to authorize the execution and delivery of this Agreement and
the Ancillary Agreements and the consummation of the transactions contemplated
hereby and thereby. This Agreement is, and, when such other and Ancillary
Agreements are executed and
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delivered, such other Ancillary Agreements to be executed and delivered by the
Buyer and the Guarantor in connection with the transactions contemplated hereby
and thereby shall be, the legal, valid, and binding obligation of the Buyer or
the Guarantor, as the case may be, enforceable in accordance with their terms.
4.03 Broker's or Finder's Fees.
Neither the Buyer nor the Guarantor has authorized any person to act as broker,
finder, or in any other similar capacity in connection with the transactions
contemplated by this Agreement.
4.04 No Conflict.
Neither the execution and delivery by the Buyer and the Guarantor of this
Agreement and of the Ancillary Agreements to be executed and delivered by them
in connection with the transactions contemplated hereby or thereby, nor the
consummation by them of the transactions contemplated hereby or thereby will
violate or conflict with any law applicable to the Buyer or the Guarantor, or
any provision of any charter, bylaw, or other governing or organizational
instrument of the Buyer or the Guarantor.
4.05 Interim Financial Statements.
The interim financial statements of the Guarantor for the period ended July 31,
1997, a copy of which is attached as Schedule "5", have been prepared in
accordance with US generally accepted accounting principles, consistently
applied with the principles and procedures employed in prior periods. Such
interim financial statements properly reflect all properties, assets and
liabilities of the Guarantor and fairly present the results of operation and the
financial position of the Guarantor as of the Interim Statement Date in
conformity with US generally accepted accounting principles consistently applied
with the principles and procedures employed in prior periods.
ARTICLE V
CONDUCT OF THE SOFTWARE BUSINESS PRIOR TO CLOSING
5.01 Ordinary Course of Business.
The Principals and the Seller shall cause the Corporation to conduct the
Software Business during the Interim Period diligently and substantially in the
same manner as heretofore conducted, and not to institute any new methods of
accounting or operation or engage in any transaction or activity, enter into any
agreement, or make any commitment, except in the ordinary course of such
business and consistent with past practice.
5.02 Preservation of Goodwill.
The Principals and the Seller shall use their best efforts to cause the
Corporation, during the Interim Period, to:
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(i) keep available the services of the present employees and
agents of the Corporation and maintain existing relationships
and goodwill with the suppliers, customers, distributors,
partners and any others having business relations with it;
(ii) preserve the possession and control of the Corporation's
properties and assets and to preserve the confidentiality of
any confidential or proprietary information of the Software
Business; and
(iii) conduct the Software Business in such a manner that on the
Closing Date, the representations and warranties of the Seller
and Principals contained in this Agreement shall be true,
correct and complete as if such representations and warranties
were made on and as of such date.
5.03 Prohibited Actions.
In no event, without the prior written consent of the Buyer, shall the Seller or
Principals during the Interim Period cause, permit or suffer the Corporation to:
(a) Liabilities. Incur any material liability or obligation of any nature
(whether accrued, absolute, contingent or otherwise), increase its indebtedness
for borrowed money, or make any loan to any person, except current borrowings
from banks in the ordinary course of business;
(b) Liens. Permit any of the Material Assets to be subjected to any Encumbrance,
except for Permitted Encumbrances.
(c) Disposition of Material Assets. Waive any Claims of substantial value
respecting the Material Assets, or sell, transfer, or otherwise dispose of any
of the Material Assets, except in the ordinary course of business and consistent
with past practice, including writing off as uncollectable any notes or accounts
receivable or cancelling or waiving any material Claims or rights against third
parties, other than the use of its cash reserves to fund the payment of the
Special Dividend and the Special Share Redemption.
(d) Licenses. Other than in the ordinary course of its licensing activities and
consistent with past practice, dispose of, license, or permit to lapse any
rights in any Intellectual Property.
(e) Increases in Compensation. Increase the compensation of the officers,
employees, or consultants of the Corporation, make any bonus or profit sharing
commitment, distribution or payment of any kind, other than as contemplated by
this Agreement, or grant any general increase in the rate of wages, salaries,
bonuses or other remuneration of any executive or other employee, other than as
contemplated by this Agreement.
(f) Software Contracts. Enter into any new (or materially amend the terms of
existing) Software Contracts other than in the ordinary course of business and
consistent with past practice.
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(g) Capital Expenditures. Make any material capital expenditure or commitment
therefor, other than the replacement of equipment in the ordinary course
of business;
(h) Accounting Changes. Make any material change in any method of accounting
or auditing practice from those reflected in the Interim Financial
Statements;
(i) Maintain Insurance. Cancel or reduce any of its insurance coverage; or
(j) Agreements. Agree, whether or not in writing, to do any of the foregoing.
5.04 Access.
From the date of this Agreement to the Closing Date, the Seller shall (1)
provide the Buyer with such information as the Buyer may from time to time
reasonably request with respect to the Software Business and the transactions
contemplated by this Agreement; (2) provide the Buyer and its officers, counsel,
and other authorized representatives (including without limitation its advisors
in connection with the Public Offering) access during regular business hours and
upon reasonable notice to the books, records, and offices of the Corporation, as
the Buyer may from time to time reasonably request; and (3) permit the Buyer to
make such inspections thereof as the Buyer may reasonably request. Any
investigation shall be conducted in such a manner as not to interfere
unreasonably with the operation of the business of the Corporation. No
investigations made by or on behalf of the Buyer, whether under this Section
5.04 or any other provision of this Agreement or any Ancillary Agreement, shall
have the effect of waiving, diminishing the scope of or otherwise affecting any
representation or warranty made in this Agreement.
5.05 Updating of Information.
From the date of this Agreement to the Closing Date, the Seller shall deliver
revised or supplementary schedules to this Agreement, containing accurate
information as of the Closing Date, in order to enable the Buyer to confirm the
accuracy of the Seller's representations and warranties and otherwise to give
full effect to the provisions of this Agreement. Such revised or supplementary
schedules shall not modify or be deemed part of this Agreement unless agreed by
the Buyer in writing with reference to the specific schedules to be so treated.
The foregoing obligation to furnish updated information shall apply to such
Disclosure Schedule only insofar as material events or changes occur such as to
make the contents of such Disclosure Schedule unreliable or misleading.
5.06 Approvals of Third Parties.
The Seller and the Buyer shall make good faith efforts, and shall cooperate with
one another, to secure all required Consents, and to obtain the satisfaction of
the conditions specified in Articles VI and VII, as shall be required in order
to enable the Seller and the Buyer to effect the transactions contemplated
hereby in accordance with the terms and conditions hereof.
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5.07 Filings and Authorizations.
Each of the Seller and the Buyer, as promptly as practicable after the execution
hereof, (i) will make, or cause to be made, all such filings and submissions
under all laws applicable to it, as may be required for it to consummate the
purchase and sale of the Purchased Securities in accordance with the terms of
this Agreement; (ii) will use all reasonable efforts to obtain, or cause to be
obtained, all material Consents from all persons and all material Authorizations
from all Governmental Entities necessary or advisable to be obtained by it in
order to consummate such transfer; and (iii) will use all reasonable efforts to
take, or cause to be taken, all other actions necessary, proper or advisable in
order for it to fulfill its obligations hereunder. The Seller and the Buyer will
co-ordinate and co-operate with one another in exchanging such information and
supplying such assistance as may be reasonably requested by each in connection
with the foregoing.
5.08 Notice of Untrue Representation or Warranty.
The Seller and the Principals shall notify the Buyer and the Guarantor, upon
becoming aware that any representation or warranty of the Seller and Principals
contained in this Agreement or any Ancillary Agreement is untrue or incorrect in
any material respects during the Interim Period and for the purposes of this
Section each representation and warranty shall be deemed to be given at and as
of all times during the Interim Period.
5.09 Transfer of the Purchased Securities.
The Seller shall take all necessary and reasonable steps and proceedings to
permit good and marketable title to the Purchased Securities to be duly and
validly transferred and assigned to the Buyer at the Time of Closing, free of
all Encumbrances.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF THE SELLER AND THE PRINCIPALS
The obligations of the Seller and Principals to be performed hereunder shall be
subject to the satisfaction (or waiver by the Seller and Principals) at or prior
to the Closing Date of each of the following conditions:
6.01 Representations and Warranties True at Closing Date.
The representations and warranties of the Buyer and the Guarantor contained in
this Agreement shall be true on and as of the Closing Date with the same force
and effect as though made on and as of such date; the Buyer and the Guarantor
shall have complied with the covenants and agreements set forth herein to be
performed by it on or before the Closing Date; and the Buyer and the Guarantor
shall have delivered to the Seller a certificate dated the Closing Date and
signed by a duly authorized officer of each of the Buyer and the Guarantor to
all such effects.
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6.02 Authorization, Execution, Delivery, and Enforceability.
All corporate action by the Buyer and the Guarantor required in order to
authorize the transactions contemplated by this Agreement and the Ancillary
Agreements in connection with the transactions contemplated hereby and thereby
has been duly and validly taken; and this Agreement and such Ancillary
Agreements have been duly executed and delivered by the Buyer and the Guarantor
and constitute the valid and binding obligations of the Buyer and the Guarantor
enforceable in accordance with their terms, except as to (1) such enforcement's
being subject to bankruptcy, insolvency, reorganization, moratorium, or other
laws relating to creditors' rights, or debtor's moratorium, and (2) the
availability of the remedy of specific performance and other forms of equitable
relief.
6.03 No Conflict.
Neither the execution and delivery of this Agreement by the Buyer and the
Guarantor, and the other agreements and instruments to be executed and delivered
by them in connection with the transactions contemplated hereby and thereby, nor
the consummation of the transactions contemplated hereby and thereby will
violate the Certificate of Incorporation or Bylaws of the Buyer and the
Guarantor or, contravene any statute or law, or any judgment, decree, order,
regulation, or rule of any court or governmental authority pertaining to the
Buyer and the Guarantor.
(a) Deliveries for the Closing Date. The Buyer and the Guarantor shall have
delivered or caused to be delivered to the Seller and the Principals on the
Closing Date, the following in form and substance satisfactory to the Seller and
the Principals, acting reasonably:
(i) duly executed copies of the Ancillary Agreements required to be
executed and delivered by either or both of the Buyer and the
Guarantor as of the Closing Date;
(ii) certified copies of (i) the charter documents and extracts from
the by-laws of the Buyer and the Guarantor relating to the
execution of documents; (ii) all resolutions of the shareholders,
the board of directors or any duly authorized committee thereof,
of each of the Buyer and the Guarantor approving the entering
into of this Agreement and the Ancillary Agreements and the
completion of all transactions contemplated hereunder and
thereunder; and (iii) all other instruments evidencing necessary
action of the Buyer and the Guarantor and of Authorizations, if
any, with respect to such matters;
(iii) certificates of the Secretary or an Assistant Secretary of each
of the Buyer and the Guarantor certifying the names and true
signatures of its officers authorized to sign this Agreement and
the Ancillary Agreements to be delivered hereunder;
(iv) a certificate of status, compliance, good standing or like
certificate with respect to each of the Buyer and the Guarantor
issued by appropriate government officials of the jurisdiction of
its incorporation;
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(v) favourable opinions of counsel to the Buyer and the Guarantor as
to the matters contemplated by this Agreement in form customary
for transactions of this nature; and
(vi) releases by the Corporation in favour of the Seller and the
Principals in respect of all claims against them in their
capacities as shareholders, officers, directors and employees of
the Corporation for matters arising prior to the Closing Date,
but specifically excluding any Claims that may be made by the
Buyer under this Agreement or any Ancillary Agreement.
If any condition, obligation or covenant of the Buyer or the Guarantor to be
performed at or prior to the Time of Closing on the Closing Date shall not have
been fulfilled or performed by such time, the Seller and the Principals may
terminate this Agreement by notice in writing to the Buyer and the Guarantor,
and in such event the Seller and the Principals shall be released from all
obligations hereunder. The Buyer and the Guarantor shall only be released from
their obligations hereunder if the condition or conditions for the
non-performance of which the Seller and the Principals have terminated this
Agreement are not reasonably capable of being performed or caused to be
performed by the Buyer and the Guarantor. Notwithstanding the foregoing, the
Seller and the Principals, shall be entitled to waive compliance with any of
such conditions, obligations or covenants in whole or in part if they see fit to
do so without prejudice to any of their rights of termination in the event of
non-performance of any other condition, obligation or covenant in whole or in
part.
6.04 Performance of Covenants.
The Buyer and Guarantor shall have fulfilled or complied with all covenants
herein contained to be performed or caused to be performed by them at or prior
to the Time of Closing, and the Buyer and the Guarantor shall have delivered
certificates to that effect. The receipt of such certificate and the Closing
shall not be a waiver of the covenants of the Buyer and the Guarantor which are
contained in this Agreement.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF THE BUYER AND THE GUARANTOR
Each of the obligations of the Buyer and the Guarantor to be performed hereunder
shall be subject to the satisfaction (or the waiver by the Buyer and the
Guarantor) at or prior to the Closing Date of each of the following conditions:
7.01 Representations and Warranties True at Closing Date.
The representations and warranties of the Seller and the Principals contained in
this Agreement shall be true on and as of the Closing Date with the same force
and effect as though made on and as of such date; the Seller and the Principals
shall have complied with the covenants and agreements set forth herein to be
performed by them on or before the Closing Date; and the Seller and the
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Principals shall have delivered to the Buyer and the Guarantor a certificate
dated the Closing Date and signed by a duly authorized officer of the Seller and
the Principals to all such effects.
7.02 Performance.
(a) Performance of Covenants. The Seller and Principals shall have fulfilled
or complied with all covenants herein contained to be performed or caused to be
performed by them at or prior to the Time of Closing, and the Seller and the
Principals shall have delivered certificates to that effect. The receipt of such
certificate and the Closing shall not be a waiver of the covenants of the Seller
and the Principals which are contained in this Agreement.
(b) Consents and Authorizations. All Consents and Authorizations shall have
been obtained on terms acceptable to the Buyer and the Guarantor acting
reasonably, in order to permit the Closing of the sale of the Purchased
Securities on the terms and conditions set out in this Agreement without
adversely affecting any Material Asset, or resulting in the violation or a
breach of or a default under or any termination, cancellation, amendment or
acceleration of any obligation under any Material Contract.
(c) Due Diligence. The Buyer and the Guarantor shall have completed their
investigation into the books, records and affairs of the Corporation and such
investigation shall not have disclosed any matter not previously disclosed in
the Disclosure Schedule which the Buyer, acting reasonably, considers to be
material to its decision to acquire the Purchased Securities. Neither any
investigation of the Seller by the Buyer, nor the Disclosure Schedule hereto,
nor any other document delivered to the Buyer as contemplated by this Agreement,
shall have revealed any facts or circumstances that, in the good faith judgment
of the Buyer, reflect in a material adverse way on the Material Assets, or the
business, operations, or prospects of the Software Business.
(d) Deliveries for the Closing Date. The Seller and the Principals shall have
delivered or caused to be delivered to the Buyer on the Closing Date, the
following in form and substance satisfactory to the Buyer and the Guarantor,
acting reasonably:
(i) share certificates representing the Purchased Securities duly
endorsed in blank for transfer, or accompanied by irrevocable
security transfer powers of attorney duly executed in blank, in
either case by the holders of record thereof, together with
evidence of satisfactory to the Buyer that the Buyer or its
nominee(s) have been duly entered upon the books of the
Corporation as the holder of the Purchased Securities;
(ii) duly executed copies of the Ancillary Agreements required to be
executed and delivered by the Seller and the Principals as of the
Closing Date;
(iii) certified copies of (i) the charter documents and extracts from
the by-laws of the Seller and the Corporation relating to the
execution of documents; (ii) all resolutions of the shareholders,
the board of directors or any duly authorized committee thereof,
of each of the Seller and the Corporation approving the
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entering into of this Agreement and the Ancillary Agreements and the
completion of all transactions contemplated hereunder and thereunder;
and (iii) all other instruments evidencing necessary action of the
Seller and the Corporation and of Authorizations, if any, with respect
to such matters;
(iv) certificates of the Secretary or an Assistant Secretary of each of the
Seller and the Corporation certifying the names and true signatures of
its officers authorized to sign this Agreement and the Ancillary
Agreements to be delivered hereunder;
(v) a certificate of status, compliance, good standing or like certificate
with respect to each of the Seller, the Predecessor Corporation, the
Subsidiary and Software AG Canada, issued by appropriate government
officials of the jurisdiction of its incorporation and, in the case of
the Corporation of each other jurisdiction in which it carries on
business as listed in the Disclosure Schedule;
(vi) a favourable opinion of counsel to the Seller, the Principals and the
Corporation as to the matters contemplated by this Agreement in form
customary for transactions of this nature;
(vii) all the originals of the books and records and the corporate records of
the Corporation, the Predecessor Corporation, the Subsidiary and
Software AG Canada;
(viii) evidence that all necessary steps and proceedings as approved by
counsel for the Buyer, acting reasonably, to permit all of the
Purchased Securities to be fully and regularly transferred to the Buyer
or its nominee(s) have been taken;
(ix) a duly executed resignation, undated, of each director and officer of
the Corporation (other than Andrew Coutts) and Software AG Canada as
the Buyer may specify;
(x) a duly executed release in favour of the Corporation and Software AG
Canada of the Seller, the Principals and of such officers and directors
of the Corporation as the Buyer may specify with respect to the period
prior to the Closing Date;
(xi) a duly executed resignation and release in favour of the Corporation of
the auditor or accountant to become effective following the completion
of the filing of the tax returns of the Corporation for the tax year
ended as of the Closing Date;
(xii) duly executed resolutions of the Seller, in its capacity as shareholder
of the Corporation, consenting to the Amalgamation and authorizing the
completion of all related transactions, and of the shareholders and
directors of Software AG Canada to the transfer of the shares thereof
by the Principals to the Corporation;
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(xiii) all necessary assurances, transfers, assignments and Consents,
including all necessary Consents other than those excluded under
Section 3.10, and any other instruments necessary or reasonably
required effectively to transfer the Purchased Securities to the
Buyer with a good title, free and clear of all Encumbrances;
(xiv) evidence satisfactory to the Buyer that all Encumbrances other
than Permitted Encumbrances have been discharged or released as
of the Closing Date;
(xv) evidence that the Amalgamation, Special Dividend and Special
Share Redemption have been completed, in the manner contemplated
by this Agreement or in such other manner as is acceptable to the
Buyer, acting reasonably;
(xvi) share certificates representing the securities of Software AG
Canada duly endorsed in blank for transfer, or accompanied by
irrevocable security transfer powers of attorney duly executed in
blank, in either case by the holders of record thereof, together
with evidence of satisfactory to the Buyer that the Corporation
or its nominee(s) has been duly entered upon the books of
Software AG Canada as the holder of all of such securities for
nominal consideration; and
(xvii) complete and unrestricted access to the facilities of the
Software Business, located at 151 Savage Drive, Cambridge,
Ontario, and at sites subject to the Leases.
(e) Proceedings. All proceedings to be taken in connection with the
transactions contemplated by this Agreement and any Ancillary Agreement shall be
reasonably satisfactory in form and substance to the Buyer and the Buyer shall
have received copies of all such instruments and other evidence as it may
reasonably request in order to establish the consummation of such transactions
and the taking of all proceedings in connection therewith.
(f) No Legal Action. No action or proceeding shall be pending or threatened by
any person in any jurisdiction, to enjoin, restrict or prohibit any of the
transactions contemplated hereby or the right of the Corporation to conduct the
Software Business after Closing on substantially the same basis as operated
prior to Closing.
(g) Change in Law. Since the date hereof, no law, proposed law, any change in
any law, or the interpretation or enforcement of any law shall have been
introduced, enacted or announced (including the introduction, enactment or
announcement of any law respecting taxes or environmental matters or any change
therein or in the interpretation or enforcement thereof), the effect of which
will be to prevent or to increase, in any material respect (i) the cost to the
Buyer of the completion of the transactions contemplated in this Agreement; or
(ii) the cost of the Corporation of operating the Software Business after
Closing on substantially the same basis as heretofore operated.
If any condition, obligation or covenant of the Seller or the Principals to be
performed at or prior to the Time of Closing on the Closing Date shall not have
been fulfilled or performed by such time, the Buyer may terminate this Agreement
by notice in writing to them, and in such event the
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Buyer shall be released from all obligations hereunder. The Seller and the
Corporation shall only be released from their obligations hereunder if the
condition or conditions for the non-performance of which the Buyer has
terminated this Agreement are not reasonably capable of being performed or
caused to be performed by them. Notwithstanding the foregoing, the Buyer shall
be entitled to waive compliance with any of such conditions, obligations or
covenants in whole or in part if it sees fit to do so without prejudice to any
of its rights of termination in the event of non-performance of any other
condition, obligation, or covenant in whole or in part.
ARTICLE VIII
CLOSING
8.01 Closing.
The closing of the purchase and transfer of the Purchased Securities (the
"Closing") shall take place at the law offices of Gowling, Strathy & Henderson,
Suite 1020, 50 Queen Street North, Kitchener, Ontario, at the Time of Closing on
the Closing Date.
8.02 Actions at Closing.
Subject to satisfaction or waiver by the relevant Party of the conditions of
Closing set forth herein, at the Time of Closing the transactions contemplated
by this Agreement shall be completed. The transfer of the Purchased Securities
shall be deemed to take effect as at the time of Closing on the Closing Date.
8.03 Further Assurances.
At and after the Closing, without further consideration, the Buyer and the
Seller shall take all such other action and shall procure or execute,
acknowledge, and deliver all such further certificates, conveyance instruments,
Consents, and other documents as the other party or its counsel may reasonably
request to ensure more effectively the compliance of such party with its
agreements, covenants, warranties, and representatives under this Agreement.
8.04 Tax Matters.
(a) The Seller's Right and Responsibility for Preclosing Tax Matters. The
Seller shall have the right and responsibility to direct the handling of all tax
matters affecting or relating to the conduct of the Software Business prior to
the Closing Date, subject to the review and reasonable approval of the Buyer
including the prosecution of all administrative and judicial remedies, the
settlement of all issues, and the execution of agreements, Consents, or waivers,
extending the statute of limitations. In this regard, in preparing tax returns
for the Corporation for the taxation year immediately preceding the taxation
year in which the Special Share is redeemed, credit for foreign income taxes
will be claimed against provincial corporate income taxes to the maximum extent
possible before any claim for foreign tax credits to reduce federal income
taxes.
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(b) The Buyer's Cooperation. The Buyer shall use its reasonable efforts to
provide the Seller such assistance as it may reasonably request in connection
with matters relating to taxes, including information with respect to the
Seller's preparation of any returns of taxes, any audit or other examination by
any taxing authority, any judicial or administrative proceeding relating to the
Seller's liability for taxes, or any Claims arising hereunder after the Closing
Date. The Buyer shall retain and provide the Seller with reasonable access
during normal business hours to records or information pertaining to periods
prior to the Closing Date which may be relevant to any such return, audit,
examination, proceeding, or determination, and the Buyer shall retain all such
books and records for so long as necessary in keeping with applicable statutes
of limitations.
8.05 Post-Closing Covenants of the Buyer and Guarantor.
The Buyer and the Guarantor covenant and agree with the Seller and Principals as
follows:
(a) They shall, in connection with any potential future completion of a Public
Offering, to the extent permitted under applicable securities laws cause
the Corporation to permit the employees of the Corporation to participate
in any stock option plan adopted by the entity pursuing such Public
Offering on the same basis as employees of such entity and its other
affiliates, and, in the event no Public Offering is completed, permit
Andrew Coutts and Allan Foerster to be eligible to participate in any
employee equity incentive plan in place for Software AG Systems Inc. and
its affiliates on the same basis as employees of the Guarantor and its
affiliates.
(b) They shall cause the Corporation to continue to operate the Software
Business in the ordinary course following the Closing Date consistent with
past practise.
(c) They shall cause the Corporation to provide each employee of the
Corporation who remains with the business as of the end of the 1997 fiscal
year with a year end cash bonus. The total year-end cash bonus will not
exceed $1.3 million. The payments of such bonus to employees of the
Corporation shall be made forthwith following the completion of the fiscal
year ended November 30, 1997 in accordance with the provisions of Schedule
6, provided that in the event that any such employee ceases to be an
officer or employee of the Corporation the obligation of the Corporation
to make such payment shall terminate and the amount otherwise payable to
such employee shall be allocated among such other employees of the
Corporation as are mutually agreed by the Buyer and Andrew Coutts, each
acting reasonably (other than in the case of employees terminated by the
Corporation without cause who shall be entitled to a pro rated portion of
the amount set forth in Schedule "6" to the date of such termination and
the balance of such amount shall be allocated among other employees as
provided above). The payment and performance by the Corporation of its
obligation to pay the employee bonuses as set forth herein shall be
secured pursuant to the guarantees and security of the Guarantor, the
Buyer and the Corporation forming part of the Ancillary Documents
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ARTICLE IX
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNITIES
9.01 Survival of Representations and Warranties.
(1) The representations and warranties of the Seller and Principals
contained in this Agreement or any Ancillary Agreement shall survive the Closing
and, notwithstanding such or any investigation made by or on behalf of the Buyer
and the Guarantor, shall continue in full force and effect for the benefit of
the Buyer and the Guarantor for a period of two (2) years from the Closing Date
and any Claim in respect thereof (except a Claim based on tax matters under
Section 3.27, which shall continue until the expiry of the relevant limitation
period, or a Claim based on a breach of Sections 3.04, 3.05 or 3.06 or on fraud,
which shall have no restriction) shall be made in writing within such time
period.
(2) The representations and warranties of the Buyer and Guarantor contained
in this Agreement or in any Ancillary Agreement shall survive the Closing and,
notwithstanding such Closing or any investigation made by or on behalf of the
Seller and the Principals, shall continue in full force and effect for the
benefit of the Seller and the Principals for a period of two (2) years from the
Closing Date and any Claim in respect thereof (except a Claim based on fraud,
which shall have no restriction) shall be made in writing within such time
period.
9.02 Indemnification in Favour of the Buyer and Guarantor.
Subject to Section 9.05, the Seller and Principals shall jointly and severally
indemnify and save the Buyer and Guarantor, and their respective shareholders,
directors, officers, employees, agents and representatives, (in respect of whom
the Buyer hereby acts as agent and trustee with respect thereto) harmless of and
from any Claim or loss suffered by, imposed upon or asserted against the Buyer
or Guarantor as a result of, in respect of, connected with or arising out of,
under or pursuant to:
(a) any failure of the Seller or Principals to perform or fulfil
any covenant of the Seller or Principals under this Agreement
or any Ancillary Agreement;
(b) subject to the limitation periods set forth in Section 9.01,
any breach or inaccuracy of any representation or warranty
given by the Seller contained in this Agreement or in any
Ancillary Agreement; and
(c) any failure to obtain any material Consent or Authorization.
9.03 Indemnification in Favour of the Seller.
Subject to Section 9.05, the Buyer and the Guarantor shall jointly and severally
indemnify and save the Principals and the Seller and its shareholders,
directors, officers, employees, agents and representatives (in respect of whom
the Buyer hereby acts as agent and trustee with respect thereto) harmless of and
from any Claim or loss suffered by, imposed upon or asserted against
<PAGE>
--40--
the Principals or the Seller as a result of, in respect of, connected with or
arising out of, under or pursuant to:
(a) any failure by the Buyer to perform and fulfil any covenant
of the Buyer under this Agreement or any Ancillary Agreement;
and
(b) subject to the limitation period set forth in Section 9.01
hereof, any breach or inaccuracy of any representation or
warranty given by the Buyer contained in this Agreement or in
any Ancillary Agreement.
9.04 Indemnification Proceedings.
(1) Any Party seeking indemnification under this Article (the "indemnified
party") shall forthwith notify the Party against whom a Claim for
indemnification is sought hereunder (the "indemnifying party") in writing, which
notice shall specify, in reasonable detail, the nature and estimated amount of
the Claim provided that, in so doing, it may restrict or condition any
disclosure in the interest of preserving privileges of importance in any
foreseeable litigation. If a Claim by a third party is made against an
indemnified party, and if the indemnified party intends to seek indemnity with
respect thereto under this Article, the indemnified party shall promptly (and in
any case within 15 days of such Claim being made) notify the indemnifying party
of such with reasonable particulars. The indemnifying party shall have 30 days
after receipt of either such notice to undertake, conduct and control, through
counsel of its own choosing and at its expense, the settlement or defence
thereof, and the indemnified party shall co-operate with it in connection
therewith; except that with respect to settlements entered into by the
indemnifying party (i) the consent of the indemnified party shall be required if
the settlement provides for equitable relief against the indemnified party,
which consent shall not be unreasonably withheld or delayed; and (ii) the
indemnifying party shall obtain the release of the indemnified party. If the
indemnifying party undertakes, conducts and controls the settlement or defence
of such Claim (i) the indemnifying party shall permit the indemnified party to
participate in (subject to the indemnifying party's right to conduct and
control) such settlement or defence through counsel chosen by the indemnified
party, provided that the fees and expenses of such counsel shall be borne by the
indemnified party; and (ii) the indemnifying party shall promptly reimburse the
indemnified party for the full amount of any loss resulting from any Claim and
all related expenses (other than the fees and expenses of counsel as aforesaid)
incurred by the indemnified party upon the final settlement or adjudication of
such claims. The indemnified party shall not pay or settle any Claim so long as
the indemnifying party is reasonably contesting any such Claim in good faith on
a timely basis. Notwithstanding the two immediately preceding sentences, the
indemnified party shall have the right to pay or settle any such Claim, provided
that in such event it shall waive any right to indemnity therefor by the
indemnifying party.
