SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
_X__ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year ended April 30, 1997
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ___________.
Commission File Number: 0-15188
INTERSOLV, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 52-0990382
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9420 Key West Ave.
Rockville, Maryland 20850
(Address of principal executive offices)
(301) 838-5000
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of class)
Preferred Stock Purchase Rights
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes___X___ No_______
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon the average of the high and low price of the
Common Stock on June 30, 1997 as quoted by NASDAQ was $186,730,305.
The number of shares outstanding of the registrant's Common Stock $0.01 par
value on June 30, 1997 was 20,649,409 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement for the 1997 Annual Meeting of
Stockholders, which will be filed with the Securities and Exchange within
120 days after April 30, 1997 (items 10 through 13, Part III)
_____________________________________________________________________
ITEM 1. BUSINESS
GENERAL
INTERSOLV, Inc. (the "Company" or "INTERSOLV") was
incorporated under the laws of the State of Delaware in 1985,
successor to the business begun in 1982. INTERSOLV develops,
markets and supports a broad line of client/server software tools
that facilitate the development, delivery and deployment of
business information systems. The Company strategy is to offer
customers a broad family of software development tools that are
independent of rapidly changing hardware, operating systems and
database management technology.
The Company's principal executive offices are located at
9420 Key West Avenue, Rockville, MD 20850, and its telephone
number at that address is (301) 838-5000. The Company's common
stock is traded over the counter on the NASDAQ National Market
under the symbol "ISLI".
COMPANY OVERVIEW
INTERSOLV's mission is to accelerate the delivery of
information systems. The Company does this by providing best-in-
class solutions that focus on the entire application enablement
process to deliver enterprise-wide applications across
client/server, Internet and intranet environments. INTERSOLV
offers software products and services in three major solution
areas: automated software quality, data connectivity and year
2000 renewal. The Company's strategic advantage emphasizes
technology independence. All of INTERSOLV's solutions are
database independent and work across a variety of operating
systems and platforms. The open architecture of the Company's
products ensures interoperability with existing systems and tools
to enable organizations to protect existing legacy investments,
while allowing organizations to introduce new technology in a
controlled fashion. The Company's objective is to build products
that deliver high productivity on simple projects and are
powerful enough to handle scalability requirements of production-
grade information systems without retooling.
INTERSOLV's three primary solution areas are:
* Automated Software Quality (ASQ) - INTERSOLV's ASQ product
series consists of the Company's software configuration
management solution, PVCS. In partnership with Segue Software,
the Company offers an automated software testing solution,
QualityWorks. ASQ products provide requirements management,
version management, problem/change request tracking,
build management, distributed management, test planning and test
management. The Company's ASQ offerings leverage team development
on the local area network (LAN) while supporting multi-operating
systems and multi-tool environments.
* Data Connectivity - INTERSOLV's data connectivity products
provide common communications, management and database access for
client, server and Web applications. They support proven
standards, including ODBC, JDBC and OLE DB, and all major
operating systems and data sources. Offerings include solutions
to deploy cross-platform applications accessing multiple data
sources.
* Year 2000 Renewal - INTERSOLV's year 2000 solutions are a
flexible suite of customizable solutions designed to meet the
full spectrum of an organization's Year 2000 renewal initiatives.
They integrate INTERSOLV's proven, industry-leading processes,
technology and services to provide comprehensive research and
impact analysis, automated version control, project tracking,
configuration building and change synchronization. The
offerings include a comprehensive software configuration
management approach to Year 2000 conversions, a highly efficient,
technology-based assembly line approach for complete Year 2000
renewal, and a unique management method for the Year 2000 renewal
process to ensure reliable analysis, updating and testing of
target applications.
The Company markets and distributes its products on a
worldwide basis through multiple channels. Sales are made
through Company owned and operated entities which use a
combination of field, telesales and third party distribution
channels. The Company's direct sales effort is augmented with a
network of independent software vendors, dealers, distributors
and value added resellers in more than 30 countries around the
world.
PRODUCTS
INTERSOLV offers a variety of open product and service
solutions to accelerate the delivery of information systems. The
Company's three primary solution areas are discussed below.
AUTOMATED SOFTWARE QUALITY
INTERSOLV's automated software quality (ASQ) tools and services
help ensure quality throughout the application development
process - from requirements management through application
testing and delivery. ASQ is made up of the Company's software
configuration management solution and automated software testing
solution.
Software Configuration Management Solution
INTERSOLV PVCS Series is a comprehensive family of software
configuration management products which enable software
developers to manage software changes in a team development
environment, such as on the LAN, or the Internet and the World
Wide Web. The PVCS family includes tools for requirements
management, version management, change/problem tracking, build
management, distribution management and promotion management.
The PVCS products provide an audit trail of activity, file
revision histories, support for parallel development, exact
image rebuilds and support for quality assurance. PVCS provides
control over the configuration of any application software and/or
documentation, whether it is client/server development or
Internet/intranet development. PVCS allows users to manage and
resolve problems and change requests which threaten software
quality and production schedules. The PVCS products operate on
multiple platforms and operating systems. PVCS supports
development in C, C++, COBOL, Java and any type of web source
file such as HTML, GIF, etc. It also works with most commonly
used development workbenches such as Borland Delphi,
Sybase/PowerSoft PowerBuilder and Microsoft Visual Basic. The
products that make up the series include:
* INTERSOLV PVCS Version Manager - automates code control,
enables reuse, manages any development object and supports
parallel development without maintenance problems.
* INTERSOLV PVCS Developers Toolkit - a set of DLL's, import
libraries and header files that provides developers the ability
to add PVCS services to their own applications.
* INTERSOLV PVCS Tracker - manages problems and change
requests that threaten software quality and production schedules.
* INTERSOLV PVCS Tracker for Web Teams - assists Web teams in
managing web change requests associated with updating corporate
Web sites.
* INTERSOLV PVCS SiteSync - provides a bi-directional LAN to
mainframe, or LAN to LAN configuration management link that
ensures development is synchronized to mainframe production or
remote LAN versions.
* INTERSOLV PVCS Configuration Builder - automates and
provides consistency to all tasks associated with producing
executable applications of any type.
Automated Software Testing
INTERSOLV QualityWorks Series assists in managing the
testing process and enables the rapid development of functional,
graphical user interface ("GUI"), regression, system and unit
tests from the desktop. The Company has partnered with Segue
Software to resell the QualityWorks Series. QualityWorks is the
industry's first automated testing tool that integrates test
plans and reusable test scripts with INTERSOLV PVCS Version
Manager. The five products that make up the QualityWorks Series:
* QA Partner provides comprehensive distributed systems
testing.
* QA Organizer provides test management, planning, and
reporting for the entire QualityWorks family.
* QA DBTester provides the ability to validate information and
run test scripts against more than 35 databases.
* QA Performer provides real-time, multi-platform load testing
to ensure the performance of distributed applications.
* GO! Enables the test engineer to move from merely automated
to automatic. Test scripts for standard GUI functions and
compliance with Windows conventions are automatically generated.
DATA CONNECTIVITY SOLUTIONS
INTERSOLV DataDirect Series simplifies data access in
complex environments by providing high performance, standards-
based data connectivity for the client, server and Web, scalable
from small projects to the enterprise level. The core products
are:
* DataDirect ODBC drivers, the industry's most comprehensive
range of open database connectivity ("ODBC") technology, allow
software developers to build and deploy software for multiple
databases from one application programming interface (API).
Through one consistent and simplified interface, ODBC drivers
enable high-performance access to more than 130 combinations of
databases and platforms.
* DataDirect SequeLink is server-based, data access middleware
that provides a single connection to heterogenous data sources
and servers and supports large user populations. SequeLink is
designed to deliver high-performance point-to-point access across
almost any client, network, server, or database.
* DataDirect SequeLink Java Edition is server-based data
access middleware consisting of a single, universal standards-
based Java database connectivity ("JDBC") client and DBMS- server
interface components. It delivers high-performance point-to-
point and multi-tier access to data across the Internet,
intranets and extranets - connecting to a wide variety of
databases.
* DataDirect WebDBLink provides secure ODBC data access from
both UNIX and NT Web servers to Web browser-based clients. It is
designed specifically for secure, high-performance Web database
publishing via HTML.
* DataDirect OLE DB is INTERSOLV's next generation standards-
based connectivity solution. As the OLE DB standard unfolds,
INTERSOLV will be extending data access from ODBC to OLE DB
service and data providers for ActiveX applications using ADO and
ADC.
Year 2000 Renewal
INTERSOLV Factory2000 Series combines industry-leading
technology and expert services to help companies tackle today's
year 2000 initiative and future change management challenges.
Factory2000 tools comprise integrated, client/server technology
for comprehensive research and impact analysis, automated version
control, project tracking, configuration building and change
synchronization. INTERSOLV ServiceDirect Consulting programs
range from mentoring and basic technology transfer to software
configuration management assistance and turnkey year 2000
conversion outsourcing. The Factory2000 offering includes
the following:
* SCM2000 combines INTERSOLV PVCS, the premier software
configuration management ("SCM") solution for heterogeneous
development, and INTERSOLV ServiceDirect consultants to help
build a SCM safety net for the year 2000 initiative. The
offering includes automated version control, project tracking,
configuration building and change synchronization.
* Renovate2000 provides a solution to automatically research,
identify and assess the impact of the year 2000 problem across an
entire application portfolio. It features INTERSOLV's AppMaster
Renovator product line to research, document and make the
necessary changes to ensure year 2000 compliance.
* Intersolv also offers a turnkey year 2000 solution in which
INTERSOLV takes full responsibility to assess, modify and test
applications for year 2000 compliance and standards.
OTHER SOLUTION AREAS
INTERSOLV Allegris Series is a series of component-based
development tools for the rapid delivery of next-generation
client/server, Internet and corporate intranet applications. The
Allegris Series includes the following products:
* Allegris Object Repository provides a "software warehouse"
for storing, managing, locating and reusing components to speed
new systems development.
* Allegris Constructor provides the ability to rapidly
assemble components via a point-and-click, drag-and-drop
interface to easily build powerful applications, distributed
across client/server and Internet/intranet platforms.
* Allegris DataDesigner offers an integrated object modeling
and database design environment.
* Allegris Workshop provides a complete Object-Oriented ("OO")
development environment for building reusable components that can
be easily ported across a wide range of platforms. It includes
the Allegris Foundation class library of more than 170 cross
platform components.
SERVICES
INTERSOLV offers a wide variety of support services, known
as INTERSOLV ServiceDirect, which are intended to help customers
quickly gain benefits from the suite of product solutions that
are available. The range of services offered is described below.
Maintenance Services
INTERSOLV offers its customers the opportunity to purchase
maintenance services for its products. The services consist
primarily of enhancements and updates to the products as well as
telephone support concerning their operation. Annual fees for
maintenance services typically equal 17 percent of the product's
list price and commence upon purchase of the product(s).
Training and Consulting Services
INTERSOLV also offers highly focused fee-paid consulting and
training services to assist customers in using INTERSOLV
products. Consulting services are focused on helping the
customer exploit INTERSOLV technology through short-term, highly
focused projects or through long-term projects which integrate
the Company's products with the customer's development
environment. Educational offerings include both on-site training
and training at an INTERSOLV training center and are focused on
the use of INTERSOLV technology.
MARKETING, CUSTOMERS AND SALES
The Company markets its products to end-users, line-of-
business developers, traditional information system departments,
project managers and application development executives within
businesses and independent software vendors worldwide. None of
the Company's customers account for 10% or more of annual
revenues. Additionally, the Company's business does not
concentrate on any specific industry. See further discussion
regarding the segment information and significant customers in
Note 4 of Notes to the Consolidated Financial Statements on page
28 of this Form 10-K.
The Company has a multi-channel approach to sales and
marketing. The products are sold through telesales, field sales
(face-to-face) and third-parties as described below.
Telesales
Telesales representatives concentrate on sales at the
project level and to smaller accounts, selling to individual
developers and project managers. Telesales representatives
concentrate their efforts on one solution area. Orders can range
from $100 for a single license, to over $50,000 for multiple
licenses for a fully configured project team. Telesales are
supported by mailings to lists of prospective customers and
advertising in selected trade magazines. The Company also offers
special promotions and incentive offers from time to time aimed
at introducing the Company's products to new users.
Field Sales
The Company's field sales personnel are located in
Australia, Belgium, France, Germany, Japan, United Kingdom and
several major metropolitan areas in the U.S., offering products
and technical support to customers and prospects. Field sales
personnel concentrate their efforts on one solution area within a
defined geographical region, with the exception of a select group
of field sales representatives who are responsible for selling
all products. Field Sales builds long-term relationships with
the Company's largest customers and prospects. Field sales
personnel assist prospective and current customers in evaluating
needs and solutions and guide them in the evaluation and use of
INTERSOLV products. Field sales personnel focus their efforts
primarily on large corporate prospects and customers.
Transactions through the field sales organization generally range
from $25,000 to over $1,000,000, depending on the number of
products licensed and the number of developers authorized to use
the product(s).
Third Parties
In addition to the Company's own field sales and telesales
organizations, the Company markets its technologies and products
through a global network of other independent software vendors
("ISV"s), value-added resellers ("VARs") and other dealers and
distributors. Through third party alliances, the Company enables
selected ISVs to embed and sell certain INTERSOLV technologies in
their own products. Alliances with other ISVs include joint
development and marketing arrangements. INTERSOLV also has
arrangements with VARs, dealers and distributors to resell the
Company's products in markets which the Company cannot cost
effectively reach on a direct basis.
COMPETITION
Competition in the software development tools market is
very intense. New and established companies continue to develop
and market competitive products. Principal factors affecting
competition are product performance and functionality,
compatibility with the customer's operating environment, ease of
use, price and quality of customer support, documentation and
services. The Company anticipates that it will continue to
experience competition from current vendors and new firms
entering the market.
The Company's service fee revenues have continued to grow in
fiscal 1997. Continued growth of service revenues is dependent
upon acceptance of the Company's products within the market and
the Company's ability recruit, train and retain sufficiently
skilled personnel to deliver the services. The demand for
personnel with information technology skills is very strong;
accordingly the Company must compete with numerous other
companies when recruiting personnel.
PRODUCT DEVELOPMENT
Due to the rapid technological changes the computer software
industry is subject to, the Company expects to continue to
dedicate significant resources to enhance its current products
and develop new ones. The Company spent $27 million, $25.9
million and $22.7 million on product development, before
capitalization of certain internal software development costs,
for the fiscal years ended April 30, 1997, 1996, and 1995,
respectively.
While certain INTERSOLV products have been developed
internally, the Company has in the past and intends to continue
to acquire certain software technology from others and integrate
those technologies into its family of products.
PRODUCT PROTECTION
The Company relies on a combination of trade secret,
copyright and trademark laws, license agreements and technical
measures to protect its rights in its software products. Like
many software companies, the Company has no patents.
INTERSOLV products are generally licensed to end users
pursuant to a license agreement that restricts the use of the
products to a designated number of authorized developers. The
Company also relies on copyright laws and embedded technology to
protect the proprietary rights in its products and to help ensure
they are used in accordance with their license terms. The degree
and scope of legal protection available for the Company's
software products may vary in certain foreign countries. The
company licenses the majority of its products through "shrink
wrap" licenses that are included as part of the product's
packaging.
The Company protects the source code version of its products
as a trade secret and as an unpublished copyrighted work. The
Company has made portions of the source code available to its
customers only under very limited circumstances and for
restricted uses. The Company has been and may be required from
time to time to enter into source code escrow agreements with
certain customers and distributors. These agreements require
release of source code to the customer or distributor in the
event the Company breaches its support and maintenance
obligations to the customer. If source code is released to a
customer or distributor, the customer or distributor is required
to maintain its confidentiality and, in general, to use the
source code solely for internal maintenance purposes.
EMPLOYEES
As of April 30, 1997, the Company employed 986 persons
including 339 in sales and marketing, 338 in consulting, training
and technical support, 176 in product development and 133 in
general and administration. None of the Company's employees are
represented by a labor union. The Company has experienced no
work stoppages and believes that its employee relations are good.
ITEM 2. PROPERTIES
The Company leases all of its office space for its corporate
headquarters, sales, distribution and development offices. Major
facility leases include the following:
Location Purpose Facility Size
Rockville, MD Corporate Headquarters 74,000 sq. ft.
Beaverton, OR Sales/Development 48,000 sq. ft.
Morrisville, NC Sales/Development 39,000 sq. ft.
Framingham, MA Development 19,000 sq. ft.
Gaithersburg, MD Distribution Center 13,000 sq. ft.
The aggregate rental payments for all facilities for fiscal 1997
was approximately $4.8 million, and all leases are subject to
renewal clauses and rent increase provisions, which are typical
of similar leases in the relevant geographic areas.
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently a party to any material pending
or threatened legal proceedings except as further described
below.
