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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT Of 1934
For the fiscal year ended December 31, 1999
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-16096
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INPRISE CORPORATION
(Exact name of Registrant as specified in our charter)
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<S> <C>
Delaware 94-2895440
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
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100 Enterprise Way, Scotts Valley, California 95066-3249
(Address of Principal Executive Offices) (Zip code)
(831) 431-1000
(Registrant's telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE: $0.01 PER SHARE
PREFERRED STOCK PURCHASE RIGHTS
(Title of class)
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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 closing sale price of Inprise Corporation's common
stock on February 29, 2000, was approximately $618,782,277. This calculation
does not reflect a determination that any persons are affiliates for any other
purposes.
The number of shares of the Registrant's common stock outstanding as of
February 29, 2000 was 61,114,299.
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INPRISE CORPORATION
FORM 10-K
For the Fiscal Year Ended December 31, 1999
TABLE OF CONTENTS
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PART I
ITEM 1. BUSINESS...................................................... 5
ITEM 2. PROPERTIES.................................................... 9
ITEM 3. LEGAL PROCEEDINGS............................................. 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........... 10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS...................................................... 10
ITEM 6. SELECTED FINANCIAL DATA....................................... 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.................................... 12
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.... 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................... 29
ITEM 9. CHANGES IN AND/OR DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE..................................... 29
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT............ 29
ITEM 11. EXECUTIVE COMPENSATION........................................ 31
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................... 38
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................ 39
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 40
8-K...........................................................
SIGNATURES.............................................................. 44
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A CAUTION ABOUT FORWARD-LOOKING STATEMENTS
The matters discussed throughout this Annual Report on Form 10-K that are
not historical facts are forward-looking and accordingly, involve estimates,
projections, goals, forecasts, assumptions and uncertainties that could cause
actual results or outcomes to differ materially from those expressed in the
forward-looking statements.
These forward-looking statements may relate to, but are not limited to,
future capital expenditures, acquisitions, future revenues, earnings, margins,
costs, demand for our products, market trends in the software industry,
interest rates and inflation and various economic and business trends. You can
identify forward-looking statements by the use of words such as "expect,"
"estimate," "project," "budget," "forecast," "anticipate," "plan" and similar
expressions. Forward-looking statements include all statements regarding
expected financial position, results of operations, cash flows, dividends,
financing plans, business strategies, operating efficiencies or synergies,
budgets, capital and other expenditures, competitive positions, markets and
growth opportunities for existing or proposed products or services, plans and
objectives of management, and markets for stock of Inprise and conditions or
trends in the securities markets where shares of Inprise stock is traded.
Forward-looking statements also include all statements regarding the pending
merger with Corel Corporation.
Examples of factors that you should consider with respect to any forward-
looking statements made throughout this Form 10-K include, but are not limited
to, the following:
. general industry trends and the effects of competition in the computer
software industry;
. changes in the economies of geographic areas served by the Company;
. catastrophic natural disasters;
. unanticipated changes in operating expenses and capital expenditures;
. customer business conditions;
. financial or regulatory accounting principles or policies imposed by the
Financial Accounting Standards Board, the Securities and Exchange
Commission and similar agencies with regulatory oversight;
. employee workforce factors, including loss or retirement of key
executives;
. technological developments resulting in competitive disadvantages and
creating the potential for impairment of existing assets;
. if the merger is consummated unexpected costs or difficulties related to
the integration of the businesses of Inprise with Corel;
. regulatory delays or conditions imposed by regulatory bodies in
approving the merger with Corel;
. other risks and uncertainties relating to the closing of the merger with
Corel;
. general economic factors including inflation and capital market
conditions;
. other risks and uncertainties described in Inprise's public
announcements and public filings;
. changes in tax requirements, including tax rate changes, new tax laws
and revised interpretation of tax laws; and
. adverse changes, trends and conditions in the securities markets.
These factors are difficult to predict. They also involve uncertainties that
may materially affect actual results, and may be beyond the control of Inprise.
New factors may emerge from time to time and it is not possible for us to
predict new factors, nor can we assess the potential effect of any new factors
on Inprise.
These forward-looking statements are found at various places throughout this
Form 10-K. We caution you not to place undue reliance on these forward-looking
statements, which unless otherwise indicated, speak only
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as of the date they were made. Inprise does not undertake any obligation to
release publicly, any revisions to these forward-looking statements to reflect
events or circumstances after the date of this Form 10-K or to reflect the
occurrence of events that we do not currently anticipate.
You are advised to read this Annual Report on Form 10-K in conjunction with
other reports and documents that we file from time to time with the Securities
and Exchange Commission. In particular, please read our Quarterly Reports on
Form 10-Q and any Current Reports on Form 8-K. You may obtain copies of these
reports directly from us or from the Securities and Exchange Commission at the
SEC's Public Reference Room at 450 Fifth Street, N.W. Washington, D.C. 20549,
and you may obtain information about obtaining access to the Reading Room by
calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains information
for electronic filers (including Inprise) at its web site www.sec.gov.
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PART I
Item 1. Business
Inprise Corporation, formerly Borland International, Inc., was incorporated
in California in 1983 and reincorporated in Delaware in 1989. We maintain our
executive offices at 100 Enterprise Way, Scotts Valley, California 95066-3249,
and our main telephone number at that location is 831-431-1000. We also
maintain Internet web sites at www.inprise.com and www.borland.com. Inprise is
a leading provider of Internet enabling software and services designed to
reduce the complexity of application development for corporations and
individual programmers.
Plan to Merge with Corel Corporation
On February 6, 2000, we entered into a merger agreement with Corel, pursuant
to which Inprise, upon completion of the merger, will become a wholly-owned
subsidiary of Corel. Corel is one of the world's largest developers of business
productivity, graphics and operation solutions. Under the terms of the merger
agreement, Inprise shareholders will receive 0.747 of a share of Corel common
stock for each share of Inprise common stock held. Upon closing of the
transaction, on a fully diluted basis, Inprise stockholders will own
approximately 44% of Corel and Corel stockholders will own about 56%. The
boards of directors of both companies have approved the transaction. The merger
is contingent upon the receipt of various regulatory approvals and the approval
of both companies' stockholders.
Dr. Michael C.J. Cowpland, Corel's Chairman of the Board, President and
Chief Executive Officer, will remain as President, Chief Executive Officer and
a director of the combined corporation. Dale Fuller, Inprise's Interim
President and Chief Executive Officer, will be Chairman of the Board of
Directors of the combined company. The operations of the combined company will
be headquartered in Ottawa, Ontario, Canada with the Inprise operations
remaining in its current Silicon Valley locations.
Principal Products and Services
Inprise develops and provides integrated, scalable and secure software
solutions, distinguished for their ease of use, performance and productivity.
Committed to most major computing platforms as well as the open standards of
the Internet, we provide service and support for software developers worldwide
through our online developer community and E-commerce site--
community.borland.com--offering a range of technical information, value-added
services and third-party products. Our product lines and services are designed
to assist software developers and business enterprises in their development and
deployment of software in the desktop, client/server, distributed objects and
Internet and corporate Intranet environment.
The following are descriptions of our key products:
Inprise Application Server(TM): Inprise's Application Server is the
industry's first application server to combine the benefit of Enterprise Java
Beans (EJB) and CORBA (Common Object Request Broker Architecture). The product
provides a foundation for deploying enterprise-level business applications. The
Application Server simplifies and accelerates the integration, deployment and
management of thin clients and distributed enterprise software systems. The
product is scalable and integrates an enterprise's heterogeneous applications,
including Web servers, databases, multiple clients, languages and platforms. In
December, we began shipping Application Server 4.0, the latest version of this
product.
AppCenter(TM): AppCenter is the first management solution designed to enable
customers to model, monitor and manage distributed applications. AppCenter
provides robust management capabilities for CORBA and EJB based applications
and is tightly integrated with VisiBroker and the Inprise Application
Server(TM).
VisiBroker(R): VisiBroker is an award-winning Object Request Broker (ORB),
based on CORBA, and designed to facilitate development and deployment of
distributed enterprise applications that are scalable,
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flexible and easily maintained. Industry affiliations involving this product
include Sun Microsystems, Hitachi, Oracle, Novell, Netscape, Silicon Graphics
and others who have played a key role in making VisiBroker a leading deployed
and adopted ORB in the computer industry. In the fourth quarter of 1999, we
began shipping VisiBroker for Java 4.0, the latest version of this product.
Delphi(TM): Delphi is a high-performance, rapid application software
development tool. It has won awards for high productivity in creating Windows,
Internet and distributed applications. The Delphi product combines visual
productivity tools and a high-performance compiler so that software developers
can build high-speed desktop and advanced database systems more quickly than
with conventional programming tools. In September, we began shipping Delphi 5,
the latest version of this product.
C++Builder(TM): C++Builder is a software development tool and compiler for C
and C++ computing languages used by programmers to write operating systems,
systems software and software application programs. Our product, C++Builder is
a front-to-back C++ compiler and development environment for creating desktop,
client/server, multi-tier, and distributed applications that are interoperable
with multiple platforms. In February, we began shipping Borland C++Builder 5,
the latest version of this product.
JBuilder(TM): JBuilder is a comprehensive set of visual development tools
for creating pure Java applications, applets, servlets, JavaBeans, Enterprise
JavaBeans, and distributed CORBA applications for the Java 2 platform. The
product enables programmers to rapidly deliver reliable and scalable Java
applications written entirely in the Java language. In September, we announced
the availability of the beta version of the JBuilder Java 2 Just-in-Time
compiler for Linux. In November, we began shipping JBuilder 3--Solaris Edition.
In December, we made available free downloads of JBuilder 3 Foundation for
Linux, Windows NT and Solaris.
InterBase(R): InterBase is a powerful, high-performance SQL database
designed to be embedded into applications on Windows, NetWare, Linux and Unix.
InterBase provides superior relational database solutions to meet the business-
critical embedded database needs for value added resellers and application
developers. In October, we announced new versions of InterBase for Novell
Netware and Windows NT. In early January 2000, we announced a plan to open-
source the beta version of InterBase 6.0. We are planning to transfer the
InterBase product line to a new company that is being formed that will provide
services, support and hosting of certain versions of InterBase.
In addition to our products, we offer a wide range of consulting, training
and support services to customers, Inprise service offerings include:
Consulting services: We offer a variety of both packaged and custom
consulting services which include architectural assessment, prototyping, legacy
migration, application integration, performance evaluation, application
deployment, and data conversions. We work closely with third party consulting
firms and systems integrators who provide reengineering, technology
assessments, customization, project management, and implementation services.
Training services: We offer education and training services to assist
customers in learning about our products and current technology trends. These
programs range from introductory sessions to highly advanced seminars. Training
services are offered at either customer sites or Company designated locations
and are led by employees or consultants of Inprise.
Support services: We provide a wide range of support services, and offer on-
site, telephone or Internet access. A comprehensive range of support programs
allow customers to choose the level of support for their business, from
personalized support for corporate needs to minimum assistance levels for small
businesses.
New Product Development Requiring a Material Investment
We are investing in developing our current products for the Windows
platform, Linux platform and other platforms that are discussed within the
descriptions of the products above. We plan to continue to invest in the area
of research and development in the coming year.
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Product Development
The process of developing new high technology products and solutions is
inherently complex and uncertain. It requires, among other things, innovation
and accurate anticipation of customers' changing needs and emerging
technological trends. Without the introduction of new products, services and
enhancements, our products and services can rapidly become technologically
obsolete, in which case revenues would be materially and adversely affected.
Furthermore, there can be no assurance that such new products and services, if
and when introduced, will achieve market acceptance.
We are recognized for providing high-quality and innovative software tools
for customers seeking greater productivity. Our research and development
programs are designed to develop new products and improve existing products so
as to maintain and improve our competitive position in the software development
and application management tools business. From time to time, we acquire new
products and enhancements through acquisitions, mergers, and licensing from
third parties.
We believe that our ability to develop innovative and successful products
depends in large part upon successfully executing product planning strategies
and research and development activities as well as upon our ability to attract,
hire and retain highly qualified engineers.
Methods of Distribution
We market and distribute our products worldwide primarily through
independent distributors, dealers, value-added resellers ("VARs") and
independent software vendors ("ISVs"). We also market and sell to corporations,
governments, educational institutions and other end-user customers through
direct sales and through the Internet.
Marketing and Sales--United States and International
We sell our products to a broad customer base, which includes businesses,
educational institutions, government bodies and individual software developers.
Because we generally ship products upon receipt of orders, backlog is neither
significant nor will it be detrimental to future revenues. One customer Ingram
Micro located in the United States accounts for approximately 11% of the total
net revenue for the year ended December 31, 1999. No other customer represents
greater than 10% of total net revenues for the year.
We offer marketing materials to assist our distributors, retailers and
resellers in their sales efforts. These materials include corporate marketing
and advertising and special sales incentives to retailers. In addition, we
permit our distributors to balance their inventories by periodically returning
contractually limited amounts of products in exchange for other Inprise
products. For this purpose, we include an estimate for returns in our reserves
for the amount of product that may be exchanged in accordance with this policy.