(2) With respect to third party Claims, if the indemnifying party does not
notify the indemnified party within 30 days after the receipt of the indemnified
party's notice of a Claim of indemnity hereunder that it elects to undertake the
defence thereof, the indemnified party shall have the right, but not the
obligation, to contest, settle or compromise the Claim in the exercise of its
reasonable judgement at the expense of the indemnifying party.
<PAGE>
--41--
(3) In the event of any Claim by a third party against an indemnified
party, the defence of which is being undertaken and controlled by the
indemnifying party, the indemnified party will use all reasonable efforts to
make available to the indemnifying party those employees whose assistance,
testimony or presence is necessary to assist the indemnifying party in
evaluating and in defending any such Claims; provided that the indemnifying
party shall be responsible for the expense associated with any employees made
available by the indemnified party to the indemnifying party hereunder, which
expense shall be equal to a reasonable amount to be mutually agreed upon per
person per hour or per day for each day or portion thereof that such employees
are assisting the indemnifying party and which expenses shall not exceed the
actual cost to the indemnified party associated with such employees.
(4) With respect to third party Claims, the indemnified party shall make
available to the indemnifying party or its representatives on a timely basis all
documents, records and other materials in the possession of the indemnified
party, at the expense of the indemnifying party, reasonably required by the
indemnifying party for its use in defending any Claim and shall otherwise
co-operate on a timely basis with the indemnifying party in the defence of such
Claim.
(5) With respect to any re-assessment for income, corporate sales, excise,
or other tax or other liability enforceable by Encumbrance against the property
of the indemnified party, the indemnifying party's right to so contest shall
only apply after the payment of such re-assessment or the provision of such
security, in each case as is necessary to avoid an Encumbrance being placed on
the property of the indemnified party, or the taking of such other steps as are
acceptable to the indemnified party, acting reasonably.
(6) In the event that the indemnified party and indemnifying party do not
agree as to the amount of a Claim asserted hereunder with respect to a breach of
a representation or misrepresentation under this Agreement within a period of 30
days following notification of such Claim, and the amount of such Claim
(together with all other Claims in respect of which indemnification has been
sought), exceeds $100,000, either of the parties shall be entitled forthwith
thereafter to refer all of such Claims in dispute to arbitration before a single
arbitrator in Toronto, Ontario pursuant to the provisions of the Arbitration Act
(Ontario) which determination shall be final, conclusive and binding on the
parties with respect to the subject matter of such Claim. The party prevailing
in such proceeding shall be entitled to be reimbursed for all of its costs and
expenses incurred in connection therewith by the other party in addition to such
other relief as may be granted as a result of such proceeding.
9.05 Limitations.
Notwithstanding anything in this Article IX to the contrary:
(a) Maximum Liability. The total liability of the Seller and the Principals
to the Buyer and the Guarantor for indemnification pursuant to this Article IX,
exclusive of Claims based on any breach of the representations and warranties
contained in Section 3.27, the covenants and agreements of the Seller contained
in this Agreement, or if attended by fraud or any knowing or willful breach
<PAGE>
--42--
thereof, any other representations and warranties, shall not exceed $4,000,000;
but the liability of the Seller and the Principals to the Buyer for
indemnification for Claims based on tax matters under Section 3.27 and such
other excluded matters shall not be limited in amount. Notwithstanding the
foregoing, no Claims may be made until the aggregate of the Claims of the Buyer
and the Guarantor exceed $25,000, but in such event the entire amount of such
Claims may be sought.
(b) Exclusive Remedy. The Parties hereto acknowledge and agree that this
Article IX is the exclusive remedy of the parties hereto for damages for breach
or misrepresentation of or under this Agreement. This provision is not intended
to preclude any proceeding by any Party against any other Party based on a cause
of action or right, including any statutory right, other than a cause of action
in contract for breach of a representation, warranty or agreement contained in
this Agreement provided that (i) such Claim involves an amount in excess of
$250,000; (ii) such Claim must be made within a period of two years following
the date hereof; and (iii) the aggregate liability of the Seller or the
Principals in respect of such Claim shall not exceed the $4,000,000 limitation
set forth in 9.05(a) after taking into account all Claims made for breaches of
representations as of the date of such Claim. In the event of any such Claim,
the Principals and the Seller shall have the benefit of (i) the provisions of
this Article IX in the event of Claims as to procedural matters based on third
party claims; and (ii) the arbitration provisions of Section 9.04(6).
ARTICLE X
CONFIDENTIALITY
10.01 Confidentiality Obligation of the Buyer Prior to Closing.
Until Closing (and, if this Agreement is terminated for any reason, forever
thereafter), the Buyer shall, and shall use its best efforts to cause its
personnel, agents and professional advisors to, hold in strict confidence, not
disclose to any person without the prior written consent of the Seller, and not
use in any manner except in connection with the transactions contemplated
hereby, any confidential business, financial or technical information obtained
from the Seller or the Corporation in connection with the transactions
contemplated hereby. This obligation shall cease to apply to the Buyer upon the
occurrence of Closing. In the event that this Agreement terminates for any
reason, the Buyer shall return to the Seller or destroy all materials in its
possession containing any such confidential information, including all copies,
extracts, adaptations, and transcriptions thereof.
10.02 Confidentiality Obligation of the Seller and Principals Following
Closing.
Following the occurrence of Closing, the Seller and Principals shall, and shall
use their best efforts to cause their personnel, agents and professional
advisors to, hold in strict confidence, not disclose to any person without the
prior written consent of the Buyer, and not use in any manner whatsoever, any
confidential business, financial or technical information remaining in their
possession concerning the Software Business or the Material Assets. Such
confidential information specifically includes all source code, system and user
documentation, and other Technical Documentation pertaining to the Software
Programs, including any proposed design and specifications for future products
and products in development, marketing plans, and all other
<PAGE>
--43--
technical and business information concerning the Software Business. Promptly
following Closing, the Seller shall surrender to the Buyer or destroy all
materials remaining in their possession containing any such confidential
information, including all copies, extracts, adaptations, and transcriptions
thereof.
10.03 Permitted Disclosures.
Notwithstanding Sections 10.01 and 10.02, either party may disclose confidential
information (1) where necessary to any Governmental Entity as required by law or
(2) if otherwise required by court order or decree.
10.04 Scope of Confidential Information.
For purposes of this Agreement, information shall not be deemed confidential (1)
if such information is available in full from public sources; (2) if such
information is received from a third party not under an obligation to keep such
information confidential; or (3) if the recipient can conclusively demonstrate
that such information was independently developed by the recipient.
ARTICLE XI
MISCELLANEOUS
11.01 Parties Bound by Agreement; Successors and Assigns.
The terms, conditions, and obligations of this Agreement shall inure to the
benefit of and be binding upon the parties hereto and the respective successors
and assigns thereof. Without the prior written consent of the other party, the
Buyer may assign its rights, duties, or obligations hereunder or any part
thereof to any other person, which shall thereupon become the Buyer, provided
that at the time of such assignment the Buyer unconditionally and irrevocably
guarantees the payment and performance of any duties or obligations so assigned.
None of the rights or obligations hereunder shall be assignable or transferable
by any Party without the prior written consent of the other Parties.
11.02 Time of the Essence.
Time shall be of the essence of this Agreement.
11.03 Counterparts.
This Agreement may be executed in one or more counterparts, each of which shall
for all purposes be deemed to be an original and all of which shall constitute
the same instrument and by telecopier or other similar means of electronic
reproducible transmission and if so executed shall be legal, valid and binding
on the party so signing as if originally signed.
<PAGE>
--44--
11.04 Headings.
The headings of the Sections and paragraphs of this Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement or
to affect the construction hereof.
11.05 Expenses.
The Seller and the Buyer shall each pay all costs and expenses incurred by it or
on its behalf in connection with this Agreement and the transactions
contemplated hereby, including fees and expenses of its own financial
consultants, accounts, and counsel.
11.06 Notices.
Any notice, request, instruction, or other document to be given hereunder by any
party hereto to any other party hereto shall be in writing and delivered
personally, or sent by telecopy, registered or certified mail, postage prepaid,
if to the Seller or the Principals prior to the Closing to its
attention at:
151 Savage Drive
Cambridge, Ontario
Attention: Robert D. Nickel
Telecopier: (519) 622-1282
and, after Closing, to its attention at:
R.R. # 2
Puslinch, Ontario
N0B 2J0
with a copy to:
Gowling, Strathy & Henderson
Suite 1020
50 Queen Street North
Kitchener, Ontario
N2H 6M2
Attention: W. David Petras
Telecopier: (519) 576-6030
<PAGE>
--45--
if to the Buyer or the Guarantor to its attention at:
11190 Sunrise Valley Drive
Reston, VA 20194
Attention: Daniel Gillis
Telecopier: (703) 391-6782
with a copy to:
Software AG Americas, Inc.
11190 Sunrise Valley Drive
Reston, VA 20194
Attention: Legal Department
Telecopier: (703) 391-6980
or at such other address for a party as shall be specified by like notice. Any
notice that is delivered personally in the manner provided herein shall be
deemed to have been duly given to the party to whom it is directed upon actual
receipt by such party (or its agent for notices hereunder). Any notice that is
delivered by telecopier or other similar form of telecommunications shall be
deemed to have been duly given to the party to whom it is directed on the next
business day following such transmission. Any notice that is addressed and
mailed in the manner herein provided shall be conclusively presumed to have been
duly given to the party to which it is addressed at the close of business, local
time of the recipient, on the seventh business day after the day it is so placed
in the mail.
11.07 Public Announcements.
The Seller and the Buyer shall consult with each other before issuing any press
releases or otherwise making any public statements with respect to this
Agreement and the transactions contemplated hereby. Neither the Seller nor the
Buyer shall issue any such press release or make any public statement without
the agreement of the other party, except as such party's counsel advises in
writing may be required by law.
11.08 Third-Party Beneficiaries.
With the exception of (1) the Parties and (2) the other persons with respect to
the matters inuring to their benefit under Article IX, there shall exist no
right of any person to claim a beneficial interest in this Agreement or any
rights arising by virtue of this Agreement.
11.09 Non-Merger.
Except as otherwise expressly provided in this Agreement, the covenants,
representations and warranties of the Parties contained in this Agreement and
the Ancillary Agreements shall not
<PAGE>
--46--
merge on and shall survive the Closing for the periods specified in Section 9.01
and, notwithstanding such Closing, or any investigation made by or on behalf of
any Party, shall continue in full force and effect.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed on its behalf as of the date first above written
[SIGNATURE ILLEGIBLE] /s/ Robert D. Nickel
- --------------------------- ----------------------------------
Witness: Robert D. Nickel
[SIGNATURE ILLEGIBLE] /s/ Joyce Nickel
- --------------------------- ----------------------------------
Witness: Joyce Nickel
SOFTWARE AG AMERICAS, INC.
By:/s/ James Daly
-------------------------------
James Daly
Vice-President and Secretary
SOFTWARE AG SYSTEMS (CANADA) INC.
By:/s/ Timothy Hill
-------------------------------
Timothy Hill
Executive Vice-President
CAELUM INVESTMENTS INC.
By:/s/ Robert D. Nickel
-------------------------------
Robert D. Nickel
President
<PAGE>
EXHIBIT 10.4
MEMORANDUM OF UNDERSTANDING
Employment of Daniel F. Gillis
Title: President & CEO
---------------
1. INDENT & PURPOSE
----------------
Software AG Systems, Inc. ("SAGSI") desires to continue your employment in an
Executive Manager capacity. SAGSI Employs you as President and CEO, and to
perform and discharge such services and duties reasonably commensurate with such
position and as shall be assigned to you from time to time by the Board of
Directors of SAGSI.
This Memorandum is intended to outline the rights and responsibilities of SAGSI
and you in the event of termination caused by either party. It is NOT intended
as, nor should it be considered, an employment contract.
2. EMPLOYMENT AT WILL
------------------
SAGSI is an at will employer. Either you or SAGSI may terminate the employment
-- ----
relationship at any time.
3. DESIRE OF NOTICE
----------------
Though the employment relationship is at will, each party is required to give
the other ninety (90) days' written notice of intent to terminate the employment
relationship, including a termination due to retirement.
4. DEFINITION OF CAUSE
-------------------
For purposes of this MEMORANDUM, "cause" means: felonious illegal acts as
determined by a competent court of law within the United States, as well as the
breach or violation of any other signed agreements, i.e. Confidentiality
Agreements, etc., and the destruction of Company property.
5. TERMINATION
-----------
In the event SAGSI shall terminate your employment, other than for cause, it
will pay severance benefits equal to twelve (12) months of your then-current
salary, plus annual bonus ($460,000 minimum). This amount will be paid out in
equal monthly increments over a year.
Additionally, for the period of time to which the severance payments relate or
until you find alternative employment if earlier, SAGSI will continue your
health and other fringe benefits as provided under the SAGSI plan(s) made
generally available to all employees, and pay you on a monthly basis, an amount
equal to your car allowance.
<PAGE>
Memorandum of Understanding
Page 2
Voluntary resignation will be considered "termination other than for cause" by
SAGSI if the resignation is not in anticipation of a discharge for "cause" and
occurs within ninety (90) days of a substantial change in title or substantial
reduction in your compensation and benefits or a substantial reduction in your
job. Voluntary resignation in any other circumstance will not be considered
"termination other than for cause" by SAGSI, and no severance or other benefits
will be due under this Section 5 in connection with such a resignation.
6. SUCCESSORS BOUND
----------------
SAGSI's rights and obligations under this Memorandum shall be binding upon its
successors and assigns.
7. OTHER AGREEMENTS
----------------
Upon execution, this Memorandum of Understanding will replace and supersede any
prior existing agreements between SAGSI and you relating to severance.
---------
/s/ Rick Rickertsen 4/24/97
- ------------------------------ ---------------------------
Rick Rickertsen Date
for the Board of Directors
/s/ Daniel F. Gillis 4/24/97
- ------------------------------ ---------------------------
Daniel F. Gillis Date
President and CEO
<PAGE>
EXHIBIT 10.5
MEMORANDUM OF UNDERSTANDING
Employment of Harry K. McCreery
-----------------
Tide: Chief Financial Officer
-----------------------
1. INTENT & PURPOSE
- -------------------
Software AG Americas, Inc. ("SAGA") desires to continue your employment in an
Executive Manager capacity. SAGA employs you as Chief Financial Officer to
perform and discharge such services and duties reasonably commensurate with such
position and as shall be assigned to you from time to time by the President of
SAGA.
This Memorandum is intended to outline the rights and responsibilities of SAGA
and you in the event of termination caused by either party. It is NOT intended
as, nor should it be considered, an employment contract.
2. EMPLOYMENT AT WILL
- ---------------------
SAGA is an at will employer. Either you or SAGA may terminate the employment
-------
relationship at any time.
3. DESIRE OF NOTICE
- -------------------
Though the employment relationship is at will, each party is encouraged to give
the other thirty (30) days' written notice of intent to terminate the employment
relationship, including a termination due to retirement.
4. DEFINITION OF CAUSE
- ----------------------
For purposes of this Memorandum, "cause" means: felonious illegal acts as
determined by a competent court of law within the United States, as well as the
breach or violation of any other signed agreements, i.e. Confidentiality
Agreements, etc., and the destruction of Company property.
5. TERMINATION
- --------------
In the event SAGA shall terminate your employment, other than for cause, it will
pay severance benefits (lump sum within thirty (30) days of termination) equal
to twelve (12) months (inclusive of notice period) of your then-current salary.
Additionally, for the period of time to which the severance payments relate or
until you find alternative employment if earlier, SAGA will continue your health
and other fringe benefits as provided under the SAGA plan(s) made generally
available to all employees, and pay you on a monthly basis, an amount equal to
your car allowance.
<PAGE>
Page 2
Voluntary resignation will be considered "termination other than for cause" by
SAGA if the resignation is not in anticipation of a discharge for "cause" and
occurs within ninety (90) days of a substantial change in title or substantial
reduction in your compensation and benefits (other than in association with a
company-wide reduction) or a substantial reduction in your job responsibilities
(other than a reduction in responsibility deemed by the President to be in the
best business interests of SAGA).
Voluntary resignation in any other circumstance will not be considered
"termination other than for cause" by SAGA, and no severance or other benefits
will be due under this Section 5 in connection with such a resignation.
6. INCENTIVE BONUS
- ------------------
Bonus payment will be paid at time of termination. Payment will be pro rata
based on calendar year and assumes 100% corporate achievement. For illustration
purposes, if an executive earns $100,000 per year with a 50% bonus opportunity
and termination occurs on July 31, the bonus paid will be 100K x .50 x 100
(corporate achievement) x 7/12 (pro rata).
7. SUCCESSORS BOUND
- -------------------
SAGA's rights and obligations under this Memorandum shall be binding upon its
successors and assigns.
8. OTHER AGREEMENTS
- -------------------
Upon execution, this Memorandum of Understanding will replace and supersede any
prior existing agreements between SAGA and you relating to severance.
---------
/s/ Dan Gillis 12/16/96
- ----------------------------------- -------------
Dan Gillis, President and CEO Date
/s/ Harry K. McCreery Dec. 16, 1996
- ----------------------------------- -------------
Harry K. McCreery Date
Chief Financial Officer
<PAGE>
EXHIBIT 10.6
MEMORANDUM OF UNDERSTANDING
Employment of Derek M. Brigden
----------------
Title: Vice President Operations and Chief Information Officer
-------------------------------------------------------
1. INTENT & PURPOSE
- -------------------
Software AG Americas, Inc. ("SAGA") desires to continue your employment in an
Executive Manager capacity. SAGA employs you as Vice President Operations and
Chief Information Officer to perform and discharge such services and duties
reasonably commensurate with such position and as shall be assigned to you from
time to time by the President of SAGA.
This Memorandum is intended to outline the rights and responsibilities of SAGA
and you in the event of termination caused by either party. It is NOT intended
as, nor should it be considered, an employment contract.
2. EMPLOYMENT AT WILL
- ---------------------
SAGA is an at will employer. Either you or SAGA may terminate the employment
-------
relationship at any time.
3. DESIRE OF NOTICE
- -------------------
Though the employment relationship is at will, each party is encouraged to give
the other thirty (30) days' written notice of intent to terminate the employment
relationship, including a termination due to retirement.
4. DEFINITION OF CAUSE
- ----------------------
For purposes of this Memorandum, "cause" means felonious illegal acts as
determined by a competent court of law within the United States, as well as the
breach or violation of any other signed agreements, i.e. Confidentiality
Agreements, etc., and the destruction of Company property.
5. TERMINATION
- --------------
In the event SAGA shall terminate your employment, other than for cause, it will
pay severance benefits (lump sum within thirty (30) days of termination) equal
to twelve (12) months (inclusive of notice period) of your then-current salary.
Additionally, for the period of time to which the severance payments relate or
until you find alternative employment if earlier, SAGA will continue your health
and other fringe benefits as provided under the SAGA plan(s) made generally
available to all employees, and pay you on a monthly basis, an amount equal to
your car allowance.
<PAGE>
Page 2
Voluntary resignation will be considered "termination other than for cause" by
SAGA if the resignation is not in anticipation of a discharge for "cause" and
occurs within ninety (90) days of a substantial change in title or substantial
reduction in your compensation and benefits (other than in association with a
company-wide reduction) or a substantial reduction in your job responsibilities
(other than a reduction in responsibility deemed by the President to be in the
best business interests of SAGA).
Voluntary resignation in any other circumstance will not be considered
"termination other than for cause" by SAGA, and no severance or other benefits
will be due under this Section 5 in connection with such a resignation.
6. INCENTIVE BONUS
- ------------------
Bonus payment will be paid at time of termination. Payment will be pro rata
based on calendar year and assumes 100% corporate achievement. For illustration
purposes, if an executive earns $100,000 per year with a 50% bonus opportunity
and termination occurs on July 31, the bonus paid will be 100K x .50 x 100
(corporate achievement) x 7/12 (pro rata).
7. SUCCESSORS BOUND
- -------------------
SAGA's rights and obligations under this Memorandum shall be binding upon its
successors and assigns.
8. OTHER AGREEMENTS
- -------------------
Upon execution, this Memorandum of Understanding will replace and supersede any
prior existing agreements between SAGA and you relating to severance.
---------
/s/ Dan Gillis 12/13/96
- ----------------------------------- --------
Dan Gillis, President and CEO Date
/s/ Derek M. Brigden 12/13/96
- ---------------------------------- --------
Derek M. Brigden, VP Operations & CIO Date
<PAGE>
EXHIBIT 10.7
MEMORANDUM OF UNDERSTANDING
Employment of James H. Daly
-------------
Title: Vice-President, Secretary and General Counsel
----------------------------------------------
Vice President International Operations
---------------------------------------
1. INTENT & PURPOSE
- -------------------
Software AG Americas, Inc. ("SAGA") desires to continue your employment in an
Executive Manager capacity. SAGA employs you as Vice-President, Secretary and
General Council, and Vice-President, International Operations, to perform and
discharge such services and duties reasonably commensurate with such position
and as shall be assigned to you from time to time by the President of SAGA.
This Memorandum is intended to outline the rights and responsibilities of SAGA
and you in the event of termination caused by either party. It is NOT intended
as, nor should it be considered, an employment contract.
2. EMPLOYMENT AT WILL
- ---------------------
SAGA is an at will employer. Either you or SAGA may terminate the employment
-------
relationship at any time.
3. DESIRE OF NOTICE
- -------------------
Though the employment relationship is at will, each party is encouraged to give
the other thirty (30) days' written notice of intent to terminate the employment
relationship, including a termination due to retirement.
4. DEFINITION OF CAUSE
- ----------------------
For purposes of this Memorandum, "cause" means: felonious illegal acts as
determined by a competent court of law within the United States, as well as the
breach or violation of any other signed agreements, i.e. Confidentiality
Agreements, etc., and the destruction of Company property.
5. TERMINATION
- --------------
In the event SAGA shall terminate your employment, other than for cause, it will
pay severance benefits (lump sum within thirty (30) days of termination) equal
to twelve (12) months (inclusive of notice period) of your then-current salary.
Additionally, for the period of time to which the severance payments relate or
until you find alternative employment if earlier, SAGA will continue your health
and other fringe benefits as provided under the SAGA plan(s) made generally
available to all employees, and pay you on a monthly basis, an amount equal to
your car allowance.
<PAGE>
Page 2
Voluntary resignation will be considered "termination other than for cause" by
SAGA if the resignation is not in anticipation of a discharge for "cause" and
occurs within ninety (90) days of a substantial change in title or substantial
reduction in your compensation and benefits (other than in association with a
company-wide reduction) or a substantial reduction in your job responsibilities
(other than a reduction in responsibility deemed by the President to be in the
best business interests of SAGA). Voluntary resignation in any other
circumstance will not be considered "`termination other than for cause'" by
SAGA, and no severance or other benefits will be due under this Section 5 in
connection with such a resignation.
6. INCENTIVE BONUS
- ------------------
Bonus payment will be paid at time of termination. Payment will be pro rata
based on calendar year and assumes 100% corporate achievement. For illustration
purposes, if an executive earns $100,000 per year with a 50% bonus opportunity
and termination occurs on July 31, the bonus paid will be 100K x .50 x 100
(corporate achievement) x 7/12 (pro rata).
7. SUCCESSORS BOUND
- -------------------
SAGA's rights and obligations under this Memorandum shall be binding upon its
successors and assigns.
8. OTHER AGREEMENTS
- -------------------
Upon execution, this Memorandum of Understanding will replace and supersede
any prior existing agreements between SAGA and you relating to severance.
---------
/s/ Dan Gillis 12/13/96
- ----------------------------- --------
Dan Gillis, President and CEO Date
/s/ James H. Daly 12/18/96
_____________________________ --------
James H. Daly Date
Vice-President, Secretary and General Counsel
Vice-President International Operations
<PAGE>
EXHIBIT 10.8
MEMORANDUM OF UNDERSTANDING
Employment of Thomas Gorley
-------------
Title: Vice President, Professional Services
1. INTENT & PURPOSE
- -------------------
Software AG of North America, Inc. ("SAGNA") desires to continue your employment
in an Executive Manager capacity. SAGNA employs you as Vice President,
Professional Services to perform and discharge such services and duties
reasonably commensurate with such position and as shall be assigned to you from
time to time by the President of SAGNA.
This Memorandum is intended to outline the rights and responsibilities of SAGNA
and you in the event of termination caused by either party. It is NOT intended
as, nor should it be considered, an employment contract.
2. EMPLOYMENT AT WILL
- ---------------------
SAGNA is an at will employer. Either you or SAGNA may terminate the employment
-------
relationship at any time.
3. DESIRE OF NOTICE
- -------------------
Though the employment relationship is at will, each party is encouraged to give
the other thirty (30) days written notice of intent to terminate the employment
relationship, including a termination due to retirement.
4. DEFINITION OF CAUSE
- ----------------------
For purposes of this Memorandum, "cause" means: 1) Misconduct or conduct by you
which is illegal, dishonest, or involves moral turpitude; 2) Conduct which
jeopardizes SAGNA's right or ability to operate its business; 3) The breach or
violation of any other signed agreements, i.e. Confidentiality Agreements, etc.;
or 4) The destruction of Company property or business.
5. TERMINATION
- --------------
In the event SAGNA shall terminate your employment, other than for cause, it
will pay severance benefits (lump sum within thirty (30) days of termination)
equal to twelve (12) months of your then-current salary.
Additionally, for the period of time to which the severance payments relate or
until you find alternative employment if earlier, SAGNA will continue your
health and other fringe benefits as provided under the SAGNA plan(s) made
generally available to all employees, and pay you on a monthly basis, an amount
equal to your car allowance.
<PAGE>
Page 2
Voluntary resignation will be considered "termination other than for cause" by
SAGNA if the resignation is not in anticipation of a discharge for "cause" and
occurs within ninety (90) days of a substantial change in title or substantial
reduction in your compensation and benefits (other than in association with a
company-wide reduction) or a substantial reduction in your job responsibilities
(other than a reduction in responsibility deemed by the President to be in the
best business interests of SAGNA.)
Voluntary resignation in any other circumstance will not be considered
"termination other than for cause" by SAGNA, and no severance or other benefits
will be due under this Section 5 in connection with such a resignation.
6. SUCCESSORS BOUND
- -------------------
SAGNA's rights and obligations under this Memorandum shall be binding upon its
successors and assigns..
7. OTHER AGREEMENTS
- -------------------
Upon execution, this Memorandum of Understanding will replace and supersede any
prior existing agreements between SAGNA and you relating to severance.
---------
/s/ Dan Gillis 8/22/96
- --------------------------------------- -------------------
Dan Gillis, President and CEO Date
/s/ Thomas Gorley 8/16/96
- --------------------------------------- -------------------
Thomas Gorley, VP Professional Services Date
<PAGE>
EXHIBIT 10.9
SOFTWARE AG SYSTEMS, INC.
1997 STOCK OPTION PLAN
1. Definitions
-----------
In this Plan, except where the context otherwise indicates, the following
definitions apply:
1.1. "Affiliate" means parent or subsidiary corporations of the
Company, as defined in Sections 424(e) and (f) of the Code (but substituting
"the Company" for "employer corporation"), including parents or subsidiaries of
the Company which become such after adoption of the Plan.
1.2. "Agreement" means a written agreement granting an Option that is
executed by the Company and the Optionee.
1.3. "Board" means the Board of Directors of the Company.
1.4. "Code" means the Internal Revenue Code of 1986, as amended.
1.5. "Committee" means the committee of the Board appointed by the
Board to administer the Plan. Unless otherwise determined by the Board, the
Compensation Committee of the Board shall be the Committee.
1.6. "Common Stock" means the common stock, par value $.01 per share,
of the Company.
1.7. "Company" means Software AG Systems, Inc., a Delaware corporation.
1.8. "Date of Exercise" means the date on which the Company receives
notice of the exercise of an Option in accordance with the terms of Article 7.
1.9. "Date of Grant" means the date on which an Option is granted under
the Plan.
1.10. "Director" means a member of the Board of Directors of the Company
or any Affiliate.
1.11. "Eligible Individual" means (i) any Employee or Director or (ii)
any consultant or advisor to the Company or an Affiliate who renders bona fide
<PAGE>
-2-
services to the Company or an Affiliate other than services in connection with
the offer or sale of securities in a capital raising transaction.
1.12. "Employee" means any employee of the Company or an Affiliate or
any person who has been hired to be an employee of the Company or an Affiliate.