Prior to April, 1986, certain revenues associated with
discontinued operations were generated under cost-plus-fee
contracts with the U.S. government and are subject to adjustments
upon audit by the Defense Contract Audit Agency. Audits through
January 31, 1986 have been completed. On December 3, 1990,
INTERSOLV received a notice questioning certain charges
aggregating approximately $2.4 million made by the Company's
discontinued operations in fiscal 1985 and 1986. The Company
filed a response in April, 1991 which provided additional
information regarding the issues raised in the notice. The
amount of the liability, if any, cannot be ascertained.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded on the NASDAQ National
Market. There have been no dividends paid on INTERSOLV common
stock since the Company's initial public offering in 1986. See
the market price information in Note 12 of Notes to the
Consolidated Financial Statements on page 34 on this Form 10-K.
The market price information represents "last sale" quotations and
does not include markups, markdowns or commissions.
The number of holders of record of the Company's common stock
was approximately 219 at June 30, 1997.
ITEM 6. SELECTED FINANCIAL DATA
(amount in thousands, except per share data)
Fiscal Year Ended April 30
1997 1996 1995 1994 1993
Revenues $160,413 $145,313 $134,517 $99,568 $88,263
Income (loss) before
income taxes (18,405) (383) 16,083 (28,738) (14,889)
Net income (loss) (21,166) (3,711) 10,974 (29,045) (14,929)
Fully diluted (loss)
per share ($1.05) ($0.19) $0.55 ($1.90) ($0.99)
Total assets 96,017 110,917 104,808 84,313 64,962
Long-term liabilities
(including current
portion) 7,882 8,387 3,226 2,368 1,254
Notes:
Fiscal 1997 operating results include pretax charges totaling
$28.9 million (after-tax effect of $1.41 per share) resulting from
an adjustment that is primarily non-cash to reduce capitalized and
purchased software costs, along with related intangible assets, to
net realizable value (See Note 3 for additional detail).
Fiscal 1996 operating results include pretax charges totaling
$13.6 million (after-tax effect of $0.67 per share) resulting from
the acquisitions of TechGnosis International, Inc. ("TechGnosis")
and PC Strategies and Solutions, Inc. ("PCS"). Prior year data
has been restated to include TechGnosis and PCS acquisitions,
accounted for using the "pooling-of-interest" method (See Note 3
for additional detail).
Fiscal 1994 operating results include pretax charges totaling
$40.7 million (after-tax effect of $2.47 per share) resulting from
the acquisition of Q+E Software, Inc.
Fiscal 1993 operating results include a pre-tax charge of $16.6
million (after-tax effect of $1.27 per share) resulting from a non-
cash adjustment to reduce unamortized capitalized software costs
based on older operating systems to net realizable value and
certain other restructuring costs.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The following table sets forth, for the periods indicated,
the percentages which selected items in the Consolidated
Statements of Operations are to total Revenues:
Year to Year
Selected Items as a Percentage
Percentage of Revenues Increase (Decrease)
1997 1996
Year Ended April 30 Compared to Compared to
1997 1996 1995 1996 1995
Revenues:
License fees 56.9% 61.3% 64.6% 2% 3%
Service fees 43.1 38.7 35.4 23 18
Total 100.0 100.0 100.0 10 8
Cost and expenses:
Cost of products 7.7 10.8 8.9 (21) 31
Cost of services 21.9 17.9 16.0 34 21
Sales and marketing 45.6 44.0 42.7 14 12
Research and development 10.9 10.1 10.1 20 7
General and administrative 7.3 8.8 10.5 (9) (10)
Non-recurring charges 18.0 9.4 --- N/M N/M
Total 111.4 101.0 88.2 22 24
Operating income (loss) (11.4) (1.0) 11.8 N/M N/M
Other income (expense), net (0.1) 0.7 0.2 N/M 295
Income (loss) before income
taxes (11.5) (0.3) 12.0 N/M N/M
Provision (benefit) for income
taxes 1.7 2.3 3.8 (17) (35)
Net income (loss) (13.2%) (2.6%) 8.2% N/M N/M
N/M - Changes not meaningful
RESULTS OF OPERATIONS
Revenues
The Company's products are generally licensed to end users
pursuant to a license agreement that restricts the use of the
product to a designated number of developers. The Company also
offers its customers a broad range of services, including
maintenance, support, training and consulting. Maintenance
services consist primarily of enhancements and upgrades to
products as well as telephone support concerning the use of the
Company's products. Training and consulting services are focused
on assisting customers in using the Company's products.
The Company's product and service offerings are focused in
three primary solution areas: Automated Software Quality (which
includes the PVCS products for Software Configuration Management
and QualityWorks products for Automated Software Testing), Data
Connectivity (which includes DataDirect ODBC drivers and
DataDirect Sequelink) and Year 2000 renewal. The Company's other
solution areas include the Allegris Series, a series of component-
based development tools for the rapid delivery of client/server,
Internet and corporate intranet applications. The Company began
selling the Allegris Series and the QualityWorks solutions late
in fiscal 1997. The Company acquired TechGnosis International
Inc. ("TechGnosis") in October 1995 and PC Strategies and
Solutions, Inc. ("PCS") in May 1995 in transactions accounted for
using the "pooling-of-interests" method. INTERSOLV's historical
financial results for fiscal 1995 were restated to include the
results of operations for both of these companies.
Total Revenue
Total revenue for fiscal 1997 was $160.4 million, which is a
10% increase over fiscal 1996. This growth was driven by
increased revenues for PVCS and DataDirect product lines, which
grew 26% and 18%, respectively. The PVCS and DataDirect revenues
grew due to increased license and service fee revenues, reflecting
continuing increased demand for these products. Year 2000 renewal
revenue, a new area for the Company, contributed over $6 million
to fiscal 1997. These increases were offset somewhat by a decline
in the AppMaster product family, as demand for COBOL based
software solutions continued to decrease. Exclusive of Year 2000
renewal revenues, AppMaster revenues declined 27%.
Total revenue for fiscal 1996 was $145.3 million or 8%
greater than fiscal 1995. Revenue grew due to growth in the PVCS
and DataDirect product lines, which offset a decline in the
AppMaster product series. Growth in the PVCS and DataDirect
series resulted from increased license fee revenue related to
increased demand for the software products and increased service
fee revenue driven by the demand for consulting and training
services. The decrease in the AppMaster product line is due to a
decreased demand for COBOL based software solutions. The
AppMaster product series accounted for 26% of total revenues in
fiscal 1996 and declined 20% from fiscal 1995.
License Fee Revenue ("LFR")
Fiscal 1997 LFR was $91.3 million, or a 2% increase over
fiscal 1996. Fiscal 1996 LFR was $89.1 million, or 3% greater
than the prior year. Growth in new license sales for PVCS
products and DataDirect products were the primary reasons for the
increase. LFR growth for the above areas was offset by a decline
in new license sales for the Company's AppMaster product series.
Service Fee Revenue ("SFR")
Fiscal 1997 SFR was $69.1 million, which is a 23% increase
over fiscal 1996. Fiscal 1996 SFR was $56.2 million, or 18% more
than fiscal 1995. Increased demand for consulting and training
services in both PVCS and DataDirect product lines, combined with
growth in the installed customer base and renewal of existing
maintenance contracts led to the growth during the three year
period.
North American Revenue
In fiscal 1997, North American revenue grew 15% to $111.5
million. In fiscal 1996 North American revenue increased 8% to
$96.9 million. In fiscal 1997, the Company had growth in all
product families. In fiscal 1996, revenue growth in the PVCS
products, along with revenue contributions from the new
DataDirect products were the reasons for the increase. Revenue
from the AppMaster products declined in fiscal 1996.
International Revenue
In fiscal 1997, International revenue was $48.9 million or
1% greater than last year. Changes in currency exchange rates
decreased fiscal 1997 revenues by $2 million when compared to the
prior fiscal year. In fiscal 1997, Europe decreased 1%, while
Asia-Pacific grew 10%. Both Europe and Asia-Pacific had growth in
the PVCS and DataDirect product lines, which were offset somewhat
by declines from the AppMaster product lines. In fiscal 1996,
International revenue was $48.4 million, or 8% greater than the
prior year. Changes in currency exchange rates increased fiscal
1996 revenues by $0.4 million, when compared to the prior fiscal
year. Europe grew 6%, while Asia-Pacific grew 10%. Growth in
the PVCS products and revenue contributions from the new
DataDirect products were the primary reasons for the increase.
Cost of Products
Cost of products includes costs of software media, freight,
royalties and amortization of capitalized software development
costs and purchased technology costs. In fiscal 1997, cost of
products decreased 21% to $12.4 million. In fiscal 1996, cost of
products increased 31% to $15.6 million. Cost of products as a
percentage of revenues was 7.7%, 10.8%, and 8.9% in fiscal 1997,
1996 and 1995, respectively. Amortization expense is the largest
component of cost of products. In the fourth quarter of fiscal
1997, the Company wrote down a substantial portion of its
capitalized and purchased software; accordingly the level of
amortization expense dropped. This led to the overall decrease
in cost of products for fiscal 1997. The 1996 increase in amount
and as a percentage of revenues were primarily the result of
higher amortization of software development costs caused by
significant new product releases during the fiscal year.
Cost of Services
Cost of services includes personnel and related overhead
costs to provide training, consulting and telephone support to
customers who are deploying the Company's products. Cost of
services for fiscal 1997 increased 34% to $35.1 million. Cost of
services for fiscal 1996 increased 21% to $26.1 million. Cost of
services as a percentage of Service fee revenues was 51%, 46%,
and 45% in fiscal 1997, 1996 and 1995 respectively. The
increases in amount and as a percentage of revenues during this
three year period was primarily the result of increased
investment in personnel needed to support the increased demand
for consulting and training services. The Company has
experienced increased demand for consulting services for both the
PVCS and DataDirect products, in addition to increasing
consulting staff levels to support the Company's Year 2000
renewal projects. Personnel was also added to the telephone
support functions, to support the growing customer base.
Sales and Marketing
In fiscal 1997, sales and marketing expenses were $73.1
million, or a 14% increase over fiscal 1996. Sales and marketing
expenses for fiscal 1996 were $64 million, which is a 12%
increase when compared to fiscal 1995 level of $57.4 million.
Sales and marketing expenses as a percentage of revenues were
46%, 44%, and 43% in fiscal 1997, 1996 and 1995, respectively.
The increase in fiscal 1997 reflected increased investment in the
field and telesales channels, as well as higher levels of
marketing programs. The increase in fiscal 1996 was due to
higher levels of investment in marketing programs, telesales and
third party sales channels.
Research and Development
Research and development costs includes personnel and
related overhead costs incurred to develop the Company's
products, less amounts capitalized in accordance with FASB 86.
Research and development expenses, before capitalization of
certain internal software development costs, were $27 million,
$25.9 million and $22.7 million for the fiscal years ended April
30, 1997, 1996, and 1995 respectively. Fiscal 1997 research and
development costs were $17.6 million or 20% higher than fiscal
1996. Fiscal 1996 research and development expenses were $14.6
million, or 7% higher than fiscal 1995 levels of $13.6 million.
As a percentage of revenues, research and development expenses
were 11% in fiscal 1997 and 10% in each of 1996 and 1995,
respectively. In fiscal 1997, the Company increased its level of
investments in the PVCS and DataDirect product lines, in
addition to the costs incurred to develop Allegris, which was
released late in fiscal 1997. The level of costs qualifying for
capitalization decreased in fiscal 1997, which combined with the
increase in costs as previously noted led to the overall increase
in costs for fiscal 1997. The increase in fiscal 1996 is due
primarily to the Company's increased investment in PVCS,
DataDirect and Allegris.
General and Administrative
General and administrative expenses for fiscal 1997 were
$11.6 million or 9% lower than fiscal 1996. General and
administrative expenses for fiscal 1996 were $12.7 million or 10%
lower than fiscal 1995. General and administrative expenses as a
percentage of revenues were 7%, 9% and 10% for fiscal years 1997,
1996 and 1995, respectively. The fiscal 1997 and 1996 decreases
were due to elimination of duplicative administrative functions
of TechGnosis., which were reflected in fiscal 1996 results up
through its acquisition in October 1995.
Non-recurring Charges
Writedown of Software and Intangible assets
In the fourth quarter of fiscal 1997, the Company
completed a comprehensive business strategy review of its primary
market opportunities, which led the Company to record a charge of
$28.9 million to writedown capitalized and purchased software,
along with certain related intangible assets, to their net
realizable values. The Company determined the nature and amount
of this charge after identifying which product lines will be
primary solution areas for future fiscal years. Based upon
future expected net revenues for the primary solution areas, the
Company determined that certain capitalized and purchased
software assets should be written down to their expected net
realizable values. This consisted of $19.1 million to write down
various capitalized and purchased software balances, $3.4 million
to writedown intangible assets that were related to obsolete or
discontinued products, $3.3 million to cover the costs of
disposing or discontinuing certain products, $1.6 million of
inventory related to products that were discontinued or disposed
of and $1.5 million for losses on settlement of certain customer
receivables related to discontinued products.
TechGnosis Acquisition Charges
In October 1995, the Company incurred $11.6 million of non-
recurring charges related to the acquisition of TechGnosis. This
includes $3.3 million to restructure certain distributor
agreements, $2.5 million for consolidation of offices and
equipment, $2.2 million for severance and related costs, $2
million to write-off overlapping technologies and $1.6 million of
direct transaction and other transition expenses. As of April 30,
1997, the remaining liability of $0.7 million relates to amounts
to be disbursed for continuing office lease obligations.
PCS and C++ Views Product Line Acquisition Charges
In May 1995, the Company incurred $2 million of non-
recurring charges related to the acquisition of PCS and the
C++/Views product line from Liant Software, Inc. Acquisition
charges included a $0.7 million charge for purchased research and
development related to the C++/Views transaction. The remaining
$1.3 million charge was for direct transaction expenses,
severance and costs to consolidate operations. All charges were
disbursed by April 30, 1996.
Operating Income (Loss)
Prior to non-recurring charges, the Company reported
operating income of $10.6 million, $12.2 million, and $15.8
million in fiscal 1997, 1996, and 1995, respectively. As a
percentage of revenues, this would be 6.6%, 8.4%, and 11.8%
respectively. In fiscal 1997, operating income prior to non-
recurring charges dropped as the Company increased its investment
in its consulting and training functions to support the
increasing demand for these services. Operating income before
non-recurring charges dropped in fiscal 1996 because TechGnosis
was investing in sales and marketing to expand its market in the
United States. After non-recurring charges, the Company reported
operating income (loss) of $(18.3) million, ($1.4) million, and
$15.8 million in fiscal 1997, 1996, and 1995, respectively.
Other Income (expense)
Other income (expense), which is primarily net investment
income (expense), for fiscal 1997 was ($.07) million, as compared
to fiscal 1996 and 1995 levels of $1 million and $0.3 million,
respectively. Other income (expense) varied during the three year
period primarily as a result of changes in the amount of cash
available for investment, the level of subordinated debt and bank
debt outstanding during each of the three years.
Taxes
The Company's effective tax rates were 15%, 870% and 32% for
fiscal 1997, 1996 and 1995, respectively. In fiscal 1997, the
variance from the statutory rate is due to the increase in the
valuation allowance for deferred tax assets and liability for tax
exposures. In fiscal 1996, the variance from the statutory
rate is because the Company did not recognize the benefit of net
operating losses resulting primarily from acquisition charges,
particularly from its foreign operations. In fiscal 1995, the
variance from the statutory rate is due to research and
experimentation tax credits and foreign tax rates that are lower
than U.S. statutory rates.
Factors That May Affect Future Results
This annual report on Form 10-K may contain forward-looking
information within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities and Exchange Act of
1934, and is subject to the safe harbor created by those
sections. The Company assumes no obligation to update the
information contained in the following section or any other
portion of this Form 10-K.
The development tools market is
characterized by rapid changes in technology and user needs.
Compatibility of the Company's products with customers' preferred
operating systems and database management systems are important
to future results of the Company. The current market trend
appears to be weighted towards building client/server and
cooperative applications using a changing mix of operating
systems. In addition, the development tools must function within
the Internet and Intranet environments. The Company has
introduced new products, such as its Allegris series and the
QualityWorks series in late fiscal 1997. The Company has also
discontinued marketing selected products across its different
product lines and closely evaluate other non-strategic
products, such as AppMaster Designer. In fiscal 1997, revenue
growth from the Company's primary solution areas more than offset
revenue declines from non-strategic products. Because of the
rapidly changing market, there is no assurance that this
substantial growth from the primary solution areas will continue.
Future operating results could be affected by the market's
acceptance of the Company's existing and new products in this
rapidly changing market.
Competition in the software development tools market is very
intense. New and established companies continue to develop and
market competitive products. Principal factors affecting
competition are product performance and functionality,
compatibility with the customer's operating environment, ease of
use, price and quality of customer support, documentation and
services. The Company anticipates that it will continue to
experience competition from current vendors and new firms
entering the market.