We are investing in enhancing communications with our customers by
electronic means, and we have established a presence on the Internet through
our web sites and corporate marketing campaigns. Through our web sites, our
customers can access information regarding our products, participate in online
discussion forums, download trial versions of certain products, and purchase
some of these products.
We conduct operations and sell products outside the U.S. and maintain
principal offices in Australia, Brazil, Canada, France, Germany, Hong Kong,
Japan, Netherlands, Singapore, Taiwan, and the United Kingdom. We also maintain
research and development facilities in Australia, Japan and Singapore. All of
these subsidiaries license and support our products both within their local
jurisdictions and certain other foreign countries where we do not operate
through a direct sales subsidiary. Additionally, we market and sell our
products through independent distributors, VARs and ISVs in international
territories not covered by our subsidiaries' direct sales network.
International net revenues (excluding exports from the U.S.) accounted for
approximately 56%, 49% and 57% of net revenues in the calendar years ended
December 31, 1999 and 1998, and the nine months ended December 31, 1997,
respectively. See Note 17 of Notes to Consolidated Financial Statements for a
summary of operations by geographic region.
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Manufacturing and Availability of Raw Materials
We contract with third parties for our manufacturing requirements which
include duplication of disks, assembly of purchased parts, and final packaging
for retail products. Our products are principally sold in CD-ROM format
together with user manuals. We believe that there are adequate supplies and
sources for the raw materials used in our products and that there are multiple
sources available for CD-ROM replication and printing of manuals.
We have final quality control tests performed on our products that we
believe effectively accomplish our product quality assurance goals. However,
there can be no assurance that our quality control efforts will always be
successful.
Competitive Conditions
The computer software industry is an intensely competitive industry. Rapid
change, new and emerging technologies and fierce competition characterize the
industry. The pace of change has accelerated due to the emergence of the
Internet and corporate Intranets and new programming languages. We face intense
competition in the development and marketing of our software products and
services.
Our development tools and distributed objects products compete with products
offered by a number of companies, including but not limited to Computer
Associates, Microsoft, Oracle, Sun, Sybase, Symantec and IBM. In the standards-
based distributed object market, we compete primarily with BEA Systems and Iona
Technologies. These products also compete against existing or proposed
distributed object solutions from hardware vendors such as Hewlett-Packard, IBM
and Sun.
In addition, we are dependent upon and in competition with operating systems
vendors. To the extent that we are unable to obtain information regarding
existing and future operating systems from the developer of such systems, the
release of our products for such systems may be delayed or may not be
competitive. For example, Microsoft, a significant competitor, is the developer
of the Windows operating environments. Microsoft has announced that it intends
to include increased middleware functionality in future versions of its Windows
2000 operating system. Microsoft has also introduced a product that includes
certain basic application server functionality. The bundling of competing
functionality in versions of Windows products requires us to compete with
Microsoft in the Windows marketplace where Microsoft has certain inherent
advantages due to its substantially greater financial, technical, marketing and
other resources, greater name recognition, a larger installed base and the
integration of its middleware functionality with Windows.
Some of our products are targeted at the emerging market for standards-based
distributed object software products. These markets are intensely competitive.
We believe that our product quality, performance and price, vendor and product
reputation, product architecture and quality of support make us competitive in
these markets. However, because there are relatively low barriers to entry in
these markets, we expect additional competition from other established and
emerging companies. Increased competition could result in price reductions,
fewer customer orders, reduced gross margins and loss of market share. It is
possible that current and new competitors may form alliances to gain
significant market share.
Patents, Copyright and Trademarks
We rely on a combination of patent, copyright, trademark, and trade secret
laws, non-disclosure agreements and other intellectual property protection
methods to protect our proprietary technology. Despite our efforts to protect
our intellectual property rights, it may be possible for an unauthorized third
party to copy certain portions of our products or to reverse engineer or obtain
and use technology or other information that we regard as proprietary. In
addition, the laws of certain foreign countries do not protect the rights in
intellectual property to the same extent as do the laws of the United States.
Accordingly, there can be no assurance that we will be able to protect our
proprietary technology against unauthorized third party copying or use which
could adversely affect our competitive position.
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There are no pending material lawsuits against Inprise regarding
infringement of any existing patents or other intellectual property rights or
any material notices of infringing the rights of others. Inprise, from time to
time, receives notices from third parties claiming infringement by our products
of third party patent and other intellectual property rights. Regardless of its
merit, responding to any such claim could be time consuming, result in costly
litigation and require the Company to enter into licensing or royalty
agreements which may not be offered or available on terms acceptable to the
Company. If a successful claim is made against Inprise and Inprise fails to
develop or license a substitute technology, our business could be materially
adversely affected. We expect that our software products will increasingly be
subject to such claims as the number of products and competitors in our
industry segment increase and the functionality of products overlap.
Employees
As of December 31, 1999, we employed approximately 740 employees,
approximately 440 in the United States, and 300 internationally. From time to
time, we have also engaged temporary contract employees both internationally
and within the United States. None of Inprise's U.S. employees are represented
by a labor union. Employees of certain foreign subsidiaries may be represented
by worker's councils or other similar organizations as required by local law.
ITEM 2. PROPERTIES
Our headquarters, executive offices and primary research and development
facilities are located at 100 Enterprise Way, Scotts Valley, California, and
comprise approximately 495,000 square feet of space. This facility was
constructed in 1993. On December 30, 1999, we entered into an agreement to sell
the facility to the ScanlanKemperBard Companies for $47 million. On February
18, 2000, the buyer completed its due diligence and notified us that it was
prepared to proceed with the transaction. The sale to Enterprise Way
Associates, LLC as assignee of the ScanlanKemperBard Companies closed on March
17, 2000. We received approximately $44.1 million in consideration for the
facility. Consideration in the transaction was net of $2.5 million held in
escrow to cover costs to improve the building and $0.4 million in other
disposal costs. As part of this agreement, we have entered into a long term
lease of approximately 44% of the facility. The initial term of the lease will
expire in 2010. See Note 1 of Notes to Consolidated Financial Statements for a
summary of the sale of the facility.
In addition, we lease approximately 50,000 square feet for a research and
development facility in San Mateo, California. This lease ends in June 2004.
We also own additional office space located at 1700-1800 Green Hills Road,
Scotts Valley, California, and these facilities are leased to third parties.
These facilities comprise approximately 135,000 square feet of space and were
constructed in 1988. As part of an agreement with ScanlanKemperBard, Inprise
has the option to require ScanlanKemperBard to purchase the property. We lease
office space in other cities in the United States as well as locations in
Europe, Canada, Latin America and the Pacific Rim.
ITEM 3. LEGAL PROCEEDINGS
The Company and certain of our former officers and directors were named
defendants in two lawsuits, Kaplan, et al vs. Kahn, et al, and Crook, et al vs.
Kahn, et al, originally filed in the United States District Court for the
Northern District of California in 1993 and 1995, respectively. The lawsuits
alleged certain securities law violations during the periods between 1991 and
1994. In 1996, the parties entered into an agreement to settle both lawsuits.
The agreement was submitted to the Court for approval and monies were deposited
in escrow to fund the settlement. At the time, we recorded an expense for the
amount of our contribution to the settlement. On September 3, 1999, the Court
approved the settlement agreements in both lawsuits, together with a revised
plan of allocation of the settlement proceeds. On March 20, 2000, the Court
entered a final order certifying the settlement class and a final order
certifying the settlement class and dismissing both lawsuits. This order will
become final on April 19, 2000 unless a Notice of Appeal is filed. We do not
expect that an appeal will be pursued.
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On April 10, 1997, Western Imaging, Inc. ("Western Imaging") filed a
complaint in the U.S. District Court for the Northern District of California
against Visigenic Software, Inc. ("Visigenic"), a company acquired by Inprise
in February 1998, and Corel Corporation, a licensee of Visigenic, alleging
breach of contract, intentional and negligent misrepresentation, copyright
infringement, trademark infringement, misappropriation of trade secrets and
other related claims. On June 2, 1994, Western Imaging purchased from Visigenic
the rights to a software product called "Lumena." Western Imaging claims that
(1) Visigenic failed to deliver all of the source code for Lumena, and (2)
"Lumena" included three additional software products called "Color Tools,"
"Creative License," and "Oasis". Visigenic denies Western Imaging's claims.
These three latter products were also licensed by Visigenic to Corel on a non-
exclusive basis.
Pursuant to the Court's order of February 20, 1998, the parties participated
in a non-binding mediation on July 17, 1998. No settlement was reached. Both
parties thereafter filed motions for summary judgment. The Court denied Western
Imaging's motion. Our motion was granted in part and denied in part. The Court
dismissed Western Imaging's claims for unfair competition, unjust enrichment
and misappropriation of trade secrets. The parties agreed to participate in a
second mediation following additional discovery. The parties participated in
three further mediation sessions, and on October 26, 1999, a confidential
settlement was reached which also included Federal Insurance Company (see next
paragraph). That settlement has now been fully consummated.
In a related matter, Visigenic sued their insurer, Federal Insurance
Company, seeking to obtain a declaration that Federal Insurance owed Visigenic
and Corel a duty of defense and coverage for the Western Imaging lawsuit and
claims based on advertising injury coverage. Both Federal Insurance and
Visigenic filed summary judgment motions in this case, which were heard by the
Court on August 14, 1998. On May 3, 1999, the Court granted our motion and
denied Federal Insurance's motion the effect of which (subject to appeal) was
that Visigenic and Corel would be entitled to reimbursement of attorneys fees
and costs and to payment of future such fees and costs with respect to the
Western Imaging lawsuit. All claims in the Visigenic vs. Federal Insurance
lawsuit have been settled as part of the confidential settlement referred to in
the previous paragraph. That settlement has now been fully consummated.
We are also involved in various other legal actions arising in the normal
course of our business. We believe that it is unlikely that any of these
actions will have a material adverse impact on our operating results. However,
because of the inherent uncertainties of litigation, the outcome of any of
these actions could be unfavorable and could have a material adverse affect on
our financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended December 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information on our stock price is detailed in the table entitled "Selected
Quarterly Data" located within "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in Item 7.
Our common stock is traded on the Nasdaq National Market under the Nasdaq
symbol "INPR." According to the records of our transfer agent, we have
approximately 2,305 stockholders of record of our common stock as of February
29, 2000. Because many of such shares are held by brokers and other
institutions on behalf of stockholders, we are unable to estimate the total
number of beneficial owners represented by these record holders.
We have not paid dividends during the last six years. We intend to retain
future earnings for use in our business, and therefore, do not anticipate
paying cash dividends in the foreseeable future. In addition, our merger
agreement with Corel prohibits us from paying dividends on our common stock
pending completion of the merger.
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The following table sets forth the high and low sales price per share of our
common stock as reported on Nasdaq for the calendar quarters presented below:
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High Low
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1998
First Quarter ended March 31, 1998........................... $10.00 $6.56
Second Quarter ended June 30, 1998........................... $11.88 $6.81
Third Quarter ended September 30, 1998....................... $ 8.62 $4.94
Fourth Quarter ended December 31, 1998....................... $ 6.88 $4.81
1999
First Quarter ended March 31, 1999........................... $ 6.47 $3.31
Second Quarter ended June 30, 1999........................... $ 6.00 $2.69
Third Quarter ended September 30, 1999....................... $ 5.56 $3.44
Fourth Quarter ended December 31, 1999....................... $20.00 $3.44
2000
First Quarter ended March 31, 2000........................... $16.94 $6.09
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ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data are derived from our
consolidated financial statements. Historical results should not be taken as
necessarily indicative of the results that may be expected for any future
period. This data should be read in conjunction with the consolidated financial
statements and related notes, which are included elsewhere herein.
Five Year Summary (In thousands, except net income (loss) per share)
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Nine Months
Year Ended December 31, Ended Year Ended March 31,
Consolidated Statements -------------------------- December 31, -----------------------
of Operations Data: 1999 1998 1997(b)(c) 1997(c) 1996(c)(d)
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Net revenues............ $ 174,806(a) $ 189,112 $145,936 $ 170,977 $251,821
Restructure and other
one-time charges....... $ 49,900(e) $ 15,848 $ -- $ 48,408(f) $ 679
One-time income items... $108,002(g) $ 18,107(h) $ -- $ -- $ --
Net income (loss)....... $ 22,684 $ 8,346 $ (3,894) $(128,228) $ 10,311
Net income (loss) per
share--basic........... $ 0.40 $ 0.16 $ (0.09) $ (2.87) $ 0.26
Net income (loss) per
share--diluted......... $ 0.35 $ 0.14 $ (0.09) $ (2.87) $ 0.22
Shares used in computing
basic earnings per
share.................. 54,810 50,118 49,640 44,703 38,935
Shares used in computing
diluted earnings per
share.................. 63,408 57,384 49,640 44,703 46,577
<CAPTION>
December 31, March 31,
Selected Consolidated ------------------------------------------ -----------------------
Balance Sheet Data: 1999 1998 1997(b)(c) 1997(c) 1996(c)(d)
- --------------------- ----------- ----------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Cash and short term
investments............ $ 197,693 $ 84,362 $102,551 $ 74,039 $110,269
Total assets............ $ 313,016 $ 253,788 $255,824 $ 225,745 $297,343
Total long term
obligations............ $ 19,462 $ 19,138 $ 22,025 $ 22,508 $ 14,583
Mandatorily redeemable
convertible preferred
stock.................. $ -- $ 36,873 $ 27,358 $ -- $ --
</TABLE>
- --------
(a) Excludes one-time payment of license revenue from Microsoft of $100
million.