1.13. "Fair Market Value" means the fair market value of a Share as
determined by the Committee pursuant to a reasonable method adopted in good
faith for such purpose.
1.14. "Incentive Stock Option" means an Option granted under the Plan
that qualifies as an incentive stock option under Section 422 of the Code and
that the Company designates as such in the Agreement granting the Option.
1.15. "Nonstatutory Stock Option" means an Option granted under the Plan
that is not an Incentive Stock Option.
1.16. "Option" means an option to purchase Shares granted under the
Plan.
1.17. "Option Period" means the period during which an Option may be
exercised.
1.18. "Option Price" means the price per Share at which an Option may be
exercised. The Option Price shall be determined by the Committee, provided,
however, that, in the case of Incentive Stock Options the Option Price shall not
be less than the Fair Market Value as of the Date of Grant. Notwithstanding the
foregoing, in the case of an Incentive Stock Option granted to an Optionee who
(applying the rules of Section 424(d) of the Code) owns stock possessing more
than ten percent of the total combined voting power of all classes of stock of
the Company or an Affiliate (a "Ten-Percent Stockholder"), the Option Price
shall not be less than one hundred and ten percent (110%) of the Fair Market
Value on the Date of Grant. The Option Price of any Option shall be subject to
adjustment to the extent provided in Article 9 hereof.
1.19. "Optionee" means an Eligible Individual to whom an Option has been
granted.
1.20. "Plan" means the Software AG Systems, Inc. 1997 Stock Option Plan.
<PAGE>
-3-
1.21. "Share" means a share of Common Stock.
2. Purpose
-------
The Plan is intended to assist the Company and its Affiliates in
attracting and retaining Eligible Individuals of outstanding ability and to
promote the identification of their interests with those of the stockholders of
the Company.
3. Administration
--------------
The Committee shall administer the Plan and shall have plenary authority,
in its discretion, to award Options to Eligible Individuals, subject to the
provisions of the Plan. The Committee shall have plenary authority and
discretion, subject to the provisions of the Plan, to determine the terms (which
terms need not be identical) of all Options including, but not limited to, which
Eligible Individuals shall be granted Options, the time or times at which
Options are granted, the Option Price, the number of Shares subject to an
Option, whether an Option shall be an Incentive Stock Option or a Nonstatutory
Stock Option, any provisions relating to vesting, any circumstances in which
Options terminate or Shares may be repurchased by the Company, the period during
which Options may be exercised and any other restrictions on Options. In making
these determinations, the Committee may take into account the nature of the
services rendered by the Optionees, their present and potential contributions to
the success of the Company and its Affiliates, and such other factors as the
Committee in its discretion shall deem relevant. Subject to the provisions of
the Plan, the Committee shall have plenary authority to construe and interpret
the Plan and the Agreements, to prescribe, amend and rescind rules and
regulations relating to the Plan and to make all other determinations deemed
necessary or advisable for the administration of the Plan, including, but not
limited to, any determination to accelerate the vesting of outstanding Options.
The determinations of the Committee on the matters referred to in this Article 3
shall be binding and final.
<PAGE>
-4-
4. Eligibility
-----------
Options may be granted only to Eligible Individuals, provided, however,
that only Employees shall be eligible to receive Incentive Stock Options.
5. Stock Subject to the Plan
-------------------------
5.1. Subject to adjustment as provided in Article 9, the maximum number
of Shares that may be issued under the Plan is 25,000 Shares.
5.2. If an Option expires or terminates for any reason without having
been fully exercised, the unissued Shares which had been subject to such Option
shall become available for the grant of additional Options.
6. Options
-------
6.1. Options granted under the Plan shall be either Incentive Stock
Options or Nonstatutory Stock Options, as designated by the Committee. Each
Option granted under the Plan shall be clearly identified either as an Incentive
Stock Option or a Nonstatutory Stock Option and shall be evidenced by an
Agreement that specifies the terms and conditions of the grant. Options granted
to Eligible Individuals shall be subject to the terms and conditions set forth
in this Article 6 and such other terms and conditions not inconsistent with this
Plan as the Committee may specify. All Incentive Stock Options shall comply
with the provisions of the Code governing incentive stock options and with all
other applicable rules and regulations.
6.2. The Option Period for Options granted to Eligible Individuals shall
be determined by the Committee and specifically set forth in the Agreement,
provided, however, that an Option shall not be exercisable after ten years (five
years in the case of an Incentive Stock Option granted to a Ten-Percent
Stockholder) from its Date of Grant.
7. Exercise of Options
-------------------
7.1. An Option may, subject to the terms of the applicable Agreement
under which it is granted, be exercised in whole or in part by the delivery to
the Company of written notice of the exercise, in such form
<PAGE>
-5-
as the Committee may prescribe, accompanied by full payment of the Option Price
for the Shares with respect to which the Option is exercised as provided in
Section 7.2 hereof.
7.2. Payment of the aggregate Option Price for the Shares with respect
to which an Option is being exercised shall be made in cash; provided, however,
that the Committee, in its sole discretion, may provide in an Agreement that
part or all of such payment may be made by the Optionee in one or more of the
following manners: (a) by delivery (including constructive delivery) to the
Company of Shares valued at Fair Market Value on Date of Exercise; (b) by
delivery on a form prescribed by the Committee of a properly executed exercise
notice and irrevocable instructions to a registered securities broker approved
by the Committee to sell Shares and promptly deliver cash to the Company; (c) by
delivery of a promissory note as provided in Section 7.3 hereof; or (d) by
surrender to the Company of an Option (or a portion thereof) that has become
exercisable and the receipt from the Company upon such surrender, without any
payment to the Company (other than required tax withholding amounts), of (x)
that number of Shares (equal to the highest whole number of Shares) having an
aggregate Fair Market Value as of the date of surrender equal to that number of
Shares subject to the Option (or portion thereof) being surrendered multiplied
by an amount equal to the excess of (i) the Fair Market Value on the date of
surrender over (ii) the Option Price, plus (y) an amount of cash equal to the
Fair Market Value of any fractional Share to which the Optionee would be
entitled but for the parenthetical in clause (x) above relating to whole number
of Shares.
7.3. To the extent provided in an Option Agreement and permitted by
applicable law, the Committee may accept as payment of the Option Price a
promissory note executed by the Optionee evidencing his or her obligation to
make future cash payment thereof; provided, however, that in no event may the
Committee accept a promissory note for an amount in excess of the difference
between the aggregate Option Price and the par value of the Shares. Promissory
notes made pursuant to this Section 7.3 shall be payable upon such terms as may
be determined by the Committee, shall be secured by a pledge of the Shares
received upon exercise of the Option and shall bear interest at a rate fixed by
the Committee.
<PAGE>
-6-
8. Restrictions on Transfer
------------------------
Except as set forth in an Agreement, Options shall not be transferable
other than by will or the laws of descent and distribution, and an Option may be
exercised during the Optionee's lifetime only by the Optionee or, in the event
of his or her legal disability, by his or her legal representative. The Shares
acquired pursuant to the Plan shall be subject to such restrictions and
agreements regarding sale, assignment, encumbrances, or other transfers or
dispositions thereof (i) as are in effect among the stockholders of the Company
at the time such Shares are acquired, (ii) as the Committee shall deem
appropriate and (iii) as are required by applicable law.
9. Capital Adjustments
-------------------
In the event of any change in the outstanding Common Stock by reason of
any stock dividend, split-up (or reverse stock split), recapitalization,
reclassification, reorganization, reincorporation, combination or exchange of
shares, merger, consolidation, liquidation or similar change in corporate
structure, the Committee may, in its discretion, provide for a substitution for
or adjustment in (i) the number and class of Shares subject to outstanding
Options, (ii) the Option Price of outstanding Options, and (iii) the aggregate
number and class of Shares that may be issued under the Plan.
10. Termination or Amendment
------------------------
The Board may amend, alter, suspend or terminate the Plan in any respect
at any time; provided, however, that after the Plan has been approved by the
stockholders of the Company, no amendment, alteration, suspension or termination
of the Plan shall be made by the Board without approval of (i) the Company's
stockholders to the extent stockholder approval is required by applicable law or
regulations and (ii) each affected Optionee if such amendment, alteration,
suspension or termination would adversely affect his or her rights or
obligations under any Option granted prior to the date of such amendment,
alteration, suspension or termination. No Option may be granted nor any Shares
issued under the Plan during any suspension or after termination of the Plan.
<PAGE>
-7-
11. Modification, Extension and Renewal of Options; Substituted Options
-------------------------------------------------------------------
11.1. Subject to the terms and conditions of the Plan, the Committee may
modify, extend or renew the terms of any outstanding Options, or accept the
surrender of outstanding Options granted under the Plan or options and stock
appreciation rights granted under any other plan of the Company or an Affiliate
(to the extent not theretofore exercised) and authorize the granting of new
Options in substitution therefor (to the extent not theretofore exercised). Any
such substituted Options may specify a lower exercise price than the surrendered
options and stock appreciation rights, a longer term than the surrendered
options and stock appreciation rights, or have any other provisions that are
authorized by the Plan. Notwithstanding the foregoing, however, no modification
of an Option shall, without the consent of the Optionee, alter or impair any of
the Optionee's rights or obligations under such Option.
11.2. Anything contained herein to the contrary notwithstanding, Options
may, at the discretion of the Committee, be granted under the Plan in
substitution for stock appreciation rights and options to purchase shares of
capital stock of another corporation which is merged into, consolidated with, or
all or a substantial portion of the property or stock of which is acquired by,
the Company or one of its Affiliates. The terms and conditions of the
substitute Options so granted may vary from the terms and conditions set forth
in this Plan to such extent as the Committee may deem appropriate in order to
conform, in whole or part, to the provisions of the options and stock
appreciation rights in substitution for which they are granted.
12. Effectiveness of the Plan
-------------------------
The Plan and any amendment thereto shall be effective on the date on
which it is adopted by the Board, provided that any such adoption requiring
stockholder approval is subject to approval by vote of the stockholders of the
Company within 12 months after such adoption by the Board. Options may be
granted prior to stockholder approval of the Plan, and the date on which any
such Option is granted shall be the Date of Grant for all purposes provided that
(a) each such Option shall be subject to stockholder approval of the Plan, (b)
no Option may be exercised prior to such
<PAGE>
-8-
stockholder approval, and (c) any such Option shall be void ab initio if such
stockholder approval is not obtained.
13. Withholding
-----------
The Company's obligation to deliver Shares or pay any amount pursuant to
the terms of any Option shall be subject to the satisfaction of applicable
federal, state and local tax withholding requirements. To the extent provided
in the applicable Agreement and in accordance with rules prescribed by the
Committee, an Optionee may satisfy any such withholding tax obligation by any of
the following means or by a combination of such means: (i) tendering a cash
payment, (ii) authorizing the Company to withhold Shares otherwise issuable to
the Optionee, or (iii) delivering to the Company already owned and unencumbered
Shares.
14. Term of the Plan
----------------
Unless sooner terminated by the Board pursuant to Section 10, the Plan
shall terminate on April 11, 2007, and no Options may be granted after such
date. The termination of the Plan shall not affect the validity of any Option
outstanding on the date of termination.
15. Indemnification of Committee
----------------------------
In addition to such other rights of indemnification as they may have as
Directors or as members of the Committee, the members of the Committee shall be
indemnified by the Company against the reasonable expenses, including attorneys'
fees, actually and reasonably incurred in connection with the defense of any
action, suit or proceeding, or in connection with any appeal therein, to which
they or any of them may be a party by reason of any action taken or failure to
act under or in connection with the Plan or any Option granted hereunder, and
against all amounts reasonably paid by them in settlement thereof or paid by
them in satisfaction of a judgment in any such action, suit or proceeding, if
such members acted in good faith and in a manner which they believed to be in,
and not opposed to, the best interests of the Company.
<PAGE>
-9-
16. General Provisions
------------------
16.1. The establishment of the Plan shall not confer upon any Eligible
Individual any legal or equitable right against the Company, any Affiliate or
the Committee, except as expressly provided in the Plan.
16.2. The Plan does not constitute inducement or consideration for the
employment or service of any Eligible Individual, nor is it a contract between
the Company or any Affiliate and any Eligible Individual. Participation in the
Plan shall not give an Eligible Individual any right to be retained in the
service of the Company or any Affiliate.
16.3. Neither the adoption of this Plan nor its submission to the
stockholders, shall be taken to impose any limitations on the powers of the
Company or its Affiliates to issue, grant, or assume options, warrants, rights,
or restricted stock, otherwise than under this Plan, or to adopt other stock
option or restricted stock plans or to impose any requirement of stockholder
approval upon the same.
16.4. The interests of any Eligible Individual under the Plan are not
subject to the claims of creditors and may not, in any way, be assigned,
alienated or encumbered except as provided in an Agreement.
16.5. The Plan shall be governed, construed and administered in
accordance with the laws of the State of Delaware and it is the intention of the
Company that Incentive Stock Options granted under the Plan qualify as such
under Section 422 of the Code.
16.6. The Committee may require each person acquiring Shares pursuant to
Options hereunder to represent to and agree with the Company in writing that
such person is acquiring the Shares without a view to distribution thereof. The
certificates for such Shares may include any legend which the Committee deems
appropriate to reflect any restrictions on transfer. All certificates for Shares
issued pursuant to the Plan shall be subject to such stock transfer orders and
other restrictions as the Committee may deem advisable under the rules,
regulations and other requirements of the Securities and Exchange Commission,
any stock exchange or interdealer quotation system upon which the Common Stock
is then listed or quoted, and any applicable federal or state securities laws.
The Committee may
<PAGE>
-10-
place a legend or legends on any such certificates to make appropriate reference
to such restrictions. The certificates for Shares acquired pursuant to an Option
may also include any legend which the Committee deems appropriate to reflect
restrictions contained in this Plan or in the applicable Agreement or to comply
with the Delaware General Corporation Law.
16.7. The Company shall not be required to issue any certificate or
certificates for Shares upon the exercise of Options, or record any person as a
holder of record of such Shares, without obtaining, to the complete satisfaction
of the Committee, the approval of all regulatory bodies deemed necessary by the
Committee, and without complying to the Committee's complete satisfaction, with
all rules and regulations, under federal, state or local law deemed applicable
by the Committee.
<PAGE>
EXHIBIT 10.10
EXECUTION COPY
MANAGEMENT AND CONSULTING AGREEMENT
TC MANAGEMENT L.L.C.
April 1, 1997
Software AG Americas, Inc.
11190 Sunrise Valley Drive
Reston, VA 20191-5424
Re: Management Services
-------------------
Gentlemen:
This letter will confirm the agreement between TC Management L.L.C., a
Delaware limited liability company ("Thayer"), and Software AG Americas, Inc., a
Virginia corporation (the "Company"), pursuant to which Thayer will render to
the Company certain management and consulting services in connection with the
operation and conduct of the Company's business. Thayer shall commence providing
these services as of the date of this letter agreement (this "Agreement").
Thayer and the Company shall agree on the specific type and extent of services
to be provided pursuant to this Agreement.
As consideration for the management and consulting services to be
provided to it by Thayer, the Company shall pay Thayer a quarterly fee of
$75,000 payable on the first business day of each calendar quarter, with the
first such payment to be made on the date hereof. Such fee shall be prorated for
any partial calendar quarter during which Thayer performs services hereunder.
Thayer shall also be entitled to receive (or be reimbursed for) its
reasonable out-of-pocket expenses incurred in connection with its services
performed hereunder, upon submission of appropriate receipts and documentation
in support thereof.
The doing of any act or the failure to do any act by Thayer or any of its
officers, directors, employees, partners, members or affiliates, or any person
who
<PAGE>
Software AG Americas, Inc.
Page 2
controls any of the foregoing, the effect of which may or does cause or result
in loss or damage to the Company or its affiliates, shall not subject Thayer, or
any of such persons or entities, to any liability to the Company, its affiliates
or any of their respective officers, directors, shareholders, employees or
affiliates, or to any other person whatsoever, except to the extent such loss or
damage is found in a final, non-appealable judgment by a court of competent
jurisdiction to have resulted from the willful misconduct of Thayer.
In addition to its agreements and obligations under this Agreement, the
Company agrees to indemnify and hold harmless Thayer and its affiliates
(including its and their respective officers, directors, stockholders, partners,
members, employees, affiliates and agents) (each indemnitee is referred to
herein as an "Indemnified Person") from and against any and all claims,
liabilities, losses and damages (or actions in respect thereof), in any way
related to or arising out of the performance by such Indemnified Person of
services under this Agreement, and to reimburse each Indemnified Person for
reasonable legal and other expenses incurred by it in connection with or
relating to investigating, preparing to defend, or defending any actions, claims
or other proceedings (including any investigation or inquiry) arising in any
manner out of or in connection with such Indemnified Person's performance or
non-performance under this Agreement (whether or not such Indemnified Person is
a named party in such proceedings); provided, however, that the Company shall
--------- -------
not be responsible under this paragraph for any claims, liabilities, losses,
damages or expenses to the extent that they are finally judicially determined to
result from actions taken by such Indemnified Person that constitute willful
misconduct.
Thayer shall perform the services described herein until Thayer delivers
a written letter of resignation to the Company, which Thayer may do in its sole
discretion, at any time, and for any reason or no reason.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto, their legal representatives, successors and assigns. The
validity, interpretation, construction and performance of this Agreement shall
be governed by the laws of the
<PAGE>
Software AG Americas, Inc.
Page 3
Commonwealth of Virginia applicable to agreements made and entirely to be
performed within such jurisdiction.
If the foregoing is acceptable to you, please sign this letter in the
space provided below and return it to the undersigned.
Very truly yours,
TC MANAGEMENT L.L.C.
By: /s/ Rick Rickertsen
------------------------
An Authorized Representative
ACCEPTED AND AGREED TO:
SOFTWARE AG AMERICAS, INC.
By: /s/ Daniel Gillis
------------------------
Daniel Gillis
President and Chief
Executive Officer
<PAGE>
EXHIBIT 10.11
DEFERRED COMPENSATION AGREEMENT
-------------------------------
THIS DEFERRED COMPENSATION AGREEMENT ("Agreement") is made and entered
into as of the 1st day of July, 1995 (the "Effective Date"), by and between
Software AG Americas, Inc., a Virginia corporation (the "Company"), and
Daniel Gillis, ("Executive").
WITNESSETH:
WHEREAS, Executive is currently employed by the Company in the capacity of
President & Chief Executive Officer, and has experience and knowledge of
considerable value to the Company; and
WHEREAS, the Company wishes to offer an inducement to Executive to remain
in its employ by providing him with a supplemental compensation arrangement for
services which he has rendered or will render; and
WHEREAS, Executive desires to continue in the employ of the Company in
order to earn certain deferred compensation benefits contingent on the
satisfaction of the provisions and conditions set forth herein; and
WHEREAS, the Company agrees to make such contingent deferred compensation
benefits available to Executive; and
WHEREAS, the Company and Executive desire to record in this Agreement the
terms and conditions for the earning and payment of such contingent deferred
compensation benefits.
NOW, THEREFORE, in consideration of the foregoing premises, and of other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and Executive hereby agree as follows:
1. Scope of this Agreement. The Company hereby continues to employ
-------- --------------
Executive in the capacity of President & Chief Executive Officer, and Executive
hereby agrees to such continued employment. The parties acknowledge that this
Agreement does not generally include terms and conditions of the employment of
Executive by the Company but is intended only to address Executive's right to
certain deferred compensation benefits, as specified herein. The Company's
obligation to pay to Executive deferred compensation hereunder is independent
of, and unrelated to, any employment agreement or any other agreement, contract
or understandings which may exist between the Company and Executive, and any
amounts payable to Executive hereunder shall be in addition to, and not in
substitution for, any salary, bonus, other compensation, benefits or other
amounts otherwise paid or provided by the Company to Executive.
<PAGE>
2. Deferred Compensation Account. The Company shall establish on its books
-----------------------------
a separate deferred compensation account (the "Account") which shall reflect the
amount of the Company's contingent liability to pay deferred compensation to
Executive in accordance with the terms of this Agreement. Amounts shall be
periodically credited to the Account as follows:
(a) The balance of the Account shall initially be zero (0).
(b) Effective as of July 31, 1995 the Company shall credit the Account
with the amount of Forty-One Thousand Eight Hundred Thirty-Eight Dollars
($41,838.00). Effective as of March 31, 1996 and on each March 31 occurring
thereafter during Executive's term of active employment with the Company, the
Company shall credit the Account with an additional Forty-One Thousand Eight
Hundred Thirty-Eight Dollars ($41,838.00.00). In the event that Executive's
employment with the Company is terminated as of a date other than April 1 due to
death, incurrence of Permanent Disability (as defined in Section 3(b)) or
retirement on or after attaining age sixty (60), the Account will be credited as
of the date of termination of employment by an amount determined by multiplying
Forty-One Thousand Eight Hundred Thirty-Eight ($41,838.00). by a fraction, the
numerator of which is the number of days elapsed between the most recent March 3
1 and the date of termination of employment (or, if earlier, the date on which
Executive attains age sixty (60)) and the denominator of which is 365. If
Executives employment with the Company is terminated for any other reason as of
a date other than April 1, no additional credit will be made to the Account. In
addition, if Executive performs services for the Company subsequent to the
attainment of age sixty (60), a final credit will be made to Executive's Account
under this Paragraph (b), computed under the methodology described above as if
Executive had terminated employment on his sixtieth (60th) birthday. No
subsequent adjustments will be made to Executive's Account under this Paragraph
(b) with respect to any continued employment beyond Executive's sixtieth (60th)
birthday.
(c) Effective as of September 30, 1995 (adjusted by 50% for the half
year of 1995 only) and on each September 30 occurring thereafter during
Executive's term of active employment with the Company, the Company shall credit
the Account with an amount equal to Executive's Adjusted Estimated Bonus. The
Adjusted Estimated Bonus as of each September 30 shall be equal to the product
of (i) fifty percent (50%) of the bonus which the Company estimates will be paid
to Executive with respect to the then-current calendar year, computed by the
Company after considering all relevant facts and circumstances including
specified management goals, multiplied by (ii) a factor of .53. In the event
that Executive's employment with the Company is terminated as of a date other
than October 1, due to death, incurrence of Permanent Disability (as defined in
Section 3(b)) or retirement on or after attaining age sixty (60), the Account
shall be credited as of the date of termination of employment by an amount equal
to the Adjusted Estimated Bonus, as defined above, multiplied by a fraction, the
numerator of which is the number of days elapsed between the most recent
September 30 and the date of termination of employment (or, if earlier, the date
on which Executive attains age 60) and the denominator of which is 365. If
Executive's employment with the Company is terminated for any other reason as of
a date other than October 1, no additional credit will be made to the Account.
In addition, if Executive performs services for the Company subsequent to the
attainment of age sixty (60), a final credit will be made to Executive's Account
under this Paragraph (c), computed
<PAGE>
under the methodology described above as if Executive had terminated employment
on his sixtieth (60) birthday. No subsequent adjustments will be made to
Executive's Account under this Paragraph (c) with respect to any continued
employment beyond Executive's sixtieth (60th) birthday.
(d) Effective as of December 31, 1995, and on each December 31 (adjusted by
50% for the half year of 1995 only), occurring thereafter during the Executive's
term of active employment with the Company, the Company shall credit the Account
with an amount equal to the difference between (i) .53 times the bonus actually
paid to the Executive in respect of the then-current calendar year and (ii) the
amount of the Adjusted Estimated Bonus credited to the Account as of the
immediately preceding September 30 pursuant to the provisions of Paragraph (c)
above. In the event that Executive's employment with the Company is terminated
as of a date other than January 1 due to death, incurrence of Permanent
Disability (as defined in Section 3(b)) or retirement on or after attaining age
sixty (60), the Account will be credited as of the date of termination of
employment by an amount equal to the product of (i) the difference between .53
times Executive's actual bonus paid in respect of the then-current year less the
Adjusted Estimated Bonus credited to the Executive's Account as of the
immediately preceding September 30 pursuant to the provisions of Paragraph (c),
above, multiplied by (ii) a fraction, the numerator of which is the number of
days elapsed between the most recent December 31 and the date of termination of
employment (or, if earlier, the date on which Executive attains age sixty (60))
and the denominator of which is 365. If the Executive's employment is terminated
for any other reason as of a date other than January 1, no additional credit
will be made to the Account. In addition, if Executive performs services for the
Company subsequent to the attainment of age sixty (60), a final credit will be
made to Executive's Account under this Paragraph (d), computed under the
methodology described above as if Executive had terminated employment on his
sixtieth (60th) birthday. No subsequent adjustments will be made to Executive's
Account under this Paragraph (d) with respect to any continued employment beyond
Executive's sixtieth (60th) birthday.
(e) The Account balance shall be credited as of September 30 and March 31
of each year during which the Account has a positive balance by an interest
factor equal to three percent 3% of the then-existing Account balance. As such,
the rate of return to be applied pursuant to this Paragraph (e) is six percent
(6%) per year, compounded semi-annually.
3. Entitlement to Deferred Compensation Benefits.
---------------------------------------------
(a) In the event that Executive terminates employment for any reason
other than Permanent Disability, death, termination for "cause", as defined
below, or a voluntary quit, Executive shall have the right, commencing on or
about the date of termination of employment, to receive Deferred Compensation
Benefits, as defined in Section 5, below. It is intended and expected that
Executive give at least sixty (60) days notice prior to the date upon which such
termination becomes effective. Executive's entitlement to receipt of benefits
pursuant to this Agreement shall be conditioned upon Executive's compliance with
all terms and provisions of this Agreement.
<PAGE>
(b) If Executive shall become Permanently Disabled, he shall become
entitled, as of the date on which the Company determines that Executive is
Permanently Disabled, to receive Deferred Compensation Benefits in accordance
with Section 5 hereof. For purposes of this Agreement, the term "Permanently
Disabled" means unable, by reason of any physical or mental illness, injury or
incapacity of permanent or indefinite duration, to perform substantially full-
time services to the Company in the capacity and at the level theretofore
employed, except that Executive shall not be deemed to be Permanently Disabled
unless and until such illness, injury or incapacity has continued unabated for
at least six (6) consecutive months. Executive agrees, as a condition of his
receipt of benefits hereunder, to undergo such physical examinations and tests
as any physician selected by the Company may reasonably request to ascertain
whether he is Permanently Disabled.
4. Vesting. Executive's rights to receive deferred compensation hereunder
-------
shall be automatically forfeited except to the extent that he has become vested
in a designated percentage of the Account balance on or before the date of his
retirement or termination of employment in accordance with the following rules.
In the event that Executive's employment is terminated for "cause", as defined
below, or in the event Executive voluntarily quits his employment, Executive
will forfeit entitlement to any and all benefits hereunder. Subject to the
provisions of Section 10, below, the vesting schedule is as follows and is based
upon total continuous employment performed by the Executive from his initial
date of hire.
A. Termination due to the Permanent Disability of Executive - Vesting
100%
B. Termination for any reason other than Permanent Disability, death,
termination for "cause" or a voluntary quit, Vesting will be based
on the number of full years of continuous employment from
Executive's initial date of hire as follows:
<TABLE>
<S> <C>
Less than 1 Year 0% Vested
----------------------------------------------------
1 Year 20% Vested
----------------------------------------------------
2 Years 40% Vested
----------------------------------------------------
3 Years 60% Vested
----------------------------------------------------
4 Years 80% Vested
----------------------------------------------------
5 or More Years 100% Vested
----------------------------------------------------
</TABLE>
For purposes of this Agreement, "cause" means: 1) Misconduct or conduct by
Executive which is illegal, dishonest, or involves moral turpitude; 2) Conduct
which jeopardizes the Company's right or ability to operate its business; 3) The
breach or violation of any other signed agreements, i.e. Confidentiality
Agreements, etc.; or 4) The destruction of Company property or business.
5. Payment of Deferred Compensation Benefits. Provided that the vesting
-----------------------------------------
requirements specified in Section 4 above are (or become) satisfied in whole or
in part as of the date of Executive's termination of employment, the Executive
shall, as of the termination of his employment (the "Entitlement Date"), become
entitled to receive from the Company payments of deferred compensation as set
forth below ("Deferred Compensation Benefits"). Prior to the
<PAGE>
Entitlement Date, Executive shall have the option (1) to direct the Company to
pay to him his Deferred Compensation Benefits as a lump-sum payment effective as
of the Entitlement Date; (2) to direct the Company to purchase and assign an
annuity to him, effective as of the Entitlement Date or (3) to direct the
Company to make specified payments to him in installments over a fifteen (15)
year period commencing on the Entitlement Date. This election as to the form of
Deferred Compensation Benefits shall be made by Executive in a written notice to
the Company signed by Executive ("Election Notice") no less than ninety (90)
days prior to the Entitlement Date. If Executive fails to make an election at
least ninety (90) days prior to the Entitlement Date, the Company shall pay the
Deferred Compensation Benefits in the form of a lump-sum distribution.