The Company's service fee revenues have continued to grow in
fiscal 1997. Continued growth of service revenues is dependent
upon acceptance of the Company's products within the market and
the Company's ability to recruit, train and retain sufficiently
skilled personnel to deliver the services. The demand for
personnel with information technology skills is very strong;
accordingly the Company must compete with numerous other
companies when recruiting personnel.
The Company has received and anticipates receiving
additional contracts as part of its year 2000 renewal solution
offerings. Certain contracts may be large, multi-year service
contracts with staged payment terms. A delay in receiving these
contracts, as compared to the Company's expected date, could impact
the results for the quarter. There is also a risk of successfully
managing a larger project and the risk of a material impact on results
because of unanticipated problems or delays, suspensions, renegotiations
or cancelllations of large projects, which could adversely impact
the expected profitability of the contract(s).
The Company markets and sells its products directly
through its own operations in the United States, United Kingdom,
Germany, France, Belgium, Japan and Australia and through a
network of dealer/distributors in 30 other countries.
Consequently, the Company's results are affected by changes in
the global economies and foreign currency exchange rates.
Although the Company does not believe that its business is
subject to seasonal variations, sales historically tend to be
strongest during the fourth quarter of a fiscal year. As a
result, the Company typically experiences lower revenues for the
first quarter of a fiscal year than in the fourth quarter of the
prior fiscal year. The Company's experience has also been that a
major portion of its revenue is recognized during the last month
of a fiscal quarter and that fluctuations in revenue and earnings
may occur due to the timing of orders. Quarterly results
therefore can vary to the extent that sales for a quarter are
delayed, particularly since a large portion of the Company's
expenses do not vary with revenues.
Inflation has not had a material effect on the past results
of the Company, however, there can be no assurance that the
results of operations will not be affected in the future.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
In 1997, operating activities generated $3.8 million in
cash, after spending $3.2 million for various acquisition costs.
Investing activities used $17.4 million, as the Company invested
$9.5 million in capitalized and purchased software and $7.7
million in fixed assets. Financing activities in the form of
stock option exercises and purchases under the employee stock
purchase plans and net proceeds from various debt obligations
generated $4.6 million and $4.9 million, respectively, which
offset the $3.4 million spent to repurchase the Company's common
stock. Overall cash decreased $8 million.
In fiscal 1996, operating activities generated $18.2 million
in cash, after spending $8.3 million for various acquisition
costs. Investing activities used $17.7 million, as the Company
invested $12.9 million in capitalized and purchased software and
$4.9 million, net, in fixed assets. Financing activities in the
form of stock option exercises and purchases under the employee
stock purchase plans generated $8.7 million. The Company also
spent $4.8 million to acquire common stock from TechGnosis
International shareholders and $1.1 million to repay various debt
obligations and $1.1 million associated with the Q+E acquisition.
Overall cash increased $1.6 million.
In fiscal 1995, operating activities generated $12.9 million
in cash, after spending $4.4 million for various restructuring
and acquisition costs. Investing activities used $13.5 million
as the Company invested $9.4 million in capitalized and purchased
software and $3.7 million in fixed assets. Financing activities
in the form of stock option exercises and purchases under the
employee stock purchase plan generated $7.4 million, while the
issuance of convertible subordinated notes generated $4 million.
The Company also spent $5 million to reacquire shares of its
common stock, and $2.2 million to satisfy installment obligations
associated with its acquisition of Q+E Software, Inc. Overall
cash increased $4.1 million in fiscal 1995.
Current Financial Position
At April 30, 1997 the Company had cash and cash equivalents
of $20.2 million. The Company also has a $15 million revolving
unsecured credit facility, of which $6 million was outstanding at
April 30, 1997. The credit facility, which is due to expire in
September 1998, carries an interest rate based upon the LIBOR
rate plus 1.5% or prime, at the Company's option. The commitment
fee is 3/8% per annum on the unused portion of the credit line.
The Credit Agreement has various covenants which limit the
Company's ability to dispose of assets, purchase its own stock,
pay dividends and purchase other significant businesses or
technologies. The Company is also required to maintain certain
financial ratios. The Company was in violation of one covenant in
fiscal 1997, which was waived by the banks.
The Company also had $87,000 in subordinated
convertible debt, which is due in September 1999. The Company's
ratio of current assets to current liabilities, or current ratio,
was 1.3 to 1, compared with 1.5 to 1 at the beginning of the
fiscal year.
Future Liquidity and Capital Requirements
In fiscal 1998, the Company expects to invest about $9
million in fixed assets, such as computer equipment. The Company
believes that the existing cash balances, together with cash
generated by operating activities and available borrowings, will
be adequate to meet the Company's liquidity and capital needs for
the foreseeable future.
The Company will also continue to evaluate the acquisition
of technologies or product lines which are consistent with its
current strategy. The Company expects to fund these transactions
using cash on-hand and cash provided from operations. If
necessary or desirable, the Company may fund these transactions
using debt, equity or other sources.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Pages
Report of Independent Accountants 17
Financial Statements:
Consolidated Statements of Operations for
the fiscal years ended April 30, 1997,
1996, and 1995 18
Consolidated Balance Sheets as of
April 30, 1997 and 1996 19 - 20
Consolidated Statements of Cash Flows
for the fiscal years ended April 30, 1997,
1996, and 1995 21
Consolidated Statements of Changes in
Stockholders' Equity for the fiscal years
ended April 30, 1997, 1996, and 1995 22
Notes to Consolidated Financial Statements 23 - 35
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
INTERSOLV, Inc.
We have audited the consolidated financial statements and
the financial statement schedule of INTERSOLV, Inc. and
Subsidiaries listed in Item 14(a) of this Form 10-K. These
financial statements and the financial statement schedule are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and the
financial statement schedule based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of INTERSOLV, Inc. and Subsidiaries as of
April 30, 1997 and 1996, and the consolidated results of their
operations and their cash flows for each of the three years in
the period ended April 30, 1997, in conformity with generally
accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information
required to be included therein.
COOPERS & LYBRAND L.L.P.
Washington, D.C.
July 18, 1997
INTERSOLV, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
Fiscal Years Ended April 30,
1997 1996 1995
Revenues:
License fees $91,324 $89,147 $86,951
Service fees 69,089 56,166 47,566
Total revenues 160,413 145,313 134,517
Costs and expenses:
Cost of products 12,429 15,649 11,937
Cost of services 35,077 26,091 21,585
Sales and marketing 73,123 64,026 57,373
Research and development 17,555 14,626 13,646
General and administrative 11,626 12,744 14,156
Non-recurring charges 28,933 13,600 ---
Total costs and expenses 178,743 146,736 118,697
Operating income (loss) (18,330) (1,423) 15,820
Other income (expense), net (75) 1,040 263
Income (loss) before income taxes (18,405) (383) 16,083
Provision for income taxes 2,761 3,328 5,109
Net income (loss) ($21,166) ($3,711) $10,974
Shares used in computing
primary net income (loss)
per share 20,119 19,348 19,483
Primary net income (loss)
per share ($1.05) $(0.19) $0.56
Shares used in computing fully
diluted net income (loss) per
share 20,119 19,348 20,172
Fully diluted net income (loss)
per share ($1.05) ($0.19) $0.55
The accompanying notes are an integral part of the consolidated
financial statements.
INTERSOLV INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
ASSETS
as of April 30,
1997 1996
Current assets:
Cash and cash equivalents $20,180 $28,215
Accounts receivable, net of
allowance for doubtful accounts
of $4,129 and $3,136 50,338 37,645
Prepaid expenses and other current
assets 6,156 7,237
Total current assets 76,674 73,097
Software, at cost 6,235 53,229
Accumulated amortization (1,957) (30,559)
Total software, net 4,278 22,670
Property and equipment:
Furniture and equipment 18,405 25,947
Leasehold improvements 5,507 4,809
Accumulated depreciation and
amortization (12,346) (22,921)
Total property and equipment, net 11,566 7,835
Notes receivable and other assets 3,499 7,315
Total assets $96,017 $110,917
The accompanying notes are an integral part of the consolidated
financial statements.
INTERSOLV, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
LIABILITIES AND STOCKHOLDERS' EQUITY
as of April 30,
1997 1996
Current liabilities:
Short-term notes payable and current
portion of long-term debt $6,621 $ 570
Accounts payable 9,576 9,853
Accrued acquisition costs 706 3,953
Accrued compensation and employee
benefits 13,831 9,514
Other accrued expenses 6,452 5,314
Deferred revenue 20,471 18,799
Income taxes payable 970 1,587
Total current liabilities 58,627 49,590
Long-term liabilities :
Deferred taxes 5,264 5,106
Minority interests --- 292
Long-term debt, less current portion 1,290 2,419
Total long-term liabilities 6,554 7,817
Total liabilities 65,181 57,407
Subordinated convertible notes 87 3,676
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; 50,000,000
shares authorized; 20,578,000 and
19,733,000 issued and outstanding 208 198
Paid-in capital 99,179 92,967
Treasury stock, at cost (1,523) ---
Accumulated deficit (62,484) (41,318)
Cumulative currency translation
adjustment (4,631) (2,013)
Stockholders' equity 30,749 49,834
Total liabilities and stockholders'
equity $96,017 $110,917
The accompanying notes are an integral part of the consolidated
financial statements.
INTERSOLV, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
Fiscal Years Ended April 30,
1997 1996 1995
Cash inflows (outflows)
Operating activities:
Net income (loss) ($21,166) ($3,711) $10,974
Non-cash items:
Depreciation and amortization 13,446 14,923 11,993
Deferred income taxes 158 2,735 2,105
Write-down of software and intangible
assets 22,535 2,386 ---
Payment of restructuring/acquisition
charges (3,247) (8,278) (4,409)
Changes in assets and liabilities,
net of effect of acquisition:
Accounts receivable (12,813) 924 (12,013)
Refundable income taxes --- 580 (211)
Prepaid expenses and other current
assets 1,081 (2,380) (2,338)
Accounts payable and accrued
expenses 2,103 7,795 5,554
Deferred revenue 1,672 3,253 1,259
Net cash provided by operating activities 3,769 18,227 12,914
Investing activities:
Additions to software (9,478) (12,951) (9,391)
Additions to property and equipment (7,697) (5,721) (3,696)
Sale/leaseback of equipment --- 776 ---
Other (209) 161 (372)
Net cash used in investing activities (17,384) (17,735) (13,459)
Financing activities:
Issuance of subordinated convertible
notes --- --- 4,000
Purchase of common stock for treasury (3,445) (264) (5,001)
Purchase of common stock from
TechGnosis shareholders --- (4,800) ---
Proceeds from sale of common stock,
including tax benefits 4,555 8,678 7,417
Payment of Q+E installment liabilities --- (1,107) (2,214)
Net proceeds (repayment) of debt
obligations 4,922 (1,062) 108
Net cash provided by financing activities 6,032 1,445 4,310
Effect of exchange rate changes on cash (452) (383) 347
Net increase (decrease) in cash and cash
equivalents (8,035) 1,554 4,112
Cash and cash equivalents, beginning of
year 28,215 26,661 22,549
Cash and cash equivalents, end of year $20,180 $28,215 $26,661
Supplemental Data
Cash paid for interest $717 $615 $460
Cash paid for income taxes $269 $802 $307
The accompanying notes are an integral part of the consolidated
financial statements.
INTERSOLV, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
(amounts in thousands)
Cumulative
Common Stock Paid In Treas. Stk Accum. Translation
Shares Amt. Capital Shrs. Amt. Deficit Adjustment Total
Balance,
April 30, 1994 18,282 $183 $86,553 (25) ($37) ($48,619) ($1,299) $36,781
Acquisition of
The Software Edge,
Inc. 472 5 107 --- --- 38 --- 150
Sale of common stock
under stock option
and stock purchase
plans 379 3 5,013 (194) 2,401 --- --- 7,417
Repurchase of common
shares --- --- --- 735 (5,001) --- --- (5,001)
Translation
adjustment --- --- --- --- --- --- 716 716
Net income --- --- --- --- --- 10,974 --- 10,974
Balance,
April 30, 1995 19,133 191 91,673 566 (2,637) (37,607) (583) 51,037
Sale of common
stock under stock
option and stock
purchase plans 879 8 4,608 (145) 2,079 --- --- 6,695
Net repurchases
(reissuances) of
common shares (25) --- 1,160 (320) 563 --- --- 1,723
Retire treasury
shares (101) --- --- (101) (5) --- --- (5)
Translation
adjustment --- --- --- --- --- --- (1,430) (1,430)
Purchase of common
stock from
TechGnosis
shareholders (239) (2) (4,798) --- --- --- --- (4,800)
Conversion of
subordinated
convertible
notes 86 1 324 --- --- --- --- 325
Net loss --- --- --- --- --- (3,711) --- (3,711)
Balance,
April 30, 1996 19,733 198 92,967 0 0 (41,318) (2,013) 49,834
Sale of common
stock under stock
option and stock
purchase plans,
including tax
benefit 278 1 2,632 (203) 1,922 --- --- 4,555
Repurchase of
common stock (381) --- --- 381 (3,445) --- --- (3,445)
Translation
adjustment --- --- --- --- --- --- (2,618) (2,618)
Conversion of
subordinated
convertible
notes 948 9 3,580 --- --- --- --- 3,589
Net loss --- --- --- --- --- (21,166) --- (21,166)
Balance,
April 30, 1997 20,578 $208 $99,179 178 ($1,523)($62,484) ($4,631)$30,749
The accompanying notes are an integral part of the
consolidated financial statements
INTERSOLV, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING
POLICIES
INTERSOLV, Inc. (the "Company" or "INTERSOLV"), is engaged
in the development, marketing and support of computer
software products and services in three major solution
areas: automated software quality, data connectivity and
year 2000 renewal. The Company's objective is to build
products that deliver high productivity on simple projects
and are powerful enough to handle scalability requirements
of production-grade information systems without retooling.
Consolidation
The consolidated financial statements include the
accounts of INTERSOLV and its wholly-owned subsidiaries.
Intercompany accounts, transactions and profits have been
eliminated in the consolidated financial statements.
Use of Estimates in Preparation of Financial Statements
The preparation of 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
dates of the financial statements and the reported
amounts of revenues and expenses during the reported
periods. Actual results could differ from those estimates.
Revenue Recognition
The Company's revenues consist primarily of license
and service fees, which include fee-paid consulting and
training services and maintenance services. Software
license fees are recognized upon initial shipment of the
product and acceptance by the customer, assuming collection
of the receivable is probable. Training and consulting fees
are recognized upon delivery of the services. Revenues
and costs related to maintenance services provided in
the initial 30-day warranty period, which are
insignificant, are bundled with the initial license and
recognized concurrently with the license fee. Maintenance
fees for support beyond the warranty period are recorded as
deferred revenue and recognized ratably over the period of
the maintenance contract, typically twelve months.
Cash and Cash Equivalents
Cash and cash equivalents consist of time and
demand deposits and highly liquid investments purchased
with a maturity of three months or less. The Company
maintains its time and demand deposits in bank deposit
accounts which, at times, may exceed federally insured
limits. The Company has not experienced any losses in such
accounts.
Concentrations of Credit Risk
Financial instruments which potentially expose the
Company to concentrations of credit risk, as defined by
Statement of financial Accounting Standards No. 105, consist
primarily of trade accounts receivable. The Company's customer
base is primarily Fortune 1000 companies or branches thereof,
with no customer accounting for more than 10% of the
Company's revenues, which minimizes potential concentrations of
credit risk. The Company does not require collateral upon
delivery of its products.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 ("FAS 107)
requires disclosure of the fair value of certain financial instruments
where it is practicable to estimate that value. The carrying amount
of cash and cash equivalents approximated fair value as of April 30, 1997
and 1996 because of the relatively short maturity of these instruments.
The carrying amount of notes receivable, short-term debt and long-term
debt approximates fair value as the Company believes these
instruments carry terms which are comparable to similar instruments.
Sale of Receivables
The Company has implemented Statement of
Financial Accounting Standards No. 125 - "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities" ("FAS 125") in fiscal 1997. There was no adjustment
in the accompanying financial statements due to the implementation
of FAS 125. In fiscal 1997, the Company entered into an agreement to
sell approximately $5.1 million in accounts receivable at a net
discount of approximately 7.25%, which has been charged to
operating expenses in the accompanying consolidated statement of
operations. Approximately $2.6 million was sold on a recourse basis,
for which the Company remains liable in the event of default.
Income Taxes
Deferred tax assets and liabilities are recognized for
the expected future tax consequences of events that
have been included in the financial statements or tax
returns. They are determined annually based on the
differences between financial statement and tax bases
using enacted tax laws and rates in effect for the
year in which the differences are expected to affect
taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount
expected to be realized. The provision for income taxes is
the tax payable for the year plus the change in the
deferred tax assets and liabilities during the year.