(b) In July 1997, we changed our fiscal year end from March 31 to December 31.
(c) Results for the nine months ended December 31, 1997 and years ended March
31, 1997 and 1996 and balances as of those dates are restated to reflect
the acquisition of Visigenic which was accounted for as a pooling of
interests.
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(d) Results for the year ended March 31, 1996 and balances as of that date are
restated to reflect the acquisition of Open Environment Corporation which
was accounted for as a pooling of interests.
(e) Restructuring and other one-time charges for the year ended December 31,
1999 include a write-down on sale of real estate of $29.7 million,
restructure and merger related expenses of $12.1 million and other non-
recurring charges of $8.2 million.
(f) Restructuring and other one-time charges for the year ended March 31, 1997
include restructuring charges of $18.9 million, a charge for in process
product development of $12.4 million, and other non-recurring charges of
$17.1 million.
(g) One-time income items for the year ended December 31, 1999 consists
primarily of income from patent cross license agreement with Microsoft of
$100 million.
(h) One-item items for the year ended December 31, 1998 consists primarily of a
gain on sale of long term investment of $17.0 million.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion includes many forward-looking statements and, with
respect to this section, the cautionary language for such forward-looking
statements is described above in Item 1. Business, and Forward-Looking
Statements of this Form 10-K and is incorporated by reference to this Item 7.
Again, you are advised to read this Annual Report on Form 10-K in
conjunction with other reports and documents that we file from time to time
with the Securities and Exchange Commission. In particular, please read our
Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K. You may
obtain copies of these reports directly from us or from the Securities and
Exchange Commission at the SEC's Public Reference Room at 450 Fifth Street,
N.W. Washington, D.C. 20549, and you may obtain information about obtaining
access to the Reading Room by calling the SEC at 1-800-SEC-0330. In addition,
the SEC maintains information for electronic filers (including Inprise) at its
web site www.sec.gov.
Change in Fiscal Year End
In July 1997, we changed our fiscal year end from March 31 to December 31.
In accordance with the rules of the Securities and Exchange Commission, this
Management Discussion and Analysis of Financial Conditions and Results of
Operations discusses and compares the transition period which commenced on
April 1, 1997 and ended December 31, 1997 with the calendar years ended
December 31, 1999 and 1998.
Net Revenues
Net revenues were $174.8 million, $189.1 million and $145.9 million for the
years ended December 31, 1999 and 1998, and the nine months ended December 31,
1997, respectively. Non-U.S. revenues (excluding exports from the U.S.)
represented approximately 56%, 49% and 57% of total net revenues for the years
ended December 31, 1999 and 1998 and the nine months ended December 31, 1997,
respectively. The increase in the percentage of non-U.S. revenues for the year
ended December 31, 1999, as compared to the year ended December 31, 1998, was
principally due to the recovery of certain Asia-Pacific regions, including
Japan, which had experienced economic slowdown in 1998. Fluctuations in
currency exchange rates did not have a material impact on total net revenues or
operating results for the years ended December 31, 1999 and 1998, or the nine
months ended December 31, 1997. However, non-U.S. revenues would be adversely
affected if the U.S. dollar were to strengthen against certain major
international currencies.
Licenses and other revenues represent amounts earned for granting customers
licenses to use our software products. Licenses and other revenues were $150.6
million, $166.2 million, and $132.1 million for the years ended December 31,
1999 and 1998, and the nine months ended December 31, 1997, respectively.
Licenses and
12
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other revenues represented 86%, 88%, and 91% of total revenue for the years
ended December 31, 1999 and 1998, and the nine months ended December 31, 1997,
respectively. License revenue for the year ended December 31, 1999 decreased
approximately 9% from the prior year primarily due to a decrease in enterprise
revenue from large original equipment manufacturer sales. While revenues from
development tools for the year ended December 31, 1998 remained relatively
consistent year over year, revenues from our Java language products increased.
The increase in Java language products was offset by declines in C++Builder and
other, non-strategic products.
Service revenue represents amounts earned for support, consulting and
education services for software products. Net service revenues were $24.3
million, $22.9 million, and $13.9 million for the years ended December 31, 1999
and 1998, and the nine months ended December 31, 1997, respectively. Service
revenue represented 14%, 12%, and 9% of total net revenue for the years ended
December 31, 1999 and 1998, and the nine months ending December 31, 1997,
respectively. This increase in service revenue is primarily related to the
increase in consulting revenues as we have focused on consulting services
related to enterprise sales. Additionally, we acquired two professional service
firms in the last quarter of 1998 and first quarter of 1999, respectively.
Gross Margins
Gross margins were 76%, 84%, and 82% for the years ended December 31, 1999
and 1998, and the nine months ended December 31, 1997, respectively. Gross
margins in the fiscal year ended December 31, 1999 decreased principally due to
the increase in consulting services. Service costs increased in 1999
principally due to increased consulting personnel. We expect to continue to
invest in the consulting and training portion of our business. We expect a
delay between the hiring of new service personnel and corresponding service
revenue earned through the deployment of new personnel. Cost of service revenue
as a percentage of service revenue may also vary between periods due to the
combination of services that we provide to customers and the extent to which
employees or contractors are used to provide those services.
Research and Development
Research and development expenses for the years ended December 31, 1999 and
1998 and the nine months ended December 31, 1997 were $42.3 million, $47.3
million and $38.2 million, respectively. Such expenses were 24%, 25% and 26% of
revenues for the years ended December 31, 1999 and 1998 and the nine months
ended December 31, 1997, respectively. Our investment in research and
development resulted in several new products and new versions of products. As
part of its efforts to attract and retain key employees, we have adopted
certain special bonus and retention programs. Such programs may have the effect
of increasing our research and development expenses.
Selling, General and Administrative
Selling, general and administrative expenses were $123.5 million, $112.8
million, and $86.5 million for the years ended December 31, 1999 and 1998, and
the nine months ended December 31, 1997, respectively. Such expenses were 71%,
60% and 59% of revenues for the years ended December 31, 1999 and 1998, and the
nine months ended December 31, 1997, respectively. Selling, general and
administrative expenses increased from prior years principally due to an
increase in the aggregate number of employees and increased depreciation and
amortization costs associated with new information systems implemented in late
1998.
Restructuring, Merger and Other Non-Recurring Charges
During December 1999, we recorded a restructuring charge of $34.8 million.
The restructuring charge consisted primarily of a write-down for the sale of
the Scotts Valley facility of $29.7 million, which was consummated on March 17,
2000; a $3.1 million charge for discontinuation of the European information
system implementation and other miscellaneous restructuring related costs of
$3.1 million. In addition the Company recorded a charge of $3.0 million for
severance costs associated with organizational changes
13
<PAGE>
implemented during the fourth quarter. The Company expects to pay these costs
over the next year. Terminations represented approximately 5% of the total
employee workforce as of December 31, 1999. These charges were offset, in part,
by the reversal of restructuring charges totaling $4.1 million, that were taken
in both the first quarter of 1999 and 1998, which will not be utilized.
In January 1999, we announced the restructuring of its corporate operations.
A restructuring charge of $7.0 million was recorded during the quarter ended
March 31, 1999 of which $6.7 million related to severance costs associated with
the elimination of duplicate workforce and $0.3 million related to termination
of certain lease agreements.
In conjunction with the acquisition of Visigenic, we implemented a worldwide
realignment of our corporate structure. In the year ended December 31, 1998, we
recorded a $19.3 million restructuring and merger related charge of which $9.9
million related to severance costs associated with the elimination of a
duplicate workforce, $3.2 million to termination of certain lease agreements
and the write-off of certain fixed assets and $2.5 million to other costs
associated with the restructuring. Additionally, we charged to income
approximately $3.7 million in expenses associated with the acquisition. As part
of the 1998 restructure, we had recorded a restructuring charge of
approximately $3.4 million for severance costs associated to the anticipated
closure of certain operations. As of December 31, 1998, we did not anticipate
any further severance costs associated to these operations. Accordingly, we
reversed the charge during the quarter ended December 31, 1998.
Cross Patent and Technology License
In June 1999, the Company and Microsoft Corporation entered into a set of
technology cross-license agreements. Microsoft also paid the Company $100
million for the rights to use Inprise patented technology in Microsoft products
and in settlement of a number of long standing patent and technology licensing
issues.
Gain on Sale of Corporate Assets
We held a minority common stock interest in Starfish Software, Inc. On
September 23, 1998, Motorola, Inc. completed the acquisition of Starfish
Software, Inc. The acquisition involved a combination of cash and Motorola Inc.
common stock, part of which was withheld in escrow. Based upon the cash and
common stock consideration received or released from escrow, we recorded gains
of approximately $2.9 million and $16.6 million during the years ended December
31, 1999 and 1998, respectively.
On March 17, 2000, the Company completed the sale of our corporate
facilities to Enterprise Way Associates, LLC as assignee of the
ScalanKemperBard companies. We received approximately $44.1 in consideration
for the facility. Consideration in the transaction was net of $2.5 million held
in escrow to cover potential costs to improve the building and $0.4 million in
other disposal costs. We recorded a write-down of the corporate facility of
$29.7 million during the quarter ended December 31, 1999. As of December 31,
1999, the net book value of the facility, including land and improvements, was
$44.1 million, inclusive of the write down of $29.7 million for the corporate
facilitiy recorded during the quarter ended December 31, 1999. In conjunction
with the sale of the facility, we entered into a long-term lease arrangement to
use approximately 44% of the building for corporate purposes.
With the completion of the sale of the building on March 17, 2000, we expect
a reduction in operating expenses in the range of $1.5 million to $2.0 million
for the balance of the year ending December 31, 2000. Additionally, we expect
to generate approximately $1.5 million in additional interest income for the
year ending December 31, 2000 from the consideration received from the sale. We
expect that the costs saving beyond the year ending December 31, 2000 on an
annualized basis will be lower as we will incur additional costs under the
lease arrangement. The financial benefit from these cost savings for future
periods may differ significantly from these estimates, as management may elect
to reinvest the amounts received from the sale in the Company.
14
<PAGE>
Income Taxes
On a consolidated basis, the Company generated a pre-tax profit of
approximately $31.4 million and $4.0 million for the years ended December 31,
1999 and 1998, respectively. The Company incurred pre-tax loss of approximately
$2.8 million for the nine months ended December 31, 1997. The Company recorded
an income tax provision (benefit) of approximately $8.7 million, ($4.4 million)
and $1.1 million for the years ended December 31, 1999 and 1998 and nine months
ended December 31, 1997, respectively.
The Company's income tax provision for the year ended December 31, 1999
differs from the statutory tax rate principally due to state taxes, the
utilization of net operating loss carryforwards and withholding taxes that are
imposed regardless of the Company's profitablilty. During the year ended
December 31, 1998 the Company recorded an income tax benefit from settlements
with the U.S. Internal Revenue Service and the conclusion of certain non-U.S.
tax audits for the years ending in 1984 through 1992.
For U.S. federal income tax purposes, the Company has net operating loss
carryforwards of approximately $204 million at December 31, 1999. There are
also available U.S. federal tax credit carryforwards of approximately $23
million. These loss and credit carryforwards expire between 2000 and 2014, if
not utilized. The Company also has Alternative Minimum Tax (AMT) credit
carryforwards for U.S. federal income tax purposes of approximately $2 million,
which do not expire. Utilization of federal and state net operating loss and
tax credit carryforwards may be subject to a substantial annual limitation due
to the ownership change limitations provided by the Internal Revenue Code of
1986, as amended, and similar state provisions. The annual limitation may
result in the expiration of net operating loss and tax credit carryforwards
before full utilization. The Company also has approximately $12 million of net
operating loss carryforwards in various foreign jursidictions. Certain of these
loss carryforwards will begin to expire in 2000, if not utilized.
Deferred tax assets and related valuation allowances of approximately $37
million relate to certain U.S. operating loss carryforwards resulting from the
exercise of employee stock options, the tax benefit of which, when recognized,
will be accounted for as a credit to additional paid-in capital rather than a
reduction of the income tax provision.
Litigation
Please see Item 3, Legal Proceedings, for a description of current
litigation.