The forms in which Deferred Compensation Benefits may be paid are
described in greater detail as follows:
(a) If Executive elects to receive a lump-sum payment or if Executive
otherwise fails to file an Election Notice on a timely basis, the Company shall
pay to Executive, in immediately-available funds, no later than thirty (30) days
after Entitlement Date, an amount equal to the total Account Balance, determined
as of the Entitlement Date, plus interest thereon through the Entitlement Date,
at the rate set forth in Section 2 hereof ("Final Account Balance").
(b) If Executive elects in a timely manner to have the Company
purchase an annuity contract and to transfer such annuity contract to Executive,
the Company shall, within thirty (30) days after the date of the Election
Notice, assign and transfer to Executive a fully-paid annuity policy pursuant to
which an insurance company or other financial institution will make annuity
payments directly to Executive on the same dates as specified in
subparagraph (c) below.
(c) If Executive elects in a timely manner to have the Company pay
Deferred Compensation directly to Executive in annual installments, the Company
shall compute the amount of each annual installment based on amortization, over
a fifteen (15) year period, of the Final Account Balance, with interest thereon
at six percent (6%) per year, compounded annually, with the first annual
installment payment to be paid within thirty (30) days of the Entitlement Date.
6. Death of Executive.
-------------------
(a) If Executive should die while still in the employ of the Company,
the Company shall pay to the "Beneficiary" in lieu of any other payments
hereunder, a death benefit equal to the amount in the Executive's deferred
compensation account at the time of death ("Death Benefit"). The Death Benefit
shall be paid to the Beneficiary, in immediately-available funds, on the first
day of the second month commencing after the date of death of Executive. For
purposes of this Agreement, the "Beneficiary" of the Executive is the person or
persons whose name or names and address or addresses, are set forth on Exhibit A
attached hereto and in effect on the date of Executive's death. Executive
retains the right to change his Beneficiary at any time by providing the Company
with his written, signed notice advising the Company of the name or names and
address or addresses of the person or persons who shall be the Beneficiary
<PAGE>
after the date of such notice. Upon receipt of any such notice, the Company
shall cause Exhibit A attached hereto to be changed to reflect the name or names
and address or addresses of the new Beneficiary. In the event that Executive
fails to designate a beneficiary or in the event the designated beneficiary
fails to survive Executive, Executive's Beneficiary shall be deemed to be his
estate.
(b) If Executive shall die after becoming entitled to receive Deferred
Compensation Benefits pursuant to Section 5 hereof but before all of the
Deferred Compensation Benefits have been paid to him, his Beneficiary shall not
receive any Death Benefit under Section 6(a), above, but shall become entitled
to receive all Deferred Compensation Benefits that were not paid to Executive
prior to his death.
7. No Employment Obligation. This Agreement does not, in any manner,
------------------------
commit or obligate the Company to continue to employ Executive, nor does it
commit to obligate Executive to continue in the employ of the Company.
Accordingly, the Company shall have the right, at any time, to terminate its
employment of the Executive for any reason, subject to the provisions of any
employment agreement or other contract between the Company and Executive.
8. Unfunded Obligation. The rights of Executive and his Beneficiary
-------------------
to receive Deferred Compensation Benefits or a Death Benefit hereunder shall be
solely those of an unsecured creditor of the Company. Neither Executive nor his
Beneficiary shall have any right with respect to any insurance policy, annuity
contract or any other asset which may be acquired or held by the Company in
connection with the contingent liabilities assumed by the Company hereunder. Any
such insurance policy, annuity contract or other asset shall not be deemed to be
held under any trust for the benefit of Executive or his beneficiaries or to be
held in any way as collateral security for the fulfillment of the obligations of
the Company under this Agreement, but shall be, and remain, a general,
unpledged, unrestricted asset of the Company, which the Company may modify or
cancel at any time.
9. Nonassignability. Except to the extent that Executive may designate
----------------
his Beneficiary pursuant to Section 6 hereof to receive payments hereunder after
the date of his death, neither the Beneficiary nor Executive shall have the
right to commute, sell, assign, pledge, hypothecate or otherwise transfer or
encumber the right to receive any payments hereunder, which payments and the
right thereto are expressly declared to be nonassignable and nontransferable.
10. Sale, Merger or Consolidation. In the event the Company receives
-----------------------------
an offer to sell substantially all of its operating assets to another entity or
in the event of a proposed merger, consolidation or other business transfer, the
Company shall diligently pursue an attempt to cause the succeeding or continuing
corporation or other organization to expressly assume all of the obligations and
liabilities of the Company under this Agreement. In the event that the Company
is not able to cause such an assumption of obligations under this Agreement,
this Agreement shall be terminated.
<PAGE>
Upon termination, the Executive will be entitled to receive a lump-sum
distribution of the portion of his Account in which he has then attained vested
status under the schedule set forth in Section 4B, based upon his years of
continuous employment earned through the effective date of such merger,
consolidation or acquisition. Such payment shall be made within thirty (30) days
of the consummation of such merger, consolidation or acquisition.
11. Miscellaneous.
-------------
(a) This Agreement shall be governed by, and interpreted in accordance
with, the laws of the Commonwealth of Virginia, without giving effect to the
principles of conflicts of laws.
(b) Where text requires, words in the singular shall be deemed to
include the plural and vice-versa, and words of any gender shall be deemed to
include all genders.
(c) Any headings preceding the text of the several sections of this
Agreement are inserted solely for convenience of reference and shall not
constitute a part of this Agreement nor shall they affect its meaning,
construction or effect.
(d) For purposes of this Agreement, employment of Executive by the
Company shall include not only employment of Executive by Software AG Americas,
Inc., but also employment of Executive by any subsidiary, parent or other
affiliate of Software AG Americas, Inc.
(e) All notices pertaining to this Agreement shall be either hand-
delivered or sent by certified mail, return receipt requested, with first class
postage prepaid as follows: (i) if to the Company, to Software AG Americas,
Inc., 11190 Sunrise Valley Drive, Reston, Virginia 22091, Attention: Chief
Financial Officer; or (ii) to such other address as either of the parties shall
designate by written notice to the other from time to time pursuant to this
Section. Time periods contained in any notice shall commence on the date of hand
delivery or mailing, as the case may be. Any notice which is required to be
given within a stated period of time shall be considered timely if either hand
delivered or postmarked on or before midnight of the last day of such period.
(f) This Agreement is binding upon, and inures to the benefit of, the
parties hereto and their heirs, executors, personal and legal representatives,
successors and permitted assigns.
(g) This Agreement may be modified, amended, altered or revoked only
by mutual consent of the parties or by the Company within ninety (90) days of
either (i) a meaningful Company-wide reduction in compensation and/or benefits,
or (ii) following a meaningful reduction in force. However, no such
modification, amendment, alteration or revocation shall adversely affect
Executive's entitlements hereunder to the component of Executive's Account (as
determined on the date of the adoption of such modification, amendment,
alteration or revocation) in which Executive is then vested under the schedule
set
<PAGE>
forth in Section 4.B. In addition, in the event of the adoption of any
modification, amendment, alteration or revocation which would otherwise reduce
or eliminate the amount of future additions to Executive's Account, Executive's
rights upon termination of employment to the balance of the Account in existence
on the date of the adoption of such modification, amendment, alteration or
revocation shall be based upon the vesting schedule set forth in Section 4.B
computed by reference to Executive's full period of employment through the date
of such termination of employment (including employment subsequent to the date
of the modification, amendment, alteration or revocation of this Agreement).
IN WITNESS WHEREOF, the Company, by its duly-authorized officers, has
caused this Agreement to be executed and sealed, and Executive has by his hand
signed and sealed this Agreement, all as of the day and year first set forth
above.
ATTEST: THE COMPANY:
Software AG Americas, Inc.
/s/ Harry McCreery By: /s/ Daniel Gillis
- --------------------------- ---------------------------
Harry McCreery, Chief Financial Officer Daniel Gillis, President & CEO
WITNESS: EXECUTIVE:
/s/ William P.Cripe /s/ James H. Daly
- --------------------------- ------------------------------
William P. Cripe, Vice President James H. Daly, General Counsel
<PAGE>
AMENDMENT AGREEMENT
THIS AMENDMENT AGREEMENT is made as of March 27, 1997, by and between
Software AG Americas, Inc., a Virginia corporation (the "Company"), and Daniel
F. Gillis ("Executive").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Executive and the Company have previously entered into a
Deferred Compensation Agreement, dated as of July 1, 1995 (the "Agreement"),
which, subject to the terms of the Agreement, allows Executive to earn certain
contingent deferred compensation benefits; and
WHEREAS, Executive and the Company desire to amend the Agreement to (a)
terminate the crediting of additional contingent deferred compensation benefits
as of December 31, 1998, and (b) vest previously earned deferred compensation
benefits as of such date, subject to the terms and conditions set forth herein
and in the Agreement;
NOW, THEREFORE, the Agreement is hereby amended to add a new section 12
to read as follows:
12. Freeze of Benefits as of December 31. 1998. If Executive is an
------------------------------------------
active employee of the Company as of December 31, 1998: (a) solely for purposes
of Section 2 of this Agreement, he shall be treated as if he attained age sixty
(60) as of such date, such that he shall be entitled to such credits to his
Account for employment through December 31, 1998 as provided for in Section 2,
but no additional credits shall be made to his Account with respect to
employment after such date, except for the crediting of interest pursuant to
Section 2(e) of this Agreement; and (b) he shall be deemed, as of such date, to
have completed five (5) or more years of service for purposes of Section 4 of
this Agreement.
<PAGE>
-2-
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
SOFTWARE AG AMERICAS, INC.
By: /s/ Harry McCreery
-----------------------------
Harry McCreery
Vice President and
Chief Financial Officer
EXECUTIVE:
/s/ Daniel F. Gillis
-----------------------------
Daniel F. Gillis
<PAGE>
EXHIBIT 10.12
DEFERRED COMPENSATION AGREEMENT
-------------------------------
THIS DEFERRED COMPENSATION AGREEMENT ("Agreement") is made and entered into
as of the 1St day of January, 1993 (the "Effective Date"), by and between
Software AG Americas, Inc., a Virginia corporation (the "Company"), and James H.
Daly, ("Executive").
WITNESSETH:
WHEREAS, Executive is currently employed by the Company in the capacity of
Vice President, General Counsel and Vice President, International Operations,
and has experience and knowledge of considerable value to the Company; and
WHEREAS, the Company wishes to offer an inducement to Executive to remain
in its employ by providing him with a supplemental compensation arrangement for
services which he has rendered or will render; and
WHEREAS, Executive desires to continue in the employ of the Company in
order to earn certain deferred compensation benefits contingent on the
satisfaction of the provisions and conditions set forth herein; and
WHEREAS, the Company agrees to make such contingent deferred compensation
benefits available to Executive; and
WHEREAS, the Company and Executive desire to record in this Agreement the
terms and conditions for the earning and payment of such contingent deferred
compensation benefits.
NOW, THEREFORE, in consideration of the foregoing premises, and of other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and Executive hereby agree as follows:
1. Scope of this Agreement. The Company hereby continues to employ
-----------------------
Executive in the capacity of Vice President, General Counsel and Vice President,
International Operations, and Executive hereby agrees to such continued
employment. The parties acknowledge that this Agreement does not generally
include terms and conditions of the employment of Executive by the Company but
is intended only to address Executive's right to certain deferred compensation
benefits, as specified herein. The Company's obligation to pay to Executive
deferred compensation hereunder is independent of, and unrelated to, any
employment agreement or any other agreement, contract or understandings which
may exist between the Company and Executive, and any amounts payable to
Executive hereunder shall be in addition to, and not in substitution for, any
salary, bonus, other compensation, benefits or other amounts otherwise paid or
provided by the Company to Executive.
<PAGE>
2. Deferred Compensation Account. The Company shall establish on its
-----------------------------
books a separate deferred compensation account (the "Account") which shall
reflect the amount of the Company's contingent liability to pay deferred
compensation to Executive in accordance with the terms of this Agreement.
Amounts shall be periodically credited to the Account as follows:
(a) The balance of the Account shall initially be zero (0).
(b) Effective as of March 31, 1993 the Company shall credit the Account
with the amount of Twenty Four Thousand Dollars ($24,000.00). Effective as of
March 31, 1992 and on each March 31 occurring thereafter during Executive's term
of active employment with the Company, the Company shall credit the Account with
an additional Twenty Four Thousand Dollars ($24,000.00). In the event that
Executive's employment with the Company is terminated as of a date other than
April 1 due to death, incurrence of Permanent Disability (as defined in Section
3(b)) or retirement on or after attaining age sixty (60), the Account will be
credited as of the date of termination of employment by an amount determined by
multiplying Twenty Four Thousand Dollars ($24,000.00) by a fraction, the
numerator of which is the number of days elapsed between the most recent
March 31 and the date of termination of employment (or, if earlier, the date on
which Executive attains age sixty (60)) and the denominator of which is 365. If
Executive's employment with the Company is terminated for any other reason as of
a date other than April 1, no additional credit will be made to the Account. In
addition, if Executive performs services for the Company subsequent to the
attainment of age sixty (60), a final credit will be made to Executive's Account
under this Paragraph (b), computed under the methodology described above as if
Executive had terminated employment on his sixtieth (60th) birthday. No
subsequent adjustments will be made to Executive's Account under this Paragraph
(b) with respect to any continued employment beyond Executive's sixtieth (60th)
birthday.
(c) Effective as of September 30, 1993 and on each September 30 occurring
thereafter during Executive's term of active employment with the Company, the
Company shall credit the Account with an amount equal to Executive's Adjusted
Estimated Bonus. The Adjusted Estimated Bonus as of each September 30 shall be
equal to the product of (i) fifty percent (50%) of the bonus which the Company
estimates will be paid to Executive with respect to the then-current calendar
year, computed by the Company after considering all relevant facts and
circumstances including specified management goals, multiplied by (ii) a factor
of 1.20. In the event that Executive's employment with the Company is terminated
as of a date other than October 1, due to death, incurrence of Permanent
Disability (as defined in Section 3(b)) or retirement on or after attaining age
sixty (60), the Account shall be credited as of the date of termination of
employment by an amount equal to the Adjusted Estimated Bonus, as defined above,
multiplied by a fraction, the numerator of which is the number of days elapsed
between the most recent September 30 and the date of termination of employment
(or, if earlier, the date on which Executive attains age 60) and the denominator
of which is 365. If Executive's employment with the Company is terminated for
any other reason as of a date other than October 1, no additional credit will be
made to the Account. In addition, if Executive performs services for the Company
subsequent to the attainment of age sixty (60), a final credit will be
<PAGE>
made to Executive's Account under this Paragraph (c), computed under the
methodology described above as if Executive had terminated employment on his
sixtieth (60) birthday. No subsequent adjustments will be made to Executive's
Account under this Paragraph (c) with respect to any continued employment beyond
Executive's sixtieth (60th) birthday.
(d) Effective as of December 31, 1993, and on each December 31,
occurring thereafter during the Executive's term of active employment with the
Company, the Company shall credit the Account with an amount equal to the
difference between (i) 1.20 times the bonus actually paid to the Executive in
respect of the then-current calendar year and (ii) the amount of the Adjusted
Estimated Bonus credited to the Account as of the immediately preceding
September 30 pursuant to the provisions of Paragraph (c) above. In the event
that Executive's employment with the Company is terminated as of a date other
than January 1 due to death, incurrence of Permanent Disability (as defined in
Section 3(b)) or retirement on or after attaining age sixty (60), the Account
will be credited as of the date of termination of employment by an amount equal
to the product of (i) the difference between 1.20 times Executive's actual bonus
paid in respect of the then-current year less the Adjusted Estimated Bonus
credited to the Executive's Account as of the immediately preceding September 30
pursuant to the provisions of Paragraph (c), above, multiplied by (ii) a
fraction, the numerator of which is the number of days elapsed between the most
recent December 31 and the date of termination of employment (or, if earlier,
the date on which Executive attains age sixty (60)) and the denominator of which
is 365. If the Executive's employment is terminated for any other reason as of a
date other than January 1, no additional credit will be made to the Account. In
addition, if Executive performs services for the Company subsequent to the
attainment of age sixty (60), a final credit will be made to Executive's Account
under this Paragraph (d), computed under the methodology described above as if
Executive had terminated employment on his sixtieth (60th) birthday. No
subsequent adjustments will be made to Executive's Account under this Paragraph
(d) with respect to any continued employment beyond Executive's sixtieth (60th)
birthday.
(e) The Account balance shall be credited as of September 30 and
March 31 of each year during which the Account has a positive balance by an
interest factor equal to three percent 3% of the then-existing Account balance.
As such, the rate of return to be applied pursuant to this Paragraph (e) is six
percent (6%) per year, compounded semi-annually.
3. Entitlement to Deferred Compensation Benefits.
---------------------------------------------
(a) In the event that Executive terminates employment for any reason
other than Permanent Disability, death, termination for "cause", as defined
below, or a voluntary quit, Executive shall have the right, commencing on or
about the date of termination of employment, to receive Deferred Compensation
Benefits, as defined in Section 5, below. It is intended and expected that
Executive give at least sixty (60) days notice prior to the date upon which such
termination becomes effective. Executive's entitlement to receipt of benefits
pursuant to this Agreement shall be conditioned upon Executive's compliance with
all terms and provisions of this Agreement.
<PAGE>
(b) If Executive shall become Permanently Disabled, he shall become
entitled, as of the date on which the Company determines that Executive is
Permanently Disabled, to receive Deferred Compensation Benefits in accordance
with Section 5 hereof. For purposes of this Agreement, the term "Permanently
Disabled" means unable, by reason of any physical or mental illness, injury or
incapacity of permanent or indefinite duration, to perform substantially full-
time services to the Company in the capacity and at the level theretofore
employed, except that Executive shall not be deemed to be Permanently Disabled
unless and until such illness, injury or incapacity has continued unabated for
at least six (6) consecutive months. Executive agrees, as a condition of his
receipt of benefits hereunder, to undergo such physical examinations and tests
as any physician selected by the Company may reasonably request to ascertain
whether he is Permanently Disabled.
4. Vesting. Executive's rights to receive deferred compensation
-------
hereunder shall be automatically forfeited except to the extent that he has
become vested in a designated percentage of the Account balance on or before the
date of his retirement or termination of employment in accordance with the
following rules. In the event that Executive's employment is terminated for
"cause", as defined below, or in the event Executive voluntarily quits his
employment, Executive will forfeit entitlement to any and all benefits
hereunder. Subject to the provisions of Section 10, below, the vesting schedule
is as follows and is based upon total continuous employment performed by the
Executive from his initial date of hire.
A. Termination due to the Permanent Disability of Executive - Vesting
100%
B. Termination for any reason other than Permanent Disability, death,
termination for "cause" or a voluntary quit. Vesting will be based
on the number of full years of continuous employment from
Executive's initial date of hire as follows:
<TABLE>
<S> <C>
------------------------------------------------------------------
Less than 1 Year 0% Vested
------------------------------------------------------------------
1 Year 20% Vested
------------------------------------------------------------------
2 Years 40% Vested
------------------------------------------------------------------
3 Years 60% Vested
------------------------------------------------------------------
4 Years 80% Vested
------------------------------------------------------------------
5 or More Years 100% Vested
------------------------------------------------------------------
</TABLE>
For purposes of this Agreement, "cause" means: 1) Misconduct or conduct by
Executive which is illegal, dishonest, or involves moral turpitude; 2) Conduct
which jeopardizes the Company's right or ability to operate its business; 3) The
breach or violation of any other signed agreements, i.e. Confidentiality
Agreements, etc.; or 4) The destruction of Company property or business.
5. Payment of Deferred Compensation Benefits. Provided that the vesting
-----------------------------------------
requirements specified in Section 4 above are (or become) satisfied in whole or
in part as of the date of Executive's termination of employment, the Executive
shall, as of the termination of his employment (the "Entitlement Date"), become
entitled to receive from the Company payments of deferred compensation as set
forth below ("Deferred Compensation Benefits"). Prior to the
<PAGE>
Entitlement Date, Executive shall have the option (1) to direct the Company to
pay to him his Deferred Compensation Benefits as a lump-sum payment effective as
of the Entitlement Date; (2) to direct the Company to purchase and assign an
annuity to him, effective as of the Entitlement Date or (3) to direct the
Company to make specified payments to him in installments over a fifteen (15)
year period commencing on the Entitlement Date. This election as to the form of
Deferred Compensation Benefits shall be made by Executive in a written notice to
the Company signed by Executive ("Election Notice") no less than ninety (90)
days prior to the Entitlement Date. If Executive fails to make an election at
least ninety (90) days prior to the Entitlement Date, the Company shall pay the
Deferred Compensation Benefits in the form of a lump-sum distribution.
The forms in which Deferred Compensation Benefits may be paid are
described in greater detail as follows:
(a) If Executive elects to receive a lump-sum payment or if Executive
otherwise fails to file an Election Notice on a timely basis, the Company shall
pay to Executive, in immediately-available funds, no later than thirty (30) days
after Entitlement Date, an amount equal to the total Account Balance, determined
as of the Entitlement Date, plus interest thereon through the Entitlement Date,
at the rate set forth in Section 2 hereof ("Final Account Balance").
(b) If Executive elects in a timely manner to have the Company
purchase an annuity contract and to transfer such annuity contract to Executive,
the Company shall, within thirty (30) days after the date of the Election
Notice, assign and transfer to Executive a fully-paid annuity policy pursuant to
which an insurance company or other financial institution will make annuity
payments directly to Executive on the same dates as specified in subparagraph
(c) below.
(c) If Executive elects in a timely manner to have the Company pay
Deferred Compensation directly to Executive in annual installments, the Company
shall compute the amount of each annual installment based on amortization, over
a fifteen (15) year period, of the Final Account Balance, with interest thereon
at six percent (6%) per year, compounded annually, with the first annual
installment payment to be paid within thirty (30) days of the Entitlement Date.
6. Death of Executive.
------------------
(a) If Executive should die while still in the employ of the Company,
the Company shall pay to the "Beneficiary" in lieu of any other payments
hereunder, a death benefit equal to the amount in the Executive's deferred
compensation account at the time of death ("Death Benefit"). The Death Benefit
shall be paid to the Beneficiary, in immediately-available funds, on the first
day of the second month commencing after the date of death of Executive. For
purposes of this Agreement, the "Beneficiary" of the Executive is the person or
persons whose name or names and address or addresses, are set forth on Exhibit A
attached hereto and in effect on the date of Executive's death. Executive
retains the right to change his Beneficiary at any time by providing the Company
with his written, signed notice advising the Company of the name or names and
address or addresses of the person or persons who shall be the Beneficiary
<PAGE>
after the date of such notice. Upon receipt of any such notice, the Company
shall cause Exhibit A attached hereto to be changed to reflect the name or names
and address or addresses of the new Beneficiary. In the event that Executive
fails to designate a beneficiary or in the event the designated beneficiary
fails to survive Executive, Executive's Beneficiary shall be deemed to be his
estate.
(b) If Executive shall die after becoming entitled to receive Deferred
Compensation Benefits pursuant to Section 5 hereof but before all of the
Deferred Compensation Benefits have been paid to him, his Beneficiary shall not
receive any Death Benefit under Section 6(a), above, but shall become entitled
to receive all Deferred Compensation Benefits that were not paid to Executive
prior to his death.
7. No Employment Obligation. This Agreement does not, in any manner,
------------------------
commit or obligate the Company to continue to employ Executive, nor does it
commit to obligate Executive to continue in the employ of the Company.
Accordingly, the Company shall have the right, at any time, to terminate its
employment of the Executive for any reason, subject to the provisions of any
employment agreement or other contract between the Company and Executive.
8. Unfunded Obligation. The rights of Executive and his Beneficiary
-------------------
to receive Deferred Compensation Benefits or a Death Benefit hereunder shall be
solely those of an unsecured creditor of the Company. Neither Executive nor his
Beneficiary shall have any right with respect to any insurance policy, annuity
contract or any other asset which may be acquired or held by the Company in
connection with the contingent liabilities assumed by the Company hereunder. Any
such insurance policy, annuity contract or other asset shall not be deemed to be
held under any trust for the benefit of Executive or his beneficiaries or to be
held in any way as collateral security for the fulfillment of the obligations of
the Company under this Agreement, but shall be, and remain, a general,
unpledged, unrestricted asset of the Company, which the Company may modify or
cancel at any time.
9. Nonassignability. Except to the extent that Executive may
----------------
designate his Beneficiary pursuant to Section 6 hereof to receive payments
hereunder after the date of his death, neither the Beneficiary nor Executive
shall have the right to commute, sell, assign, pledge, hypothecate or otherwise
transfer or encumber the right to receive any payments hereunder, which payments
and the right thereto are expressly declared to be nonassignable and
nontransferable.
10. Sale, Merger or Consolidation. In the event the Company receives
-----------------------------
an offer to sell substantially all of its operating assets to another entity or
in the event of a proposed merger, consolidation or other business transfer, the
Company shall diligently pursue an attempt to cause the succeeding or continuing
corporation or other organization to expressly assume all of the obligations and
liabilities of the Company under this Agreement. In the event that the Company
is not able to cause such an assumption of obligations under this Agreement,
this Agreement shall be terminated.
<PAGE>
Upon termination, the Executive will be entitled to receive a
lump-sum distribution of the portion of his Account in which he has then
attained vested status under the schedule set forth in Section 4B, based upon
his years of continuous employment earned through the effective date of such
merger, consolidation or acquisition. Such payment shall be made within thirty
(30) days of the consummation of such merger, consolidation or acquisition.
11. Miscellaneous.
-------------
(a) This Agreement shall be governed by, and interpreted in
accordance with, the laws of the Commonwealth of Virginia, without giving effect
to the principles of conflicts of laws.
(b) Where text requires, words in the singular shall be deemed to
include the plural and vice-versa, and words of any gender shall be deemed to
include all genders.
(c) Any headings preceding the text of the several sections of this
Agreement are inserted solely for convenience of reference and shall not
constitute a part of this Agreement nor shall they affect its meaning,
construction or effect.
(d) For purposes of this Agreement, employment of Executive by the
Company shall include not only employment of Executive by Software AG Americas,
Inc., but also employment of Executive by any subsidiary, parent or other
affiliate of Software AG Americas, Inc.
(e) All notices pertaining to this Agreement shall be either hand-
delivered or sent by certified mail, return receipt requested, with first class
postage prepaid as follows: (i) if to the Company, to Software AG Americas,
Inc., 11190 Sunrise Valley Drive, Reston, Virginia 22091, Attention: Chief
Financial Officer; or (ii) to such other address as either of the parties shall
designate by written notice to the other from time to time pursuant to this
Section. Time periods contained in any notice shall commence on the date of hand
delivery or mailing, as the case may be. Any notice which is required to be
given within a stated period of time shall be considered timely if either hand
delivered or postmarked on or before midnight of the last day of such period.
(f) This Agreement is binding upon, and inures to the benefit of, the
parties hereto and their heirs, executors, personal and legal representatives,
successors and permitted assigns.
(g) This Agreement may be modified, amended, altered or revoked only
by mutual consent of the parties or by the Company within ninety (90) days of
either (i) a meaningful Company-wide reduction in compensation and/or benefits,
or (ii) following a meaningful reduction in force. However, no such
modification, amendment, alteration or revocation shall adversely affect
Executive's entitlements hereunder to the component of Executive's Account (as
determined on the date of the adoption of such modification, amendment,
alteration or revocation) in which Executive is then vested under the schedule
set
<PAGE>
forth in Section 4.B. In addition, in the event of the adoption of any
modification, amendment, alteration or revocation which would otherwise reduce
or eliminate the amount of future additions to Executive's Account, Executive's
rights upon termination of employment to the balance of the Account in existence
on the date of the adoption of such modification, amendment, alteration or
revocation shall be based upon the vesting schedule set forth in Section 4.B
computed by reference to Executive's full period of employment through the date
of such termination of employment (including employment subsequent to the date
of the modification, amendment, alteration or revocation of this Agreement).
IN WITNESS WHEREOF, the Company, by its duly-authorized officers,
has caused this Agreement to be executed and sealed, and Executive has by his
hand signed and sealed this Agreement, all as of the day and year first set
forth above.
ATTEST: THE COMPANY:
Software AG Americas, Inc.