Currency Translation
Assets and liabilities of the Company's foreign
operations are translated into U.S. dollars at the exchange
rate in effect at the balance sheet date and revenues and expenses
are translated at average rates in effect during the period. The
unrealized currency translation adjustment is reflected as a separate
component of stockholders' equity on the balance sheet.
Net Income(Loss) Per Share
During fiscal 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards
No. 128 "Earnings per Share" ("FAS 128"). The Company
will implement this in fiscal 1998; the impact is not
expected to be material. Earnings (loss) per share was
computed by dividing net income (loss) by the sum of the
weighted average number of shares of common stock and common
stock equivalents outstanding during the period when dilutive and
the dilutive impact of the convertible subordinated notes. Common
stock equivalents consist of common stock issuable on the exercise
of outstanding stock options, less the shares that could have
been purchased with the proceeds from the exercise of the
options (the "Treasury Stock Method").
Statement of Cash Flows
The consolidated statements of cash flows are
intended to reflect only cash receipt and cash payment
activity and does not reflect noncash investing and
financing activity. In fiscal 1997, the Company
recognized a tax benefit of approximately $2.8 million
related to the exercise of stock options, which is
reflected in the accompanying consolidated statements of
cash flows. Noncash activity for each of the three one-
year periods ended April 30, 1997, 1996, and 1995 was not
significant except for the acquisition of The Software
Edge, Inc. in September 1994, as more fully discussed in
Note 2, and the conversion of subordinated convertible
notes into common stock, as shown in the accompanying
consolidated statement of changes in stockholders' equity.
Accounting for Stock-based Compensation
Under Statement of Financial Accounting Standards No.
123 ("FAS 123"), companies can either elect to
recognize compensation expense based upon the estimated
fair value of employee stock options and other equity
instruments issued to employees at the date the
instruments are granted or they can elect to continue to
follow the guidance under APB Opinion 25 Accounting for
Stock Issued to Employees ("APB 25"), and disclose in the
footnotes the pro forma net income and earnings per share as
if FAS 123 had been applied. The Company will continue
to follow the guidance of APB 25. (See Note 8)
Property and Equipment and other Long-Lived Assets
Property and equipment are stated at cost and
depreciated on a straight-line basis over their
estimated useful lives. Furniture and equipment are
generally depreciated over terms of three to five years,
leasehold improvements are amortized over the shorter of
the assets' useful lives or the term of the related
lease period. Computer software purchased for internal use
is amortized over terms not exceeding five years. Repairs
and maintenance are charged to operations as incurred.
Major improvements and betterments are capitalized.
In accordance with Statement of Accounting
Standards No. 121 - "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of"
("FAS 121"), all non current assets that are to be held
and used are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying
amount of the asset in question may not be recoverable.
The Company estimates the future cash flows expected
from using the asset(s) in question and their eventual
disposition. When this amount is less than the carrying
amount, an impairment loss is recorded. Assets to be
disposed of, with certain exceptions, are reported at the
lower of cost or fair value less the cost to sell the
asset. The Company recorded a charge for impairment of
certain long-lived assets, as more fully described in Note
3.
Research and Development
Research and development expense, before the
capitalization of certain internal software development
costs, amounted to $27 million, $25.9 million and $22.7
million for the fiscal years ended April 30, 1997, 1996
and 1995, respectively.
Capitalized Software
Certain internal software development costs are
capitalized subsequent to the establishment of technological
feasibility for the product as evidenced by a working
model. Capitalized internal software development costs
amounted to $9.5 million, $11.3 million, and $9.1
million for the fiscal years ended April 30, 1997, 1996
and 1995, respectively. Capitalization ceases when the
product is available for general release to customers, at
which time amortization of the capitalized costs begins.
The Company also purchases selected technologies from time
to time to supplement or expand its product lines. The
Company amortizes capitalized software development costs
for new products based upon the greater of the amount
computed using (i) the ratio of current gross revenues to
current and future anticipated gross revenues or (ii) the
straight line method, over a three year life or the
products' economic life, if shorter. Purchased software is
amortized over useful lives of three to five years on a
straightline basis. Amortization of capitalized and
purchased software costs was $8.7 million, $10.6 million,
and $8.2 million during fiscal 1997, 1996, and 1995,
respectively, and is included in cost of products.
The Company continually compares the unamortized
costs of capitalized software development costs and
purchased software costs to the expected future revenues
for those products. If the unamortized costs exceed the
expected future net realizable value, the excess amount
is written off (See Note 3).
Reclassifications
Certain amounts previously reported have been
reclassified to conform with current year presentation.
(2) ACQUISITIONS
TechGnosis International, Inc.
In October 1995, INTERSOLV acquired all of the
outstanding common and preferred stock of TechGnosis
International, Inc. ("TechGnosis") for 2.5 million shares
of INTERSOLV common stock and $4.8 million in cash. In
addition, INTERSOLV also assumed TechGnosis' obligations
under its $3.9 million of 8.4% Subordinated Convertible
Notes ("Notes") due in 1999. The notes are convertible
into 1,020,756 shares of INTERSOLV common stock.
Total value of the transaction was approximately
$80 million. TechGnosis, which is headquartered
in Belgium, provides cross-platform data access technology
for client/server environments. The transaction was
accounted for using the "pooling-of-interests"
method; accordingly INTERSOLV's fiscal 1995 historical
financial statements have been restated to include the
financial position and results of operations of TechGnosis.
PC Strategies & Solutions, Inc.
In May 1995, INTERSOLV acquired all of the
outstanding common stock of PC Strategies & Solutions,
Inc. ("PCS") for 675,000 shares of INTERSOLV common
stock (valued at $9.3 million). The transaction was
accounted for using the "pooling-of-interest" method;
accordingly the fiscal 1995 historical financial statements
of INTERSOLV have been restated to include the financial
position and results of operations of PCS. PCS provides
consulting and training services focusing on the
implementation of object-oriented client/server technology.
Separate results of operations for the periods prior
to the acquisitions of TechGnosis and PCS are as follows (in
thousands):
(Unaudited)
Quarter Ended Fiscal year ended
July 31, 1995 April 30, 1995
Revenues
INTERSOLV $28,858 $114,817
TechGnoisis/PCS 3,806 19,700
Combined revenues $32,664 $134,517
Net Income (loss)
INTERSOLV $473 $13,461
TechGnosis/PCS (2,042) (2,487)
Combined net income (loss)($1,569) $10,974
C++/Views Product Line
In May 1995, INTERSOLV acquired the rights to
the C++/Views product line owned by Liant Inc. for
$1.2 million. INTERSOLV did not acquire any of the
common stock of Liant Inc. As discussed in Note
3, $0.7 million was allocated to in-process
software development efforts which had not
reached technological feasibility. This amount
was charged to operations in fiscal 1996.
The Software Edge, Inc.
In September 1994, INTERSOLV acquired all of the
outstanding common stock of the Software Edge, Inc.
("Software Edge") for approximately $5.7 million
consisting of 471,819 shares of INTERSOLV common
stock. Software Edge developed and marketed a
software product which complements the Company's
PVCS line of software configuration management
tools. The transaction was accounted for using
the "pooling of interest" method. Software Edge's
results of operations beginning May 1, 1994 have
been included in the Company's results. Results
for previous years have not been restated because
the impact is not material.
(3) NON-RECURRING CHARGES
Writedown of Software and Intangible assets
In the fourth quarter of fiscal 1997,
the Company completed a comprehensive business
strategy review of its primary market opportunities,
which led the Company to record a charge of $28.9
million to writedown capitalized and purchased
software along with certain related intangible
assets, to their net realizable values. The
Company determined the nature and amount of this
charge after identifying which product lines will
be primary solution areas for future fiscal
years. Based upon future expected net revenues for
the primary solution areas, the Company determined that
certain capitalized and purchased software assets
should be written down to their expected net realizable
values. This consisted of $19.1 million to write down various
capitalized and purchased software balances, $3.4 million to
writedown intangible assets that were related to
obsolete or discontinued products, $3.3 million
to cover the costs of disposing or discontinuing certain
products, $1.6 million of inventory related to products that were
discontinued or disposed of and $1.5 million for losses on
settlement of certain customer receivables related to discontinued
products.
TechGnosis Acquisition Charges
In October 1995, the Company incurred $11.6
million of nonrecurring charges related to the
acquisition of TechGnosis. This includes $3.3 million
to restructure distributor agreements, $2.5 million
for consolidation of offices and equipment, $2.2
million for severance and related costs, $2 million to
write-off overlapping technologies and $1.6 million of direct
transaction and other transition expenses. As of
April 30, 1997, the remaining liability of $.7
million relates to amounts to be disbursed for
continuing office lease obligations.
PCS and C++/Views Acquisition Charges
In May 1995, the Company incurred $2
million of nonrecurring charges related to the
acquisition of PCS and the C++/Views Product
line. Acquisition charges included a $0.7 million
charge for purchased research and development related
to the C++/Views transaction. The remaining $1.3
million charge was for direct transaction expenses,
severance and costs to consolidate operations, which were
all disbursed by April 30, 1996.
(4) BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION
The Company operates in one industry segment, the
development and marketing of computer software
programs and related services. The Company markets
its products worldwide and operations can be grouped
into three main geographic areas. Pertinent
financial data by major geographic area is
summarized below. (Amounts in thousands)
NORTH EUROPE ASIA/
AMERICA & OTHER PACIFIC CONSOLIDATED
Fiscal 1997:
Revenues:
Customers $111,541 $31,509 $17,363 $160,413
Intercompany (330) 3,920 (3,590) ---
TOTAL $111,211 $35,429 $13,773 $160,413
Income (loss) from
operations ($21,878) ($505) $4,053 ($18,330)
Identifiable assets $72,167 $15,163 $8,687 $96,017
Fiscal 1996:
Revenues:
Customers $96,883 $32,420 $16,010 $145,313
Intercompany 5,311 (4,711) (600) ---
TOTAL $102,194 $27,709 $15,410 $145,313
Income (loss) from operations ($1,798) ($4,215) $4,590 ($1,423)
Identifiable assets $83,361 $19,096 $8,460 $110,917
Fiscal 1995:
Revenues:
Customers $89,567 $30,413 $14,537 $134,517
Intercompany 3,276 (3,041) (235) ---
TOTAL $92,843 $27,372 $14,302 $134,517
Income (loss) from operations $14,209 ($2,611) $4,222 $15,820
Identifiable assets $79,990 $21,406 $3,412 $104,808
Intercompany revenues between geographic areas
are accounted for as transfer fees representative of
transactions with unaffiliated third parties. These
fees are intended to cover primarily software
development expense and cost of goods. Identifiable
assets are those assets that are identifiable with
operations in each geographic area. General corporate
assets in North America include cash and cash
equivalents and capitalized software costs. No
customer accounted for 10% or more of total revenue
during the fiscal years ended April 30, 1997, 1996 and
1995. Included in Europe and Other revenues is $4.8
million, $7.3 million and $10.4 million of export
revenues to countries where the Company has no foreign
owned operations. Approximately 95% of the North
American revenues is to customers based in the United
States and the remainder is to customers in Canada and
Mexico.
(5) DEBT
Lines of Credit and Short-Term Notes Payable
The Company has an unsecured credit arrangement
with two banks (the "Credit Agreement"). The
Credit Agreement provides for borrowings not to
exceed $15 million. The Credit Agreement was
renewed in October 1996 and is due to expire in
September 1998. Interest on borrowings would be at the
LIBOR rate plus 1.5% or prime, at the Company's option.
The commitment fee is 3/8% per annum on the unused
portion of the credit line. The weighted average
rate during fiscal 1997 and the rate as of April 30,
1997 was 8.25%. The Credit Agreement has various
covenants which limit the Company's ability to
dispose of assets, purchase its own stock, pay
dividends and purchase other significant businesses
or technologies. The Company is also required to
maintain certain financial ratios. The Company was in
violation of one of the financial covenants for
fiscal 1997. This violation was waived by the two
banks. As of April 30, 1997 there was
$6,000,000 outstanding. No amounts were outstanding
during the year ended April 30, 1996.
TechGnosis had $1,083,000 of short-term debt
outstanding under foreign lines of credit and other
borrowing arrangements during fiscal 1996. Interest
on the short-term debt ranged from 3.5% to 10% with
varying maturity dates through December 1995. Foreign
lines of credit and other borrowing arrangements were
generally restricted for working capital purposes.
The borrowings are primarily collateralized by certain
assets of the Company's foreign operations. All
amounts were repaid by April 30, 1996.
Long-term Debt
Long-term debt consists of the following at April 30:
1997 1996
(In Thousands)
Notes payable to two companies with interest at
5.47%; payable in monthly principal and interest
installments through February 1999 406 611
Non-interest bearing accrued liabilities payable
to four individuals, payable in monthly
installments 2,009 2,642
Total debt 2,415 3,253
Less current portion (1,170) (1,158)
Long-term debt excluding current portion $1,245 $2,095
The maturities of long-term debt are as follows
(in thousands): 1998 $1,170
1999 1,245
$2,415
(6) COMMITMENTS AND CONTINGENCIES
Operating and Capital Lease Obligations
The Company leases office space and
equipment under noncancelable operating leases
expiring through 2017. In addition, the Company
leases office equipment on a month-to-month basis,
which can be terminated at any time at the
Company's option. None of the agreements contain
unusual renewal or purchase options. Total rent
expense in fiscal 1997, 1996 and 1995 was $10.5, $7
million, and $4.4 million, respectively.
Future minimum lease payments under the
noncancelable operating lease agreements as of April
30, 1997, are as follows:
Years Ending April 30,
(in thousands)
1998 1999 2000 2001 2002 Thereafter Total
$9,398 $8,450 $5,855 $4,691 $4,189 $17,210 $49,793
The Company also leases computer equipment
under capital leases. The present value of
future minimum capital lease payments as of April
30, 1997 is as follows:
1998 $172
1999 29
2000 21
2001 2
2002 --
Total minimum payments 224
Less amount representing interest (21)
Present value of net minimum
capital lease payments 203
Less current installments of
capital lease obligations (158)
Long-term portion of capital
lease obligations $45
The long-term portion of capital lease obligations is
included in long-term debt in the consolidated
balance sheet.
Contracting Costs (Discontinued Operations)
Prior to April 1986, certain revenues
associated with discontinued operations were
generated under cost-plus-fee contracts with the
U.S. government and are subject to adjustments upon
audit by the Defense Contract Audit Agency (DCAA).
Audits through January 31, 1986 have been completed.
On December 5, 1990, the Company received a
notice from the DCAA questioning certain charges
aggregating approximately $2.4 million incurred by
the Company during fiscal 1985 and 1986. The Company
filed a response in April, 1991, which provided
additional information regarding the issues raised
in the notice. The amount of the liability, if
any, can not be ascertained.
Sales and Income Taxes
The Company sells its products in various
states through different distribution channels,
including telesales and direct sales. On certain
sales, the Company must collect and remit sales
tax to the respective states. These sales taxes
are subject to adjustment upon audit by the
respective states. Liabilities may result from
this process; however, management believes the
reserves provided for these liabilities are
sufficient.
The Company's income tax returns are subject
to audit by Federal, state and foreign tax
authorities. Adjustments to increase or decrease
taxable income or losses may result from the audits.
Management believes the impact of these adjustments,
if any, would not have a material impact on the
Company's financial statements taken as a whole.
(7) SUBORDINATED CONVERTIBLE NOTES
As a result of the acquisition of TechGnosis in
October 1995, the Company incurred an obligation for
$3,865,000 of 8.4% subordinated convertible notes
which are due in September 1999. Interest is payable
quarterly. As of April 30, 1997, there was $86,660
of principal amount outstanding, which can be
converted into INTERSOLV common stock at the option
of the holder at any time prior to maturity. The
conversion price per share is $3.7864, which would be
adjusted for certain dilutive events.
The Company may prepay the notes at any time prior to
maturity. Upon prepayment, the note holder will
receive a warrant to purchase the number of shares of
INTERSOLV common stock determined by dividing the
prepayment amount by the conversion price. The
warrants shall be exercisable until 1999. The
Company has not prepaid any of the notes or issued
any warrants.
(8) CAPITAL STOCK
Stock Option Plans
The Company has one active stock option plan,
the 1992 Stock Option Plan (the "1992 Plan"), which
provides for the granting of incentive and
nonqualified stock options to purchase up to
3,000,000 shares of common stock. The option price
must be equal to or greater than fair market
value at the date of grant. Options are granted
for terms of up to ten years and most are
exercisable in cumulative annual increments of 25%
each year, commencing one year after the date of
grant. This plan expires in 2002. The Company
applies APB Opinion 25 and related
interpretations in accounting for this plan.
Accordingly, no compensation expense has been
recorded in the accompanying financial statements
for this plan.