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments were $197.7 million at
December 31, 1999, an increase of $113.3 million from a balance of $84.4
million as of December 31, 1998. Working capital increased from $61.5 million
as of December 31, 1998 to $155.5 million as of December 31, 1999.
Net cash provided by operating activities during the year ended December 31,
1999 was $82.4 million. Cash from operating activities primarily related to the
Microsoft patent cross license agreement signed in 1999 totaled $100 million.
Net cash paid for severance and facilities costs associated with prior
restructuring was approximately $5.7 million.
Net cash used by investment activities during the year ended December 31,
1999 was $7.3 million, which was principally related to the acquisition of
property and equipment. Cash provided by financing activities of $35.9 million
in 1999 consisted primarily of the issuance of Series C preferred stock for
$25.0 million and the issuance of common stock in connection with the exercise
of employee stock options of $15.8 million. This was offset by the repurchase
of 1.0 million shares of common stock for $4.9 million.
On March 17, 2000, we received approximately $39.7 million in cash from the
sale of the corporate facility in Scotts Valley, California. Proceeds were net
of $3.7 million in security deposit on the long-term lease, $2.5 million in
reserve for potential improvements to the building, and $1.1 million in tenant
rental prepayments and other closing costs.
15
<PAGE>
Currency fluctuations did not have a significant impact on our cash position
(U.S. dollar) during the year ended December 31, 1999. We cannot predict the
impact such fluctuations might have on its future cash flows and there can be
no assurance that foreign exchange rates will not have a material impact on
future cash flows.
We believe that our existing cash balances and funds expected to be provided
by operations will be sufficient to finance its working capital requirements at
least through the calendar.
Factors That May Affect Future Results and Market Price of Stock
Our Company operates in a rapidly changing environment that involves many
risks, some of which are beyond our control. The following is a discussion that
highlights some of these risks.
Risks Associated with Plan to Merge with Corel Corporation
We entered into a merger agreement with Corel on February 6, 2000. The
merger is contingent, among other things, on the expiration or early
termination of the waiting period under the Hart Scott Rodino Antitrust
Improvements Act of 1976 and on approval by Corel stockholders and our
stockholders. There can be no assurance that the merger will be approved by the
requisite vote of either our stockholders or Corel's stockholders. In addition,
if the merger agreement is terminated under certain circumstances, including,
among others, where another party has made an alternative acquisition proposal
to acquire Inprise, or if the Inprise board withdraws or changes in a manner
adverse to Corel its approval or recommendation of the merger agreement or the
merger, Inprise may be required to pay Corel a termination fee of $29.5
million. Under such circumstances, Corel would also be able to exercise its
option to purchase up to 12 million shares of Inprise common stock
(approximately 19.7% of Inprise common shares) at an exercise price of $14.94
per share, subject to adjustment, provided that the maximum profit that Corel
can obtain pursuant to the option is aggregated with the termination fee
payable to Corel and the aggregate amount is limited to $30 million.
If the merger is approved and completed, there are business risks related to
it. Such risks include the failure to successfully integrate and manage
acquired technology, operations and personnel; the loss of key employees of the
acquired companies and diversion of our management's attention from other
ongoing business concerns; and the risk of significant charges for in-process
research and development or other matters. Any of these factors could have a
material adverse effect on our operating results.
There are risks to our business if the merger is not consummated resulting
from the distraction of our management team, and the loss of key personnel and
the loss of customers as a result of the uncertainties created. Any of these
factors could have a material adverse effect on our business and operating
results.
We Have a History of Declining Revenue and Operating Losses
We recorded an operating loss of $40.6 million for the quarter ended
December 31, 1999, and a recorded an operating loss of $82.9 million for the
fiscal year ended December 31, 1999. The operating loss for the quarter and the
year ended December 31, 1999 include restructuring and one-time charges
totalling $34.8 million and $50.0 million respectively. We have had operating
losses in five of the past six fiscal years.
Our ability to achieve revenue growth and profitability in the future is
dependent on our success in selling our products and services while, at the
same time, reducing our operating expenses. Our future profitability is
dependent, among other things, upon our ability to:
. introduce new products and services successfully;
. achieve market acceptance of our products and services;
. implement restructuring and cost control measures from time to time; and
. integrate the products and operations of acquired companies
successfully.
If we are unable to accomplish these objectives, we will be unable to
achieve revenue growth and profitability in future periods.
16
<PAGE>
We Depend on Key Personnel
We believe that our future success will depend, in large part, on our
ability to recruit and retain qualified employees, particularly highly skilled
software engineers and management personnel. Competition for such personnel is
intense, particularly in Northern California where our operations are based,
and we may not be successful in retaining or recruiting such personnel.
Our Interim President and Chief Executive Officer entered into an
employment agreement dated April 9, 1999, the term of which expired on October
9, 1999. There is no assurance that he will continue in his position or that
we would be able to find a replacement should he leave our employment.
In the current year, we have lost a number of management personnel and
other key employees. As a result, we have instituted retention programs to
retain key employees. We have increased compensation, bonuses, stock options
and other fringe benefits in order to attract and retain management and other
key personnel. We may be required to further increase such compensation and
benefits. We are not certain that these efforts will succeed in retaining our
key employees, and failure to attract and retain key personnel could
significantly harm our business.
Unpredictability of Future Revenues: Potential Fluctuations in Quarterly
Operating Results and Seasonality
Our quarterly operating results have varied significantly in the past. We
expect that our operating results will continue to vary significantly from
time to time. We believe that these variations may result from many factors
already described and including, but not limited to, any of the following
factors:
. introduction of new products;
. the overall level of demand for our products;
. the size and timing of significant orders and their fulfillment;
. the number, timing and significance of product enhancements and new
product announcements by us and our competitors;
. changes in pricing policies by us or our competitors;
. customer order deferrals in anticipation of enhancements or new products
offered by us or our competitors;
. deferral of customer orders based on their uncertainty about our short-
term and long-term prospects;
. product release cycles of existing products;
. product defects and other product quality problems;
. seasonal trends; and
. general domestic and international economic and political conditions.
An additional risk factor is the lengthening of our sales cycle. We expect
that a significant percentage of our future revenue will be from large orders.
These large sales typically contain multiple elements, including licenses for
development and deployment products, technical support, maintenance,
consulting and training services. The revenue from a large order is typically
recognized over time, instead of all at the time that order is placed. For
example, when the contract is signed, the license and deployment fees may be
recognized as revenue. However, revenue related to further services, such as
technical support and consulting services, must be deferred until the services
are rendered. The timing of recognition of revenue associated with larger
sales may have a material affect on our business, operating results and
financial position.
Furthermore, many customers place orders toward the end of a given quarter,
therefore revenues can be difficult to predict. Costs are based on projected
revenues and are relatively fixed in the short term. Therefore, if revenue
levels fall below projections, net income may be significantly reduced or we
may experience a loss.
17
<PAGE>
We cannot be certain that we will be able to maintain profitability on a
quarterly or annual basis. It is likely that in some future quarters, our
operating results will be below our expectations as well as those of public
market analysts and investors. In such case, the price of our common stock may
be materially and adversely affected.
Risks in Transition to Direct Sales, Lengthy Sales Cycles and Systems
Implementation Selling
Selling enterprise software products directly to our customers entails sales
cycles that are substantially more lengthy and more uncertain than those
associated with our traditional business of selling desktop software through
retail channels. Customers for enterprise products are predominately larger
companies, institutions, and government entities. These customers generally
commit significant time and resources to evaluating enterprise software, and
they require us to expend substantial time, effort and money educating them
about our software products and solutions. As a result, sales to these types of
customers generally require an extensive sales effort throughout the customer's
organization, and they often require final approval by an executive officer or
senior level employee. All of these factors substantially extend the sales
cycle and increase the uncertainty of whether a sale will be made. We have
experienced and expect to continue to experience delays and uncertainty in the
sales cycle as well as increased expenses for these sales.
We need to extensively train and effectively manage our sales personnel,
invest additional resources in the sales effort, and educate our authorized
resellers in international markets. Because we recently began making enterprise
sales in non-US markets, there can be no assurance that we will successfully
complete our transition to the direct sales model outside of the U.S. Our
failure to do so could significantly harm our business.
We have added trained technical personnel to assist our customers in
implementing our enterprise software products. Personnel with sufficient
expertise and experience for these positions are in great demand, and we may
not be able to attract or retain a sufficient number of qualified personnel.
Our failure to do so could significantly harm our business.
We have made changes to our sales compensation programs in recent years in
an effort to increase sales. There can be no assurance, however, that they will
be successful in achieving this result in the long-term, and such changes could
significantly harm our revenues and sales related expenses.
Risks Related to New Product Introductions; Rapid Technological and Market
Changes
The market for our products is highly competitive and is characterized by
continuous technological advancement, evolving industry standards and changing
customer requirements. Our future ability to generate revenue will depend
substantially on our ability to successfully design and market new products and
upgrades of our current products for existing and new computer platforms and
operating environments that anticipate the requirements of this market.
We face a number of inherent risks in the current market environment,
including, but not limited to, the following:
. we may introduce products later than we expect or later than
competitors' introductions;
. competitors may introduce competing products at lower prices;
. product upgrades, which enable users to upgrade from earlier versions of
our products or competitors' products, have lower prices and margins
than new products; and/or
. the acceptance of our new products is highly dependent, in part, on the
continued adoption of the Internet as a new computing paradigm, the
increased use of the Java programming language; and the adoption of the
Linux operating system.
From time to time, we announce when we expect to begin shipping a new
product. In the past, some of our products have shipped later, and sometimes
substantially later, than when we originally expected. The loss
18
<PAGE>
of key employees may increase the risk of these delays. Some of our products
are based on technology licensed from third parties. We have limited control
over when and whether these technologies are upgraded. The failure or delay in
enhancements of technology licensed from third parties could have a material
adverse effect on our ability to develop and enhance our products. Due to these
uncertainties inherent in software development, it is likely that these risks
will materialize from time to time in the future. We could lose customers as a
result of substantial delays in the shipment of new products or product
upgrades. Substantial delays could also render our products technologically
obsolete and significantly harm our business.
Risks of Entering a New Business Area
Our strategy is to focus on enterprise customers, software developers, and
the Internet and corporate Intranet markets. Our sales are dependent on these
enterprise customers' adopting distributed object technology for information
processing and the Internet and corporate Intranets for commerce and
communications. Concerns about the Internet and corporate Intranets including
security, reliability, cost, ease of use and access and quality of service, may
inhibit the adoption of this technology by potential customers, thereby harming
our business.
Our distributed object software products are based on several standards,
including the Common Object Request Broker Architecture, or CORBA, and Extended
Markup Language, or XML. These standards guide the development and management
of applications created in object oriented programming languages such as C++
and Java. These new standards are just beginning to gain widespread acceptance,
and they compete with proprietary solutions such as Microsoft's ActiveX and
DCOM. The distributed object software market is relatively young, and there are
few proven products. Some of our VisiBroker products are designed specifically
for use in applications for the Internet and corporate Intranets. If CORBA is
not adopted, or is adopted more slowly than anticipated, or if our potential
customers select products based on other standards, our business would be
harmed.
We are investing time and resources in developing products for the Linux
operating system. Linux is a new operating system and has yet to be adopted on
a widespread basis. At this time, there are few commercially viable products
that operate on the Linux operating system. If Linux is not adopted, or is
adopted more slowly then anticipated, our investments in Linux technology may
not generate the anticipated return, and as a result our business could be
materially adversely effected.
As a newcomer to these markets, we face a number of risks including:
. the new and evolving nature of the markets themselves;
. our need to make choices regarding the operating systems, database
management systems and server software on which to focus;
. the ongoing transition and investment of our resources for this segment;
. our limited experience in this area; and
. the presence of several very large and well-established businesses, as
well as a number of smaller successful companies, which are already
competing in this market.
There can be no assurance that we will be successful in these new markets.
Risks with New Business Practices, Processes and Information Systems
In order to remain competitive, we are continually seeking to improve our
business processes and information systems. During 1998 and 1999, we began a
company-wide implementation of new business processes and new information
systems in an effort to optimize usage of system capabilities, enhance user
skills surrounding system features, and reduce runtime errors. The complexity
of the new systems will require us to invest in substantial employee training.
There may also be delays or unexpected costs during the implementation. Delays
in training or implementation or unexpected costs associated with our new
systems could adversely affect our business.
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Risks Related to Restructuring
In response to significant losses from operations, we implemented a
restructuring and realignment of operations in 1998 and 1999. These
restructurings resulted in significant reductions in workforce and other
ongoing costs. Given the extent of the restructuring that we have undertaken,
we are uncertain that the remaining resources are sufficient for us to return
to consistent revenue growth or profitability, nor can we be certain that we
will realize the cost savings which the restructurings were designed to
produce.
Extremely Competitive Industry
The computer software industry is an intensely competitive industry. Rapid
change, new and emerging technologies and fierce competition characterize the
industry. The pace of change has accelerated due to the emergence of the
Internet and corporate Intranets, programming languages, such as Java, and
operating systems such as Linux.