/s/ Harry McCreery By: /s/ Daniel Gillis
- --------------------------------------- -------------------------------------
Harry McCreery, Chief Financial Officer Daniel Gillis, President & CEO
WITNESS: EXECUTIVE:
/s/ William P. Cripe, Vice President James H. Daly
- --------------------------------------- -------------------------------------
William P. Cripe, Vice President James H. Daly, General Counsel
2/5/97
<PAGE>
AMENDMENT AGREEMENT
THIS AMENDMENT AGREEMENT is made as of March 27, 1997, by and between
Software AG Americas, Inc., a Virginia corporation (the "Company"), and James
Da1y ("Executive").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Executive and the Company have previously entered into a
Deferred Compensation Agreement, dated as of January 1, 1993 (the "Agreement"),
which, subject to the terms of the Agreement, allows Executive to earn certain
contingent deferred compensation benefits; and
WHEREAS, Executive and the Company desire to amend the Agreement to (a)
terminate the crediting of additional contingent deferred compensation benefits
as of December 31, 1998, and (b) vest previously earned deferred compensation
benefits as of such date, subject to the terms and conditions set forth herein
and in the Agreement;
NOW, THEREFORE, the Agreement is hereby amended to add a new section 12
to read as follows:
12. Freeze of Benefits as of December 31, 1998. If Executive is an
------------------------------------------
active employee of the Company as of December 31, 1998: (a) solely for purposes
of Section 2 of this Agreement, he shall be treated as if he attained age sixty
(60) as of such date, such that he shall be entitled to such credits to his
Account for employment through December 31, 1998 as Provided for in Section 2,
but no additional credits shall be made to his Account with respect to
employment after such date, except for the crediting of interest pursuant to
Section 2(e) of this Agreement; and (b) he shall be deemed, as of such date, to
have completed five (5) or more years of service for purposes of Section 4 of
this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
SOFTWARE AG AMERICAS, INC.
By: /s/ Daniel F. Gillis
-----------------------------------
Daniel F. Gillis
President and
Chief Executive Officer
EXECUTIVE:
/s/ James Daly
---------------------------------------
James Daly
<PAGE>
EXHIBIT 10.13
DEFERRED COMPENSATION AGREEMENT
-------------------------------
THIS DEFERRED COMPENSATION AGREEMENT ("Agreement") is made and entered into
as of the 1st day of January, 1991 (the "Effective Date"), by and between
Software AG Americas, Inc., a Virginia corporation (the "Company"), and Harry K.
McCreery, ("Executive").
WITNESSETH:
WHEREAS, Executive is currently employed by the Company in the capacity of
Chief Financial Officer, and has experience and knowledge of considerable value
to the Company; and
WHEREAS, the Company wishes to offer an inducement to Executive to remain
in its employ by providing him with a supplemental compensation arrangement for
services which he has rendered or will render; and
WHEREAS, Executive desires to continue in the employ of the Company in
order to earn certain deferred compensation benefits contingent on the
satisfaction of the provisions and conditions set forth herein; and
WHEREAS, the Company agrees to make such contingent deferred compensation
benefits available to Executive; and
WHEREAS, the Company and Executive desire to record in this Agreement the
terms and conditions for the earning and payment of such contingent deferred
compensation benefits.
NOW, THEREFORE, in consideration of the foregoing premises, and of other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and Executive hereby agree as follows:
1. Scope of this Agreement. The Company hereby continues to employ
-----------------------
Executive in the capacity of Chief Financial Officer, and Executive hereby
agrees to such continued employment. The parties acknowledge that this Agreement
does not generally include terms and conditions of the employment of Executive
by the Company but is intended only to address Executive's right to certain
deferred compensation benefits, as specified herein. The Company's obligation to
pay to Executive deferred compensation hereunder is independent of, and
unrelated to, any employment agreement or any other agreement, contract or
understandings which may exist between the Company and Executive, and any
amounts payable to Executive hereunder shall be in addition to, and not in
substitution for, any salary, bonus, other compensation, benefits or other
amounts otherwise paid or provided by the Company to Executive.
<PAGE>
2. Deferred Compensation Account. The Company shall establish on its books
-----------------------------
a separate deferred compensation account (the "Account") which shall reflect the
amount of the Company's contingent liability to pay deferred compensation to
Executive in accordance with the terms of this Agreement. Amounts shall be
periodically credited to the Account as follows:
(a) The balance of the Account shall initially be zero (0).
(b) Effective as of March 31, 1991 the Company shall credit the Account
with the amount of Forty-Six Thousand Dollars ($46,000.00). Effective as of
March 31, 1992 and on each March 31 occurring thereafter during Executive's term
of active employment with the Company, the Company shall credit the Account with
an additional Forty-Six Thousand Dollars ($46,000.00). In the event that
Executive's employment with the Company is terminated as of a date other than
April 1 due to death, incurrence of Permanent Disability (as defined in Section
3(b)) or retirement on or after attaining age sixty (60), the Account will be
credited as of the date of termination of employment by an amount determined by
multiplying Forty-Six Thousand Dollars ($46,000.00) by a fraction, the numerator
of which is the number of days elapsed between the most recent March 31 and the
date of termination of employment (or, if earlier, the date on which Executive
attains age sixty (60)) and the denominator of which is 365. If Executive's
employment with the Company is terminated for any other reason as of a date
other than April 1, no additional credit will be made to the Account. In
addition, if Executive performs services for the Company subsequent to the
attainment of age sixty (60), a final credit will be made to Executive's Account
under this Paragraph (b), computed under the methodology described above as if
Executive had terminated employment on his sixtieth (60th) birthday. No
subsequent adjustments will be made to Executive's Account under this Paragraph
(b) with respect to any continued employment beyond Executive's sixtieth (60th)
birthday.
(c) Effective as of September 30, 1991 and on each September 30 occurring
thereafter during Executive's term of active employment with the Company, the
Company shall credit the Account with an amount equal to Executive's Adjusted
Estimated Bonus. The Adjusted Estimated Bonus as of each September 30 shall be
equal to the product of (i) fifty percent (50%) of the bonus which the Company
estimates will be paid to Executive with respect to the then-current calendar
year, computed by the Company after considering all relevant facts and
circumstances including specified management goals, multiplied by (ii) a factor
of 1.00. In the event that Executive's employment with the Company is terminated
as of a date other than October 1, due to death, incurrence of Permanent
Disability (as defined in Section 3(b)) or retirement on or after attaining age
sixty (60), the Account shall be credited as of the date of termination of
employment by an amount equal to the Adjusted Estimated Bonus, as defined above,
multiplied by a fraction, the numerator of which is the number of days elapsed
between the most recent September 30 and the date of termination of employment
(or, if earlier, the date on which Executive attains age 60) and the denominator
of which is 365. If Executive's employment with the Company is terminated for
any other reason as of a date other than October 1, no additional credit will be
made to the Account. In addition, if Executive performs services for the Company
subsequent to the attainment of age sixty (60), a final credit will be
<PAGE>
made to Executive's Account under this Paragraph (c), computed under the
methodology described above as if Executive had terminated employment on his
sixtieth (60) birthday. No subsequent adjustments will be made to Executive's
Account under this Paragraph (c) with respect to any continued employment beyond
Executive's sixtieth (60th) birthday.
(d) Effective as of December 31, 1991, and on each December 31, occurring
thereafter during the Executive's term of active employment with the Company,
the Company shall credit the Account with an amount equal to the difference
between (i) 1.00 times the bonus actually paid to the Executive in respect of
the then-current calendar year and (ii) the amount of the Adjusted Estimated
Bonus credited to the Account as of the immediately preceding September 30
pursuant to the provisions of Paragraph (c) above. In the event that Executive's
employment with the Company is terminated as of a date other than January 1 due
to death, incurrence of Permanent Disability (as defined in Section 3(b)) or
retirement on or after attaining age sixty (60), the Account will be credited as
of the date of termination of employment by an amount equal to the product of
(i) the difference between 1.00 times Executive's actual bonus paid in respect
of the then-current year less the Adjusted Estimated Bonus credited to the
Executive's Account as of the immediately preceding September 30 pursuant to the
provisions of Paragraph (c), above, multiplied by (ii) a fraction, the numerator
of which is the number of days elapsed between the most recent December 31 and
the date of termination of employment (or, if earlier, the date on which
Executive attains age sixty (60)) and the denominator of which is 365. If the
Executive's employment is terminated for any other reason as of a date other
than January 1, no additional credit will be made to the Account. In addition,
if Executive performs services for the Company subsequent to the attainment of
age sixty (60), a final credit will be made to Executive's Account under this
Paragraph (d), computed under the methodology described above as if Executive
had terminated employment on his sixtieth (60th) birthday. No subsequent
adjustments will be made to Executive's Account under this Paragraph (d) with
respect to any continued employment beyond Executive's sixtieth (60th) birthday.
(e) The Account balance shall be credited as of September 30 and March 31
of each year during which the Account has a positive balance by an interest
factor equal to three percent 3% of the then-existing Account balance. As such,
the rate of return to be applied pursuant to this Paragraph (e) is six percent
(6%) per year, compounded semi-annually.
3. Entitlement to Deferred Compensation Benefits.
---------------------------------------------
(a) In the event that Executive terminates employment for any reason other
than Permanent Disability, death, termination for "cause", as defined below, or
a voluntary quit, Executive shall have the right, commencing on or about the
date of termination of employment, to receive Deferred Compensation Benefits, as
defined in Section 5, below. It is intended and expected that Executive give at
least sixty (60) days notice prior to the date upon which such termination
becomes effective. Executive's entitlement to receipt of benefits pursuant to
this Agreement shall be conditioned upon Executive's compliance with all terms
and provisions of this Agreement.
<PAGE>
(b) If Executive shall become Permanently Disabled, he shall become
entitled, as of the date on which the Company determines that Executive is
Permanently Disabled, to receive Deferred Compensation Benefits in accordance
with Section 5 hereof. For purposes of this Agreement, the term "Permanently
Disabled" means unable, by reason of any physical or mental illness, injury or
incapacity of permanent or indefinite duration, to perform substantially full-
time services to the Company in the capacity and at the level theretofore
employed, except that Executive shall not be deemed to be Permanently Disabled
unless and until such illness, injury or incapacity has continued unabated for
at least six (6) consecutive months. Executive agrees, as a condition of his
receipt of benefits hereunder, to undergo such physical examinations and tests
as any physician selected by the Company may reasonably request to ascertain
whether he is Permanently Disabled.
4. Vesting. Executive's rights to receive deferred compensation hereunder
-------
shall be automatically forfeited except to the extent that he has become vested
in a designated percentage of the Account balance on or before the date of his
retirement or termination of employment in accordance with the following rules.
In the event that Executive's employment is terminated for "cause", as defined
below, or in the event Executive voluntarily quits his employment, Executive
will forfeit entitlement to any and all benefits hereunder. Subject to the
provisions of Section 10, below, the vesting schedule is as follows and is based
upon total continuous employment performed by the Executive from his initial
date of hire.
A. Termination due to the Permanent Disability of Executive - Vesting
100%
B. Termination for any reason other than Permanent Disability, death,
termination for "cause" or a voluntary quit, Vesting will be based
on the number of full years of continuous employment from
Executive's initial date of hire as follows:
<TABLE>
<S> <C>
------------------------------------------------------
Less than 1 Year 0% Vested
------------------------------------------------------
1 Year 20% Vested
------------------------------------------------------
2 Years 40% Vested
------------------------------------------------------
3 Years 60% Vested
------------------------------------------------------
4 Years 80% Vested
------------------------------------------------------
5 or More Years 100% Vested
------------------------------------------------------
</TABLE>
For purposes of this Agreement, "cause" means: 1) Misconduct or conduct by
Executive which is illegal, dishonest, or involves moral turpitude; 2) Conduct
which jeopardizes the Company's right or ability to operate its business; 3) The
breach or violation of any other signed agreements, i.e. Confidentiality
Agreements, etc.; or 4) The destruction of Company property or business.
5. Payment of Deferred Compensation Benefits. Provided that the vesting
-----------------------------------------
requirements specified in Section 4 above are (or become) satisfied in whole or
in part as of the date of Executive's termination of employment, the Executive
shall, as of the termination of his employment (the "Entitlement Date"), become
entitled to receive from the Company payments of deferred compensation as set
forth below ("Deferred Compensation Benefits"). Prior to the
<PAGE>
Entitlement Date, Executive shall have the option (1) to direct the Company to
pay to him his Deferred Compensation Benefits as a lump-sum payment effective as
of the Entitlement Date; (2) to direct the Company to purchase and assign an
annuity to him, effective as of the Entitlement Date or (3) to direct the
Company to make specified payments to him in installments over a fifteen (15)
year period commencing on the Entitlement Date. This election as to the form of
Deferred Compensation Benefits shall be made by Executive in a written notice to
the Company signed by Executive ("Election Notice") no less than ninety (90)
days prior to the Entitlement Date. If Executive fails to make an election at
least ninety (90) days prior to the Entitlement Date, the Company shall pay the
Deferred Compensation Benefits in the form of a lump-sum distribution.
The forms in which Deferred Compensation Benefits may be paid are
described in greater detail as follows:
(a) If Executive elects to receive a lump-sum payment or if Executive
otherwise fails to file an Election Notice on a timely basis, the Company shall
pay to Executive, in immediately-available funds, no later than thirty (30) days
after Entitlement Date, an amount equal to the total Account Balance, determined
as of the Entitlement Date, plus interest thereon through the Entitlement Date,
at the rate set forth in Section 2 hereof ("Final Account Balance").
(b) If Executive elects in a timely manner to have the Company
purchase an annuity contract and to transfer such annuity contract to Executive,
the Company shall, within thirty (30) days after the date of the Election
Notice, assign and transfer to Executive a fully-paid annuity policy pursuant to
which an insurance company or other financial institution will make annuity
payments directly to Executive on the same dates as specified in subparagraph
(c) below.
(c) If Executive elects in a timely manner to have the Company pay
Deferred Compensation directly to Executive in annual installments, the Company
shall compute the amount of each annual installment based on amortization, over
a fifteen (15) year period, of the Final Account Balance, with interest thereon
at six percent (6%) per year, compounded annually, with the first annual
installment payment to be paid within thirty (30) days of the Entitlement Date.
6. Death of Executive.
------------------
(a) If Executive should die while still in the employ of the Company,
the Company shall pay to the "Beneficiary" in lieu of any other payments
hereunder, a death benefit equal to the amount in the Executive's deferred
compensation account at the time of death ("Death Benefit"). The Death Benefit
shall be paid to the Beneficiary, in immediately-available funds, on the first
day of the second month commencing after the date of death of Executive. For
purposes of this Agreement, the "Beneficiary" of the Executive is the person or
persons whose name or names and address or addresses, are set forth on Exhibit A
attached hereto and in effect on the date of Executive's death. Executive
retains the right to change his Beneficiary at any time by providing the Company
with his written, signed notice advising the Company of the name or names and
address or addresses of the person or persons who shall be the Beneficiary
<PAGE>
after the date of such notice. Upon receipt of any such notice, the Company
shall cause Exhibit A attached hereto to be changed to reflect the name or names
and address or addresses of the new Beneficiary. In the event that Executive
fails to designate a beneficiary or in the event the designated beneficiary
fails to survive Executive, Executive's Beneficiary shall be deemed to be his
estate.
(b) If Executive shall die after becoming entitled to receive Deferred
Compensation Benefits pursuant to Section 5 hereof but before all of the
Deferred Compensation Benefits have been paid to him, his Beneficiary shall not
receive any Death Benefit under Section 6(a), above, but shall become entitled
to receive all Deferred Compensation Benefits that were not paid to Executive
prior to his death.
7. No Employment Obligation. This Agreement does not, in any manner,
------------------------
commit or obligate the Company to continue to employ Executive, nor does it
commit to obligate Executive to continue in the employ of the Company.
Accordingly, the Company shall have the right, at any time, to terminate its
employment of the Executive for any reason, subject to the provisions of any
employment agreement or other contract between the Company and Executive.
8. Unfunded Obligation. The rights of Executive and his Beneficiary
-------------------
to receive Deferred Compensation Benefits or a Death Benefit hereunder shall be
solely those of an unsecured creditor of the Company. Neither Executive nor his
Beneficiary shall have any right with respect to any insurance policy, annuity
contract or any other asset which may be acquired or held by the Company in
connection with the contingent liabilities assumed by the Company hereunder. Any
such insurance policy, annuity contract or other asset shall not be deemed to be
held under any trust for the benefit of Executive or his beneficiaries or to be
held in any way as collateral security for the fulfillment of the obligations of
the Company under this Agreement, but shall be, and remain, a general,
unpledged, unrestricted asset of the Company, which the Company may modify or
cancel at any time.
9. Nonassignability. Except to the extent that Executive may
----------------
designate his Beneficiary pursuant to Section 6 hereof to receive payments
hereunder after the date of his death, neither the Beneficiary nor Executive
shall have the right to commute, sell, assign, pledge, hypothecate or otherwise
transfer or encumber the right to receive any payments hereunder, which payments
and the right thereto are expressly declared to be nonassignable and
nontransferable.
10. Sale Merger or Consolidation. In the event the Company receives
-----------------------------
an offer to sell substantially all of its operating assets to another entity or
in the event of a proposed merger, consolidation or other business transfer, the
Company shall diligently pursue an attempt to cause the succeeding or continuing
corporation or other organization to expressly assume all of the obligations and
liabilities of the Company under this Agreement. In the event that the Company
is not able to cause such an assumption of obligations under this Agreement,
this Agreement shall be terminated.
<PAGE>
Upon termination, the Executive will be entitled to receive a lump-
sum distribution of the portion of his Account in which he has then attained
vested status under the schedule set forth in Section 4B, based upon his years
of continuous employment earned through the effective date of such merger,
consolidation or acquisition. Such payment shall be made within thirty (30) days
of the consummation of such merger, consolidation or acquisition.
11. Miscellaneous.
-------------
(a) This Agreement shall be governed by, and interpreted in accordance
with, the laws of the Commonwealth of Virginia, without giving effect to the
principles of conflicts of laws.
(b) Where text requires, words in the singular shall be deemed to
include the plural and vice-versa, and words of any gender shall be deemed to
include all genders.
(c) Any headings preceding the text of the several sections of this
Agreement are inserted solely for convenience of reference and shall not
constitute a part of this Agreement nor shall they affect its meaning,
construction or effect.
(d) For purposes of this Agreement, employment of Executive by the
Company shall include not only employment of Executive by Software AG Americas,
Inc., but also employment of Executive by any subsidiary, parent or other
affiliate of Software AG Americas, Inc.
(e) All notices pertaining to this Agreement shall be either hand-
delivered or sent by certified mail, return receipt requested, with first class
postage prepaid as follows: (i) if to the Company, to Software AG Americas,
Inc., 11190 Sunrise Valley Drive, Reston, Virginia 22091, Attention: Chief
Financial Officer; or (ii) to such other address as either of the parties shall
designate by written notice to the other from time to time pursuant to this
Section. Time periods contained in any notice shall commence on the date of hand
delivery or mailing, as the case may be. Any notice which is required to be
given within a stated period of time shall be considered timely if either hand
delivered or postmarked on or before midnight of the last day of such period.
(f) This Agreement is binding upon, and inures to the benefit of, the
parties hereto and their heirs, executors, personal and legal representatives,
successors and permitted assigns.
(g) This Agreement may be modified, amended, altered or revoked only
by mutual consent of the parties or by the Company within ninety (90) days of
either (i) a meaningful Company-wide reduction in compensation and/or benefits,
or (ii) following a meaningful reduction in force. However, no such
modification, amendment, alteration or revocation shall adversely affect
Executive's entitlements hereunder to the component of Executive's Account (as
determined on the date of the adoption of such modification, amendment,
alteration or revocation) in which Executive is then vested under the schedule
set
<PAGE>
forth in Section 4.B. In addition, in the event of the adoption of any
modification, amendment, alteration or revocation which would otherwise reduce
or eliminate the amount of future additions to Executive's Account, Executive's
rights upon termination of employment to the balance of the Account in existence
on the date of the adoption of such modification, amendment, alteration or
revocation shall be based upon the vesting schedule set forth in Section 4.B
computed by reference to Executive's full period of employment through the date
of such termination of employment (including employment subsequent to the date
of the modification, amendment, alteration or revocation of this Agreement).
IN WITNESS WHEREOF, the Company, by its duly-authorized officers, has
caused this Agreement to be executed and sealed, and Executive has by his hand
signed and sealed this Agreement, all as of the day and year first set forth
above.
ATTEST: THE COMPANY:
Software AG Americas, Inc.
/s/ James H. Daly By: /s/ Daniel Gillis
- -------------------------------- --------------------------------
James H. Daly, Secretary Daniel Gillis, President & CEO
WITNESS: EXECUTIVE:
/s/ William P. Cripe /s/ Harry K. McCreery
- -------------------------------- -----------------------------------
William P. Cripe, Vice President Harry K. McCreery
<PAGE>
AMENDMENT AGREEMENT
THIS AMENDMENT AGREEMENT is made as of March 27, 1997, by and between
Software AG Americas, Inc., a Virginia corporation (the "Company"), and Harry
McCreery ("Executive").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Executive and the Company have previously entered into a
Deferred Compensation Agreement, dated as of January 1, 1991 (the "Agreement"),
which, subject to the terms of the Agreement, allows Executive to earn certain
contingent deferred compensation benefits; and
WHEREAS, Executive and the Company desire to amend the Agreement to (a)
terminate the crediting of additional contingent deferred compensation benefits
as of December 31, 1998, and (b) vest previously earned deferred compensation
benefits as of such date, subject to the terms and conditions set forth herein
and in the Agreement;
NOW, THEREFORE, the Agreement is hereby amended to add a new section 12
to read as follows:
12. Freeze of Benefits as of December 31, 1998. If Executive is an
------------------------------------------
active employee of the Company as of December 31, 1998: (a) solely for purposes
of Section 2 of this Agreement, he shall be treated as if he attained age sixty
(60) as of such date, such that he shall be entitled to such credits to his
Account for employment through December 31, 1998 as provided for in Section 2,
but no additional credits shall be made to his Account with respect to
employment after such date, except for the crediting of interest pursuant to
Section 2(e) of this Agreement; and (b) he shall be deemed, as of such date, to
have completed five (5) or more years of service for purposes of Section 4 of
this Agreement.
<PAGE>
IN WITNESS WHEREOF the parties have executed this Agreement as of the
day and year first above written.
SOFTWARE AG AMERICAS, INC.
By: /s/ Daniel F. Gillis
--------------------------------
Daniel F. Gillis
President and
Chief Executive Officer
EXECUTIVE:
/s/ Harry McCreery
-----------------------------------
Harry McCreery
<PAGE>
EXHIBIT 10.14
ADMINISTRATIVE SERVICES AGREEMENT
---------------------------------
This Administrative Services Agreement ("Agreement") is made as of March
31, 1997 (the "Effective Date") by and between Software AG ("SAG"), a German
corporation, with its principal place of business in Darmstadt, Germany, and
Software AG Americas, Inc. ("SAGA"), a Virginia corporation, with its principal
place of business in Reston, Virginia, USA.
WHEREAS, prior to the Effective Date, SAGA has been an indirect wholly-
owned subsidiary of SAG; and
WHEREAS, prior to the Effective Date, pursuant to a Products and Research
& Development Operations Transfer Agreement between SAG and Software AG of North
America, Inc. (currently named SAGA) dated December 5, 1993 (the "Prior
Agreement"), certain individuals on the payroll of SAGA have performed computer
software development and other services for SAG under the management of SAG, and
SAG has reimbursed SAGA for all of its costs associated with such employees and
such development and other services; and
WHEREAS, the parties desire to clarify certain aspects of such
relationship;
NOW THEREFORE, in consideration of the mutual promises contained herein
and intending to be legally bound hereby, the parties agree as follows:
1. Termination of Prior Agreement
------------------------------
1.1. All ongoing rights and obligations of the parties under the Prior
Agreement are hereby terminated and superseded by this Agreement; provided that
any rights or obligations of the parties with respect to performance that has
been rendered, or that was to have been rendered, under the Prior Agreement
prior to the Effective Date shall be governed by the terms of the Prior
Agreement.
2. Administrative Services to Be Provided
--------------------------------------
2.1. SAGA shall provide the following administrative services to SAG:
2.1.1. On behalf of SAG, SAGA shall maintain on SAGA's payroll and
provide SAGA's standard employee benefits to the individuals identified
in Exhibit A and any additional individuals subsequently agreed upon by
the parties and whose names are added to Exhibit A
<PAGE>
- 2 -
(collectively, the "Designated Employees"), until the earlier of the date on
which any such individual assumes a position within SAGA that does not involve
performing computer software development or other services for SAG under the
management of SAG or the date on which the employment of any such individual by
SAGA is terminated, either at the request of SAG or, if deemed necessary by
SAGA, at SAGA's initiative, after which date such an individual no longer shall
be considered a Designated Employee and such an individual's name shall be
deleted from Exhibit A.
2.1.2. SAGA shall provide human resources services for Designated
Employees, including services relating to the recruitment of Designated
Employees, consistent with the human resources services provided for other SAGA
employees.
2.1.3. SAGA shall provide Designated Employees working space in a SAGA
facility consistent with the working space provided to other SAGA employees. If
SAG wishes to make any material change in the working space provided as of the
Effective Date or subsequently agreed to by the parties, SAG shall notify SAGA
of such proposed change, and the parties shall discuss, and may agree to, the
change. SAGA shall use reasonable efforts to accommodate within 90 days
reasonable working space changes proposed by SAG, to the extent consistent with
the availability of space, lease provisions, applicable laws and regulations,
safety and security concerns, and other applicable constraints. All costs
incurred by SAGA as the result of any change in working space requirements
initiated by SAG shall be paid by SAG. Except as provided in Article 5, SAGA
shall not be responsible for the safekeeping of property of SAG or of Designated
Employees stored at SAGA's facility.
2.1.4. SAGA shall provide Designated Employees access to applicable SAGA
facilities and use of computer systems and networks, telephones and office
equipment to an extent consistent with policies and practices adopted by SAGA
from time to time.
2.1.5. SAGA specifically shall not be responsible for the direct or
indirect management of Designated Employees or for the performance of Designated
Employees. SAGA makes no representations or warranties with respect to, and
shall have no liability for, the qualifications, training or performance of
Designated Employees. The relationship of SAGA to SAG under this Agreement is
<PAGE>
- 3 -
solely that of an administrative services provider within the capacity
and normal policies and practices of SAGA.
2.2. SAG shall be solely responsible for (i) selection of Designated
Employees and determination of the compensation of Designated Employees,
provided that such compensation shall be consistent with policies and practices
adopted by SAGA from time to time, (ii) day-to-day and long-term management of
the Designated Employees, and (iii) all actions of the Designated Employees. As
part of such responsibility, SAG diligently shall supervise the Designated
Employees. SAG shall comply with, and shall cause the Designated Employees to
comply with, (a) all safety, security, computer access and other policies and
practices applicable to SAGA employees and others working in SAGA's facility
that may be adopted by SAGA from time to time, and (b) all applicable laws and
regulations. To the extent that SAG fails to cause such compliance, SAGA may,
without limiting any remedies against SAG that SAGA may have at law or in
equity, take appropriate disciplinary action against Designated Employees,
including but not limited to termination of Designated Employees, in which case
SAG shall pay all costs incurred by SAGA as the result of the discipline. SAG
shall appoint one or more of the Designated Employees as a "SAG Supervisor,"
each of whom shall be identified as a "SAG Supervisor" in Exhibit A and who
shall be responsible for the management of the Designated Employees. SAG shall
cause a SAG Supervisor to be accessible to SAGA at reasonable times and without
unreasonable delay as the principal point of contact between the parties for
matters relating to this Agreement. Each SAG Supervisor shall have the
authority, on behalf of SAG, to take any action or enter into any agreement
related to the Designated Employees or the administrative services to be
provided under this Agreement. Such authority shall include decisions, on behalf
of SAG, relating to the hiring, compensation and termination of Designated
Employees.
2.3. Should SAG no longer require the services of any Designated
Employee, SAG shall so notify SAGA in writing. Upon receipt of such notice, SAGA
may in its discretion offer the Designated Employee another position within
SAGA. If SAGA elects not to offer such a position, or if the Designated Employee
rejects such an offer, SAGA may terminate such Designated Employee in accordance
with policies and practices adopted by SAGA from time to time. SAG shall comply
with such policies and practices. If a Designated Employee's employment with
SAGA is terminated, then SAG shall pay all costs of such termination, including
but not limited to severance payments and payments for accrued leave.
<PAGE>
- 4 -
3. Payment
-------
3.1. SAG shall reimburse SAGA for all costs incurred by SAGA as a result
of SAGA's selection, hiring, failing to hire, employment or termination of
Designated Employees or otherwise related to the performance of SAGA's
obligations under this Agreement, except for the cost of the CMOS machine
currently installed in SAGA's Reston Data Center (which is the subject of
Section 3.2). The basis of this reimbursement is described in Exhibit B.
3.2. During the years 1997, 1998 and 1999, SAG shall pay SAGA $500,000
per year, on a monthly basis, for the CMOS machine currently installed in SAGA's
Reston Data Center. SAG shall be obligated to make such payments through 1999
notwithstanding any expiration or termination of this Agreement prior to
January 1, 2000.
3.3. Within 15 days after the end of each calendar month, SAGA will
submit invoices to SAG setting forth the amounts payable under this Agreement
with respect to such month. SAG shall pay all such invoiced amounts within 30
days after the date of the invoice. Any late payment hereunder shall accrue
interest at a rate equal to the currency-related FIBOR rate available on the due
date of such payment, plus three percent. At any time, SAGA may offset any
amount owed by SAG to SAGA under this Agreement by making a corresponding
reduction in any amount owed by SAGA to SAG under any other agreement or
arrangement. SAGA shall promptly notify SAG of any such offset.