The Company has 323,583 options
outstanding under the 1982 Stock Option Plan (the
"1982 Plan"), which has expired. In addition, the
Company has 9,296 shares and 125,297 shares
outstanding under option plans that were assumed
from Q+E and TechGnosis, respectively, as a result
of the acquisition of those companies. The average
price of the outstanding options is $10.16,
$10.24 and $0.89 under the 1982, Q+E and
TechGnosis plans, respectively. No further options
will be granted under those plans.
Information regarding the Company's 1992 Stock
option plan is summarized below:
Weighted- Fair value of
Average Options Options
Shares Exercise Exercisable Granted
Price
April 30, 1994
options outstanding 740,921
Granted 537,314 $11.06
Exercised (90,826) 7.34
Canceled (65,344 9.42
April 30, 1995
options outstanding 1,122,065 9.19 152,207
Granted 1,274,998 13.22 $10,554,706
Exercised (196,591) 8.13
Canceled (379,762) 14.77
April 30, 1996
options outstanding 1,820,710 10.78 293,871
Granted 883,574 8.19 $4,881,907
Exercised (2,500) 7.25
Canceled (249,814) 11.16
April 30, 1997
options outstanding 2,451,970 $9.82 748,683
As of April 30, 1997, the 2,451,970 options
outstanding under the 1992 Plan have exercise prices
between $6.50 and $21.00 and a weighed average
remaining contractual life of 8.6 years.
If the Company had recorded compensation
for the 1992 Plan based upon the fair value at
the grant dates of options issued in fiscal 1996
and 1997 and for the Employee Stock Purchase Plan
at the dates of purchase, consistent with the method
of FASB Statement 123, the Company's net income and
earnings per share would have been adjusted to the
amounts shown below:
Fiscal 1996 Fiscal 1997
Net Income As reported ($3,711) ($21,166)
Pro forma ($5,520) ($24,065)
Primary EPS As reported ($0.19) ($1.05)
Pro forma ($0.29) ($1.20)
Fully diluted EPS As reported ($0.19) ($1.05)
Pro forma ($0.29) ($1.20)
The fair value of each stock option is
estimated on the date of grant using the Black-
Scholes option-pricing model with the following
weighted-average assumptions: an expected life of 6
years, expected volatility of 70%, a dividend yield
of 0% and a risk-free interest rate of 6.40%
in fiscal 1996 and 6.25% in fiscal 1997.
Employee Stock Purchase Plan
The Company has an Employee Stock Purchase
Plan, which is authorized to grant rights to
purchase an aggregate maximum of 640,000 shares of
common stock. Employees of the Company with three
months of continuous service are eligible to
participate.
Rights are granted twice yearly and are
exercisable effective the succeeding June 30 or
December 31. Eligible employees may purchase
shares of common stock through payroll deductions
at a purchase price which is 85% of fair market
value at the beginning or the end of each six-month
offering period, whichever is lower. During
fiscal 1997, 1996, and 1995, respectively, 203,076,
102,958, and 96,454 shares of common stock were purchased
under this plan.
Shareholder Rights Plan
The Company has a Shareholder Rights Plan
(the "Rights Plan"), which is designed to deter
coercive takeover tactics and to prevent an
acquirer from gaining control of the Company
without offering a fair price to all of the
Company's shareholders. Under the Rights Plan,
each common stockholder receives one right (a
"Right") for each share of common stock which
entitles its holder to buy one one-hundredth of a
share of Series A Junior Participating Preferred
Stock ("Series A") at a purchase price of $40.00.
The Rights will not be exercisable or separable from
the common stock until a specified period after a
person or group has acquired or has the right to
acquire 20% of the Company's common stock or has
commenced a tender offer resulting in the
ownership of 30% or more of the Company's common
stock.
If the Company is acquired in a merger or
other business combination transaction, each Right
will entitle the holder to receive, upon exercise,
common stock of either the Company or the acquiring
company having a market value equal to twice
the exercise price of the Right. Each Right is
nonvoting and expires on August 31, 1999. The
Company may generally redeem the Rights at the
Company's option prior to such Right becoming
exercisable at a redemption price of $.01 per Right.
Warrants
The Company has issued warrants to purchase
140,000 shares of the Company's common stock at an
exercise price of $10.375. As of April 30, 1997,
77,467 shares were exercisable, with the balance
becoming exercisable in increments of 31,267 shares
on an annual basis through February 1999. The
warrants expire in 2006.
(9) EMPLOYEE BENEFIT PLAN
401(k) Plan
The Company has a savings and investment plan
(the "Plan") which covers employees of the Company
and that qualifies under section 401(k) of the
Internal Revenue Code. All full-time employees
who are at least 21 years old and have worked a
minimum of three months at the Company are
eligible to participate. Contributions up to 10%
of eligible employees' salaries, as defined, may
be made by employees and the Company can make
matching contributions. The Company contributed
$346,000 and $303,000 in fiscal 1997 and 1996,
respectively.
(10) INCOME TAXES
The U.S. and foreign components of income
(loss) before provision for income taxes were as
follows (in thousands):
Years Ended April 30,
1997 1996 1995
United States ($21,672) $2,951 $15,466
Foreign 3,267 (3,334) 617
($18,405) ($ 383) $16,083
The provision for income taxes consist of the
following (in thousands):
Years Ended April 30,
1997 1996 1995
Current provision:
U.S. federal $1,547 $ --- $2,456
Foreign 904 --- 184
State 151 593 289
2,602 593 2,929
Deferred provision (benefit)
U.S. federal 159 2,735 2,180
Foreign --- --- ---
State --- --- ---
159 2,735 2,180
$2,761 $3,328 $5,109
The provision for income taxes result in
effective tax rates which differ from the U.S. Federal
statutory income tax rate as follows:
1997 1996 1995
Statutory U.S. Federal income
tax rate (35.0%) (35.0%) 35.0%
State income taxes, net of
federal benefit 1.0 77.7 1.2
Foreign taxes impact (4.7) (143.2) (.4)
Changes in valuation allowance
and liability for
tax exposures 52.5 909.1 ---
Alternative minimum tax --- --- 1.6
Nondeductible permanent
expenses 1.2 60.3 ---
Other --- --- (5.6)
15.0% 868.9% 31.8%
The tax effects of the components of the deferred
tax assets and liabilities are as follows (in thousands):
April 30 April 30,
1997 1996
Net operating loss carryforwards $7,849 $6,973
Research and experimental tax credits 1,809 997
Property and equipment 301 131
Allowance for doubtful accounts 971 1,178
Other accruals 2,934 2,088
Valuation allowance (13,864) (8,691)
Total deferred tax assets --- 2,676
Deferred tax liabilities:
Liability for tax exposures (4,027) ---
Capitalized software, net (1,237) (7,782)
Total deferred tax liabilities (5,264) (7,782)
Net deferred tax liabilities ($5,264) ($5,106)
The Company provided a full valuation allowance
on the total amount of its deferred tax assets
at April 30,1997 since management does not believe
that it is more likely than not that these assets
will be realized. Net operating loss carryforwards
for U.S. and foreign tax purposes are $14.3
million and $5.5 million, respectively, which
expire through 2012. Research and experimental tax
credit carryforwards totaling $1.8 million are also
available and expire through 2000.
(11) OTHER INCOME (EXPENSE)
Other income (expense) includes interest income
of $501,000, $1,083,000, and $917,000 in fiscal
1997, 1996, and 1995, respectively, and
interest expense of $578,000, $615,000, and
$460,000 in fiscal 1997, 1996, and 1995,
respectively.
(12) QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarters First Second Third Fourth
(amounts in thousands, except per share data)
1997
Revenues $32,747 $37,665 $42,083 $47,918
Costs and Expenses 32,830 35,615 37,062 73,236
Net income (loss) 36 1,396 3,369 (25,967)
Primary net income (loss) per share 0.00 $0.07 $0.16 ($1.26)
Fully diluted net income (loss)
per share 0.00 $0.07 $0.16 ($1.26)
Stock Price:
High $12.00 $9.87 $11.12 $10.12
Low $8.37 $7.50 $7.50 $6.25
1996
Revenues $32,664 $33,714 $38,894 $40,041
Costs and Expenses 34,244 44,089 32,532 35,871
Net Income (loss) (1,569) (9,906) 4,651 3,113
Primary net income (loss)per share ($0.08) ($0.52) $0.23 $0.15
Fully diluted net income (loss)
per share ($0.08) ($0.52) $0.22 $0.15
Stock Price:
High $26.25 $25.37 $17.25 $16.37
Low $14.00 $14.50 $9.25 $9.62
The fourth quarter of fiscal 1997 includes a
non-recurring charge of $28.9 million related to
the writedown of certain software and intangible
asset balances, as discussed in Note 3. The first
and second quarter of fiscal 1996 include non-
recurring charges of $2 million and $11.6 million,
respectively, related to the acquisitions of
PC Strategies & Solutions, Inc. and TechGnosis
International, Inc., as discussed in Notes 2 and 3.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Except as set forth below in this Item 10, the
information required by this Item 10 is incorporated
herein by reference to the Company's definitive
proxy statement to be filed within 120 days after
the end of the Company's fiscal year ended April 30,
1997.
EXECUTIVE OFFICERS
The following table indicates the names, ages
and positions of the Company's executive officers.
There is no family relationship between any of the
officers or directors.
Name Age Position
Kevin J. Burns 48 Chairman of the Board
Gary G. Greenfield 42 President and
Chief Executive Officer
Kenneth A. Sexton 43 Senior Vice
President, Finance & Administration
and Chief Financial Officer
Panos Anastassiadis 47 Senior Vice President, Worldwide
Distribution
Gary M. Wright 52 Senior Vice President,
Worldwide Services
Mr. Burns was Chief Executive Officer of the
Company from 1986 to 1996. He was elected Chairman
of the Board in 1990. From 1986 to 1995, Mr. Burns
also served as President of the Company. From 1984
to 1986, he was Executive Vice President and Chief
Operating Officer, and from 1982 to 1984, Executive
Vice President of the Company. He has also been a
Director of the Company since 1986.
Mr. Greenfield was elected Chief Executive
Officer of the Company in 1997. From 1995 to 1996,
he was President and Chief Operating Officer. From
1992 to 1995, he was Executive Vice President,
Chief Operating Officer. From 1989 to 1992, he was
Executive Vice President, Product Operations. From
April 1991 to October 1991 he was also the Chief
Financial Officer of the Company. He served as
Senior Vice President, Product Services and Operations
from 1988 to 1989. He served as Vice President,
Marketing from 1987 to 1988.
Mr. Sexton was elected Senior Vice President,
Finance & Administration and Chief Financial Officer
of the Company in 1996. From 1991 to 1996, he
was Vice President, Finance & Administration and
Chief Financial Officer of the Company. From 1984
to 1991, he was Controller and Chief Accounting
Officer of Life Technologies, Inc., a biotechnology
company.
Mr. Anastassiadis was appointed Senior Vice
President, Worldwide Distribution in 1996. From 1993
to 1996, he was Senior Vice President, International
Operations. From 1991 to 1993, he was country manager
of the Company's Southern European operations and prior
to that he held senior sales positions with Legent
Corporation.
Mr. Wright was appointed Senior Vice
President, Worldwide Services in 1997. From 1995
to 1997, he was Vice President, Worldwide
Services. From 1992 to 1995, he was a principal
with Insource Technology Corporation, a technology
services company, and from 1990 to 1992, he was
President and Chief Executive Officer of
Information Technology Associates, Inc., a management
consulting company.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11
is hereby incorporated by reference to the
Company's definitive proxy statement to be filed
within 120 days after the end of the Company's
fiscal year ended April 30, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information required by this Item 12
is hereby incorporated by reference to the
Company's definitive proxy statement to be filed
within 120 days after the end of the Company's
fiscal year ended April 30, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
The information required by this Item 13
is hereby incorporated by reference to the
Company's definitive proxy statement to be filed
within 120 days after the end of the Company's
fiscal year ended April 30, 1997.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a) Documents Filed as a Part of this Form 10-K:
1. Financial Statements. The following
consolidated financial statements of
INTERSOLV, Inc. and Subsidiaries and
Report of Independent Accountants relating
thereto are filed as Item 8 of this report.
Description
Report of Independent Accountants
Consolidated Balance Sheets as of April
30, 1997 and 1996
Consolidated Statements of Operations for
the fiscal years ended April 30, 1997,
1996 and 1995
Consolidated Statements of Cash Flows for
the fiscal years ended April 30, 1997,
1996 and 1995
Consolidated Statements of Changes in
Stockholders' Equity for the fiscal years
ended April 30, 1997, 1996 and 1995
Notes to Consolidated Financial Statements
2. Financial Statement Schedules.
The following consolidated financial statement schedule
of INTERSOLV, Inc. and Subsidiaries are filed as a
schedule to this Report:
Schedule II - Valuation and Qualifying Accounts and
Reserves
Report of Independent Accountants on this schedule is
included in the Report of Independent Accountants
covering the consolidated financial statements, which
is included herein.
Schedules omitted are not present because (i) such
schedules are not applicable or required or, (ii) the
information required has been presented in the
financial statements or notes thereto.
3. Exhibits. The following Exhibits (listed
according to the number assigned in the table in Item
601 of Regulation S-K) are filed with this Report or
incorporated by reference as set forth below:
Exhibit
Number Exhibit Description
Articles of Incorporation and By-laws
3.1 Second Restated Certificate of
Incorporation, as amended, of the Company
(incorporated herein by reference to Exhibit
3(a) to the Company's Registration Statement
on Form S-4 (Registration No. 33-38937)).
3.2 By-Laws, as amended (incorporated
herein by reference to Exhibit 3.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended 1991).
Instruments Defining the Rights of Security
Holders, Including Indentures
4.0 Specimen Common Stock Certificate
(incorporated herein by reference to Exhibit
4.0 to the Company's Annual Report on Form 10K
for the fiscal year ended 1992.)
4.1 Rights Agreement, dated August 29,
1989 between the Company and Sovran Bank,
N.A. (incorporated herein by reference to
Exhibits 4.1 to the Company's Current Report
on Form 8-K dated September 21, 1989). First
National Bank of Boston is currently the
Company's transfer agent and has assumed
Sovran Bank's obligations under this
agreement.
Certain Management Contracts, Compensation Plans,
Contracts or Arrangements
10.1 The Company's 1982 Stock Option
Plan, as amended (incorporated herein by
reference to Exhibit 10.1 to the Company's
Annual Report on Form 10-K for the fiscal
year ended April 30, 1990).
10.2 The Company's 1992 Stock Option Plan
(incorporated herein by reference to Exhibit
4(a) to the Company's Registration Statement
on Form S-8 (Registration No. 33-56220)).
10.4 Amendment to the Company's 1992
Stock Option Plan, dated June 16, 1994
(incorporated herein by reference to Exhibit
10.6 of the Company's Annual Report on Form
10-K for the fiscal year ended April 30,
1994).
10.6 The Company's 1992 Employee Stock
Purchase Plan (incorporated by reference to
Exhibit 4(a) to the Company's Registration
Statement of Form S-8 (Registration No. 33
56166)).
10.7 Amendment to the Company's 1992
Employee Stock Purchase Plan, dated June 16,
1993 (incorporated herein by reference to
Exhibit 10.9 to the Company's Annual Report
on Form 10-K for the fiscal year ended April
30, 1993).
10.8 Amendment to the Company's 1992 Employee
Stock Purchase Plan, dated July 1, 1996
(incorporated by reference to Exhibit 4(b) to
the Company's Registration Statement on Form
S-8 (Registration No. 333-07351)).
10.9 Employment Agreement between the Company and
Kevin J. Burns, Chairman, dated October 1,
1996.
10.10 Employment Agreement between the Company and
Gary G. Greenfield, President and Chief
Executive Officer, dated August 1, 1996
(incorporated herein by reference to Exhibit
10.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended July 31,
1996).
10.11 Employment Agreement between the Company and
Kenneth A. Sexton, Senior Vice President and
Chief Financial Officer, dated August 1, 1996
(incorporated herein by reference to Exhibit
10.3 to the Company's Quarterly Report on
Form 10-Q for the quarter ended July 31,
1996).
Material Contracts in Ordinary of Business
10.12 Financing Agreement dated July 27,
1992 between the Company as the borrower and
Maryland National Bank and First National
Bank of Boston as lenders (incorporated by
reference to Exhibit 10.25 to the Company's
Annual Report on Form 10-K for the fiscal
year ended April 30, 1992).
10.13 Amendment to the Financing
Agreement dated July 19, 1993, between the
Company as borrower and Maryland National
Bank and First National Bank of Boston as
lenders (incorporated herein by reference to
Exhibit 10.27 to the Company's Annual Report
on Form 10-K for the fiscal year ended April
30, 1993).
10.14 Amendment to the Financing
Agreement dated August 11, 1994, between the
Company as borrower and Nations Bank
(successor to Maryland National Bank) and
First National Bank of Boston as lenders
(incorporated herein by reference to Exhibit
10.10 to the Company's Annual Report on From
10-K for the fiscal year ended April 30,
1994).