Our development tools and distributed objects products compete with products
offered by a number of companies, including but not limited to Computer
Associates, Microsoft, Oracle, Sun, Sybase, Symantec and IBM. In the standards-
based distributed object market, we compete primarily with BEA Systems and Iona
Technologies. These products also compete against existing or proposed
distributed object solutions from hardware vendors such as Hewlett-Packard, IBM
and Sun.
In addition, we are dependent upon and in competition with operating systems
vendors. To the extent that we are unable to obtain information regarding
existing and future operating systems from the developer of such systems, the
release of our products for such systems may be delayed or may not be
competitive. For example, Microsoft, a significant competitor, is the developer
of the Windows operating environments. Microsoft has announced that it intends
to include certain middleware functionality in future versions of its Windows
2000 operating system. Microsoft has also introduced a product that includes
certain basic application server functionality. The bundling of competing
functionality in versions of Windows products requires us to compete with
Microsoft in the Windows marketplace where Microsoft has certain inherent
advantages due to its significantly greater financial, technical, marketing and
other resources, greater name recognition, substantial installed base and the
integration of its middleware functionality with Windows. We need to
differentiate our products from Microsoft's based on scalability,
functionality, interoperability with non-Microsoft platforms, performance and
reliability as well as to establish that our products provide more effective
solutions to customers' needs. There can be no assurance that we will be able
to differentiate our products successfully from those offered by Microsoft, or
that Microsoft's entry into the middleware market will not harm this portion of
our business.
Some of our competitors have substantially greater financial, management,
marketing and technical resources than we have. Many of our competitors have
well-established relationships with our current and potential customers. They
also have extensive knowledge of the markets, extensive development, sales and
marketing resources, and they are capable of offering single vendor solutions.
In particular, operating system vendors such as Hewlett-Packard, IBM, Microsoft
and Sun may offer similar products bundled with their own operating systems.
For example, Microsoft has introduced DCOM for Microsoft operating systems. In
the past, some of our competitors have utilized their greater resources to
provide substantial signing bonuses and other inducements to lure away our
management and other key personnel.
Some of our products are targeted at the emerging market for standards-based
distributed object software products. These markets are intensely competitive.
We believe that our product quality, performance and price, vendor and product
reputation, product architecture and quality of support make us competitive in
these markets. However, because there are relatively low barriers to entry in
these markets, we expect additional competition from other established and
emerging companies. Increased competition could result in price reductions,
fewer customer orders, reduced gross margins and loss of market share. Any one
of these results could materially adversely affect our business, operating
results and financial condition.
20
<PAGE>
It is possible that current and new competitors may form alliances to gain
significant market share. Some of our competitors have offered to license
software for free to gain competitive advantage. This kind of competition could
materially adversely affect our ability to sell additional licenses and
maintenance and support renewals on profitable terms. Competitive pressures
could require us to reduce the price of our products and related services. We
are not certain that we will be able to compete successfully against current
and future competition. The failure to compete successfully would have a
material adverse effect on our business, operating results and financial
condition.
We need to differentiate our products from our competitors' products based
on functionality, interoperability, developer productivity, performance and
reliability. There can be no assurance that we will be able to successfully
differentiate our products from our competitors.
Commercial acceptance of our products and services is also dependent on the
perception of our Company. Successful marketing of our products and promotion
of our Company are important to our success. There can be no assurance that our
efforts will be successful. In addition, critical or negative statements made
by brokerage firms, industry and financial analysts, and industry periodicals
about our Company, our products, or our business could negatively impact
customer perception. Similarly, negative advertising or marketing efforts of
our competitors could affect customer perception. If the customers' perception
of us becomes negative, this could have an adverse impact on our business,
operating results and financial condition.
We face intense competition in the development and marketing of Internet and
corporate Intranets, middleware and development software. We are not certain
that we will be able to compete effectively for Internet and corporate
Intranets, on-line services, electronic commerce business opportunities as they
arise.
Dependence on Third Party Licenses
We are dependent on licenses from third party suppliers for some elements of
our products. If any of these licenses were terminated or were not renewed, or
these third parties failed to develop new or updated products in a timely
manner, we might not be able to ship some of our products. We would then have
to develop an alternative to the third party's product. This could result in
delays, increased costs or reduced functionality of our products and could have
a material and adverse impact on our business, operating results and financial
condition.
Risks of Regulation of the Internet and Electronic Commerce
We intend to expand our business through e-commerce on the Internet. The
electronic commerce market is new and rapidly evolving. Currently, there are
few laws or regulations that directly apply to access or commerce on the
Internet. Changes in laws or regulations governing the Internet and electronic
commerce could have a material adverse effect on our business, operating
results and financial condition.
Risks Associated with Our Dependence on Java and Encryption Technology
Some of our products are based on Java, an object-oriented software
programming language developed by Sun Microsystems. Java is a relatively new
language and was developed primarily for Internet and corporate Intranet
applications. It is still too early to determine whether Java will become a
widely adopted technology. At this time, there are a limited number of Java-
based products. Alternatives to Java have been announced by several companies,
including Microsoft. If Java is not adopted widely, or is adopted more slowly
than anticipated, there could be a material adverse effect on our business.
We will use encryption technology in some of our future products to provide
security for the exchange of confidential information. Encryption technologies
have been breached in the past. There can be no assurance that there will not
be a compromise or breach of our security technology. If any such breach were
to occur, it could have a material adverse effect on our business.
21
<PAGE>
Risks of Using Retail Distribution Channels
A significant portion of our sales are made through retail distribution
channels. Demand in these channels fluctuate based on customer demand. Our
retail distributors also carry the products of competitors. Some of our retail
distributors have limited capital to invest in inventory. Their decision to
purchase our products is based on a combination of demand for our products, our
pricing, terms and special promotions we offer.
Our net revenues and earnings may be affected by a practice called "channel
fill." Channel fill occurs when a distributor purchases more product than it
expects to sell in anticipation of price changes, sales promotions or
incentives. After we announce a new version or new product and prior to the
date of product availability, distributors, dealers and end users often delay
purchases, cancel orders or return products in anticipation of the availability
of the new version or product. We try to mitigate the negative effect of this
pattern by deferring recognition of revenue associated with distributors' and
resellers' inventories that are in excess of appropriate levels. However,
channel fill may still affect our net revenues, particularly during periods
where we announce several new products at the same time.
When we introduce new versions of our products, our distributors return
their inventories of the older versions. Our return policy allows our
distributors, with some limitations, to return products in exchange for credit
or toward new products. Similarly, end users may return products through
dealers and distributors within a reasonable period from the date of purchase
for a full refund. Retailers may then return the older versions to us. We
estimate and maintain reserves for product returns. However, future product
returns could exceed our reserves, and this could have a material adverse
effect on our business.
Risks of Reliance on VARs & ISVs
A part of our strategy is to embed and bundle our technology in the products
offered by value-added-resellers, or VARs and independent software vendors, or
ISVs, such as Cisco, Hewlett-Packard, Hitachi, Microsoft, Netscape, Novell and
Oracle. In the past, a small number of VAR and ISV customers accounted for a
significant percentage of VisiBroker or enterprise product sales and revenue.
For these sales, the pricing and discount terms and conditions of our
license agreements are negotiated and vary among our customers. Most of our
license agreements with these customers are non-exclusive and do not require
them to recommend or offer our products exclusively. Many of our agreements do
not require our customers to make minimum purchases. We have virtually no
control over the shipping dates or volumes of systems shipped by our customers.
Many of the markets for the VAR and ISV products are new and evolving.
Therefore, we cannot predict that these customers will purchase our technology
for their products in the future. If we are not successful with our current
customers or in continuing to secure license agreements with additional VARs
and ISVs on profitable terms, our business, financial condition and results of
operations could be materially adversely affected.
Risks Associated with International Operations and Sales
A substantial portion our revenue is from international sales. There are
inherent risks in doing business internationally. Some of these risks include
the following:
. general economic conditions in each country;
. seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world;
. the difficulty of managing an organization spread over various
countries;
. fluctuations in currency exchange rates;
. longer payment cycles in certain countries;
22
<PAGE>
. export restrictions, tariffs and other trade barriers;
. changes in regulatory requirements;
. compliance with different laws and regulations;
. overlap of different tax structures; and
. political instability.
One or more of these risk factors could have a material adverse effect on
our future international operations and, consequently, on our business,
operating results and financial condition. In addition, our subsidiaries
generally operate in local currencies, and their results are translated
monthly into US dollars. If the value of the US dollar increases significantly
relative to foreign currencies, our business, operating results and financial
condition could be materially adversely affected.
Risks of Software Defects and Liability Claims
Software products occasionally contain errors or defects, especially when
they are first introduced or when new versions are released. We have not
experienced any substantial problems to date from potential defects and
errors. We routinely test our new products and new versions for defects and
errors. We cannot be certain, however, that our products are completely free
of defects and errors. The discovery of a defect or error in a new version or
product may result in the following:
. delayed shipping of the product;
. immediate loss of revenue;
. delay in market acceptance;
. diversion of development resources;
. damage to our reputation; and
. increased service and warranty costs.
These factors could materially and adversely affect our business, operating
results and financial condition.
Most of our license agreements contain provisions designed to limit our
liability for potential product liability claims. It is possible, however,
that these provisions may not protect us because of existing or future
federal, state or local laws or ordinances or judicial decisions. A successful
product liability claim for large damages brought against us could have a
material adverse effect on our business, operating results and financial
condition.
Protecting Our Intellectual Property Rights
As a technology company, our intellectual property rights are among our
most valuable assets. We rely on a combination of patent, copyright,
trademark, and trade secret laws, non-disclosure agreements and other methods
to protect our proprietary technology. Although we try to protect our
technology, it may be possible for an unauthorized third party to reverse
engineer our products, or copy, obtain and use our proprietary technology. In
addition, the intellectual property laws of some foreign countries are not as
protective as the laws of the United States. Accordingly, we cannot be certain
that we will be able to protect our proprietary technology against
unauthorized third party copying or use that could materially and adversely
affect our competitive position.
From time to time, we receive a notice claiming that we have infringed a
third party's patent or other intellectual property right. We expect that
software products in general will increasingly be subject to such claims as
the number of products and competitors increase and the functionality of
products overlap. Regardless of the merit of a claim, responding to any claim
can be time consuming and costly. A successful
23
<PAGE>
claim could result in significant monetary damages or require us to enter into
royalty and licensing agreements that might not be offered or available on
acceptable terms. If a successful claim were made against us and we failed to
commercially develop or license a substitute technology, our business could be
harmed.
Risks of Anti-takeover Provisions
In December 1991, we implemented a stockholder rights plan to protect the
stockholders in the event of a proposed takeover that has not been recommended
or approved by the Board of Directors. Our stockholder rights plan and certain
provisions of our Certificate of Incorporation may discourage or prevent an
actual or potential change in control of our Company. These limitations may
limit the stockholders' ability to approve transactions that they may deem to
be in their best interests. In addition, our Board of Directors has the
authority to fix the rights and preferences of, and issue shares of, preferred
stock without action by the stockholders. This may have the effect of delaying
or preventing a change in control of our Company.
Under the stockholder rights plan, each share of our outstanding common
stock carries one preferred share purchase right which governs our stockholder
rights plan. Each right entitles the holder; under certain circumstances, to
purchase common stock at a 50% discount from our then current market price.
The rights are redeemable at a nominal price and expire in 2001.
Effective as of February 6, 2000, the stockholder rights plan was amended
in order to, among other things, prevent the transactions contemplated by the
merger agreement and the related option agreement providing for the grant by
Inprise to Corel of options to purchase up to 12 million shares of Inprise
common stock from causing the rights to become exercisable.
Potential Dilutive Effect of Conversion and Additional Issuance of Series C
Preferred Stock ("Series C Stock")
Each share of Series C Stock is convertible, at the option of the holder,
after a two year holding period, or when the business liquidates, or in the
event of a transaction such as the merger with Corel. The shares are
convertible, based on a fixed conversion ratio, into fully paid and non-
assessable shares of common stock. The conversion ratio is subject to
adjustments for stock splits or other capital reorganizations. As of December
31, 1999, 6,720,430 shares of our common stock were reserved for issuance upon
the conversion of the Series C Stock to shares of common stock. The Series C
Stock automatically converts upon consummation of the merger with Corel.
Risks Associated with Potential Business Combinations
As a part of our business strategy, we may make acquisitions of businesses,
products or technologies in the future. We will review potential acquisition
prospects with the following goals in mind:
. complement our existing product offerings;
. augment our market coverage;
. enhance our technological capabilities; or
. offer growth opportunities.
There may be substantial costs associated with acquisitions including
dilutive issuance of equity securities, incurring of debt, acquiring of
contingent liabilities, and amortization of expenses related to goodwill and
other intangible assets. Acquisitions entail numerous risks, including
difficulty in the assimilation of operations, technologies and products.