3.4. During the term of this Agreement and for one year thereafter, SAG
shall have the right, one time during each calendar year, at its expense and
upon reasonable notice, to examine or have examined by its authorized
representative, SAGA's relevant books and records relating to the immediately
preceding calendar year solely in order to verify the accuracy of any invoices
furnished hereunder.
4. Proprietary Rights
------------------
4.1. Any computer software, data or other items furnished to Designated
Employees by SAGA, in which SAGA and not SAG owns the proprietary rights, shall
remain the sole property of SAGA, and to the extent such computer software, data
or other items are disclosed to SAG, SAG shall hold such computer software, data
or other items in confidence in accordance with Article 5. Subject to the
foregoing, SAG shall own all of the proprietary rights arising from the work of
the Designated Employees, and SAGA shall hold all computer software, data or
<PAGE>
- 5 -
other items developed by Designated Employees in confidence in accordance with
Article 5.
4.2. Any computer software developed by Designated Employees shall be a
"SAG Product" for purposes of the Cooperation Agreement between the parties
dated March 31, 1997.
5. Confidentiality
---------------
5.1. For the purpose of this Article 5, the term "Confidential
Information" means any information used in or relating to the business of one
party or its affiliates (collectively, the "Disclosing Party"), including, but
not limited to, the Disclosing Party's product plans, technical materials and
financial and customer information, that the Disclosing Party maintains in
confidence, and all tangible embodiments of such information, that is received
by the other party or its affiliates (the "Receiving Party"), or to which the
Receiving Party has access, in any form; provided that "Confidential
Information" does not include any information that the Receiving Party can
demonstrate (i) is or becomes publicly known through no fault of the Receiving
Party; (ii) is developed independently by the Receiving Party; or (iii) is
rightfully obtained by the Receiving Party from a third party not obligated to
preserve its confidentiality who did not receive the material or information
directly or indirectly from the Disclosing Party.
5.2. A Receiving Party (i) shall not use the Disclosing Party's
Confidential Information for any purpose other than in accordance with this
Agreement and other agreements between the parties and (ii) shall not disclose
Confidential Information to any person or entity, other than any of its
employees, agents and independent contractors who have a need to know such
Confidential Information and who are subject to a nondisclosure obligation
comparable in scope to this Article 5.
5.3. Notwithstanding Section 5.2, a Receiving Party may disclose
Confidential Information to the extent required by a court or other governmental
authority, provided that (i) the Receiving Party gives the Disclosing Party
reasonable notice of the disclosure, (ii) the Receiving Party uses reasonable
efforts to resist disclosing the Confidential Information, and (iii) upon
request of the Disclosing Party, the Receiving Party cooperates with the
Disclosing Party to obtain a protective order regarding, or otherwise limit, the
disclosure.
5.4. The parties acknowledge that either party's breach of Section 5.2
would cause the other party irreparable injury for which it would not have an
adequate remedy at law. In the event of such a breach, the non-breaching party
shall be
<PAGE>
- 6 -
entitled to injunctive relief in addition to any other remedies it may have at
law or in equity, without having to prove any actual damages sustained.
6. Indemnity
---------
6.1. Subject to Section 6.2, SAG shall defend, indemnify and hold
harmless SAGA, its affiliates, and their respective directors, officers, agents
and employees from and against all claims, liabilities, suits, losses, damages
and expenses, including costs and reasonable attorneys' fees ("Claims") relating
to or resulting from (i) SAG'S breach of this Agreement, (ii) the negligence of
SAG or of Designated Employees, (iii) allegations that SAGA has failed to
supervise Designated Employees, (iv) infringements of patents, copyrights or
other proprietary rights by Designated Employees, (v) failure of SAG or of
Designated Employees to comply with applicable laws and regulations, (vi) any
other actions or inactions of Designated Employees, and (vii) SAGA'S selection,
hiring, failing to hire, employment or termination of Designated Employees.
6.2. The foregoing indemnity is subject to the following conditions:
6.2.1. An indemnified person or entity promptly shall notify SAG
in writing of any Claim (provided that the failure of an indemnified
person or entity to provide prompt notice shall not relieve SAG of its
obligations under this Article 6, except to the extent that SAG is
actually prejudiced by such failure); and
6.2.2. SAG shall have the right, if it so chooses, to control and
direct, at its expense and through counsel of its choosing, the
investigation and defense of any third party Claim, but may compromise or
settle the same only with the consent of the indemnified person or
entity, which consent shall not be unreasonably withheld. The indemnified
person or entity shall cooperate fully with SAG in the defense of any
such Claim.
6.3. Upon receipt of a notice of a Claim for indemnification, SAG shall
promptly pay to the indemnified person or entity the amount of such Claim in
accordance with and subject to the provisions of this Article 6, provided,
however, that no such payment shall be due during any period in which SAG is
contesting in good faith either its obligation to make such indemnification or
the amount of the Claim that is payable.
<PAGE>
- 7 -
7. Term and Termination
--------------------
7.1. The initial term of this Agreement shall commence on the Effective
Date and continue until December 31, 1998 unless this Agreement is terminated in
accordance with Section 7.2. Thereafter, this Agreement automatically shall be
extended for subsequent one-year renewal terms unless (i) either party gives the
other party written notice of non-renewal at least 90 days prior to the end of
the then-current initial or renewal term, or (ii) this Agreement is terminated
in accordance with Section 7.2.
7.2. If either party materially breaches this Agreement and fails to
remedy that breach within fifteen days after receiving written notice of that
breach from the other party, the non-breaching party may terminate this
Agreement immediately upon further written notice.
7.3. Upon any expiration or termination of this Agreement, SAGA may in
its discretion offer one or more Designated Employees other positions within
SAGA. If SAGA elects not to offer one or more Designated Employees such
positions, or if one or more Designated Employees reject such offers, SAGA may
terminate such Designated Employees in accordance with policies and practices
adopted by SAGA from time to time, and SAG shall pay all costs of such
termination.
7.4. SAG shall pay all costs arising out of the expiration of this
Agreement or the termination of this Agreement by either party.
7.5. The rights and obligations of the parties under Section 2.3 and
Articles 3 through 9 of this Agreement shall remain in effect after the
expiration or termination of this Agreement.
8. Notices
-------
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally, by
facsimile or sent by overnight express or by registered or certified mail,
postage prepaid, addressed as follows:
<PAGE>
-8-
If to SAG:
Software AG
Uhlandstrasse 12, D-64297
Darmstadt, Germany
Attention: Dr. Peter Mossack
Facsimile: 49-6151-921868
If to SAGA:
Software AG Americas, Inc.
11190 Sunrise Valley Drive
Reston, Virginia 20191-5424
Attention: Harry McCreery
Facsimile: 703-391-6504
All such deliveries shall be deemed effective when received by the person
entitled to such receipt or when delivery has been attempted but refused by such
person. Any party may change the person or address to which such deliveries
shall be made with respect to such party by delivering notice thereof to the
other party hereto in accordance with this Article 8.
9. Miscellaneous
-------------
9.1. This Agreement is confidential, and neither party shall
disclose it without the prior written consent of the other party to any third
party, other than its attorneys, consultants, accountants, auditors and others
to whom a party has a bona fide business reason for disclosing the Agreement;
provided that each party may disclose this Agreement as may be required by law
or to enforce the provisions hereof.
9.2. The parties shall use the English language in exchanging all
documents and other information exchanged between them.
9.3. The provisions of this Agreement are severable, and the
unenforceability of any provision of this Agreement shall not affect the
enforceability of the remainder of this Agreement. The parties acknowledge that
it is their intention that if any provision of this Agreement is determined by a
court to be invalid, illegal or unenforceable as drafted, that provision should
be construed in a manner designed to effectuate the purpose of that provision to
the greatest extent possible under applicable law.
9.4. The rights and remedies provided in this Agreement are,
to the extent permitted by law, cumulative and not
<PAGE>
- 9 -
exclusive of any other right or remedy now or hereafter available at law or in
equity. Neither asserting a right nor employing a remedy shall preclude the
concurrent assertion of any other right or employment of any other remedy, nor
shall the failure to assert, or the delay in asserting, any right or remedy
constitute a waiver of that right or remedy.
9.5. The rights of the parties under this Agreement are unique,
and the failure of a party to perform its obligations hereunder would
irreparably harm the other party. Accordingly, the parties shall, in addition to
such other remedies as may be available at law or in equity, have the right to
enforce their rights hereunder by actions for specific performance to the extent
permitted by law.
9.6. No party may assign any of its rights or delegate its
obligations hereunder without the written consent of the other party, except
that SAGA may make such an assignment and/or delegation to any affiliate of
SAGA. Any purported assignment or delegation in violation of this Section 9.6
shall be void. This Agreement shall be binding upon and inure to the benefit of
the parties and their respective successors, permitted assigns and legal
representatives.
9.7. This Agreement may be modified or amended only by written
agreement of the parties.
9.8. The validity, interpretation, construction and performance of
this Agreement shall be governed by the laws of the Commonwealth of Virginia
applicable to agreements made and entirely to be performed within such
jurisdiction. The party bringing any action under this Agreement shall only be
entitled to choose the federal or state courts in the Commonwealth of Virginia
as the venue for such action, and each party consents to the jurisdiction of the
court chosen in such manner for such action.
9.9. This Agreement may be executed in any number of counterparts,
and each such counterpart shall be deemed to be an original instrument, but all
such counterparts together shall constitute but one agreement.
9.10. This Agreement constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes all previous
agreements, written or oral, with respect to the subject matter hereof.
<PAGE>
- 10 -
IN WITNESS WHEREOF, the parties hereto, intending to be legally
bound hereby, have caused this Agreement to be executed as of the day and year
first above written.
SOFTWARE AG
By:/s/ Erwin Koenigs
--------------------------------
Dr. Erwin Koenigs
Chairman of the Board
and
By:/s/ Volker Dawedeit
--------------------------------
Volker Dawedeit
Board Member
SOFTWARE AG AMERICAS, INC.
By:/s/ Daniel Gillis
--------------------------------
Daniel Gillis
President and
Chief Executive Officer
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
- --------------------------------------------------------------------------------
Employee Dept. Name Location
- --------------------------------------------------------------------------------
<S> <C> <C>
LEE, MI YEE MIDDLEWARE -LOB SEATTLE
UPTON, NANCY MIDDLEWARE -LOB SEATTLE
VANDOR, STEVE MIDDLEWARE -LOB SEATTLE
BRADLEY, CHRIS S. DATA WAREHOUSING-LOB RESTON
CONNOLLY, MARC D. DATA WAREHOUSING-LOB RESTON
REID, KARL DATA WAREHOUSING-LOB RESTON
BILLINGS, JOHN S. ESSE RESTON
ASTIZ, PAUL R. PTG ADMINISTRATION RESTON
CREAMER, MARK F. PTG ADMINISTRATION RESTON
HARRIS, PETER PTG ADMINISTRATION RESTON
HILL, PHILIP E. PTG ADMINISTRATION RESTON
KENNA, HELEN M. PTG ADMINISTRATION RESTON
LEE, MINGEN JEFF PTG ADMINISTRATION RESTON
MCDOWELL, STEVEN C. PTG ADMINISTRATION RESTON
MCGUIRE, STEPHEN PTG ADMINISTRATION RESTON
MURPHY, GERALD W SAG SUPERVISOR RESTON
WATANABE, SCOTT PTG ADMINISTRATION RESTON
ADDIS, JAMES EES RESTON
ALBIN, REBECCA R. EES RESTON
CONRAD, MARK P. EES RESTON
GOWIN, STAN EES RESTON
LIVINGSTON, MICHAEL EES RESTON
TIPLER, DAVID N. EES RESTON
VEARY, TREVOR J. EES RESTON
WIEDEMAN, GRACE EES RESTON
BERNAT, MICHAEL PTG SERVICES RESTON
BOVE, ANDREW PTG SERVICES RESTON
DUFFY, MICHAEL PTG SERVICES RESTON
FRANK, TIM PTG SERVICES RESTON
KIGHT, ALONZO B. PTG SERVICES RESTON
SWETT, SCOTT PTG SERVICES RESTON
WALDROP, RANDALL T. PTG SERVICES RESTON
COLE, RICHARD D. PTG DENVER RESTON
VANAUKEN, DAVID P. PTG DENVER RESTON
THOMAS, DEWAYNE PTG SPECIAL PROJECTS RESTON
TORRI, KENNETH PTG SPECIAL PROJECTS RESTON
VINSARICH, ANTHONY PTG SPECIAL PROJECTS RESTON
BARLEY, MICHAEL A. NETWORK RESTON
CHIRILA, MICHAEL NETWORK RESTON
HERAS VERON, RAUL NETWORK RESTON
HOU, WEN-CHUN NETWORK RESTON
HUANG, DANIEL D. NETWORK RESTON
KATILIE, JOHN F. NETWORK RESTON
NGUYEN, SON THANH NETWORK RESTON
SMITH, PAUL M. NETWORK RESTON
WAGNER, GREGORY J. NETWORK RESTON
EISNER, ROBERT H. ENTIRE ACCESS RESTON
POHL, PHILLIP L. ENTIRE ACCESS RESTON
BYRUM, DRAKE DEVELOPMENT QA RESTON
CRIST, WENDY M. DEVELOPMENT QA RESTON
HUNTER, JACK L. DEVELOPMENT QA RESTON
KRINITZSKY, DEBORAH DEVELOPMENT QA RESTON
PERRINE, DOUGLAS K. DEVELOPMENT QA RESTON
NELSON, KATHELEEN EVANS DOCUMENTATION RESTON
HANSEN, KURT J. PRODUCT QUALITY & RELEASE DENVER
KARLIN, MARY SUE PRODUCT QUALITY & RELEASE DENVER
KEE, CAROL S. PRODUCT QUALITY & RELEASE DENVER
MAH, SHARON PRODUCT QUALITY & RELEASE DENVER
MEHLIG, STEFAN PRODUCT QUALITY & RELEASE DENVER
SHANDRO, STEVEN A. PRODUCT QUALITY & RELEASE DENVER
SWANZY, JOAN E. PRODUCT QUALITY & RELEASE DENVER
TOMENCHOK, WAYNE M. PRODUCT QUALITY & RELEASE DENVER
GRAY, TODD R&D SEATTLE
COHEN, PETER R&D SEATTLE
CORDOVIL, JORGE R&D DENVER
MERKEL, SHAWN R&D DENVER
VAN AUKEN, DAVE R&D DENVER
HORAN, LIND R&D DENVER
MARCUM, KEN R&D DENVER
KELSEY, DONNA R&D DENVER
MCCLARD, DAN R&D DENVER
WEIGEL, CHARLES R&D DENVER
</TABLE>
<PAGE>
EXHIBIT B
Basis of Reimbursement
----------------------
SAG shall reimburse SAGA for all costs incurred by SAGA as a result of SAGA'S
selection, hiring, failing to hire, employment or termination of Designated
Employees or otherwise related to the performance of SAGA's obligations under
this Agreement. To the extent that specific costs are identified in this
Exhibit B, reimbursement therefor shall be as provided in this Exhibit B.
1. Salaries -- Salaries shall be reimbursed at the actual rate paid to each
Designated Employee in the month paid.
2. Bonus -- Bonuses shall be accrued and reimbursed monthly based on an
aggregate annual estimate. An adjustment to account for the difference between
such estimate and the actual aggregate bonus payments shall be made in the
invoice for the month during which bonuses are paid.
3. Benefits -- Benefits shall be reimbursed at SAGA'S standard rate in effect
for the month. The rate will be applied to all salary, bonus or commission
payments made to, or accrued on behalf of, each Designated Employee.
4. Termination -- In the case of a termination of a Designated Employee, all
termination and severance costs will be paid by SAG in the month incurred.
5. Outside Labor, Contract Labor or Temporary Help -- When any such expenditures
are approved by a SAG Supervisor, the actual amount incurred shall be reimbursed
in the month incurred.
6. Office Supplies, Documentation, Printed Materials, Promotional Materials and
Advertising -- When such items are acquired or used by Designated Employees,
or media advertising is placed by Designated Employees, the actual cost thereof
shall be reimbursed in the month in which such items are so acquired, used or
placed.
7. Occupancy -- Occupancy shall be reimbursed as follows:
7.1. The cost of space in the Reston R&D Center shall be reimbursed at the
rate of $50,000 per month for the space in use as of the Effective
Date. In accordance with Section 2.1.3 of this Agreement, this space
shall be expanded or contracted only by agreement of the parties, and
if the parties agree to expand or contract such space, the parties
shall
<PAGE>
- 2 -
at that time agree to an adjustment in the applicable reimbursement
rate.
7.2. All other occupancy shall be reimbursed monthly at the standard per
head monthly cost calculated by SAGA for internal purposes. (1997
rate is $1,500 per person per month.) At SAG's request, SAGA shall
provide SAG a written statement setting forth the basis for the
calculation of such standard cost.
8. Computer, Telephone and Office Equipment Costs -- To the extent that (i)
Designated Employees require specific hardware or software other than the CMOS
machine that is the subject of Section 3.2 of this Agreement, and such specific
hardware or software is not provided by SAG, or (ii) SAGA incurs costs providing
telephone, office equipment or similar facilities to Designated Employees, the
actual costs thereof shall be reimbursed in the month in which such costs are
incurred.
9. Depreciation -- Depreciation shall be reimbursed, on a monthly basis, at
SAGA's standard rates for all capital assets used by Designated Employees.
10. Travel, Conference and Training -- Travel, conference and training
expenses incurred by Designated Employees shall be consistent with SAGA travel
policies and the actual costs thereof shall be reimbursed in the month in which
such costs are incurred.
11. Human Resources Services -- Costs of human resources services, including
such recruiting costs as the costs of advertising, outside recruiters and
applicant travel, shall be reimbursed in the month in which such costs are
incurred.
<PAGE>
EXHIBIT 10.15
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and entered
into as of September 26, 1997, by and between Software AG Systems, Inc., a
Delaware corporation (the "Company"), and Thayer Equity Investors III, L.P., a
Delaware limited partnership, for the benefit of all holders of Registrable
Shares (as defined herein).
The parties hereby agree as follows:
1. Definitions. For purposes of this Agreement:
-----------
(a) "Common Stock" means shares of the Company's common stock, par
value $0.01 per share;
(b) "Investors" means the holders of Registrable Shares on the date
hereof and any person or entity that acquires any shares of Common Stock from
any of such Investors after the date hereof in a transaction as a result of
which such shares constitute "restricted securities" under Rule 144 under the
Securities Act;
(c) "IPO Event" means the consummation of an underwritten public
offering pursuant to an effective registration statement under the Securities
Act that is underwritten by one or more nationally-recognized investment
banking firms;
<PAGE>
(d) "Majority-in-Interest" means Investors who in the aggregate
hold more than 50% of the Registrable Shares as the time of determination;
(e) "Register," "registered," and "registration" refer to an
underwritten registration effected by preparing and filing with the Securities
and Exchange Commission (the "Commission") a registration statement or similar
document in compliance with the Securities Act, and the declaration or ordering
by the Commission of effectiveness of such registration statement or document;
(f) "Registration Expenses" means all expenses in connection with the
Company's performance of or compliance with its obligations under this
Agreement, including, without limitation, all (i) registration, qualification
and filing fees; (ii) fees, costs and expenses of compliance with securities or
blue sky laws (including reasonable fees, expenses and disbursements of counsel
for the underwriters in connection with blue sky qualifications of the
Registrable Shares under the laws of such jurisdictions as the managing
underwriter or underwriters in a registration may designate, subject to the
limitation as set forth in subsection (h) of Section 5 hereof); (iii) printing
expenses; (iv) messenger, telephone and delivery expenses;
- 2 -
<PAGE>
(v) fees, expenses and disbursements of counsel for the Company and of all
independent certified public accountants retained by the Company (including the
expenses of any special audit and "cold comfort" letters required by or incident
to such performance); (vi) Securities Act liability insurance if the Company so
desires; (vii) fees, expenses and disbursements of any other individuals or
entities retained by the Company in connection with the registration of the
Registrable Shares; (viii) fees, costs and expenses incurred in connection with
the listing of the Registrable Shares on each national securities exchange or
automated quotation system on which the Company has made application for the
listing of its Common Stock; and (ix) internal expenses of the Company
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties and expenses of any annual
audit). Registration Expenses shall not include selling commissions, discounts
or other compensation paid to underwriters or other agents or brokers to effect
the sale of Registrable Shares, or counsel fees and any other expenses incurred
by Investors in connection with any registration that are not specified in the
immediately preceding sentence;
- 3 -
<PAGE>
(g) "Registrable Shares" means shares of Common Stock held by any of
the Investors that cannot be sold by such Investor to the public without
registration under the Securities Act, including shares that may be sold under
Rule 144 if the total number of shares desired to be sold by such Investor
cannot be sold by such Investor under Rule 144 in a single transaction; and
(h) "Securities Act" means the Securities Act of 1933, as amended.
2. Demand Registrations.
--------------------
(a) Request for Registration. If a Majority-in-Interest submits a
------------------------
written request (a "Demand Notice") to the Company subsequent to an IPO Event
that the Company register Registrable Shares under and in accordance with the
Securities Act (a "Demand Registration"), then the Company shall:
(i) within 5 business days after receipt of such Demand
Notice, give written notice of the proposed registration to all other Investors;
and
(ii) as soon as practicable, use reasonable diligent efforts to
effect such registration as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Registrable
Shares as are specified in such request,
- 4 -
<PAGE>
together with all or such portion of the Registrable Shares of any Investors
joining in such request as are specified in written requests received by the
Company within 10 business days after the date the Company sends the written
notice referred to in clause (i) above.
Notwithstanding the foregoing, however, the Company shall not be
obligated to take any action to effect any such registration under this Section
2 within six months immediately following the effective date of any registration
statement pertaining to securities of the Company in which the Investors were
given the right to register Registrable Shares pursuant to the registration
rights described in Section 3 hereof and the number of Registrable Shares
included in such registration was not reduced from the number of Registrable
Shares requested to be included pursuant to Section 3(b). Nor shall the Company
be obligated to complete more than five Demand Registrations or more than one
Demand Registration on Form S-1 (or any successor form).
In addition, if the Company shall furnish to the Majority-in-Interest
under this Section 2 a certificate signed by the president of the Company
stating that in the good faith judgment of the board of directors of the
Company, it would be seriously detrimental to the
- 5 -
<PAGE>
Company or its stockholders for a registration statement to be filed on or
before the date filing would be required in connection with any Demand
Registration and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a reasonable period not to exceed an additional ninety (90) days provided
that such right shall not be exercised more than once with respect to a request
for registration hereunder; and in any such event, the Majority-in-Interest will
be entitled to withdraw their request for registration hereunder. If any such
request is withdrawn as provided in the immediately preceding sentence, such
registration will not be considered a permitted Demand Registration hereunder,
and the Company will pay all Registration Expenses in connection with such
withdrawn request for registration.
(b) Underwriting. In connection with any registration under this
------------
Section 2, if so requested, the Company shall enter into an underwriting
agreement with one or more underwriters selected by the Majority-in-Interest
having terms and conditions customary for such agreements.
3. Company Registration.
--------------------
(a) Notice of Registration. If at any time or from time to time, the
----------------------
Company shall determine to
- 6 -
<PAGE>
register any of its Common Stock, whether or not for its own account, other than
a registration relating to employee benefit plans or a registration relating to
a Rule 145 transaction, the Company shall:
(i) provide to each Investor written notice thereof at least
10 business days prior to the filing of the registration statement by the
Company in connection with such registration; and
(ii) include in such registration, and in any underwriting
involved therein, all those Registrable Shares specified in a written request by
each Investor received by the Company within 5 business days after the Company
sends the written notice referred to above, subject to the provisions of Section
3(b) below.
(b) Underwriting. The right of any Investor to registration pursuant
------------
to this Section 3 shall be conditioned upon the participation by such Investor
in the underwriting arrangements specified by the Company in connection with
such registration and the inclusion of the Registrable Shares of such Investor
in such underwriting to the extent provided herein. All Investors proposing to
distribute their Registrable Shares through such underwriting shall (together
with the Company) enter into an underwriting agreement in
- 7 -
<PAGE>
customary form with the managing underwriter selected for such underwriting by
the Company and take all other actions, and deliver such opinions and
certifications, as may be reasonably requested by such managing underwriter.
Notwithstanding any other provision of this Section 3, if the managing
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, the managing underwriter may limit the number of
Registrable Shares to be included in such registration. The Company shall so
advise all Investors distributing Registrable Shares through such underwriting,
and there shall be excluded from such registration and underwriting, to the
extent necessary to satisfy such limitation, first shares held by the Investors
and, thereafter, to the extent necessary, shares which the Company wishes to
register for its own account. As among the Investors as a group, the number of
Registrable Shares that may be included in the registration and underwriting
shall be allocated among them in proportion, as nearly as practicable, to the
respective amounts of Registrable Shares required to be included (determined
without regard to any requirement of a request to be included in such
registration) in such registration held by all Investors at the time of filing
the registration statement. To
- 8 -
<PAGE>
facilitate the allocation of shares in accordance with the above provisions, the
Company may round the number of shares allocated to any Investor to the nearest
100 shares.
(c) Right to Terminate Registration. The Company shall have the right to
-------------------------------
terminate or withdraw any registration initiated by it under this Section 3
prior to the effectiveness of such registration whether or not any Investor has
elected to include Registrable Shares in such registration.
4. Expense of Registration. All Registration Expenses incurred in
-----------------------
connection with the registration and other obligations of the Company pursuant
to Sections 2, 3 and 5 shall be borne by Company; provided, however, that
Company shall not be required to pay for expenses of any registration begun
pursuant to Section 2, the request for which has been subsequently withdrawn by
the Majority-in-Interest, in which case such expenses shall be borne by the
Majority-in-Interest pro rata in accordance with the number of Registrable
Shares initially sought to be registered, unless the Majority-in-Interest
withdraw their request for registration hereunder as a result of a deferral of
the filing of such registration statement at the request of
- 9 -
<PAGE>
the Company, in which case, the Company will pay all Registration Expenses in
connection with such registration.
5. Registration Procedures. If and whenever the Company is required by
-----------------------
the provisions of this Agreement to effect the registration of Registrable
Shares, the Company shall:
(a) promptly prepare and file with the Commission a registration
statement with respect to such Registrable Shares, and use its reasonable
diligent efforts to cause such registration statement to become effective as
promptly as practicable and remain effective thereafter as provided herein,
provided that prior to filing a registration statement or prospectus or any
amendments or supplements thereto, including documents incorporated by reference
after the initial filing of any registration statement, the Company will furnish
to each of the Investors whose Registrable Shares are covered by such
registration statement, their counsel and the underwriters copies of all such
documents proposed to be filed sufficiently in advance of filing to provide them
with a reasonable opportunity to review such documents and comment thereon;
(b) prepare and file with the Commission such amendments (including
post-effective amendments)
- 10 -
<PAGE>
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective and current and to comply with the provisions of the Securities Act
with respect to the sale or other disposition of all Registrable Shares covered
by such registration statement, including such amendments (including post-
effective amendments) and supplements as may be necessary to reflect the
intended method of disposition by the prospective seller or sellers of such
Registrable Shares, but (except for a shelf registration) for no longer than 120
days subsequent to the effective date of such registration statement;
(c) provide customary indemnity and contribution arrangements to any
qualified independent underwriter or qualified independent pricer as defined in
Schedule E of the Bylaws of the National Association of Securities Dealers, Inc.