10.15 Amendment to the Financing Agreement dated
October 30, 1996, between the Company as
borrower and NationsBank, N.A. (successor to
Maryland National Bank) and First National
Bank of Boston as lenders.
Other Contracts
10.17 Form of Indemnification
Agreement between the Company and its
directors, officers and certain employees
(incorporated herein by reference to Exhibit
10.13 to the Company's Annual Report on Form
10-K for the fiscal year ended April 30,
1994).
10.18 Stock Exchange Agreement by and
among INTERSOLV, Inc., PC Strategies &
Solutions, Inc. and Michael Goldman dated May
1, 1995 (incorporated herein by reference to
the Company's Current report on Form 8-K as
filed on May 11, 1995).
10.19 Registration Rights Agreement
between INTERSOLV, Inc. and Michael Goldman
dated May 1, 1995 (incorporated herein by
reference to the Company's current report on
Form 8-K as filed on May 11, 1995).
10.20 Agreement of Merger dated October
22, 1995 by and among INTERSOLV, TechGnosis
International, Inc., INTERSOLV Perkins
Corporation and certain stockholders of
TechGnosis International, Inc. (incorporated
herein by reference to Exhibit 2 of the
Company's Current Report on Form 8-K as filed
on November 7, 1995).
10.21 Registration Rights Agreement
between INTERSOLV, Inc. and certain
stockholders of TechGnosis International,
Inc. (incorporated herein by reference to
Exhibit 3 of the Company's Current Report on
Form 8-K as filed on November 7, 1995).
Other Exhibits
11.1 Computation of Earnings per Share
21.1 Subsidiaries of the Company.
23.1 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule (EDGAR
version only)
(b) Reports on Form 8-K:
None
(c) Exhibit
The list of exhibits required by Item 601 of
Regulation S-K is included in Item (a)3 above.
(d) Financial Statement Schedules
See Item (a)2 above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Date: July 29,1997 INTERSOLV, INC.
By /s/ Kenneth A. Sexton
Kenneth A. Sexton
Senior Vice President, Finance
& Administration and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and in the capacities indicated on July 29, 1997.
Signature Title
/s/ Kevin J. Burns Chairman of the Board of Directors
Kevin J. Burns
/s/ Gary G. Greenfield Director and Chief Executive Officer
Gary G. Greenfield (Principal Executive Officer)
/s/ Kenneth A. Sexton Senior Vice President, Finance &
Kenneth A. Sexton Administration and
Chief Financial Officer
(Principal Financial and Accounting Officer)
/s/ Norman A. Bolz Director
Norman A. Bolz
/s/ Richard A. Carpenter Director
Richard A. Carpenter
/s/ Robert N. Goldman Director
Robert N. Goldman
/s/ Russell E. Planitzer Director
Russell E. Planitzer
/s/ Charles O. Rossotti Director
Charles O. Rossotti
/s/ Frank A. Sola Director
Frank A. Sola
/s/ R. Craig Roos Director
R. Craig Roos
/s/ Michel Berty Director
Michel Berty
INTERSOLV, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(amounts in thousands)
Balance at Charged to Charged to Balance at
beginning costs and other Deductions end of
of period expenses accounts write-offs period
DESCRIPTION
1997
Allowance for
doubtful accounts ($3,136) ($3,863) $ --- $2,870 ($4,129)
1996
Allowance for
doubtful accounts ($1,960) ($2,515) $ --- $1,339 ($3,136)
1995
Allowance for
doubtful accounts ($1,058) ($2,102) $ --- $1,200 ($1,960)
Exhibit 10.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), made as of the 1st
day of October, 1996, is entered into between INTERSOLV, INC. a
Delaware corporation with its principal place of business at 9420
Key West Avenue, Rockville, Maryland 20850 (the "Company"), and
Kevin J. Burns (the "Executive").
WHEREAS, the Executive has been employed by the Company as Chief
Executive Officer of the Company since March 1986, and more
recently pursuant to an Employment Agreement between the
Executive and the Company, dated as of August 1, 1996 (the
"Employment Agreement"), and WHEREAS, the Company and the Executive
desire to amend and replace the Employment Agreement with this
Agreement,
NOW THEREFORE, the Company and the Executive hereby agree as
follows:
1. Termination of Former Employment Agreement. The
Employment Agreement is hereby amended in its entirety by this
Agreement, and from and after October 1, 1996, the terms and
conditions of the Executive's employment shall be governed
exclusively by this Agreement.
2. Term of Employment. The Company hereby agrees to employ
the Executive, and the Executive hereby accepts employment with
the Company, upon the terms and conditions set forth in this
Agreement. During the period commencing October 1, 1996 and
ending September 30, 1997 (the "Part-time Employment Period"),
the Executive shall be a part-time employee of the Company and,
in such capacity, will serve as Chairman of the Board and as a
Director of the Company. During the Part-time Employment Period,
the Executive shall not be required to devote more than fifty
(50) percent of his business time to his duties as Chairman and
as a Director of the Company. During the period commencing
October 1, 1997 and ending September 30, 1998 (the "Consultation
Period"), the Executive shall serve as a consultant to the
Company and continue to serve as Chairman of the Board and as a
Director of the Company. In his capacity as a consultant during
the Consultation Period, the Executive will not be obligated to
devote more than forty-five (45) days in any twelve-month period
or more than four (4) days in any calendar month to the
performance of consulting services to or for the benefit of the
Company. For purposes of this Agreement and Section 10(b) of the
1982 INTERSOLV, Inc. Stock Option Plan and Section 11(b) of the
1992 INTERSOLV, Inc. Stock Option Plan (individually, the "1982
Plan" or the "1992 Plan" and collectively, the "Plans"), there
shall be an irrebuttable presumption that the Executive, during
the Consultation Period, shall have satisfied the conditions of
the referenced sections of the Plans, and shall have rendered
substantial services to the Company for purposes of allowing any
relevant option to be exercised during the Consultation Period.
During the period commencing October 1, 1998 and ending September
30, 1999 (the "Transition Period"), the Executive shall serve as
Chairman of the Board and as a Director of the Company.
3. Duties and Responsibilities.
3.1 During the Part-time Employment Period, the Executive shall
have such authority and part-time duties and responsibilities as
are reasonably delegated to him by the Board, including, without
limitation, assisting the Chief Executive Officer and
responsibility for the review, on behalf of the Board, of
management strategies, plans, policies and human resources, and
for undertaking operational and strategic activities and programs
as agreed with the Board and the Chief Executive Officer of the
Company. The Executive shall also assist the Board in evaluating
management's performance.
3.2 During the Consultation Period, the Executive shall serve
as an adviser to the Chief Executive Officer of the Company, and
shall assist in promoting the Company's business, subject to his
commitment to the performance of consulting services for the
Company as provided in Section 2 of this Agreement.
3.3 During the Transition Period, the Executive shall perform
the duties and responsibilities customarily performed by a
chairman of the board of a corporation.
3.4 The Executive hereby accepts such employment and
consultancy and agrees to undertake such duties and
responsibilities and such other related duties and
responsibilities as the parties shall mutually agree to. During
the Part-time
Employment Period, the Consultation Period and the Transition
Period, the Executive shall be permitted to pursue such other
business activities as he shall desire, provided that such
activities do not materially interfere with the performance of
his part-time duties and his consulting services (as the case may
be) specified in Section 2 and Section 3 of this Agreement.
3.5 The Executive agrees to abide in all material respects by
the applicable rules, regulations, instructions, personnel
practices and policies of the Company and any changes therein
which may be adopted from time to time by the Company and
communicated to him, except to the extent inconsistent with this
Agreement.
4. Compensation.
4.1 Salary. During the Part-time Employment Period, the
Company shall pay the Executive, (a) in equal monthly
installments, a salary of $275,000, and (b) the bonus, if any,
payable pursuant to the Company's Incentive Compensation Plan
established by the Company for its senior executive officers .
During the Consultation Period, the Company shall pay the
Executive, in equal monthly installments, the sum of $275,000.
During the Transition Period, the Company shall pay the
Executive, in equal monthly installments, the sum of $100,000.
The Executive shall not be entitled to any additional
compensation for his services as a Director during the Part-time
Employment Period, Consultation Period and Transition Period.
4.2 Special Bonus for Services. In consideration for his
services rendered to the Company prior to the date of this
Agreement and as an inducement to perform services for the
Company as provided herein, the Company shall make a lump-sum
payment to the Executive in the aggregate amount of $200,000 on
February 15, 1999, subject, however, to the Executive's rights to
receive such payment prior to February 15, 1999 as set forth in
Sections 13.2 and 13.3 of this Agreement.
5. Health Benefits. During the Part-time Employment Period, the
Consultation Period, the Transition Period and any period that he
continues to serve as a Director of the Company, the Executive
shall be entitled to participate in all of the health and medical
benefits that the Company currently has in place and/or
establishes and makes available for participation by senior
executives of the Company, to the same extent as senior
executives of the Company.
6. Stock Option/Stock Incentive Plans. During the Part-time
Employment Period, the Executive shall be entitled to participate
in the Company's stock option and other stock incentive plans for
senior executive(s); provided, however, that the grant of any
stock options shall be subject to the discretion of the Board or
a committee of the Board if the Board delegates such authority to
a committee. Stock options to purchase Common Stock of the
Company granted prior to October 1, 1996 and held by the
Executive as of the date of this Agreement are hereinafter
referred to as "Outstanding Stock Options." The Outstanding
Stock Options shall vest and become immediately exercisable as
provided in Section 9 of this Agreement. Options awarded to the
Executive after the date hereof, if any, shall continue to vest
during the Part-time Employment Period, the Consultation Period
and for such period thereafter as the Executive shall continue to
serve as a Director of the Company. Notwithstanding any provision
to the contrary in the plans or agreements governing the
Executive's stock options, the periods governing the
post-employment exercise of such stock options shall not begin to
run until such time as the Executive shall cease to serve as a
Director of the Company.
7. Other Benefits. During the Part-time Employment Period, the
Executive shall be entitled to participate in all incentive, life
insurance and saving and retirement plans, practices and policies
and programs applicable generally to other senior executives of
the Company. During the Part-time Employment Period, the
Consultation Period and for such period thereafter as the
Executive shall continue to serve as a Director of the Company,
the Executive shall be eligible for participation in and shall
receive all benefits under welfare benefit plans, practices,
policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription,
dental, disability, salary continuance, employee life, group
life, accidental death and travel accident insurance plans and
programs) to the extent applicable generally to other senior
executives of the Company.
8. Perquisites and Reimbursements. The Company shall pay the
Executive during the Part-time Employment Period, the sum of
$27,000 for use by the Executive for such purposes as financial
planning, tax preparation, club memberships, personal computers
or automobile expenses. In addition, during the Part-time
Employment Period and the Consultation Period, the Company shall
reimburse the Executive for business expenses incurred by the
Executive in the performance of his duties and responsibilities
in accordance with the Company's expense reimbursement program,
subject to the Executive's presentation to the Company of
vouchers, expense statements and/or such other supporting
documentation evidencing the incurrence of such expenses.
9. Vesting of Stock Options and Acceleration of Compensation
Payments. All of the Executive's Outstanding Stock Options shall
continue to vest during the Part-time Employment Period, the
Consultation Period and for such period thereafter as the
Executive shall serve as a Director of the Company and shall be
and become immediately vested and exercisable in full, to the
extent not otherwise then vested or exercisable, on the date
prior to October 1, 1999 that (i) the Company shall remove the
Executive as a part-time employee, a consultant or Chairman of
the Board without Cause (as defined below), (ii) the Executive's
employment is terminated prior to October 1, 1999 by his death or
disability, (iii) the Executive voluntarily terminates his
employment or consultancy pursuant to Section 12.2 of this
Agreement or (iv) the Company and the Executive mutually agree to
termination of the Executive's employment as Chairman of the
Board prior to October 1, 1999. In addition, if the Executive's
employment as Chairman of the Board is terminated pursuant to
clauses (i), (ii), (iii) or (iv) of this Section 9, all of the
payments to which the Executive is entitled under this Agreement
from the date of termination through
September 30, 1999 shall be accelerated and paid in a lump sum to
the Executive no later than fourteen (14) days after the date of
such termination. The terms and provisions relating to vesting
and exercise after employment termination in the Executive's
Outstanding Stock Options are hereby replaced and superseded by
the terms and provisions set forth in Section 6 and in this
Section 9.
10. Payments to Estate of Executive. In the event of the
Executive's death at a time that the Company is obligated to make
continuing payments to the Executive pursuant to this Agreement
("Continuing Payments"), the Company shall pay to the estate of
the Executive the Continuing Payments to which, and as and when,
the Executive would have otherwise been entitled had such death
not occurred.
11. Secretarial Assistance. During the Part-time Employment
Period, the Consultation Period, and the period during which the
Executive serves as Chairman of the Board, the Company shall
provide the Executive with an executive secretary to support the
Executive's performance of his duties and responsibilities as an
employee or consultant and Chairman of the Board, as the case may
be.
12. Employment Termination.
12.1 The employment of the Executive by the Company pursuant to
this Agreement shall terminate upon the occurrence of any of the
following:
(a) September 30, 1999 unless extended by mutual agreement.
(b) At the election of the Company, for Cause, immediately
upon written notice by the Company to the Executive. For the
purposes of this Agreement, "Cause" shall mean:
(i) the willful and continued failure of the
Executive to perform substantially the Executive's
duties with the Company or one of its affiliates
(other than any such failure resulting from
disability, as defined below),
(ii) the Executive's conviction of a felony,
(iii) the Executive's gross and reckless
negligence in the performance of his duties
which materially adversely affects the
Company's business, or
(iv) a material breach of any of the Executive's
covenants contained in Sections 15 and 16 of this
Agreement.
For purposes of this provision, no act or failure to act, on the
part of the Executive, shall be considered "willful" unless it is
done, or omitted to be done, by the Executive in bad faith or
without reasonable belief that the Executive's action or omission
was in the best interests of the Company. Any act, or failure to
act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Board or
based upon the advice of counsel for the Company shall be
conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company.
The cessation of employment of the Executive shall not be deemed
to be for Cause unless and until (a) in the event of any Cause
defined in subparagraphs (i), (iii) and (iv) of this Section
12.1, a written notice has been delivered to the Executive by the
Board which specifically identifies the Cause which is the
Board's basis for termination and the Executive has failed to
cure or remedy the act or omission so identified within a period
of thirty (30) days after the Executive's receipt of such notice
and (b) the Board has delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board (excluding
the Executive if he is a member of the Board) at a meeting of the
Board called and held for such purpose (after reasonable notice
is provided to the Executive and the Executive is given an
opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the
Executive is guilty of the conduct described in subparagraph (i),
(ii), (iii) or (iv) above, and specifying the particulars thereof
in detail.
(c) Upon the death of the Executive or thirty days after
disability of the Executive. As used in this Agreement, the term
"disability" shall mean an event of disability entitling the
Executive to coverage under the Company's then current long-term
disability plan.
12.2 The Executive may elect to terminate his employment upon
thirty (30) days' prior written notice if the Company fails to
make any payment due the Executive under this Agreement and such
failure is not cured within thirty (30) days after the Executive
gives written notice of such failure to the Company.
13. Effect of Termination
13.1 Termination for Cause. In the event the Executive's
employment is terminated for Cause pursuant to Section 12.1(b),
the Company shall pay to the Executive the salary and benefits
accrued and payable through his last day of employment as an
employee, consultant or Director, as the case may be.
13.2 Termination for Death or Disability. In the event the
Executive's employment is terminated by death prior to October 1,
1999, the Company shall pay to the estate of the Executive a lump
sum amount equal to the sum of (a) the salary, annual
compensation and bonus which would otherwise be payable to the
Executive up to the end of the sixth month after the death occurs
and (b) the amount of the Special Bonus. If the Executive's
employment is terminated prior to October 1, 1999 because of
disability, the Company shall pay to the Executive (a) in monthly
installments, the salary, annual compensation and bonus otherwise
payable to him up to the end of the month in which the Executive
becomes eligible for the Company's long-term disability benefits
plan and (b) a lump sum equal to the amount of the Special Bonus.
13.3 Termination for Other Than Cause, Death or Disability. In
the event the Executive's employment is terminated prior to
October 1, 1999 other than for Cause, death or disability or is
terminated by the Executive in accordance with Section 12.2,
(i) the Company shall pay to the Executive (a) in monthly
installments, commencing within thirty (30) days of the last day
of actual employment, the Executive's then current salary, annual
compensation and/or bonus through September 30, 1999 and (b) in
a lump sum cash payment, payable within thirty (30) days of the
last day of actual employment, the amount of the Special Bonus;
and
(ii) until October 1, 1999, the Company shall continue to
provide the Executive the benefits to which the Executive and/or
his family would be entitled to receive from the Company if his
employment or consultancy or service as a Director, as the case
may be, had not been so terminated. For purposes of eligibility
for any retiree benefits pursuant to any retirement plans or
programs, the Executive shall be considered to have remained
employed until the end of the Consultation Period and to have
retired on the last day of such period.