Acquisitions divert the attention of management from other business concerns.
An acquisition in a new area risks entering markets where we have no or
limited prior experience as well as potential loss of key employees of the
acquired organization. Any one of these risks if realized, could negatively
impact our operating results and/or the market price of our common stock. We
cannot be certain of our ability to successfully integrate any businesses,
products, technologies or personnel acquired. Failure to do so in an
acquisition could negatively affect our business, financial condition and
operating results.
24
<PAGE>
Extreme Volatility of Stock Price
Like the publicly-traded securities of other high technology companies, the
market price of our common stock has experienced significant fluctuations and
may continue to be extremely volatile. During the period from January 1, 1999
to March 15, 2000, the sales price of our common stock has ranged from a high
of $20.00 to a low of $2.69. The market price of our common stock may be
significantly affected by factors such as the following:
. announcements of new products or product enhancements by us or our
competitors;
. technological innovation by us or our competitors;
. quarterly variations in our results of operations or those of our
competitors;
. changes in the prices of our products or those of our competitors;
. changes in revenue and revenue growth rates for us as a whole or for
specific geographic areas, business units, products or product
categories;
. changes in earnings estimates by market analysts;
. speculation in the press or analyst community; and
. general market conditions or market conditions specific to particular
industries.
Impact of Year 2000 Date Transition
This section is a Year 2000 Readiness Disclosure pursuant to the Year 2000
Information and Readiness Disclosure Act of 1998.
We currently know of no significant year 2000-related failures occurring in
either our products or our internal systems as a result of the date change from
December 31, 1999 to January 1, 2000.
We have addressed a broad range of issues associated with the programming
code in existing computer systems. The "Year 2000" problem is complex, as some
computer systems have been affected in some way by the rollover of the two-
digit year value to 00. Systems that do not properly recognize such information
could generate erroneous data or cause a system to fail. The Year 2000 issue
creates risks for us from unforeseen problems in our products, our computer
systems, and from third parties on which we depend for financial and other
transactions worldwide. Failure of our, and or third parties' computer systems,
or Year 2000 issues in our products, could have a material adverse impact on
our ability to conduct business.
State of Readiness. We commenced a phased program to inventory, assess,
remediate, test, implement, and develop contingency plans for the following
three potential areas for impact:
1) software products offered to customers;
2) our internal hardware and software systems; and
3) third party readiness, i.e. the Year 2000 readiness of third parties
with whom we have significant business relationships.
Costs for our efforts to address Year 2000 readiness have not been
substantial and are largely absorbed within our existing engineering
expenditures. To date, these costs have not been reported separately and have
not been material. Our estimate of future costs is based on expectations of
future events. The actual costs could differ materially from our estimates.
There can be no assurance that our expectations will be accurate and
substantial increases in these costs could have a material adverse effect on
our business.
Product Readiness. We classified our products into the following categories
of Year 2000 readiness:
. ready,
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<PAGE>
. ready with issues,
. not ready, and
. will not be tested.
We generally believe that the most of our newly introduced products are Year
2000 ready. Some of our older products are not Year 2000 ready or will not be
tested. Where possible, we encouraged our customers to migrate to current
product versions. However, despite our analysis and review, it is possible that
our products may contain undetected errors or defects associated with Year 2000
date functions, that may result in material costs. Furthermore, use of our
products in connection with other products, that may or may not be Year 2000
ready, including hardware, software and firmware, may result in the inaccurate
exchange of date data resulting in performance issues and system failures. To
the extent our products or third party products that include our products,
prove not to be Year 2000 ready or in the event of disputes with customers
regarding whether our products are ready, our business, results of operations
and financial condition could be materially adversely affected.
Year 2000 readiness issues may give rise to legal claims. In our license
agreements with customers, we routinely disclaim all express and implied
warranties for such defects and/or limit our liability for such problems. We
are aware of a number of lawsuits against software vendors. Because of the
unprecedented nature of this kind of litigation, we are not certain to what
extent we may be affected. Legal claims against us could have a materially
adverse impact on our business, financial condition or results of operations.
Internal System Readiness. Prior to January 1, 2000, we had completed our
assessment of our own internal systems for handling the Year 2000. This
assessment included our own internal software as well as software and hardware
supplied by third party vendors. In addition to application and information
technology systems, we assessed our non-information technology systems,
including embedded systems, facilities and other operations, such as our
financial, banking, security and utility systems. Based on our assessments and
experience since January 1, 2000, we do not believe we will incur any material
costs or suffer any disruption as a result of Year 2000 issues. Nonetheless,
there can be no assurance that we will not experience significant business
disruptions or loss of business due to an inability to adequately address the
Year 2000 issue. As a result, our business, financial condition and results of
operation could be materially adversely affected.
Material Third-Party Readiness. We communicated with our key suppliers,
contract manufacturers, distributors, vendors and partners in order to
determine that their operations and the products and services that they provide
to us are Year 2000 ready. Where practicable, we attempted to mitigate our
risks with respect to the failure of third parties to be Year 2000 ready,
including developing contingency plans. However, such failures, including
failures of any contingency plan, remains a possibility and could have a
material adverse impact on our results of operations and financial condition.
Contingency Plans. Although we dedicated resources towards becoming Year
2000 ready, there is no assurance that we will be successful in our efforts to
identify and address all Year 2000 issues. Contingency plans were developed in
certain key areas to ensure that any potential business interruptions caused by
the Year 2000 issue were mitigated. Even though we have acted in a timely
manner, some Year 2000 issues may not have been identified or corrected in time
to prevent material adverse consequences to our business. We cannot guarantee
that the contingency plan has adequately address all circumstances that may
arise as a result of Year 2000 issues or that such planning will prevent
circumstances that may cause a material adverse effect on the operating results
or financial condition of the business.
Risk of Natural Disasters
Our corporate headquarters, including most of our research and development
operations, are located in Northern California, a region known for seismic
activity. Seismic activity, such as a major earthquake, could have a material
adverse impact on our business, financial condition and operating results.
26
<PAGE>
Selected Quarterly Data
Amounts in thousands, expect per share amounts, percentages and stock
prices:
<TABLE>
<CAPTION>
Three Months Ended (Unaudited)
--------------------------------------------
December 31, September 30, June 30, March
1999 1999 1999 31, 1999
------------ ------------- -------- --------
<S> <C> <C> <C> <C>
Net revenues.................... $ 45,474 $45,678 $ 40,239 $ 43,415
Gross profit.................... 35,483 35,346 29,795 32,239
Gain (loss) on sale of real
estate......................... (29,677) -- -- --
Income from patent cross license
agreement and other............ -- -- 105,065 --
Gain on long-term investment.... -- 1,453 -- 1,484
Other non-recurring charges..... -- -- -- 8,193
Net income (loss)............... (37,828) (1,419) 87,520 (25,589)
Income (loss) per share basic... (0.64) (0.03) 1.61 (0.54)
Income (loss) per share diluted
............................... (0.64) (0.03) 1.47 (0.54)
Shares used in computing basic
income (loss) per share........ 59,268 57,992 54,343 47,753
Shares used in computing diluted
income (loss) per share........ 59,268 57,992 59,634 47,753
<CAPTION>
Three Months Ended (Unaudited)
--------------------------------------------
December 31, September 30, June 30, March
1998 1998 1998 31, 1998
------------ ------------- -------- --------
<S> <C> <C> <C> <C>
Net revenues.................... $ 48,140 $47,963 $ 46,523 $ 46,486
Gross profit.................... 39,209 39,926 38,790 40,102
Gain (loss) on sale of real
estate......................... 1,135 -- -- --
Income from patent cross license
agreement and other............ -- -- -- --
Gain on long-term investment ... 1,533 15,439 -- --
Net income (loss)............... 3,499 16,405 1,884 (13,442)
Income (loss) per share--basic.. 0.07 0.32 0.04 (0.27)
Income (loss) per share--
diluted........................ 0.06 0.29 0.03 (0.27)
Shares used in computing basic
income (loss) per share........ 47,987 50,509 51,166 50,863
Shares used in computing diluted
income (loss) per share........ 55,233 56,812 57,572 50,863
</TABLE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to our operations result primarily from changes in
interest rates and foreign exchange rates, as well as credit risk
concentrations. To address the foreign exchange rate risk we enter into various
hedging transactions as described below. We do not use financial instruments
for trading purposes.
Foreign Currency Risk. We transact business in various foreign countries,
including Japan, Canada and certain countries within Europe and South East
Asia. We have established a foreign currency hedging program utilizing foreign
currency forward exchange contracts to hedge intercompany balances and other
monitory assets denominated in foreign currencies. The goal of the hedging
program is to offset the earnings impact of foreign denominated balances. We do
not use foreign currency forward exchange contracts for trading purposes. At
month end, the foreign denominated balances and the forward exchange contracts
are marked-to-market and unrealized gains and losses are included in current
period net income.
During the year ending December 31, 1999, we have recorded net foreign
exchanges losses of $0.6 million. It is uncertain that these currencies trends
will continue. If these currencies trends continue, we will continue to
experience foreign exchange losses on their intercompany receivables to the
extent that we have not hedged the exposure with foreign currency forward
exchange contracts. Such foreign exchange losses could have a materially
adverse affect on our operating results and cash flows.
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The table below provides information about our derivative financial
instruments, comprised of foreign currency forward exchange contracts. The
information is provided in U.S. Dollar equivalent amounts, as presented in our
financial statements. For foreign currency forward exchange contracts, the
table presents the notional amounts (at the contract exchange rates) and the
weighted average contractual foreign currency exchange rates as of December 31,
1999. All instruments mature within twelve months.
<TABLE>
<CAPTION>
December 31,
Average 1999
Notional Contract Estimated
Amount Rate Fair Value
----------- -------- ------------
<S> <C> <C> <C>
Foreign currency forward
exchange contracts:
Australian Dollar......... $ 6,133,770 1.58 $231,591
British Pound............. 1,723,763 0.62 16,340
Canadian Dollar........... 1,524,267 1.48 34,561
Italian Lira.............. 1,132,272 1,916 (3,827)
Hong Kong Dollar.......... 5,545,951 7.78 4,280
Dutch Guilder............. (6,450,503) 2.18 28,296
New Taiwan Dollar......... 2,028,076 31.70 19,703
Others.................... 2,722,817 10,570
----------- --------
Total................... $14,360,413 $341,514
=========== ========
</TABLE>
Interest Rate Risk. Our exposure to market risk for changes in interest
rates relates primarily to our investment portfolio. We do not use derivative
financial instruments in our investment portfolio. We place our cash
equivalents and short-term investments in a variety of financial instruments
such as commercial paper. We, by policy, limit the amount of credit exposure to
any one financial institution or commercial issuer.
We mitigate default risk by investing in only the safe and high credit
quality securities and by constantly positioning our portfolio to respond
appropriately to a significant reduction in the credit rating of any investment
issuer. The portfolio includes only marketable securities with active secondary
and resale markets to ensure portfolio liquidity.
We have no interest rate exposure due to rate changes for long-term debt
obligations. We primarily enter into debt and capital lease obligations to
financial capital expenditures. Such debt and capital lease obligations have a
fixed rate of interest.
The table below presents principal (or notional) amounts and related
weighted average interest rates by year of maturity for our investment
portfolio and debt obligations (dollar amounts in thousands).
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 Thereafter Total
-------- ---- ---- ---- ---- ---------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash Equivalents
Fixed rate................. $192,013 -- -- -- -- -- $192,013
Average interest rate...... 5.95% -- -- -- -- -- 5.95%
Short-term investments
Fixed rate................. $ 5,680 -- -- -- -- -- $ 5,680
Average interest rate...... 0.01% -- -- -- -- -- 0.01%
Long-term debt
Fixed rate................. $ 161 $180 $200 $222 $247 $8,904 $ 9,104
Average interest rate...... 10.75% -- -- -- -- -- 10.75%
</TABLE>
The short term investment balances are primarily invested in non-U.S.
countries, principally Japan.
Credit Risks. Our financial instruments that are exposed to concentrations
of credit risk consist primarily of cash equivalents and trade receivables. Our
cash equivalents are in high quality securities placed with major banks and
financial institutions. Concentrations of credit risk with respect to
receivables are limited due to the large number of customers and their
dispersion across geographic areas. We perform periodic credit evaluations
28
<PAGE>
of our customers' financial condition and generally do not require collateral.
One customer located in United States accounts for approximately 14% of total
accounts receivable. No other single group or customer represents greater than
10% of total accounts receivable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our financial statements included with this Form 10-K are set forth under
Item 14 hereof.
ITEM 9. CHANGES IN AND/OR DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors
Set forth below is certain information regarding the current directors of
Inprise.