(a "Qualified Independent Underwriter/Pricer"), if requested by such Qualified
Independent Underwriter/Pricer, on such reasonable terms as such Qualified
Independent Underwriter/Pricer customarily requires;
(d) subject to receiving reasonable assurances of confidentiality, for
a reasonable period after the filing of such registration statement, and
- 11 -
<PAGE>
throughout each period during which the Company is required to keep a
registration effective, make available for inspection by the selling holders of
Registrable Shares being offered, and any underwriters, and their respective
counsel, such financial and other information and books and records of the
Company, and cause the officers, directors, employees, counsel and independent
certified public accountants of the Company to respond to such inquiries as
shall be reasonably necessary, in the judgment of such counsel, to conduct a
reasonable investigation within the meaning of Section 11 of the Securities Act;
(e) promptly notify the selling holders of Registrable Shares and any
underwriters and confirm such advice in writing, (i) when such registration
statement or the prospectus included therein or any prospectus amendment or
supplement or post-effective amendment has been filed, and, with respect to
such registration statement or any post-effective amendment, when the same has
become effective, (ii) of any comments by the Commission, by the National
Association of Securities Dealers Inc. ("NASD"), and by the Blue Sky or
securities commissioner or regulator of any state with respect thereto or any
request by any such entity for amendments or supplements to such registration
statement or
- 12 -
<PAGE>
prospectus or for additional information, (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of such registration
statement or the initiation or threatening of any proceedings for that purpose,
(iv) if at any time the representations and warranties of the Company cease to
be true and correct in all material respects, (v) of the receipt by the Company
of any notification with respect to the suspension of the qualification of the
Registrable Shares for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose, or (vi) at any time when a prospectus is
required to be delivered under the Securities Act, that such registration
statement, prospectus, prospectus amendment or supplement or post-effective
amendment, or any document incorporated by reference in any of the foregoing,
contains an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they are made, not misleading;
(f) furnish to each selling holder of Registrable Shares being
offered, and any underwriters, prospectuses or amendments or supplements
thereto, in
- 13 -
<PAGE>
such quantities as they may reasonably request and as soon as practicable, that
update previous prospectuses or amendments or supplements thereto;
(g) in the case of a registration under Section 3 hereof, permit
selling holders of Registrable Shares to rely on any representations and
warranties made to any underwriter of the Company or any opinion of counsel or
"cold comfort" letter delivered to any such underwriter, and indemnify each such
holder to the same extent that it indemnities any such underwriter;
(h) use reasonable diligent efforts to (i) register or qualify the
Registrable Shares to be included in a registration statement hereunder under
such other securities laws or blue sky laws of such jurisdictions within the
United States of America as any selling holder of such Registrable Shares or any
underwriter of the securities being sold shall reasonably request, (ii) keep
such registrations or qualifications in effect for so long as the registration
statement remains in effect and (ii) take any and all such actions as may be
reasonably necessary or advisable to enable such holder or underwriter to
consummate the disposition in such jurisdictions of such Registrable Shares
owned by such holder; provided, however, that the Company shall not be required
-------- -------
for any such purpose to
- 14 -
<PAGE>
(x) qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not otherwise be required to qualify but for the
requirements of this Section 5(h), (y) subject itself to taxation in any such
jurisdiction or (z) consent to general service of process in any such
jurisdiction;
(i) cause all such Registrable Shares to be listed or accepted for
quotation on each securities exchange or automated quotation system on which the
Company's Common Stock then trades; and
(j) otherwise use reasonable diligent efforts to comply with all
applicable provisions of the Securities Act, and rules and regulations of the
Commission, and make available to its security holders, as soon as reasonably
practicable, an earning statement covering a period of at least twelve months
which shall satisfy the provisions of Section 11(a) of the Securities Act and
Rule 158 thereunder.
6. Indemnification. In the event any of the Registrable Shares are
---------------
included in a registration statement under this Agreement:
(a) the Company will indemnify each Investor who participates in such
registration, each of its officers and directors and partners and such
Investor's separate legal counsel and independent
- 15 -
<PAGE>
accountants, and each person controlling such Investor within the meaning of
Section 15 of the Securities Act, and each underwriter, if any, and each person
who controls any underwriter within the meaning of Section 15 of the Securities
Act, against all expenses, claims, losses, damages or liabilities (or actions in
respect thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading, or any violation by the Company of any rule or regulation
promulgated under the Securities Act applicable to the Company in connection
with any such registration, qualification or compliance, and the Company will
reimburse each such Investor, each of its officers and directors and partners
and such Investor's separate legal counsel and independent accountants and
- 16 -
<PAGE>
each person controlling such Investor, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Investor or underwriter and stated to be specially for use
therein.
(b) Each Investor will, if Registrable Shares held by such Investor
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers and its legal counsel and independent accountants, each underwriter, if
any, of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of
Section 15 of the Securities Act, and each other such Investor, each of its
officers and directors and each
- 17 -
<PAGE>
person controlling such Investor within the meaning of Section 15 of the
Securities Act, against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statement therein not misleading, and will reimburse
the Company, such Investors, such directors, officers, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Investor and
stated to be specifically for use therein.
(c) Each party entitled to indemnification under this Section 6 (the
"Indemnified Party") shall
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<PAGE>
give notice to the party required to provide indemnification (the "Indemnifying
Party") promptly after such Indemnified Party has actual knowledge of any claim
as to which indemnity may be sought provided that failure to give such prompt
notice shall not relieve the Indemnifying Party of its obligations hereunder
unless it is materially prejudiced thereby, and shall permit the Indemnifying
Party to assume the defense of any such claim or any litigation resulting
therefrom, provided that counsel for the Indemnifying Party, who shall conduct
the defense of such claim or litigation, shall be approved by the Indemnified
Party (whose approval shall not unreasonably be withheld). Such Indemnified
Party shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall be that of such Indemnified Party unless (i) the Indemnifying Party has
agreed to pay such fees and expenses or (ii) the Indemnifying Party shall have
failed to assume the defense of such action or proceeding and employ counsel
reasonably satisfactory to such Indemnified Party in any such action or
proceeding or (iii) the named parties to any such action or proceeding
(including any impleaded parties) include both such Indemnified Party and the
Indemnifying Party
- 19 -
<PAGE>
and such Indemnified Party shall have been advised by counsel that there may be
one or more legal defenses available to such Indemnified Party which are
different from or additional to those available to the Indemnifying Party (in
which case, if such Indemnified Party notifies the Indemnifying Party in writing
of an election to employ separate counsel at the expense of the Indemnifying
Party, the Indemnifying Party shall not have the right to assume the defense of
such action or proceeding on behalf of such Indemnified Party, it being
understood, however, that the Indemnifying Party then shall have the right to
employ separate counsel at its own expense and to participate in the defense
thereof, and shall not, in connection with any one such action or proceeding or
separate but substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys at any time for all Indemnified Parties, which firm shall be
designated in writing by a majority of the Indemnified Parties who are eligible
to select such counsel). No Indemnifying Party, in the defense of any such claim
or litigation, shall, except with the consent of each Indemnified Party, consent
to entry of any
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<PAGE>
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation. No
Indemnified Party may consent to entry of any judgment or enter into any
settlement without the prior written consent of the Indemnifying Party.
(d) If the indemnification provided for in this Section 6 is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage or expense referred to herein,
then the Indemnifying Party, in lieu of indemnifying the Indemnified Party,
shall contribute to the amount paid or payable by such Indemnified Party with
respect to such loss, liability, claim, damage or expenses in the proportion
that is appropriate to reflect the relative fault of the Indemnifying Party and
the Indemnified Party in connection with the statements or omissions that
resulted in such loss, liability, claim, damage, or expense, as well as any
other relevant equitable considerations. The relative fault of the Indemnifying
Party and the Indemnified Party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of material fact or the
- 21 -
<PAGE>
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
7. Information by Investors. Investors whose Registrable Shares are
------------------------
included in any registration shall furnish to the Company such information
regarding themselves and the distribution proposed by them as the Company may
request in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Agreement.
8. Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may at any time permit the
sale of the Registrable Shares to the public without registration, after such
time as a public market exists for the Common Shares and until five years from
the date thereof, the Company shall use reasonably diligent efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, beginning 90 days
after (i) an IPO Event, or (ii) the Company registers a class of securities
under Section 12 of the Securities Exchange Act of 1934, as amended; or
- 22 -
<PAGE>
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Securities
Exchange Act of 1934, as amended (at any time after it has become subject to
such reporting requirements);
(c) Furnish to any Investor promptly upon request a written statement
as to its compliance with the reporting requirements of Rule 144 (at any time
after 90 days after an IPO Event), and of the Securities Act and the Securities
Exchange Act of 1934 (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company and other
information in the possession of or reasonably obtainable by the Company as an
Investor may reasonably request in availing itself of any rule or regulation of
the Commission allowing an Investor to sell Registrable Shares without
registration.
9. Termination of Registration Rights. No Investor shall be entitled to
----------------------------------
exercise any right provided for in this Agreement after 7 years following an IPO
event.
10. Miscellaneous.
-------------
(a) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this
- 23 -
<PAGE>
sentence, may not be amended, modified or supplemented, and waivers or consents
to depart from the provisions hereof may not be given unless the Company has
obtained the written consent of a Majority-in-Interest. Notwithstanding the
foregoing, a waiver or consent to departure from the provisions hereof with
respect to a matter which relates exclusively to the rights of Investors whose
Registrable Shares are being sold pursuant to a registration statement and which
does not directly or indirectly affect the rights of other Investors may be
given by the holders of majority of the Registrable Shares being sold by such
holders.
(b) Notices. All notices or communications which are required or
-------
permitted hereunder shall be in writing and sufficient if delivered personally
or sent by facsimile transmission or by reputable overnight express delivery
service. Communications to an Investor shall be sent to such Investor at its
address set forth in the security register or other records of the Company.
Communications to the Company shall be sent as follows:
Software AG Systems, Inc.
11190 Sunrise Valley Drive
Reston, VA 20191
Attention: Secretary
Facsimile No.: 703-391-6980
- 24 -
<PAGE>
(c) Descriptive Headings. The descriptive headings of the several
--------------------
Sections of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
(d) Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with, and the rights of the parties shall be governed by, the law of
the State of New York as applied to agreements entered into and wholly performed
in New York, without giving effect to the choice of law or conflicts principles
thereof.
(e) Entire Agreement. This Agreement contains the entire agreement
----------------
among the parties with respect to the subject matter hereof and supersedes all
prior and contemporaneous arrangements or understandings with respect thereto.
(f) Severability. Any provisions of this Agreement that is prohibited
------------
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
- 25 -
<PAGE>
(g) Counterparts. This Agreement may be executed simultaneously in two
------------
or more counterparts, each of which shall be deemed as original, and it shall
not be necessity in making proof of this Agreement to produce or account for
more than one such counterpart.
(h) Successors and Assigns; Third Party Beneficiaries. All the terms
-------------------------------------------------
and provisions of this Agreement shall be binding upon, shall inure to the
benefit of and shall be enforceable by the respective successors and the
permitted assigns of the parties hereto. In addition, the terms and provisions
of this Agreement shall also inure to the benefit of and be enforceable by the
Investors who are not signatories to this Agreement, each of whom is an intended
third party beneficiary hereof, provided however that each such Investor who
registers Registrable Shares pursuant to the terms of this Agreement shall be
conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement.
- 26 -
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
SOFTWARE AG SYSTEMS, INC.
By: /s/ Harry K. McCreery
----------------------------------
Harry K. McCreery
Vice President, Treasurer and
Chief Financial Officer
THAYER EQUITY INVESTORS III, L.P.
By: TC Equity Partners, LLC,
its General Partner
By: /s/ Rick Rickertsen
------------------------------
Rick Rickertsen
- 27 -
<PAGE>
Exhibit 10.16
EXECUTION COPY
SUBSCRIPTION AGREEMENT
----------------------
THIS SUBSCRIPTION AGREEMENT dated as of August 22, 1997 (the
"Agreement") by and between Software AG Systems, Inc., a Delaware corporation,
(the "Company") and Timothy L. Hill (the "Purchaser").
WHEREAS, the Purchaser has been elected Vice President, Marketing of the
Company; and
WHEREAS, the Company and the Purchaser desire to enter into an agreement
pursuant to which the Purchaser will purchase from the Company, and the Company
will sell to the Purchaser, 500 shares (the "Shares") of the Company's common
stock;
NOW, THEREFORE, intending to be legally bound hereby, the parties hereto
agree as follows:
ARTICLE 1.
PURCHASE AND SALE OF THE SHARES
1.1 Purchase and Sale of the Shares. Upon execution of this Agreement:
-------------------------------
(a) The Purchaser will purchase from the Company, and the Company
will issue and sell to the Purchaser, the Shares for an aggregate purchase price
of $202,095 (the "Purchase Price");
(b) The Company will deliver to the Purchaser a certificate
representing the Shares; and
(c) The Purchaser will deliver to the Company a cashier's or
certified check or wire transfer of funds in the amount of the Purchase Price.
1.2 Purchaser Representations and Warranties.
----------------------------------------
In connection with the purchase and sale of the Shares hereunder, the
Purchaser represents and warrants to the Company that:
(a) The Purchaser is acquiring the Shares for his own account for
investment purposes only and not with a view to, or intention of, making a
distribution thereof within the meaning of the Securities Act of 1933, as
amended (the "Act"), or any applicable state securities laws, and the Shares
will not be transferred
<PAGE>
or disposed of in contravention of the Act or any applicable state securities
laws.
(b) The Purchaser is aware that the Shares have not been
registered under the Act or any state or other jurisdiction's securities laws,
and that the Shares must be held indefinitely unless the sale or other transfer
thereof is subsequently registered or exemptions from such registration
requirements are available. The Purchaser is further aware that the Company is
under no obligation to register the Shares under the Act or any state or other
jurisdiction's securities laws or to assist the Purchaser is complying with any
exemption from such registration requirements.
(c) The Purchaser acknowledges that investment in the Shares
involves substantial risks, including the risk of total loss of his investment
in the Shares. The Purchaser (i) is able to bear the economic risk of his
investment in the Shares for an indefinite period of time; (ii) has adequate
means, other than the Shares or funds invested therein, of providing for his
current and foreseeable needs; (iii) has no foreseeable need to sell or
otherwise dispose of any of the Shares; and (iv) has sufficient net worth to
sustain a loss of his entire investment in the Shares in the event such loss
should occur.
(d) The Purchaser acknowledges that (i) all documents, books and
records requested by the Purchaser pertaining to the Company or the Shares have
been made available for inspection by the Purchaser and his agents and
representatives and (ii) the Purchaser and his agents and representatives have
had a reasonable opportunity to ask questions of and receive answers from the
Company or persons acting on behalf of the Company, concerning all matters
relevant to the Purchaser's decision to purchase Shares.
(e) The Purchaser is an "accredited investor," as such term is
defined in Rule 501 under the Act. The Purchaser and his agents and
representatives have such knowledge and experience in financial and business
matters as to enable them to utilize the information made available to them in
connection with the transactions contemplated hereby to evaluate the merits and
risks of an investment in the Shares and to make an informed decision with
respect thereto, and such an evaluation and informed decision have been made.
- 2 -
<PAGE>
(f) The Purchaser has the legal capacity and authority to enter
into and perform all of his obligations under this Agreement. This Agreement
constitutes the legal, valid and binding obligation of the Purchaser,
enforceable against the Purchaser in accordance with its terms. The execution,
delivery and performance of this Agreement does not and will not conflict with,
violate, cause a breach of or constitute a default under (i) any agreement,
contract or other instrument or obligation to which the Purchaser is a party or
by which the Purchaser is bound or (ii) any judgment, order, decree, statute,
rule or regulation to which the Purchaser is subject.
ARTICLE 2.
REPURCHASE RIGHT AND NO RAID
2.1 Company's Repurchase Right.
--------------------------
(a) The Purchaser covenants and agrees that, except with the
prior written consent of the Company, he will not transfer, sell or otherwise
dispose of, whether directly or indirectly, any of the Shares prior to the later
of (i) the second anniversary of the date hereof and (ii) the ninetieth (90th)
day following the Termination Date (as defined below), and any purported
disposition in violation hereof shall be null and void. If prior to the second
anniversary of the date hereof the Purchaser's employment with the Company is
terminated for any reason, then within sixty (60) days following the date of
such termination (the "Termination Date"), the Company may elect, by delivering
to the Purchaser a written notice of the Company's election, to purchase the
Shares (including any securities issued in respect of the Shares upon any stock
split, stock dividend, recapitalization, merger, consolidation or other similar
event) for a total purchase price equal to the Purchase Price.
(b) If the Company exercises its right to purchase the Shares
pursuant to this Section, the Company and the Purchaser shall consummate the
sale and purchase of the Shares no later than ninety (90) days after the
Termination Date.
(c) The Purchaser hereby acknowledges that the right of the
Company to purchase the Shares in the manner described in this Section is not
unreasonable under the circumstances existing as of the date hereof.
- 3 -
<PAGE>
2.2 No Raid Covenant.
----------------
(a) The Purchaser agrees that, from the date hereof until five
years after the termination of the Purchaser's employment with the Company and
its susidiaries, the Purchaser shall not, directly or indirectly, acting either
alone or in concert with others, seek to influence any employee of the Company
or any of its subsidiaries to leave or otherwise terminate such employee's
employment with such entity. The Purchaser agrees that, from the date hereof
until three years after the termination of the Purchaser's employment with the
Company and its subsidiaries, the Purchaser shall not, directly or indirectly,
solicit or assist any other person in soliciting (other than on behalf of the
Company and its subsidiaries) any customers, clients or suppliers of the Company
or any of its subsidiaries, provided, however, that the obligations set forth in
this sentence shall not apply to the Purchaser following the termination of the
Purchaser's employment if such termination is (i) by the Company and (ii) not
for cause.
(b) The Purchaser acknowledges that he has carefully read and
considered all of the terms of this Agreement, including particularly the terms
of this Section 2.2, that the Company has made a substantial investment in the
Company's business and that the restrictions provided in this Section 2.2 are
reasonable and necessary for the Company's protection. The Purchaser further
acknowledges that damages at law will not be a measurable or adequate remedy for
breach of the covenants contained in this Section, and accordingly the Purchaser
consents to the entry by any court of competent jurisdiction of any order
enjoining the Purchaser from violating any such covenants. The parties hereto
further agree that if, in any judicial proceeding, a court should refuse to
enforce any covenants set forth in this Section 2.2 because of their term or
geographical scope, then such covenants shall be deemed to be modified to permit
their enforcement to the maximum extent permitted by law.
ARTICLE 3.
GENERAL PROVISIONS
3.1 Shareholders Agreement. The Purchaser understands and agrees that,
----------------------
upon execution of this Agreement, the Purchaser becomes a party to the
Shareholders Agreement dated as of April 1, 1997, by and
- 4 -
<PAGE>
among the Company and certain shareholders of the Company (the "Shareholders
Agreement"), a copy of which has been provided to the Purchaser. The Purchaser
hereby agrees to be bound as a "Shareholder" to all the terms and conditions,
including the transfer restrictions, of the Shareholders Agreement.
3.2 Legends. The Purchaser understands and agrees that, in addition to
-------
any other legends required by applicable law, the certificate or certificates
representing the Shares will bear legends substantially to the effect set forth
below and that a stop transfer order may be placed with respect thereto.
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE SECURITIES LAW OF ANY JURISDICTION AND MAY NOT BE TRANSFERRED
UNTIL (A) A REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT AND SUCH
APPLICABLE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD
THERETO OR (B) IN THE OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE
COMPANY, REGISTRATION UNDER SUCH SECURITIES ACT AND SUCH APPLICABLE
SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
TRANSFER.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TRANSFER RESTRICTIONS AND OTHER TERMS OF A SHAREHOLDERS AGREEMENT DATED
AS OF APRIL 1, 1997, AMONG SOFTWARE AG SYSTEMS, INC. AND CERTAIN
SHAREHOLDERS THEREOF AND MAY NOT BE TRANSFERRED EXCEPT IN ACCORDANCE
WITH SUCH AGREEMENT. A COPY OF SUCH AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICE OF SOFTWARE AG SYSTEMS, INC. AND WILL BE FURNISHED UPON
REQUEST TO THE HOLDER OF RECORD OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TRANSFER RESTRICTIONS AND OTHER TERMS OF A SUBSCRIPTION AGREEMENT DATED
AS OF AUGUST 22, 1997, BETWEEN SOFTWARE AG SYSTEMS, INC. AND THE
REGISTERED HOLDER HEREOF AND MAY NOT BE TRANSFERRED EXCEPT IN ACCORDANCE
WITH SUCH AGREEMENT. A COPY OF SUCH AGREEMENT IS ON FILE AT THE
PRINCIPAL OFFICE OF SOFTWARE AG SYSTEMS, INC. AND WILL BE FURNISHED UPON
REQUEST TO THE REGISTERED HOLDER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE.
-5-
<PAGE>
3.3 Survival. The representations, warranties and covenants contained in
--------
this Agreement shall survive the purchase and sale of the Shares pursuant to
this Agreement.
3.4 Amendment. This Agreement may be amended, or any provision hereof
---------
may be waived, at any time by an agreement in writing of the parties hereto.
3.5 Entire Agreement; Successors. This Agreement contains the entire
----------------------------
agreement among the parties hereto with respect to the transactions contemplated
hereunder and supersedes all prior arrangements or understandings with respect
thereto, written or oral, other than documents referred to herein. The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the parties hereto and their respective successors and permitted assigns.
3.6 No Assignment. No party hereto may assign any of his or its rights
-------------
or obligations under this Agreement to any other person.
3.7 Notices. All notices or other communications which are required or
-------
permitted hereunder shall be in writing and sufficient if delivered personally,
by facsimile or sent by overnight express or by registered or certified mail,
postage prepaid, addressed as follows:
If to the Company:
Software AG Systems, Inc.
11190 Sunrise Valley Drive
Reston, VA 20191
Attn: Chief Financial Officer
Facsimile: (703) 391-6504
If to the Purchaser, to the address set forth beneath the signature of the
Purchaser on the signature page hereof.
All such deliveries shall be deemed effective when received by the
person entitled to such receipt or when delivery has been attempted but refused
by such person. Any party may change the person or address to which such
deliveries shall be made with respect to such
-6-
<PAGE>
party by delivering notice thereof to the other party hereto in accordance with
this Section.
3.8 Captions. The captions contained in this Agreement are for
---------
reference purposes only and are not part of this Agreement.
3.9 Counterparts. This Agreement may be executed in any number of
-------------
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
3.10 Governing Law and Venue. The validity, interpretation,
------------------------
construction and performance of this Agreement shall be governed by the laws of
the Commonwealth of Virginia applicable to agreements made and entirely to be
performed within such jurisdiction. The party bringing any action under this
Agreement shall only be entitled to choose the federal or state courts in the
Commonwealth of Virginia as the venue for such action, and each party consents
to the jurisdiction of the court chosen in such manner for such action.
3.11 Further Assurances. Subject to the terms and conditions herein
-------------------
provided, each of the parties hereto shall use reasonable efforts to take, or
cause to be taken, such action, to execute and deliver, or cause to be executed
and delivered, such additional documents and instruments and to do, or cause to
be done, all things necessary, proper or advisable under the provisions of this
Agreement and under applicable law to consummate and make effective the
transactions contemplated by this Agreement.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
SOFTWARE AG SYSTEMS, INC.
By: /s/ Daniel Gillis
------------------------
Daniel Gillis
Chief Executive Officer
/s/ Timothy L. Hill
- ----------------------------
Timothy L. Hill
Address: 10705 Falls Pointe Drive
Great Falls, VA 22066
-8-
<PAGE>
EXECUTION COPY
AMENDMENT AGREEMENT
THIS AMENDMENT AGREEMENT is made as of October 13, 1997, by and between
Software AG Systems, Inc., a Delaware corporation (the "Company") and Timothy L.
Hill (the "Purchaser").
WHEREAS, the Purchaser and the Company have previously entered into a
Subscription Agreement, dated as of August 22, 1997 (the "Agreement"), pursuant
to which, the Company may elect to purchase the Shares (as defined in the
Agreement) from the Purchaser for a total purchase price equal to the Purchase
Price (as defined in the Agreement) if the Purchaser's employment with the
Company is terminated for any reason prior to August 22, 1999 (the "Repurchase
Right"); and
WHEREAS, the Purchaser and the Company desire to amend the Agreement to
terminate the Repurchase Right upon a change of control of the Company;
NOW, THEREFORE, Section 2.1 of the Agreement is hereby amended to read
in full as follows:
2.1 Company's Repurchase Right. The Purchaser covenants and agrees that,
--------------------------
except with the prior written consent of the Company, he will not transfer, sell
or otherwise dispose of, whether directly or indirectly, any of the Shares prior
to the later of (i) August 17, 1999 or (ii) the ninetieth (90th) day following
the Termination Date (as defined below), and any purported disposition in
violation hereof shall be null and void. If prior to the earlier of (y) August
17, 1999 or (z) a Change of Control of the Company, the Purchaser's employment
with the Company is terminated voluntarily by Purchaser or by the Company for
cause, then within sixty (60) days following the date of such termination (the
"Termination Date"), the Company may elect, by delivering to the Purchaser a
written notice of the Company's election, to purchase the Shares (including any
securities issued in respect of the Shares upon any stock split, stock dividend,
recapitalization, merger, consolidation or other similar event) for a total
purchase price equal to the Purchase Price. For purposes of this Section 2.1,
the term "Change of Control" means the occurrence of any of the following events
after the date hereof: (i) any person or group of persons (as defined in Section
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) together with its affiliates, excluding affiliates of Thayer
Equity Investors III, L.P., a
<PAGE>
Delaware limited partnership, and employee benefit plans of the Company,
becomes, directly or indirectly, the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act) of securities of the Company representing 51% or
more of the combined voting power of the Company's then outstanding securities;
(ii) the stockholders of the Company approve a merger or consolidation of the
Company with any other corporation or entity regardless of which entity is the
survivor, other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or being converted into voting
securities of the surviving entity) at least 50% of the combined voting power of
the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; or (iii) the stockholders of the
Company approve a plan of complete liquidation or winding-up of the Company or
an agreement for the sale or disposition by the Company of all or substantially
all of the Company's assets.
-- end of page --
[signatures appear on the following page]
- 2 -
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment Agreement
as of the day and year first above written.
SOFTWARE AG SYSTEMS, INC.
By:/s/ Daniel F. Gillis
---------------------------
Daniel F. Gillis
President and
Chief Executive Officer
PURCHASER
/s/ Timothy L. Hill
---------------------------
Timothy L. Hill
- 3 -
<PAGE>
EXHIBIT 10.17
SHAREHOLDERS AGREEMENT
This SHAREHOLDERS AGREEMENT (this "Agreement") is made and entered into
as of April 1, 1997, by and among Software AG Systems, Inc., a Delaware
corporation (the "Company"), Thayer Equity Investors III, L.P., a Delaware
limited partnership ("Thayer"), and certain other shareholders of the Company
listed on Exhibit A hereto (individually, a "Manager" and collectively, the
"Managers").
WITNESSETH:
WHEREAS, pursuant to a Recapitalization Agreement dated as of March 18,
1997, by and among the Company, Thayer, the Managers and Software AG, a German
corporation, Thayer and the Managers purchased from the Company, as of March 31,
1997, 78,000 shares of the Company's common stock, par value .01 per share (the
"Common Stock"); and
WHEREAS, in connection with such purchase of Common Stock, the Company,
Thayer and the Managers have determined that it is in their respective best
interests to enter into, and perform under, this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the covenants set
forth herein and intending to be legally bound hereby, the parties hereto agree
as follows:
ARTICLE 1.
DEFINITIONS
For purposes of this Agreement, in addition to terms defined elsewhere
herein, the following terms when used herein shall have the following meanings:
1.1 "Affiliate," with respect to a party, shall mean (i) any corporation
or other entity or person that directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with,
such party or (ii) a general or limited partner of such party.
1.2 "Board" shall mean the Board of Directors of the Company.
1.3 "Equity Securities" shall mean (i) any securities of the Company
having voting rights with respect to the election of the Board not contingent
upon default, including, but not limited to, shares of Common Stock, (ii) any
securities evidencing any equity ownership interest
<PAGE>
- 2 -
in the Company, and (iii) any securities convertible into or exercisable or
exchangeable for any of the foregoing securities.
1.4 "Family Members," with respect to an individual, shall mean such
individual's spouse, parents, siblings and children.
1.5 "IPO Event" shall mean the consummation of an underwritten public
offering, pursuant to an effective registration statement under the Securities
Act, that is underwritten by one or more nationally--recognized investment
banking firms and results in the Company receiving not less than $10,000,000 in
aggregate cash proceeds from such offering.
1.6 "Permitted Transfer" shall mean a Transfer of Common Stock by a
Shareholder to (i) one or more Family Members of such Shareholder or (ii) a
trust solely for the benefit of one or more Family Members of such Shareholder,
provided that, prior to any such Transfer, each transferee shall agree in
writing, in a form satisfactory to the Company and Thayer, that such transferee
shall receive and hold such Common Stock subject to the provisions of this
Agreement. Any transferee receiving Common Stock pursuant to a Permitted
Transfer shall be included within the definition of "Shareholder" for purposes
of this Agreement.
1.7 "Pro Rata Share" shall mean the holder's pro rata share of the
outstanding Equity Securities which shall be a fraction calculated by dividing
(i) the number of shares of Common Stock held by the holder as of the applicable
date plus the number of shares of Common Stock issuable upon conversion,
exercise or exchange of all other outstanding Equity Securities held by the
holder as of the applicable date, by (ii) the total number of shares of Common
Stock outstanding as of such date plus the total number of shares of Common
Stock issuable upon conversion, exercise or exchange of all other outstanding
Equity Securities as of such date.
1.8 "Securities Act" shall mean the Securities Act of 1933, as amended.
1.9 "Shareholders" shall mean each Manager and any other entity or
individual, other than Thayer, that becomes a holder of Equity Securities and
agrees in writing to be bound by and comply with the terms of this Agreement.
1.10 "Transfer" shall mean any actual or proposed disposition of all or
a portion of an interest (legal or equitable) by any means, direct or indirect,
absolute or
<PAGE>
- 3 -
conditional, voluntary or involuntary, including, but not limited to, by sale,
assignment, put, transfer, pledge, hypothecation, mortgage or other encumbrance,
court order, operation of law, distribution, settlement, exchange, waiver,
abandonment, gift, alienation, bequest or disposal.
ARTICLE 2.