14. Gross-Up Payment.
(a) Anything in this Agreement to the contrary notwithstanding,
in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of the
Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional
payments required under this Section 14) (a "Payment") would be
subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code ("Code") or any interest or penalties are incurred
by the Executive with respect to such excise tax (such excise
tax, together with any such interest and penalties, are
hereinafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment
(a "Gross-Up Payment") in an amount such that after payment by
the Executive of all taxes (including any interest or penalties
imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 14(c), all
determinations required to be made under this Section 14,
including whether and when a Gross-Up Payment is required and the
amount of such Gross-Up Payment and the assumptions to be
utilized in arriving at such determination, shall be made by
Arthur Andersen & Co. or such other certified public accounting
firm as may be designated by the Executive (the "Accounting
Firm"), which shall provide detailed supporting calculations both
to the Company and the Executive within 15 business days of the
receipt of notice from the Executive that there has been a
Payment, or such earlier time as is requested by the Company. In
the event that the Accounting Firm is serving as accountant or
auditor for any individual, entity or group such that it is not
independent, the Executive shall appoint another nationally
recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the
Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any
Gross-Up Payment, as determined pursuant to this Section 14(b),
shall be paid by the Company to the Executive within five days of
the receipt of the Accounting Firm's determination. Any
determination by the Accounting Firm shall be binding upon the
Company and the Executive. As a result of the uncertainty in the
application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by
the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the
event that the Company exhausts its remedies pursuant to
Section 14(c) and the Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall determine
the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the
benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would
require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later
than ten business days after the Executive is informed in writing
of such claim and shall apprise the Company of the nature of such
claim prior to the expiration of the 30-day period following the
date on which it gives such notice to the Company (or such
shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the
Executive in writing prior to the expiration of such period that
it desires to contest such claim, the Executive shall:
(i) give the Company any information reasonably requested
by the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly
all costs and expenses (including additional interest and
penalties) incurred in connection with such contest and shall
indemnify and hold the Executive harmless, on an after-tax basis,
for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such
representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 14(c), the
Company shall control all proceedings taken in connection with
such contest and, at its sole option, may pursue or forgo any and
all administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at
its sole option, either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate
courts, as the Company shall determine; provided, however, that
if the Company directs the Executive to pay such claim and sue
for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall
indemnify and hold the Executive harmless, on an after-tax basis,
from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such
advance or with respect to any imputed income with respect to
such advance; and further provided that any extension of the
statute of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such
contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and the Executive
shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other
taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 14(c), the Executive
becomes entitled to receive any refund with respect to such
claim, the Executive shall (subject to the Company's complying
with the requirements of Section 14(c)) promptly pay to the
Company the amount of such refund (together with any interest
paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 14(c), a determination is made that
the Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such
advance shall be forgiven and shall not be required to be repaid
and the amount of such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid.
15. Non-Compete.
(a) So long as the Executive is employed in accordance with the
provisions of Section 2 of this Agreement and for a period of
eighteen (18) months after termination of such employment by
reason of (x) the Company's termination other than for Cause or
disability or (y) the Executive's termination pursuant to Section
13.2, the Executive will not directly or indirectly (i) be or
become an individual proprietor, owner, partner, stockholder,
officer, employee, director, consultant, joint venturer, investor
or lender (or in any other capacity whatsoever other than as a
passive limited partner in any venture fund or investment company
or as the holder of not more than one percent (1%) of the total
outstanding stock of a publicly held company) of any company or
entity that directly competes, in any material respect, with the
"Company's Business" (which, for purposes of this Section 15(a),
means the production and/or sale of products and the providing of
services of the kind and scope (x) being produced, sold and/or
provided by the Company at the time of termination of the
Company's employment or (y) in respect of which plans for their
production, sale and/or provision had been approved by the
Company prior to such termination), or (ii) recruit, solicit or
induce, or attempt to induce, any employee or employees of the
Company or its affiliates to terminate their employment with, or
otherwise cease their relationship with the Company or such
affiliates.
(b) If any restriction set forth in this Section 15 is found by
any court of competent jurisdiction to be unenforceable because
it extends for too long a period of time or over too great a
range of activities or in too broad a geographic area, it shall
be interpreted to extend only over the maximum period of time,
range of activities or geographic area as to which it may be
enforceable.
(c) The restrictions contained in this Section 15 are necessary
for the protection of the business and goodwill of the Company
and are considered by the Executive to be reasonable for such
purpose. The Executive agrees that any breach of this Section 15
will cause the Company substantial and irrevocable damage and
therefore, in the event of any such breach, in addition to such
other remedies which may be available, the Company shall have the
right to seek specific performance and injunctive relief.
16. Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or
confidential information, knowledge or data relating to the
Company or any of its affiliated companies, and their respective
businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its
affiliated companies, excluding, however, any such information,
knowledge or data that is or becomes publicly known (other than
by acts by the Executive in violation of this Agreement). After
termination of the Executive's employment with the Company, the
Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to
anyone other than the Company and those designated by it. Except
as provided in the next following sentence, in no event shall an
asserted violation of the provisions of this Section 16
constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement. The
Executive acknowledges and agrees that, because the legal
remedies of the Company would be inadequate in the event of the
Executive's breach of the confidentiality obligations contained
in this Section 16, the Company may, in addition to obtaining any
other remedy or relief available to it, enforce the provisions of
this Section 16 by injunction, specific performance or other
equitable remedies; and if the Company is successful in obtaining
a preliminary injunction or similar equitable relief within 90
days of alleging such breach, the Company shall be entitled,
notwithstanding the provisions of the immediately preceding
sentence, to defer or withhold payment thereafter until final
adjudication of such alleged breach.
17. Indemnification.
The Executive shall be fully indemnified by the Company and its
successors in his capacity as an officer and director (if
applicable) of the Company to the full extent permitted by
Delaware law, and shall be defended and held harmless,
absolutely, irrevocably and forever by the Company and its
successor to the full extent permitted by Delaware law, from and
against all claims, demands, liabilities, costs, expenses,
damages and causes of action of any nature whatsoever, arising
out of or incidental to the execution of the Executive's duties
and responsibilities hereunder regarding any matters or actions
the Executive undertook or performed within the course and scope
of his duties and responsibilities as an officer, employee or
director (if applicable) of the Company, including without
limitation advances by the Company to the Executive for the
payment of legal fees and expenses, provided that the Executive
shall advise the Company promptly of any such claim or litigation
against him and cooperate fully with the Company in connection
therewith, and provided further that the Company shall have the
right to assume and control the defense of such action and to
take such action as is reasonably necessary to discharge its
obligations hereunder. In addition, the Company shall include
the Executive as a named insured in any Directors and Officers
Liability Insurance policy or policies maintained by the Company
for its directors and officers. The provisions of this Section
17 shall survive the expiration, suspension or termination, for
any reason, of this Agreement.
18. Notices. All notices required or permitted under this
Agreement shall be in writing and shall be given by personal
delivery, facsimile transmission (confirmed received) or upon
deposit in the United States Post Office, by registered or
certified mail, postage prepaid, addressed to the Company at the
address shown above, and addressed to the Executive at 12409 Beal
Springs Road, Potomac, MD 20854, or at such other address or
addresses as either party shall designate to the other in
accordance with this Section 18. Notice shall be effective when
actually received by the addressee.
19. Pronouns. Whenever the context may require, any pronouns
used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular forms of nouns and
pronouns shall include the plural, and vice versa.
20. Entire Agreement. This Agreement constitutes the entire
agreement between the parties and supersedes all prior agreements
and understandings, whether written or oral, relating to the
subject matter of this Agreement.
21. Amendment. This Agreement may be amended or modified only
by a written instrument executed by both the Company and the
Executive.
22. Survival. The provisions of Sections 15, 16 and 17 shall
remain in effect in the event the Executive is terminated and
shall survive the termination and expiration of this Agreement.
23. Governing Law. This Agreement shall be construed,
interpreted and enforced in accordance with the laws of the State
of Delaware, without reference to principles of conflict of laws.
24. Successors and Assigns.
(a) This Agreement shall be binding upon and inure to the
benefit of both parties and their respective successors and
assigns, including any corporation with which or into which the
Company may be merged or which may succeed to its assets or
business; provided, however, that the obligations of the
Executive are personal and shall not be assigned by him.
(b) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all
or substantially all of the business and/or assets of the Company
to assume expressly and agree to perform this Agreement in the
same manner and to the same extent that the Company would be
required to perform it if no such succession had taken place. As
used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
25. Miscellaneous.
25.1 No delay or omission by the Company in exercising any
right under this Agreement shall operate as a waiver of that or
any other right. A waiver or consent given by the Company on any
one occasion shall be effective only in that instance and shall
not be construed as a bar or waiver of any right on any other
occasion.
25.2 The captions of the sections of this Agreement are for
convenience of reference only and in no way define, limit or
affect the scope or substance of any section of this Agreement.
25.3 In case any provision of this Agreement shall be invalid,
illegal or otherwise unenforceable, the validity, legality and
enforceability of the remaining provisions shall in no way be
affected or impaired thereby.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year set forth above.
INTERSOLV, INC.
By: /s/ Russell E. Planitzer
Russell E. Planitzer
EXECUTIVE:
/s/ Kevin J. Burns
Kevin J. Burns
Exhibit 10.15
SECOND AMENDMENT TO FINANCING AGREEMENT
THIS SECOND AMENDMENT TO FINANCING AGREEMENT (this
"Agreement") made as of this 30th day of October, 1996 by
and among:
(a) INTERSOLV, INC., a corporation organized and in
good standing under the laws of the State of Delaware
(the "Company"), INTERSOLV CANADA, INC., a corporation
organized and in good standing under the laws of Ontario,
Canada, INTERSOLV INTERNATIONAL HOLDINGS CORP., a
corporation organized and in good standing under the laws
of the State of Delaware INTERSOLV PLC, a corporation
organized under the laws of the United Kingdom, INTERSOLV
FRANCE, S.A., a corporation organized and in good
standing under the laws of France, INTERSOLV GMBH, a
corporation organized and in good standing under the laws
of the Federal Republic of Germany, INTERSOLV PTY LTD, a
corporation organized and in good standing under the laws
of Australia, INTERSOLV TECHNOLOGY HOLDING CORP., a
corporation organized and in good standing under the laws
of the State of Delaware, TECHGNOSIS INTERNATIONAL,
INC., a corporation organized and in good standing under
the laws of the State of Delaware, TECHGNOSIS, INC., a
corporation organized and in good standing under the laws
of the State of Massachusetts, GNOSIS NV, a corporation
organized and in good standing under the laws of Belgium
and TECHGNOSIS INTERNATIONAL, NV, a corporation organized
and in good standing under the laws of Belgium (all of
such companies, together with the Company, collectively
called the "Borrowers" and each individually a
"Borrower");
(b) NATIONSBANK, N.A., formerly known as NATIONSBANK OF
MARYLAND, N.A., successor by merger to MARYLAND NATIONAL
BANK, a national banking association ("NationsBank"), and THE
FIRST NATIONAL BANK OF BOSTON, a national banking association
("First National"; First National and NationsBank are
hereinafter collectively referred to as the "Lenders" and
each a "Lender"); and
(c) NATIONSBANK, N.A., formerly know as NATIONSBANK OF
MARYLAND, N.A., successor by merger to MARYLAND NATIONAL
BANK, a national banking association (the "Agent").
RECITALS
A. The Borrowers are, or shall by the execution and
delivery of this Agreement become, parties to a certain
Financing Agreement, along with the Agent and the Lenders
dated July 27, 1992 and amended by that certain First
Amendment to Financing Agreement (the "First Amendment")
dated August 11, 1994 (as thereafter amended, modified and
renewed from time to time, the "Financing Agreement"),
pursuant to which the Lenders have agreed to make available
to the Borrowers the Revolving Credit Facilities (as
increased from time to time, the "Revolving Credit
Facilities") in the current maximum principal amount of
Twelve Million Dollars ($12,000,000) and other credit
facilities as more fully described in the Financing
Agreement. The Revolving Credit Facilities are currently
evidenced by those two (2) certain Amended and Restated
Revolving Credit Notes each dated August 11, 1994, issued by
the Borrowers jointly and severally payable, respectively, to
the order of each of the Lenders (the "First Restated
Notes"). Unless otherwise defined herein, all capitalized
terms used herein shall have the meanings given to such terms
in the Financing Agreement.
B. The Borrowers have requested that the Lenders
increase the Revolving Credit Facilities from Twelve Million
Dollars ($12,000,000) to Fifteen Million Dollars
($15,000,000), and to amend the Financing Agreement in
accordance with the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the foregoing, and
for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Borrowers,
the Agent and the Lenders do hereby agree as follows:
1. Recitals. The parties hereto acknowledge and agree
that the above Recitals are true and correct in all material
respects and that the same are incorporated herein and made a
part hereof by reference.
2. Waiver of Defaults; Waiver of Borrowing Base
Provisions. Subject to the terms and conditions set forth
herein and subject to the terms and conditions set forth in
Section 8.2 of the Financing Agreement, the Lenders hereby
waive defaults by the Borrowers under Sections 5.1.14 and
5.2.2 of the Financing Agreement through the date of this
Agreement. The waivers set forth in this paragraph 2 shall
not extend to any subsequent or other Default or Event of
Default, or impair any right consequent thereto and shall be
effective only through the date of this Agreement and solely
with respect to the matters described herein. The Lenders
hereby waive all provisions relating to the "Borrowing Base"
and, in furtherance thereof, Sections 2.1.4, 2.1.5 and 2.1.7
of the Financing Agreement are hereby deleted.
3. Defined Terms. From and after the date hereof, all
references in SECTION 1.1 of the Financing Agreement to the
definition of "Revolving Credit Expiration Date" and
"Tangible Net Worth" shall have the following meanings,
respectively:
"Revolving Credit Expiration Date" means September
30, 1998.
"Tangible Net Worth" means, at any date or for
any period of determination, the sum at such time
or during such period of the Net Worth of the
Company and its Subsidiaries, less the total of (a)
all Assets which would be classified as intangible
assets under GAAP and (b) all unamortized
capitalized software development and research and
development costs and capitalized purchased
software costs of the Company and its Subsidiaries.
In addition, all references in the Financing Agreement and
any of the Financing Documents to "MNB" or "NB" shall
henceforth be deemed to refer to "NationsBank" and all
references to "Boston" or "FNBB" shall be deemed to refer to
First National.
4. The Revolving Credit Facilities. SECTION 2.1.1 of
the Financing Agreement is hereby amended and restated in its
entirety to read as follows:
2.1.1 Revolving Credit Facilities. Subject to and
upon the provisions of this Agreement, each Lender
hereby establishes a revolving credit facility (each a
"Revolving Credit Facility" and collectively, the
"Revolving Credit Facilities") in favor of the Borrowers
in the maximum principal amount of such Lender's
Revolving Credit Committed Amount as set forth below.
Each of the loans or other advances made by any Lender
under its Revolving Credit Facility is sometimes
referred to in this Agreement as a "Revolving Loan", and
all such loans made by all of the Lenders are
collectively referred to in this Agreement as the
"Revolving Loans".
During the Revolving Credit Commitment Period, each
Lender severally agrees to make Revolving Loans
requested by any Borrower from time to time in
accordance with the provisions of this Agreement;
provided that after giving effect to any Borrower's
request:
(a) the aggregate principal amount of such
Lender's Proportionate Share of the Revolving Loans and
of the Letter of Credit Obligations would not exceed
such Lender's Revolving Credit Committed Amount; or
(b) the aggregate principal amount of all
Revolving Loans and all Letter of Credit Obligations
would not exceed an amount equal to the Total Revolving
Credit Committed Amount.
The amount set forth below opposite each Lender's name
is herein called such Lender's "Revolving Credit
Committed Amount", and the total of both Lenders'
Revolving Credit Committed Amounts is herein called the
"Total Revolving Credit Committed Amount". The
proportionate share set forth below opposite each
Lender's name is herein called such Lender's "Revolving
Credit Proportionate Share":
Revolving Credit Revolving Credit
Lender: Committed Amount: Proportionate Share:
NationsBank $7,500,000 50%
First National $7,500,000 50%
Total Revolving Credit
Committed Amount $15,000,000 100%
Neither the Agent nor any of the Lenders shall be
responsible for the Revolving Credit Commitment of any
other Lender, nor will the failure of any Lender to
perform its obligations under its Revolving Credit
Commitment in any way relieve any other Lender from
performing its obligations under its Revolving Credit
Commitment.