<TABLE>
<CAPTION>
Director
Name Position with Inprise Age Since
---- --------------------- --- --------
<C> <S> <C> <C>
William F. Miller.. Chairman of the Board of the Company 74 1996
Dale Fuller........ Director, Interim President, and Chief Executive
Officer 41 1999
David Heller....... Director 55 1984
William Hooper..... Director 44 1999
</TABLE>
William F. Miller. Mr. Miller is the Herbert Hoover Professor Emeritus,
Graduate School of Business, Stanford University and President Emeritus of SRI
International. He is also Professor Emeritus of Computer Science, School of
Engineering, Stanford University. In 1990, Dr. Miller retired after 11 years as
President and CEO of SRI International. Until recently, he served on the board
of directors of Wells Fargo Bank and Co.; Varian Associates; Pacific Gas and
Electric Company; First Interstate Bancorp; and Fireman's Fund Insurance
Company. Mr. Miller currently serves on the board of a public company,
Women.com, as well as on the boards for the following private companies:
Sentius Corporation, X Peed Inc. and Data Digest Inc. Mr. Miller also serves on
the board for a non-profit company, Commerce Net.
Dale Fuller. Mr. Fuller joined Inprise in April 1999 as Interim President
and Chief Executive Officer. Prior to joining Inprise, Mr. Fuller was a private
investor from 1998 to 1999. From 1996 to 1998 Mr. Fuller served as Chief
Executive Officer at WhoWhere?, a leading Internet site. From 1995 to 1996 Mr.
Fuller served as General Manager and Vice President of the PowerBooks Division
at Apple Computer, a personal computer manufacturer. Prior to joining Apple
Computer, Mr. Fuller served as General Manager and Vice President of the
Portables Division at NEC, a personal computer manufacturer, from 1993 to 1995.
David Heller. Mr. Heller is a founder, and has served as a director and the
President since 1982 of Pacific Technology Capital Corporation, a corporate
finance advisory firm. Mr Heller also serves as a director of America West Golf
Manufacturing, Inc., a golf club manufacturing company and Intelliseek
Corporation, an Internet software company.
William Hooper. Mr. Hooper has been the President of Woodside Hotels and
Resorts Group Services Corporation, Monterey Plaza Hotel Corporation, Hillsdale
Park Hotel Corporation, and Monterey Hotel Peninsula Hotel Corporation since
1994 to the present. Mr. Hooper also serves on the board of directors for
several non-profit organizations.
29
<PAGE>
Executive Officers
The following sets forth certain information regarding the current executive
officers of Inprise.
<TABLE>
<CAPTION>
Name Position with Inprise Age
---- --------------------- ---
<C> <S> <C>
Dale Fuller (1)............. Interim President and Chief Executive
Officer 41
Frederick A. Ball........... Chief Financial Officer 37
Hobart McK. Birmingham (2).. Chief Administrative Officer 55
JoAnne M. Butler............ Vice President, General Counsel and
Secretary 45
John Walshe (3)............. Chief Operating Officer 46
</TABLE>
- --------
(1) Mr. Fuller's biographical information is provided above as a Director.
(2) Mr. Birmingham resigned as an Executive Officer as of March 17, 2000.
(3) Mr. Walshe's consulting relationship with the Company expired on March 31,
2000.
Frederick A. Ball. Mr. Ball joined Inprise in September 1999 as Chief
Financial Officer. Prior to joining Inprise, Mr Ball served as the Vice
President of Mergers and Acquisitions for KLA-Tencor Corporation, the world's
leading supplier of process control and yield management solutions for the
semiconductor industry. Prior to his position in the M&A department at KLA-
Tencor, Mr. Ball was the Vice President of Finance for KLA-Tencor following the
merger with Tencor Instruments in 1997. Mr. Ball joined Tencor Instruments as
corporate controller in March 1995 and was promoted to Corporate Vice President
and appointed Corporate Secretary in January of 1996.
Hobart McK. Birmingham. Mr. Birmingham joined Inprise in February 1997, and
was appointed Chief Administrative Officer in April 1999. From February 1997 to
April 1999, Mr. Birmingham served as Vice President and General Counsel, and
from March 1997 to April 1999 as Secretary. From 1995 to 1997, Mr. Birmingham
served as Senior Director and Associate General Counsel at Apple Computer, a
personal computer manufacturer. From 1988 to 1995, Mr. Birmingham was a partner
with the law firm of Graham & James.
JoAnne M. Butler. Ms. Butler joined Inprise in February 1992, and was
appointed Vice President, General Counsel and Secretary in April 1999. Ms.
Butler served as Corporate Counsel from 1997 to 1999, and Associate Corporate
Counsel from 1993 to 1997.
John Walshe. Mr. Walshe joined Inprise in October 1999 as an interim Chief
Operating Officer pursuant to a consulting agreement with 54th Street Partners,
a limited liability company of which Mr. Walshe is a member. Mr. Walshe has
gained experience from positions with Manufacturer's Services Limited, Computer
Science Corporation and Digital Equipment Corporation. His most recent position
was as Vice President--Customer Program Management with Manufacturers' Services
Limited.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors and executive
officers, and persons who own more than ten percent of a registered class of
our equity securities, to file reports of ownership and changes in ownership
with the SEC and the Nasdaq National Market. Directors, executive officers, and
greater than ten percent holders are required by SEC regulations to furnish us
with copies of all Section 16(a) forms they file.
Based solely on our review of the copies of such forms received or written
representations from certain reporting persons, we believe that, during the
year ended December 31, 1999, all filing requirements under Section 16(a)
applicable to our directors and executive officers were met.
30
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table shows information about the compensation received by our
Chief Executive Officer and the four other most highly compensated executive
officers of Inprise during the fiscal year ended December 31, 1999. The table
also includes Delbert Yocam, who served as our Chief Executive Officer until
March 31, 1999, and John Floisand and James Weil, who served as executive
officers until October 29, 1999 and August 19, 1999, respectively. As used
herein, the term "Named Executive Officers" means all persons identified in the
Summary Compensation Table.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-term
Compensation
Annual Compensation Awards
----------------------------------------- ------------
Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary Bonus Compensation Options(#) Compensation
--------------------------- ---- ------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Dale Fuller(1)............... 1999 1 -- 849(2) 1,000,000 --
Interim Chief Executive 1998 -- -- -- -- --
Officer and President 1997* -- -- -- -- --
1996** -- -- -- -- --
Frederick A. Ball(3)......... 1999 80,769 67,000 -- 500,000 108(4)
Chief Financial Officer 1998 -- -- -- -- --
1997* -- -- -- -- --
1996** -- -- -- -- --
Hobart McK. Birmingham(5).... 1999 231,963 250,000 18,000(6) -- 6,266(7, 8)
Chief Administrative 1998 219,653 53,672 18,250(9) 140,000(10) 3,575(11)
Officer 1997* 146,154 57,000 15,506(9) 140,000 1,425(11)
1996** 21,923 -- -- 175,000 --
JoAnne M. Butler............. 1999 172,788 102,000 -- 176,500 3,250(12, 13)
Vice President, General 1998 118,442 14,850 -- 19,000(10) 3,510(14, 15)
Counsel and Secretary 1997* 81,250 20,000 -- 7,000 1,449(16, 17)
1996** 70,000 10,000 960(18) 184(19)
John Walshe(20).............. 1999 100,000 -- -- -- --
Chief Operating Officer 1998 -- -- -- -- --
1997* -- -- -- -- --
1996** -- -- -- -- --
John Floisand(21)............ 1999 253,126 200,000 6,092(22) -- 295,557(23, 24, 25)
Former Senior Vice President 1998 274,711 79,372 7,199(22) 420,000(10) 4,368(11)
of Worldwide Sales 1997* 181,506 275,000(26) 5,261(22) 420,000 1,250(11)
1996** -- -- -- -- --
James Weil(21)............... 1999 178,977 185,120 -- 420,000 2,075,804(27, 28, 29, 30)
Former President, 1998 100,000 520,570 -- -- 5,518(31, 32)
Inprise Division 1997* 326,755 121,800 -- -- 3,099(33, 34)
1996** 114,840 121,800 366(35) -- 768(36)
Delbert Yocam(21)............ 1999 419,692 105,000 1,191(37) -- 5,250(38, 39)
Former Chairman of the Board 1998 399,538 247,600 14,759(40) 1,100,000(10) 4,311(11)
and Former Chief Executive 1997* 276,923 240,000 55,333(41) 580,000 2,077(11)
Officer 1996** 110,769 3,864,184(42) 3,849,908(43) 1,100,000 --
</TABLE>
- --------
* Represents the nine-month period ended December 31, 1997.
** Represents the fiscal year ended March 31, 1997.
(1) Mr. Fuller's employment began April 9, 1999. The amounts shown were paid
to him between April 9, 1999 and December 31, 1999.
31
<PAGE>
(2) Consists of medical care premiums.
(3) Mr. Ball's employment began September 28, 1999. The amounts shown were
paid to him between September 28, 1999 and December 31, 1999.
(4) Consists of group term life insurance premiums paid by Inprise.
(5) Mr. Birmingham resigned as an executive officer on March 17, 2000. See
"Employment Contracts, Termination of Employment and Change in Control
Arrangements."
(6) Consists of a housing allowance.
(7) Includes group term life insurance premiums paid by Inprise in the amount
of $2,832.
(8) Includes employer matching contributions to the 401(k) Plan in the amount
of $3,434.
(9) Consists of housing allowance and relocation expenses.
(10) Includes options amended on August 17, 1998 to reduce the exercise price
to $6.50, the market closing price on such date.
(11) Consists of employer matching contributions to the 401(k) Plan.
(12) Includes group term life insurance premiums paid by Inprise in the amount
of $697.
(13) Includes employer matching contributions to the 401(k) Plan in the amount
of $2,553.
(14) Includes group term life insurance premiums paid by Inprise in the amount
of $384.
(15) Includes employer matching contributions to the 401(k) Plan in the amount
of $3,126.
(16) Includes group term life insurance premiums paid by Inprise in the amount
of $230.
(17) Includes employer matching contributions to the 401(k) Plan in the amount
of $1,219.
(18) Consists of insurance premiums paid by Inprise.
(19) Consists of group term life insurance premiums paid by Inprise.
(20) Mr. Walshe's employment began on October 28, 1999. The amounts shown were
paid to 54th Street Partners, LLC between October 28, 1999 and December
31, 1999. Mr. Walshe's consulting relationship with the Company expired on
March 31, 2000.
(21) Individual is a former executive officer of Inprise. See "Employment
Contracts, Termination of Employment and Change in Control Arrangements."
Mr. Floisand left the Company on October 29, 1999. The amounts shown were
paid to him between January 1, 1999 and October 29, 1999. Mr. Weil left
the Company on August 19, 1999. The amounts shown were paid to him between
January 1, 1999 and August 19, 1999. Mr. Yocam left the Company on March
31, 1999. The amounts shown were paid to him between January 1, 1999 and
March 31, 1999.
(22) Consists of a car allowance.
(23) Includes group term life insurance premiums paid by Inprise in the amount
of $2,316.
(24) Includes employer matching contributions to the 401(k) Plan in the amount
of $3,241.
(25) Includes a severance payment of $290,000.
(26) Includes a one time signing bonus of $200,000.
(27) Includes group term life insurance premiums paid by Inprise in the amount
of $1,004.
(28) Includes employer matching contributions to the 401(k) Plan in the amount
of $4,800.
(29) Includes a severance payment of $362,500.
(30) Includes the payment to Mr. Weil of $1,707,500 in consideration for
forfeiture of stock options for the former InterBase subsidiary as
described in Item 13. Certain Relationships and Related Transactions.
(31) Includes group term life insurance premiums paid by Inprise in the amount
of $864.
32
<PAGE>
(32) Includes employer matching contributions to the 401(k) Plan in the amount
of $4,654.
(33) Includes group term life insurance premiums paid by Inprise in the amount
of $1,224.
(34) Includes employer matching contributions to the 401(k) Plan in the amount
of $1,875.
(35) Consists of insurance premiums paid by Inprise.
(36) Consists of group term life insurance premiums paid by Inprise.
(37) Consists of insurance premiums paid by Inprise.
(38) Includes group term life insurance premiums paid by Inprise in the amount
of $2,832.
(39) Includes employer matching contributions to the 401(k) Plan in the amount
of $2,418.
(40) Consists of a car allowance.
(41) Consists of relocation expenses.
(42) Includes a $3,744,184 one time sign-on bonus.
(43) Includes a $3,827,364 payment for the purchase of a residence.
Stock Option Grants In The Year Ended December 31, 1999 To The Named Executive
Officers
The following table shows individual grants made during the calendar year
ended December 31, 1999 to the Named Executive Officers, and hypothetical gains
for the options at the end of their respective ten (10) year terms. We have
assumed annualized growth rates of the market price of our Common Stock over
the exercise price of the option of five percent (5%) and ten percent (10%),
running from the date the option was granted to the end of the option term.
Actual gains, if any, on option exercises depend on the future performance of
Inprise's Common Stock and overall market conditions and do not represent an
estimate of future stock price growth.