GENERAL TRANSFERABILITY RESTRICTIONS
No Shareholder shall Transfer or cause or permit to be Transferred any
Equity Securities owned or controlled by such Shareholder, except for Transfers
in compliance with Articles 3, 4 and 5 of this Agreement, and any purported
Transfer in violation hereof shall be null and void.
ARTICLE 3.
RIGHTS OF FIRST REFUSAL
Before any Equity Securities owned or controlled by a Shareholder (a
"Selling Shareholder") may be Transferred (other than in a Permitted Transfer or
a Transfer pursuant to Article 4 or 5 hereof) prior to an IPO Event, Thayer and
the Company shall be offered the following rights with respect to such Equity
Securities:
3.1 Notice. The Selling Shareholder shall first deliver a written notice
------
(a "Shareholder Notice") to the Company and Thayer stating (i) that the Selling
Shareholder desires to Transfer such Equity Securities, (ii) the number and type
of Equity Securities proposed to be Transferred and (iii) the price and other
material terms of the proposed Transfer. The Shareholder Notice shall be
accompanied by a certificate of the Selling Shareholder certifying that it has
received from a third party a bona fide offer to acquire such Equity Securities
at such price and on such terms as are set forth in the Shareholder Notice and
shall identify such third party.
3.2 Company Right. Within thirty (30) days after receipt of a
-------------
Shareholder Notice (the "Company Period"), the Company may elect, by delivering
to the Selling Shareholder and to Thayer a written notice (a "Company Notice")
of its election, to purchase all or any part of the Equity Securities to which
the Shareholder Notice refers, on the same terms and conditions specified in
such Shareholder Notice (or on economically equivalent terms and conditions as
determined in good faith by the Company and specified in the Company Notice).
In the event that the Company does not elect to purchase any of such Equity
Securities, the Company shall send a notice to such effect to the Selling
<PAGE>
--4--
Shareholder and to Thayer prior to the end of the Company Period.
3.3 Thayer Right. In the event that the Company does not elect to
------------
purchase during the Company Period all of the Equity Securities to which the
Shareholder Notice refers, then Thayer may elect, by delivering to the Selling
Shareholder a written notice (a "Thayer Notice") of its election within forty-
five (45) days after Thayer's receipt of the Shareholder Notice (the "Thayer
Period"), to acquire, on the same terms and conditions specified in the
Shareholder Notice (or economically equivalent terms and conditions as
determined in good faith by Thayer and specified in the Thayer Notice), any
amount of such Equity Securities that the Company has not elected to purchase.
3.4 Consummation. In the event that the Company and/or Thayer elects to
------------
acquire Equity Securities pursuant to this Article 3, the Company, Thayer and
the Selling Shareholder shall consummate the sale and purchase of such Equity
Securities within ninety (90) days after the date that the Company and Thayer
have received the Shareholder Notice.
3.5 Selling Shareholder Right. To the extent the Company and Thayer do
-------------------------
not exercise their respective rights under this Article 3 within the specified
time periods, the Selling Shareholder may Transfer the Equity Securities
specified in its Shareholder Notice (and not purchased by the Company or Thayer)
to the third party specified in such Shareholder Notice at the price and on the
terms specified in such notice, provided that (i) such Transfer is consummated
within one hundred twenty (120) days of the date of delivery of such Shareholder
Notice and (ii) prior to the Transfer, such third party agrees in writing, in a
form satisfactory to the Company and Thayer, that such third party shall receive
and hold such Equity Securities subject to the provisions of this Agreement.
ARTICLE 4.
TAG ALONG RIGHTS
Until the date of an IPO Event or, if earlier, the date when Thayer's Pro
Rata Share is less than fifty-one percent (51%), Thayer shall not engage in a
transaction (including a merger, consolidation or similar business combination)
that involves the Transfer by Thayer to a third party of Common Stock
representing greater than fifty percent (50%) of the outstanding Equity
Securities (other than a "Drag Along Sale" as defined in Article 5 below and
other than a Transfer to one or more Affiliates of Thayer
<PAGE>
- 5 -
and/or Family Members of such Affiliates) without first offering the
Shareholders the right to participate in such Transfer in the following manner:
4.1 Notice. Thayer shall first deliver a written notice (a "Transfer
------
Notice") to the Shareholders stating (i) Thayer's desire to Transfer Common
Stock to a third party, (ii) the number of Common Stock shares proposed to be
Transferred and (iii) the price and the other general terms of the proposed
Transfer. Such notice may be provided before Thayer has identified a purchaser
or purchasers for such Equity Securities.
4.2 Shareholders Right. Each Shareholder may elect, by delivering to
------------------
Thayer a written notice (a "Tag Along Notice") of its election within fifteen
(15) days after receipt of the Transfer Notice (the "Tag Along Period"), to
participate in Thayer's Transfer of Common Stock on the same terms and
conditions specified in the Transfer Notice. The Tag Along Notice shall specify
the maximum number of Common Stock shares that the Shareholder (a "Tag Along
Shareholder") elects to Transfer which number shall not exceed the product
(rounded down to the nearest whole number) of (i) the percentage of Thayer's Pro
Rata Share that Thayer proposes to Transfer and (ii) the number of shares of
Common Stock owned by the Shareholder. Thayer shall use its best efforts to
interest the third party in purchasing all the Common Stock shares specified by
Tag Along Shareholders in Tag Along Notices, in addition to the Common Stock
that the third party may already have agreed to purchase from Thayer. If the
third party refuses to purchase all of such additional available Common Stock
shares, then Thayer may sell Common Stock to such third party only if Thayer and
each Tag Along Shareholder shall be entitled to sell to such third party an
amount of Common Stock equal to the product (rounded down to the nearest whole
number) obtained by multiplying (x) the aggregate number of Common Stock shares
such third party is willing to acquire by (y) a fraction, the numerator of which
is the number of Common Stock shares proposed to be Transferred by the selling
party in the applicable Tag Along Notice or Transfer Notice, as the case may be,
and the denominator of which is the aggregate number of Common Stock shares
proposed to be Transferred in such notices by Thayer and the Tag Along
Shareholders.
4.3 Consummation.
------------
(a) At least ten (10) days prior to the consummation of a Transfer by
Thayer described in a Transfer Notice and not before the earlier of (x) the end
of the Tag Along Period and (y) the receipt by Thayer of a Tag Along
<PAGE>
--6--
Notice from each Shareholder, Thayer shall provide written notice
(a "Consummation Notice") to each Tag Along Shareholder stating (i) the identity
of the third party transferee, (ii) the number of shares of Common Stock that
such Tag Along Shareholder will be entitled to sell to such third party pursuant
to this Article 4, and (iii) the date the Transfer will be consummated. At least
five (5) days prior to the date of such consummation, each Tag Along Shareholder
shall deliver to Thayer for Transfer to the third party one or more
certificates, properly endorsed for Transfer, which represent the number of
shares of Common Stock such Tag Along Shareholder is entitled to sell as
provided in the Consummation Notice. The certificate(s) delivered to Thayer by
each Tag Along Shareholder shall be Transferred to the third party identified in
the Consummation Notice, as part of the consummation of the Transfer of Common
Stock pursuant to the terms and conditions specified in the Transfer Notice and
the Consummation Notice. Upon receipt of the proceeds of the Transfer, Thayer
shall promptly remit to each Tag Along Shareholder that portion of such proceeds
to which such Tag Along Shareholder is entitled by reason of such Shareholder's
participation in such Transfer.
(b) In connection with a Transfer pursuant to this Article 4, each Tag
Along Shareholder shall be required to make representations and warranties
regarding the Company and the Common Stock that such Shareholder proposes to
Transfer, including, but not limited to, such Shareholder's ownership of and
authority to Transfer such Common Stock, the absence of any liens or other
encumbrances on such stock, and the compliance of such Transfer with the federal
and state securities laws and all other applicable laws and regulations.
4.4 Securities Laws. Notwithstanding anything to the contrary in this
---------------
Article 4, Thayer shall have no obligation to permit a Shareholder, and no
Shareholder shall have a right, to participate as a Tag Along Shareholder in a
Thayer Transfer of Common Stock in the event that such Shareholder's Transfer
(i) would not be exempt from all registration requirements under federal and
state securities laws or (ii) would violate, or cause Thayer's Transfer to
violate, any applicable federal or state laws.
ARTICLE 5.
DRAG ALONG RIGHTS
5.1 Drag Along Sale. In the event that, prior to an IPO Event, Thayer,
---------------
in its sole discretion, determines to accept an offer from a third party to
purchase all of the
<PAGE>
- 7 -
Common Stock then held by Thayer and the Shareholders, then each Shareholder
shall sell all shares of Common Stock held by such Shareholder pursuant to such
offer (the "Drag Along Sale"). All sellers of Common Stock in such Drag Along
Sale (i) shall receive the same consideration per share of Common Stock and
shall be subject to the same terms and conditions of sale and (ii) shall execute
such documents and take such actions as may be reasonably required by Thayer.
5.2 Drag Notice. Thayer shall provide each Shareholder with written
-----------
notice (the "Drag Notice") of a Drag Along Sale at least fifteen (15) days prior
to the date of consummation of such sale (the "Drag Along Sale Date"). Each
Drag Notice shall set forth: (i) the identity of the third party transferee in
the Drag Along Sale, (ii) the price and the other general terms of the proposed
Transfer and (iii) the Drag Along Sale Date.
5.3 Form of Consideration. The provisions of this Article 5 shall apply
---------------------
regardless of the form of consideration received in the Drag Along Sale, and any
non--cash consideration received pursuant to the terms of the Drag Along Sale
shall be allocated among the transferors of Common Stock pro rata based upon
each transferor's percentage ownership of the Common Stock shares sold in the
Drag Along Sale.
5.4 Consummation.
------------
(a) At least five (5) days prior to the date of consummation of a Drag
Along Sale, each Shareholder shall deliver to Thayer for Transfer to the third
party one or more certificates, properly endorsed for Transfer, which represent
all of the shares of Common Stock held by such Shareholder. The certificate(s)
delivered to Thayer by each Shareholder shall be Transferred to the third party
transferee identified in the Drag Notice, as part of the consummation of the
Drag Along Sale. Upon receipt of the proceeds of the Drag Along Sale, Thayer
shall promptly remit to each Shareholder that portion of such proceeds to which
such Shareholder is entitled by reason of such Shareholder's participation in
such sale.
(b) In connection with a Drag Along Sale, each Shareholder shall be
required to make representations and warranties regarding the Company and the
Common Stock that such Shareholder Transfers in such sale, including, but not
limited to, such Shareholder's ownership of and authority to Transfer such
Common Stock, the absence of any liens or other encumbrances on such stock, and
the compliance of such Transfer with the federal and state securities laws and
all other applicable laws and regulations.
<PAGE>
--8--
(c) At Thayer's request, each Shareholder shall convert into Common
Stock, or exercise or exchange for Common Stock, some or all (as specified in
Thayer's request) of the outstanding Equity Securities held by such Shareholder
that are convertible into, or exercisable or exchangeable for, Common Stock
prior to or upon the consummation of the Drag Along Sale. Each share of Common
Stock received by a Shareholder upon any such conversion, exercise or exchange
shall be Transferred, subject to the same terms and conditions applicable to all
other shares of Common Stock held by the Shareholders, to the third party
transferee identified in the Drag Notice, as part of the consummation of the
Drag Along Sale.
ARTICLE 6.
NO RAID
6.1 No Raid Covenant. Each Manager agrees that, from the date hereof
----------------
until five years after the termination of such Manager's employment with the
Company and its subsidiaries, such Manager shall not, directly or indirectly,
acting either alone or in concert with others, seek to influence any employee of
the Company or any of its subsidiaries to leave or otherwise terminate such
employee's employment with such entity. Each Manager agrees that, from the date
hereof until three years after the termination of such Manager's employment with
the Company and its subsidiaries, such Manager shall not, directly or
indirectly, solicit or assist any other person in soliciting (other than on
behalf of the Company and its subsidiaries) any customers, clients or suppliers
of the Company or any of its subsidiaries, provided, however, that the
obligations set forth in this sentence shall not apply to a Manager following
the termination of such Manager's employment if such termination is (i) by the
Company and (ii) not for cause.
6.2 Acknowledgments. Each Manager acknowledges that such Manager has
---------------
carefully read and considered all of the terms of this Agreement, including
particularly the terms of this Article 6, that the Company has made a
substantial investment in the Company's business and that the restrictions
provided in this Article 6 are reasonable and necessary for the Company's
protection. Each Manager further acknowledges that damages at law will not be a
measurable or adequate remedy for breach of the covenants contained in this
Article 6, and accordingly each Manager consents to the entry by any court of
competent jurisdiction of any order enjoining such Manager from violating any
such covenants. The parties hereto further agree that if, in any
<PAGE>
- 9 -
judicial proceeding, a court should refuse to enforce any covenants set forth in
this Article 6 because of their term or geographical scope, then such covenants
shall be deemed to be modified to permit their enforcement to the maximum extent
permitted by law.
ARTICLE 7.
TERMINATION; ADDITIONAL PARTIES
7.1 Termination. All rights and obligations set forth in this Agreement
-----------
(other than in Article 6), to the extent not previously terminated, shall
terminate upon an IPO Event.
7.2 Additional Parties. Without the prior written consent of Thayer,
------------------
the Company shall not issue or sell after the date hereof, any shares of Common
Stock to any individual or entity without such individual or entity becoming a
party to this Agreement by agreeing in writing to be bound by the terms hereof.
Any such additional party shall become a Shareholder subject to and bound by all
the terms and conditions of this Agreement. The Company shall promptly notify
each existing party to this Agreement of the addition of each new party hereto
and such notice shall include the requisite information for providing notice to
such new party pursuant to Section 8.6.
ARTICLE 8.
MISCELLANEOUS
8.1 Legend. All certificates evidencing Equity Securities restricted by
------
this Agreement shall bear a legend indicating the existence of the restrictions
imposed hereby and a stop transfer order may be placed with respect to such
securities. The legend referred to in the preceding sentence shall be
substantially in the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TRANSFER RESTRICTIONS AND OTHER TERMS OF A SHAREHOLDERS AGREEMENT
DATED AS OF APRIL 1, 1997, AMONG SOFTWARE AG SYSTEMS, INC. AND
CERTAIN SHAREHOLDERS THEREOF AND MAY NOT BE TRANSFERRED EXCEPT IN
ACCORDANCE WITH SUCH AGREEMENT. A COPY OF SUCH AGREEMENT IS ON FILE
AT THE PRINCIPAL OFFICE OF SOFTWARE AG SYSTEMS, INC. AND WILL BE
FURNISHED UPON REQUEST TO THE HOLDER OF
<PAGE>
- 10 -
RECORD OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE.
8.2 Amendment. Except as otherwise expressly set forth in this
---------
Agreement, this Agreement may be amended or supplemented only by the written
agreement of the Company, Thayer and the Managers.
8.3 No Waiver of Rights. No failure or delay on the part of any party
-------------------
in the exercise of any power or right hereunder shall operate as a waiver
thereof. No single or partial exercise of any right or power hereunder shall
operate as a waiver of such right or power or of any other right or power. The
waiver by any party of a breach of any provision of this Agreement shall not
operate or be construed as a waiver of any other or subsequent breach hereunder.
Except as otherwise expressly provided herein, all rights and remedies existing
under this Agreement are cumulative with, and not exclusive of, any rights or
remedies otherwise available.
8.4 Entire Agreement; Successors; Third Parties. This Agreement
-------------------------------------------
contains the entire agreement among the parties with respect to the transactions
contemplated hereby and supersedes all prior arrangements or understandings with
respect thereto, written or oral. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective successors, heirs, executors, administrators and permitted assigns.
Except as specifically set forth herein, nothing in this Agreement, expressed or
implied, is intended to confer upon any party, other than the parties hereto and
their respective successors and permitted assigns, any rights, remedies,
obligations or liabilities.
8.5 No Assignment. No party hereto may assign any of its rights or
-------------
obligations under this Agreement to any other person, except that Thayer may
assign part or all of its rights and obligations hereunder to one or more
Affiliates of Thayer.
8.6 Notices. All notices or other communications which are required or
-------
permitted hereunder shall be in writing and sufficient if delivered personally,
by facsimile or sent by overnight express or by registered or certified mail,
postage prepaid, addressed as follows:
<PAGE>
- 11 -
If to the Company to:
Software AG Systems, Inc.
11190 Sunrise Valley Drive
Reston, VA 20191
Attention: Harry McCreery
Facsimile: 703-391-6504
If to Thayer:
Thayer Equity Investors III, L.P.
1455 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Attention: Robert E. Michalik
Facsimile: (202) 371-0391
If to any of the Managers, to the address set forth beneath the signature of
such Manager on the signature page hereof. Notices and other communications to
parties joining this Agreement after the date hereof shall be addressed in
accordance with the information received from the Company pursuant to
Section 7.2.
All deliveries of notice shall be deemed effective when received by the
persons entitled to such receipt or when delivery has been attempted but refused
by such person or persons. Any party may change the persons or addresses to
which such deliveries shall be made with respect to such party by delivering
notice thereof to the other parties hereto in accordance with this Section 8.6.
8.7 Captions. The captions contained in this Agreement are for reference
--------
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
8.8 Counterparts. This Agreement may be executed in any number of
------------
counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
8.9 Governing Law and Venue. The validity, interpretation, construction
-----------------------
and performance of this Agreement shall be governed by the laws of the
Commonwealth of Virginia applicable to agreements made and entirely to be
performed within such jurisdiction. The party bringing any action under this
Agreement shall only be entitled to choose the federal or state courts in the
Commonwealth of Virginia as the venue for such action, and each party consents
to the jurisdiction of the court chosen in such manner for such action.
<PAGE>
- 12 -
8.10 Severability. The provisions of this Agreement are severable, and
------------
the unenforceability of any provision of this Agreement shall not affect the
enforceability of the remainder of this Agreement. The parties acknowledge that
it is their intention that if any provision of this Agreement is determined by a
court to be invalid, illegal or unenforceable as drafted, that provision should
be construed in a manner designed to effectuate the purpose of that provision to
the greatest extent possible under applicable law.
8.11 Specific Performance. The rights of the parties under this
--------------------
Agreement are unique and the failure of a party to perform its obligations
hereunder would irreparably harm the other parties hereto. Accordingly, the
parties shall, in addition to such other remedies as may be available at law or
in equity, have the right to enforce their rights hereunder by actions for
specific performance to the extent permitted by law.
8.12 Further Assurances. Each of the parties hereto agrees to execute
------------------
all such further instruments and documents and to take all such further action
as any other party may reasonably require in order to effectuate the terms and
purposes of this Agreement.
8.13 Publicity. No party shall issue any press release or undertake any
---------
publicity concerning this Agreement or any of the transactions contemplated
hereby without the prior written consent of Thayer.
<PAGE>
- 13 -
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Agreement to be executed as of the day and year first
above written.
SOFTWARE AG SYSTEMS, INC.
By: /s/ Daniel Gillis
------------------------------
Daniel Gillis
President and Chief
Executive Officer
THAYER EQUITY INVESTORS III, L.P.
By: TC Equity Partners, L. L. C.,
its General Partner
By: /s/ Rick Rickertsen
--------------------------
Rick Rickertsen
Member
MANAGERS:
/s/ Daniel Gillis
----------------------------------
Daniel Gillis
9513 Fox Hollow Drive
Potomac, MD 20854
Facsimile: (703) 391-6782
/s/ Harry McCreery
----------------------------------
Harry McCreery
10727 Midsummer Drive
Reston, VA 20191
Facsimile: (703) 391-6504
<PAGE>
- 14 -
/s/ James Daly
----------------------------------
James Daly
2606 Barnside Ct.
Herndon, VA 20171
Facsimile: (703) 391-6980
/s/ Derek Brigden
----------------------------------
Derek Brigden
11317 Bright Pond Lane
Reston, VA 20194
Facsimile: (703) 391-6504
/s/ Gary Hayes
----------------------------------
Gary Hayes
7924 Longridge Ct.
Cabin John, MD 20818
Facsimile: (703) 39l-8111
/s/ Thomas Gorley
----------------------------------
Thomas Gorley
12801 Cross Creek Lane
Oak Hill, VA 20171
Facsimile: (703) 391-6760
<PAGE>
Exhibit A
Daniel Gillis
Harry McCreery
Gary Hayes
James Daly
Derek Brigden
Thomas Gorley
<PAGE>
EXHIBIT 10.18
PROMISSORY NOTE
Fairfax County Virginia
$75,000.00 March 24, 1997
FOR VALUE RECEIVED, the undersigned promise to pay to the order of Software AG
Americas, Inc. ("SAGA"), the principal sum of Seventy Five Thousand & no/00
($75,000.00) Dollars
This note is made to evidence a loan to the undersigned. The effective date of
the loan is March 24, 1997.
The note will accrue interest at the rate of 6% per annum on the principal
amount.
Said principal and interest shall be payable as follows.
1. There shall be no required periodic payments of either the principal or
interest for the term of this note.
2. The principal and all accrued interest shall be due and payable by the
undersigned to SAGA at such time as the undersigned leaves the employment
of SAGA.
3. To the extent that the undersigned has severance, vacation, deferred
compensation, or other types of payment due from SAGA at the time of
termination, such sums will be used to pay the principal and interest of
this note, after the withholding of applicable taxes.
4. The undersigned may prepay this Note in whole or in part without penalty.
Signed under seal this 14th day of March, 1997.
Thomas Gorley
/s/ Thomas Gorley
- -----------------------------
<PAGE>
Exhibit 10.19
PROMISSORY NOTE
Fairfax County Virginia
$250,000.00 March 24, 1997
FOR VALUE RECEIVED, the undersigned promise to pay to the order of Software AG
Americas, Inc. ("SAGA"), the principal sum of TWO HUNDRED FIFTY THOUSAND & NO/00
($250,000.00) DOLLARS
This note is made to evidence a loan to the undersigned. The effective date of
the loan is March 24, 1997.
The note will accrue interest at the rate of 6% per annum on the principal
amount.
Said principal and interest shall be payable as follows.
1. There shall be no required periodic payments of either the principal or
interest for the term of this note.
2. The principal and all accrued interest shall be due and payable by the
undersigned to SAGA at such time as the undersigned leaves the employment
of SAGA.
3. To the extent that the undersigned has severance, vacation, deferred
compensation, or other types of payment due from SAGA at the time of
termination, such sums will be used to pay the principal and interest of
this note, after the withholding of applicable taxes.
4. The undersigned may prepay this Note in whole or in part without penalty.
Signed under seal this 13th day of March , 1997.
------ --------- ----
Daniel F. Gillis
/s/ Daniel F. Gillis
- ------------------------
<PAGE>
Exhibit 10.20
PROMISSORY NOTE
Fairfax County Virginia
$250,000.00 March 24, 1997
FOR VALUE RECEIVED, the undersigned promise to pay to the order of Software AG
Americas, Inc. ("SAGA"), the principal sum of TWO HUNDRED FIFTY THOUSAND & NO/00
($250,000.00) DOLLARS
This note is made to evidence a loan to the undersigned. The effective date of
the loan is March 24, 1997.
The note will accrue interest at the rate of 6% per annum on the principal
amount.
Said principal and interest shall be payable as follows.
1. There shall be no required periodic payments of either the principal or
interest for the term of this note.
2. The principal and all accrued interest shall be due and payable by the
undersigned to SAGA at such time as the undersigned leaves the employment
of SAGA.
3. To the extent that the undersigned has severance, vacation, deferred
compensation, or other types of payment due from SAGA at the time of
termination, such sums will be used to pay the principal and interest of
this note, after the withholding of applicable taxes.
4. The undersigned may prepay this Note in whole or in part without penalty.
Signed under seal this 14th day of March , 1997.
------ --------- ----
Harry K. McCreery
/s/ Harry K. McCreery
- ------------------------
<PAGE>
Exhibit 10.21
PROMISSORY NOTE
Fairfax County Virginia
$182,605.00 March 24, 1997
FOR VALUE RECEIVED, the undersigned promise to pay to the order of Software AG
Americas, Inc. ("SAGA"), the principal sum of ONE HUNDRED EIGHTY TWO THOUSAND,
SIX HUNDRED FIVE & NO/00 ($182,605.00) DOLLARS
This note is made to evidence a loan to the undersigned. The effective date of
the loan is March 24, 1997.
The note will accrue interest at the rate of 6% per annum on the principal
amount.
Said principal and interest shall be payable as follows.
1. There shall be no required periodic payments of either the principal or
interest for the term of this note.
2. The principal and all accrued interest shall be due and payable by the
undersigned to SAGA at such time as the undersigned leaves the employment
of SAGA.
3. To the extent that the undersigned has severance, vacation, deferred
compensation, or other types of payment due from SAGA at the time of
termination, such sums will be used to pay the principal and interest of
this note, after the withholding of applicable taxes.
4. The undersigned may prepay this Note in whole or in part without penalty.
Signed under seal this 13th day of March , 1997.
------ --------- ----
James H. Daly
/s/ James H. Daly
- ------------------------
<PAGE>
Exhibit 10.22
PROMISSORY NOTE
Fairfax County Virginia
$363,000.00 August 9, 1997
FOR VALUE RECEIVED, the undersigned promise to pay to the order of Software AG
Americas, Inc. ("SAGA"), the principal sum of THREE HUNDRED SIXTY THREE
THOUSAND & NO/00 ($363,000.00) DOLLARS
This note is made to evidence a loan to the undersigned. The effective date of
the loan is August 9, 1997.
The note will accrue interest at the rate of 6% per annum on the principal
amount.
Said principal and interest shall be payable as follows.
1. There shall be no required periodic payments of either the principal or
interest for the term of this note.
2. The principal and all accrued interest shall be due and payable by the
undersigned to SAGA at such time as the undersigned leaves the employment
of SAGA.
3. To the extent that the undersigned has severance, vacation, deferred
compensation, or other types of payment due from SAGA at the time of
termination, such sums will be used to pay the principal and interest of
this note, after the withholding of applicable taxes.
4. The undersigned may prepay this Note in whole or in part without penalty.
Signed under seal this 9th day of August , 1997.
------ --------- ----
Harry K. McCreery
/s/ Harry K. McCreery
- --------------------------------
<PAGE>
Exhibit 10.23
PROMISSORY NOTE
Fairfax County Virginia
$120,740.00 August 9, 1997
FOR VALUE RECEIVED, the undersigned promise to pay to the order of Software AG
Americas, Inc. ("SAGA"), the principal sum of ONE HUNDRED TWENTY THOUSAND,SEVEN
HUNDRED FORTY & NO/00 ($120,740.00) DOLLARS
This note is made to evidence a loan to the undersigned. The effective date of
the loan is August 9, 1997.
The note will accrue interest at the rate of 6% per annum on the principal
amount.
Said principal and interest shall be payable as follows.
1. There shall be no required periodic payments of either the principal or
interest for the term of this note.
2. The principal and all accrued interest shall be due and payable by the
undersigned to SAGA at such time as the undersigned leaves the employment
of SAGA.
3. To the extent that the undersigned has severance, vacation, deferred
compensation, or other types of payment due from SAGA at the time of
termination, such sums will be used to pay the principal and interest of
this note, after the withholding of applicable taxes.
4. The undersigned may prepay this Note in whole or in part without penalty.
Signed under seal this 13th day of March , 1997.
------ --------- ----
James H. Daly
/s/ James H. Daly
- ------------------------
<PAGE>
EXHIBIT 11
SOFTWARE AG SYSTEMS, INC.
WEIGHTED AVERAGE SHARES
<TABLE>
<CAPTION>
PREDECESSOR COMBINED PREDECESSOR SUCCESSOR
------------------------------------ --------- ----------- ---------
NINE NINE THREE SIX
MONTHS MONTHS MONTHS MONTHS
YEARS ENDED DECEMBER 31, ENDED ENDED ENDED ENDED
-------------------------- SEPT. 30, SEPT. 30, MARCH 31, SEPT. 30,
1994 1995 1996 1996 1997 1997 1997
-------- -------- -------- --------- --------- ----------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Weighted average common
shares outstanding..... 27,500 27,500 27,500 27,500 24,338 27,500 24,338
Options issued within
one year
of filing of initial
public offering........ 3,084 3,084 3,084 3,084 3,084 3,084 3,084
-------- -------- -------- ------- ------ ------- -------
30,584 30,584 30,584 30,584 27,422 30,584 27,422
======== ======== ======== ======= ====== ======= =======
CALCULATION OF NET
INCOME (LOSS) PER
SHARE:
Net income (loss) ...... $ 1,382 $ 3,326 $ 6,209 $ 1,910 $ 297 $ 1,373 $(1,076)
======== ======== ======== ======= ====== ======= =======
Net income (loss) per
share.................. $ 0.05 $ 0.11 $ 0.20 $ 0.05 $ 0.01 $ 0.04 $ (0.04)
======== ======== ======== ======= ====== ======= =======
</TABLE>
1
<PAGE>
Exhibit 23.2
ACCOUNTANT'S CONSENT
We consent to the use of our reports included herein and to the reference to
our firm under the headings "Selected Consolidated Financial Data" and
"Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
McLean, Virginia
October 15, 1997