5. Terms of Letters of Credit. The first sentence
contained in SECTION 2.2.3 of the Financing Agreement is
hereby amended and restated in its entirety to read as
follows:
Each Letter of Credit shall (a) be issued in
accordance with the provisions of a Letter of Credit
Agreement, and (b) expire on a date not more than one
hundred eighty (180) days form the date on which it is
issued, with automatic renewal provisions for a like
term, but to expire in no event later than September 30,
1998.
6. Financial Statements. SECTION 5.1.1(f) of the
Financing Agreement is hereby deleted in its entirety.
Except as modified hereby, SECTION 5.1.1 shall remain
unchanged.
7. Tangible Net Worth. SECTION 5.1.13 of the Financing
Agreement is hereby deleted in its entirety.
8. Fixed Charge Coverage Ratio. SECTION 5.1.14 of the
Financing Agreement (Debt Service Coverage Ratio) is hereby
deleted in its entirety and the following is inserted in full
substitution thereof:
5.1.14 Fixed Charge Coverage Ratio. The
Borrowers will maintain at all times, on a consolidated
basis, a Fixed Charge Coverage Ratio of not less than
1.1 to 1.0. For purposes hereof the "Fixed Charge
Coverage Ratio" shall mean as to the Company and its
Subsidiaries, for any period of determination thereof,
the ratio of (i) the sum of (w) the Cash Flow of the
Company and its Subsidiaries, plus (x) write offs of
development and research costs for such period as set
forth on the cash flow statement of the Company and its
Subsidiaries most recently delivered to the Agent prior
to the date or period of determination, plus (y) accrued
restructuring and acquisitions charges for such period,
as set forth on the cash flow statement of the Company
and its Subsidiaries most recently delivered to the
Agent prior to the date or period of determination,
minus (z) payment of restructuring and acquisition
charges for such period, as set forth on the cash flow
statement of the Company and its Subsidiaries most
recently delivered to the Agent prior to the date or
period of determination, to (ii) the sum of the Debt
Service of the Company and its Subsidiaries, for the
period of determination. The Fixed Charge Coverage
Ratio shall be tested quarterly on the basis of the
prior four quarter period, provided, however, that in
the event of any Purchase made pursuant to and in
accordance with SECTION 5.2.1 of this Agreement, the
Fixed Charge Coverage Ratio will be tested on the basis
of the fiscal quarter in which such Purchase occurred
and thereafter will be tested on a rolling two and three
fiscal quarter basis for the subsequent two fiscal
quarters, respectively, and thereafter on the basis on
the prior four quarter period.
9. Debt to Tangible Net Worth Ratio. SECTION 5.1.15 of
the Financing Agreement is hereby amended and restated in its
entirety as follows:
5.1.15 Debt to Tangible Net Worth Ratio. The
Borrowers will at all times, tested quarterly, maintain
the ratio of Liabilities, to Tangible Net Worth, on a
consolidated basis, so it is not greater than 2.5 to
1.0.
10. Subordination. As part of the First Amendment,
SECTION 5.1.16 of the Financing Agreement was mistakenly
deleted. Accordingly, the parties hereto confirm that the
provisions of SECTION 5.1.16 added by the First Amendment are
hereby deleted and the provisions of Section 5.16 of the
original unamended Financing Agreement remain part of the
Financing Agreement.
11. Quick Ratio. SECTION 5.1.17 of the Financing
Agreement is hereby amended and restated in its entirety as
follows:
5.1.17 Quick Ratio. The Borrowers will at all
times maintain, on a consolidated basis, tested
quarterly, a ratio of (i) the sum of the Borrowers'
unrestricted, unencumbered cash, plus unrestricted,
unencumbered marketable securities, plus accounts
receivable (net of allowances for doubtful accounts) to
(ii)(a) the Borrowers' current liabilities (determined
in accordance with GAAP), minus (b) deferred revenues
resulting solely from the Borrowers' maintenance
contracts, so that such ratio is not less than 1.75 to
1.0.
12. Purchase or Redemption of Securities, Dividend
Restrictions. SECTION 5.2.2 of the Financing Agreement is
hereby amended and restated in its entirety as follows:
5.2.2 Purchase or Redemption of Securities,
Dividend Restrictions. None of the Borrowers will (a)
purchase, redeem or otherwise acquire any shares of its
capital stock or warrants now or hereafter outstanding
with a value in excess of Five Million Dollars
($5,000,000) in the aggregate for all Borrowers in any
fiscal year, (b) declare or pay any dividends thereon
(other than stock dividends), (c) except as set forth in
(a), (i) apply any of its property or assets to the
purchase, redemption, or other retirement of, (ii) set
apart any sum for the payment of any dividends on, or,
for the purchase, redemption, or other retirement of, or
(iii) make any distribution by reduction of capital or
otherwise in respect of, any shares of any class of
capital stock of such Borrower, or any warrants, (d)
except as set forth in (a), permit any Subsidiary to
purchase or acquire any shares of any class of capital
stock of, or warrants issued by, such Borrower, (e) make
any distribution to stockholders or set aside any funds
for any such purpose, and (f) except as permitted in
Section 5.2.3(f) of this Agreement, prepay, purchase or
redeem any Indebtedness for Borrowed Money other than
the Obligations. The Borrowers' rights to repurchase
capital stock or warrants up to a maximum amount of Five
Million Dollars ($5,000,000) shall be conditioned on
such repurchase not resulting in the occurrence of an
Event of Default, after giving effect to such
repurchase.
13. Indebtedness. SECTION 5.2.3 (f) of the Financing
Agreement is hereby amended and restated in its entirety as
follows:
(f) Indebtedness of any Borrower or Subsidiaries
incurred after the date of this Agreement provided that
(i) the aggregate principal amount of all such
Indebtedness of the Company and its Subsidiaries taken
as a whole does not exceed Two Million Five Hundred
Thousand Dollars ($2,500,000) per annum, (ii) such
Indebtedness is incurred on account of purchase money or
finance lease arrangements of assets and properties
acquired subsequent to the date of this Agreement, and
(iii) each such purchase money or finance lease
arrangement does not exceed the cost or fair market
value of the assets or property acquired or leased and
does not extend to any assets or property other than
those purchased or leased.
The parties hereto understand and agree that SECTION 5.2.3
(e) of the Financing Agreement shall be construed to permit
Indebtedness for Borrowed Money of the Borrower and its
Subsidiaries in existence as of the date of this Agreement.
14. Commitment Fee. In consideration of the Lenders
agreement to increase the Revolving Credit Committed Amount,
the Borrowers jointly and severally agree, in addition to the
Fees set forth in the Financing Agreement, to pay each Lender
a one-time commitment fee (the "Commitment Fee") in the
amount of Eighteen Thousand Seven Hundred Fifty Dollars
($18,750). The Commitment Fee shall be paid on the date of
this Agreement and is not refundable.
15. Agency Renewal Fee. The Borrowers jointly and
severally agree to pay to the Agent, a loan administration
and agency fee (the "Agency Renewal Fee") in the amount of
Eight Thousand Dollars ($8,000). The Agency Renewal Fee shall
be payable on the date of this Agreement. The Agent shall
retain all of the Agency Renewal Fee for its own account and
shall have no obligation to remit or pay any portion thereof
to any of the Lenders.
16. Replacement Notes. EXHIBIT "B" to the Financing
Agreement is being replaced in its entirety with EXHIBIT "B"
attached hereto. The Borrowers shall execute and deliver to
each Lender on the date hereof those certain Second Amended
and Restated Revolving Credit Notes each substantially in the
form of EXHIBIT "B" attached hereto and incorporated herein
by reference (each such note being called a "Replacement
Revolving Credit Note" and collectively, the "Replacement
Revolving Credit Notes") in substitution for and not
satisfaction of, the issued and First Restated Notes, and the
Replacement Revolving Credit Notes shall be the "Revolving
Credit Notes" for all purposes of the Financing Documents.
The Replacement Revolving Credit Notes shall not operate as a
novation of any of the Obligations or nullify, discharge, or
release any such Obligations or the continuing contractual
relationship of the Borrowers in accordance with the provi
sions of the Financing Documents. All references in the
Financing Documents to the "Note" and the "Notes", shall
include respectively and collectively, as the case may
require, each of the Replacement Revolving Credit Notes and
all references to the "Obligations" shall include, without
limitation, the indebtedness evidenced by the Replacement
Revolving Credit Notes.
17. Notices. From and after the date hereof, the
Borrowers' designated address for notice pursuant to Section
8.3 of the Financing Agreement shall be: c/o Intersolv, Inc.,
9420 Key West Avenue, Rockville, Maryland 20850
18. Conditions Precedent. This Agreement shall become
effective on the date on which it is fully executed by all
parties.
19. Representations. The Borrowers hereby confirm that
the covenants set forth in ARTICLE III of the Financing
Agreement are true and correct as of the date hereof, and
that no Event of Default has occurred or is continuing
immediately prior to or upon the execution of this Agreement.
20. Counterparts. This Agreement may be executed in any
number of duplicate originals or counterparts, each of which
duplicate original or counterpart shall be deemed to be an
original and all taken together shall constitute one and the
same instrument.
21. Financing Documents; Governing Law; Etc. This
Agreement is one of the Financing Documents defined in the
Financing Agreement and shall be governed and construed in
accordance with the laws of the State of Maryland. The
headings and captions in this Agreement are for the
convenience of the parties only and are not a part of this
Agreement.
22. Acknowledgments. The Borrowers hereby confirm to
the Agent and each of the Lenders the enforceability and
validity of each of the Financing Documents. In addition,
the Borrowers hereby agree to the execution and delivery of
this Agreement and the terms and provisions, covenants or
agreements contained in this Agreement shall not in any
manner release, impair, lessen, modify, waive or otherwise
limit the joint and several liability and obligations of the
Borrowers under the terms of any of the Financing Documents,
except as otherwise specifically set forth in this Agreement.
The Borrowers each issue, ratify and confirm the
representations, warranties and covenants contained in the
Financing Documents.
23. Modifications. This Agreement may not be
supplemented, changed, waived, discharged, terminated,
modified or amended, except by written instrument executed by
the parties.
24. Full Force and Effect. Except as expressly set
forth above, the provisions of the Financing Agreement shall
continue in full force and effect and are hereby ratified and
confirmed. A default under this Agreement shall be a default
under the Financing Agreement. This Agreement may be executed
and delivered in any number of counterparts and by telecopy
transmission, all of which, taken together, shall constitute
one agreement and any party hereto may execute this Agreement
by signing any counterpart.
IN WITNESS WHEREOF the parties hereto have signed and
sealed this Agreement on the day and year first above
written.
WITNESS OR ATTEST: INTERSOLV, INC.
Michael Wright By:/s/ Kenneth A. Sexton (SEAL)
Name:Kenneth A. Sexton
Title: Chief Financial Officer
WITNESS OR ATTEST: INTERSOLV CANADA, INC.
Michael Wright By:/s/ Kenneth A. Sexton (SEAL)
Name:Kenneth A. Sexton
Title: Chief Financial Officer
WITNESS OR ATTEST: INTERSOLV INTERNATIONAL HOLDINGS CORP.
Michael Wright By:/s/ Kenneth A. Sexton (SEAL)
Name:Kenneth A. Sexton
Title: Chief Financial Officer
WITNESS OR ATTEST: INTERSOLV PLC
Michael Wright By:/s/ Kenneth A. Sexton (SEAL)
Name:Kenneth A. Sexton
Title: Chief Financial Officer
WITNESS OR ATTEST: INTERSOLV FRANCE, S.A.
Michael Wright By:/s/ Kenneth A. Sexton (SEAL)
Name:Kenneth A. Sexton
Title: Chief Financial Officer
WITNESS OR ATTEST: INTERSOLV GMBH
Michael Wright By:/s/ Kenneth A. Sexton (SEAL)
Name:Kenneth A. Sexton
Title: Chief Financial Officer
WITNESS OR ATTEST: INTERSOLV PTY LTD
Michael Wright By:/s/ Kenneth A. Sexton (SEAL)
Name:Kenneth A. Sexton
Title: Chief Financial Officer
WITNESS OR ATTEST: INTERSOLV TECHNOLOGY HOLDING CORP.
Michael Wright By:/s/ Kenneth A. Sexton (SEAL)
Name:Kenneth A. Sexton
Title: Chief Financial Officer
WITNESS OR ATTEST: TECHGNOSIS INTERNATIONAL, INC
Michael Wright By:/s/ Kenneth A. Sexton (SEAL)
Name:Kenneth A. Sexton
Title: Chief Financial Officer
WITNESS OR ATTEST: TECHGNOSIS, INC.
Michael Wright By:/s/ Kenneth A. Sexton (SEAL)
Name:Kenneth A. Sexton
Title: Chief Financial Officer
WITNESS OR ATTEST: GNOSIS, NV
Michael Wright By:/s/ Kenneth A. Sexton (SEAL)
Name:Kenneth A. Sexton
Title: Chief Financial Officer
WITNESS OR ATTEST: TECHGNOSIS INTERNATIONAL, NV
Michael Wright By:/s/ Kenneth A. Sexton (SEAL)
Name:Kenneth A. Sexton
Title: Chief Financial Officer
AGENT:
WITNESS: NATIONSBANK, N.A.
By:/s/ Barbara Deily (SEAL)
Barbara Deily
Vice President
LENDERS:
WITNESS: NATIONSBANK, N.A.
By:/s/ Barbara Deily (SEAL)
Barbara Deily
Vice President
WITNESS: FIRST NATIONAL BANK OF BOSTON
By:/s/ Jay L. Massimo(SEAL)
Name: Jay L. Massimo
Title: Vice President
Exhibit 11.1
INTERSOLV, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(in thousands)
For the years ended April 30
1997 1996 1995
PRIMARY
Net income (loss) ($21,166) ($3,711) $10,974
Weighted average number of
shares outstanding 20,119 19,348 18,577
Additional shares under stock
option plans assumed outstanding
less shares assumed repurchased
under the treasury stock method --- --- 906
Primary shares 20,119 19,348 19,483
Primary net income (loss) per share ($1.05) ($0.19) $ 0.56
FULLY DILUTED
Net income (loss) ($21,166) ($3,711) $10,974
Elimination of interest expense,
net of tax, related to subordinated
convertible notes --- --- 112
Adjusted net income (loss) (21,166) (3,711) 11,086
Weighted average number of
shares outstanding 20,119 19,348 18,577
Additional shares under
stock option plans assumed
outstanding less shares assumed
repurchased under the treasury
stock method --- --- 939
Additional shares related to
subordinated convertible notes --- --- 656
Fully diluted shares 20,119 19,348 20,172
Fully diluted net income (loss)
per share ($1.05) ($0.19) $0.55
Exhibit 21.1
INTERSOLV, INC. AND SUBSIDIARIES
SUBSIDIARIES
Name of Direct Subsidiary Name of Indirect Jurisdiction
Subsidiary of Incoropration
INTERSOLV Technology Holding
Corporation --- Delaware
INTERSOLV- Canada, Inc. --- Ontario, Canada
INTERSOLV International Holdings
Corporation --- Delaware
INTERSOLV PLC United Kingdom
INTERSOLV Pty Ltd. Australia
Salgin Pty Ltd. Australia
INTERSOLV Gmbh Germany
INTERSOLV France SA France
INTERSOLV Foreign Sales
Corporation Barbados
Q+E Software Benelux Netherlands
TechGnosis International, Inc. Delaware
TechGnosis, Inc. Delaware
TechGnosis International NV Belgium
TechGnosis Gmbh Germany
TechGnosis France SA France
Intersolv NV Belgium
TechGnosis Middleware Ltd. United Kingdom
INTERSOLV KK --- Japan
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of Intersolv, Inc. on Form S-8, Registration Nos. 333-07351, 33-64643, 33
86590, 56-166, 56-220, 12-795 and 12-797 and on Form S-3, Registration Nos.
333-01143, 33-61451 and 33-83796, of our report dated July 18, 1997, on our
audits of the consolidated financial statements and the financial statement
schedule of INTERSOLV, Inc. as of April 30, 1997 and 1996, and for each of
the three years ended April 30, 1997 which report is included in this
Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
Washington, D.C.
July 28,1997
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<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> APR-30-1997
<CASH> 20,180
<SECURITIES> 0
<RECEIVABLES> 54,467
<ALLOWANCES> (4,129)
<INVENTORY> 0
<CURRENT-ASSETS> 76,674
<PP&E> 23,912
<DEPRECIATION> (12,346)
<TOTAL-ASSETS> 96,017
<CURRENT-LIABILITIES> 58,627
<BONDS> 0
<COMMON> 208
0
0
<OTHER-SE> 30,541
<TOTAL-LIABILITY-AND-EQUITY> 96,017
<SALES> 160,413
<TOTAL-REVENUES> 160,413
<CGS> 47,506
<TOTAL-COSTS> 178,743
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (18,405)
<INCOME-TAX> 2,761
<INCOME-CONTINUING> (21,166)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,166)
<EPS-PRIMARY> (1.05)
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