<TABLE>
<CAPTION>
Individual Grants(1)
----------------------------------------------------------------------------
Percentage of Potential Realizable Value
Number of Total Exercise at Assumed Annual Rates of
Securities Options/SARs or Base Stock Price Appreciation
Underlying Granted to Price for Option Term
Options Employees in per Expiration ---------------------------
Name Granted(2) Fiscal Year(3) share Date(4) 5% 10%
---- ---------- -------------- -------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dale Fuller............. 1,000,000(5) 21.6 $3.6250 04/09/09 $ 2,279,743 $ 5,777,316
Frederick A. Ball....... 500,000(6) 10.8 $4.0313 09/23/09 $ 1,267,631 $ 3,212,427
JoAnne M. Butler........ 176,500(6) 3.8 $4.1250 04/27/09 $ 457,875 $ 1,160,344
James Weil.............. 420,000(7) 9.1 $6.2500 01/27/09 0 0
</TABLE>
- --------
(1) We did not grant any stock appreciation rights during the year ended
December 31, 1999.
(2) Our option plans are currently administered by the Organization and
Compensation Committee of the Board of Directors. The Organization and
Compensation Committee determines the eligibility of employees and
consultants and the number of shares to be granted, and the terms of such
grants. All options granted during the year ended December 31, 1999 have an
exercise price equal to the fair market value on the date of grant. Options
generally vest 25% one year from the date of grant and ratably over the
remaining three years on a monthly basis. Certain options have been granted
that vest daily or monthly over a specified vesting period from the date of
grant. Options expire at the earlier of either three months after
termination of employment or ten years after the date of grant.
(3) We granted options to purchase an aggregate of 4,623,082 shares to all
employees and consultants for the year ended December 31, 1999.
(4) Options may terminate before their expiration date upon the termination of
optionee's status as an employee or consultant or upon the optionee's death
of disability.
(5) Pursuant to Mr. Fuller's Employment Agreement dated April 9, 1999, Mr.
Fuller was granted the option to purchase 1,000,000 shares of common stock.
The option vested ratably on a monthly basis over the six-month term of the
Agreement, and is now fully vested at the present time. The options are
exercisable for twenty-four (24) months following termination of his
employment.
33
<PAGE>
(6) Upon a change in control of Inprise, the vesting of all options will be
accelerated and shall be exercisable in full.
(7) Individual is a former executive officer of Inprise. See "Employment
Contracts, Termination of Employment and Change in Control Arrangements."
The remaining 236,250 options were cancelled on November 19, 1999.
Aggregated Option Exercises During the Year Ended December 31, 1999 and Year
End Option Values
The following table shows all stock options exercised by the Named Executive
Officers for the calendar year ended December 31, 1999. The "Value Realized"
column reflects the difference between the market value of the underlying
securities and the exercise price of the options on the actual exercise date.
The "Value of Unexercised In-The-Money Options" column reflects the difference
between the market value at the end of the calendar year and the exercise price
of in-the-money options.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-The-Money
Acquired Value Options at Year End Options/SARs at FY End(1)
Name On Exercise Realized(1) Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Dale Fuller............. 200,000 $2,015,000 800,000 / -- $5,950,000 / --
Frederick A. Ball....... -- -- 31,250 / 468,750 $ 219,725 / $3,295,875
Hobart McK.
Birmingham(2).......... 99,055 $1,089,110 123,130 / 92,815 $ 576,920 / $ 430,204
JoAnne M. Butler........ 15,000 $ 181,653 24,408 / 155,921 $ 189,900 / $1,060,728
John Walshe(3).......... -- -- -- / -- -- / --
John Floisand(4)........ 268,601 $1,763,094 -- / -- -- / --
James Weil(4)........... 183,750 $ 226,841 -- / -- -- / --
Delbert Yocam(4)........ 180,000 $ 30,562 -- / -- -- / --
</TABLE>
- --------
(1) Market value of underlying securities at exercise date or fiscal year end
is based on the closing price of common stock on December 31, 1999 on the
Nasdaq National Market of $11.0625, minus the exercise price.
(2) Mr. Birmingham resigned as an Executive Officer on March 17, 2000.
(3) Mr. Walshe's consulting relationship with the Company expired on March 31,
2000.
(4) Individual is a former executive officer of Inprise. See "Employment
Contracts, Termination of Employment and Change in Control Arrangements."
Mr. Yocam left the Company on March 31, 1999. Mr. Floisand left the Company
on October 29, 1999. Mr. Weil left the Company on August 19, 1999.
Compensation of Directors
Inprise paid fees to each non-employee director for his services during
1999. Fees paid include an annual retainer of $24,000 ($48,000 for the Chairman
of the Board), plus $1,000 and expenses for attendance at each meeting of the
Board of Directors and for each meeting of a Committee of the Board on which
they serve.
Each non-employee director receives an option to purchase 30,000 shares
common stock as of the date an individual becomes a non-employee director. Upon
election as Chairman, an additional option to purchase 30,000 shares of common
stock is granted to the Chairman. In addition, at every annual meeting of the
stockholders each then-serving non-employee director receives an option to
purchase 7,500 shares of common stock. All options have a ten-year term and an
exercise price equal to 100% of the fair market value of the underlying stock
on the date of grant. The options may not be exercised until the non-employee
director has served as a member of the Board of Directors for one year from the
date the option is granted.
Employment Contracts, Termination of Employment and Change in Control
Arrangements
Employment Contracts. Inprise is a party to an employment agreement with
Dale Fuller, dated April 9, 1999, pursuant to which Mr. Fuller serves as
Interim President and Chief Executive Officer of Inprise. The
34
<PAGE>
employment agreement was for a six month term which expired on October 9, 1999.
For his services during the term, Mr. Fuller was paid the sum of one dollar and
was entitled to benefits generally provided to other Inprise executives.
Pursuant to the employment agreement, Mr. Fuller was also granted an option to
purchase 1,000,000 shares of Inprise common stock at an exercise price of
$3.625 per share under the Inprise Corporation Dale Fuller Individual Stock
Option Plan. The option vested ratably on a monthly basis over the six-month
term of the agreement, and is now fully vested. The option is exercisable for a
period of twenty-four months following a termination of Mr. Fuller's
employment.
The employment agreement also provides for Mr. Fuller to be paid a "gross-
up" payment if any benefit or payment to be received by Mr. Fuller under the
employment agreement is subject to the excise tax imposed under Section 4999 of
the Internal Revenue Code of 1986, as amended (the "Code"). The gross-up
payment will offset fully the effect of any excise tax imposed on any "excess
parachute payment" Mr. Fuller may receive. In general, Section 4999 of the Code
imposes an excise tax on the recipient of any excess parachute payment equal to
20% of such payment. However, the Code provides a "safe harbor" from the excise
tax if an employee does not receive parachute payments with a value in excess
of 2.99 times the employee's base amount. An employee's base amount is the
average taxable compensation received by the employee from his employer over
the five taxable years preceding the year in which the change in control
occurs. A parachute payment is any payment or benefit which is contingent on a
change in control. A gross-up payment will be payable to Mr. Fuller if he
receives parachute payments with a value in excess of his safe harbor.
The term of Mr. Fuller's employment agreement expired on October 9, 1999.
Subsequent to such expiration date, Inprise and Mr. Fuller entered into an
agreement which extended the term of Mr. Fuller's employment agreement and
provided for certain payments to him upon engagement by Inprise of a successor
Chief Executive Officer or in the event of a change in control of Inprise.
Thereafter, at Mr. Fuller's request, such extension agreement was terminated,
and is no longer of any force or effect. Mr. Fuller has not received, and will
not receive, any payments thereunder.
Inprise is a party to an employment agreement with Frederick A. Ball, dated
September 16, 1999, pursuant to which Mr. Ball serves as the Vice President and
Chief Financial Officer of Inprise at a salary of $300,000 per year. The
employment agreement provides that Mr. Ball is eligible for an annual bonus of
$100,000. Pursuant to the employment agreement, Mr. Ball was granted an option
to purchase of 500,000 shares of Inprise common stock at an exercise price of
$4.0313 per share under Inprise's 1997 Stock Option Plan. The agreement
provides that all of the options granted to Mr. Ball under the agreement, to
the extent not already vested and exercisable, shall become vested and
exercisable upon a change in control (e.g., upon the consummation of the merger
with Corel). The employment agreement also entitles Mr. Ball to a severance
payment in an amount equal to twelve months of his base salary if his
employment is terminated by Inprise without cause or upon a constructive
termination of his employment.
Inprise is a party to an employment agreement with JoAnne M. Butler, dated
July 29, 1999, pursuant to which Ms. Butler serves as Vice President and
General Counsel of Inprise at a salary of $190,000 per year. The employment
agreement provides that Ms. Butler is eligible for an annual bonus based on an
annual target bonus of $76,000. Pursuant to the employment agreement, Ms.
Butler was granted an option to purchase 176,500 shares of Inprise common stock
at an exercise price of $4.125 per share under Inprise's 1997 Stock Option
Plan. The agreement provides that all of the options granted to Ms. Butler
under the agreement, to the extent not already vested and exercisable, shall
become vested and exercisable upon a change in control (e.g., upon the
consummation of the merger with Corel). The employment agreement also entitles
Ms. Butler to a severance payment in an amount equal to twelve months of her
base salary if her employment is terminated by Inprise without cause or upon a
constructive termination of her employment.
Inprise is a party to a consulting agreement with 54th Street Partners, LLC,
pursuant to which Mr. Walshe provided his services to Inprise. Mr. Walshe is a
partner in 54th Street Partners. The consulting agreement also provides for
54th Street Partners to provide the services of five other individuals in
respect of sales, customer service, professional services, human resources and
technical support. In return for providing Mr. Walshe's
35
<PAGE>
services, 54th Street Partners was entitled to a monthly fee of $50,000. 54th
Street Partners is entitled to receive an aggregate monthly fee of $119,000 in
respect of the services rendered by the individuals who currently provide
services under the consulting agreement. 54th Street Partners is also entitled
to a performance bonus that is dependent on the price of Inprise common stock.
The maximum performance bonus may not exceed $500,000. The consulting agreement
provides customary indemnity provisions for both 54th Street Partners and the
individuals placed with Inprise. Mr. Walshe's service under the consulting
agreement expired on March 31, 2000.
Termination of Employment. Inprise is a party to resignation agreement with
Hobart McK. Birmingham, which was effective as of March 17, 2000. Pursuant to
this agreement, Mr. Birmingham resigned as an executive officer of Inprise, and
will resign from his employment with Inprise effective upon consummation of the
merger with Corel. If the merger is terminated, his employment will terminate,
but not prior to June 30, 2000. In no event will his employment continue beyond
March 17, 2001.
During the period from March 17, 2000 until June 30, 2000, or until the date
he resigns from employment, if such resignation occurs prior to June 30, 2000,
Mr. Birmingham will be paid the sum of $50,000 and will continue to be provided
with fringe benefits and the use of an office. After March 17, 2000, Mr.
Birmingham will have no specific duties or responsibilities at Inprise, except
as mutually agreed to with Inprise. If Mr. Birmingham provides any services to
Inprise after March 17, 2000, other than services related to the sale of
Inprise's corporate headquarters or to the transition of his duties and
responsibilities to other Inprise employees, he will be paid $1,000 per day
plus reimbursement for reasonable out-of-pocket expenses.
In lieu of any severance pay or benefits that he would otherwise be entitled
to, on March 17, 2000, Mr. Birmingham received a lump sum severance payment in
the amount of $332,000. Notwithstanding the foregoing, Mr. Birmingham will be
entitled to continued vesting of his Inprise stock options during the period,
if any such period occurs, between June 30, 2000 and the date on which he
resigns, and if the consummation of the merger with Corel occurs on or before
March 17, 2001, any unvested Inprise stock options that Mr. Birmingham holds
will become vested and exercisable pursuant to Mr. Birmingham's change in
control agreement. Mr. Birmingham will continue to be bound by the provisions
of any proprietary rights or confidentiality agreements with Inprise and has
executed a general release of claims in favor of Inprise and has received a
similar release from Inprise.
Delbert Yocam, our former Chief Executive Officer, resigned from his
employment with Inprise on March 31, 1999, and resigned as Chairman of the
Board on April 12, 1999. Pursuant to the provisions of his employment
agreement, Mr. Yocam is entitled to receive, among other things, continued
salary payments, plus bonus payments up to 50% of his annual salary through
December 31, 2000.
John Floisand is the former Senior Vice President of Worldwide Sales. Mr.
Floisand's employment with Inprise terminated on October 29, 1999, and as a
result Mr. Floisand received a severance payment equal to twelve months of his
base salary.
James Weil is the former President of the Inprise Division and the former
President of the former InterBase Software subsidiary. Mr. Weil resigned from
his employment with Inprise on August 19, 1999, and as a result Mr. Weil
received a severance payment equal to fifteen months of his base salary. In
addition, Inprise agreed to accelerate the vesting of certain stock options
granted to Mr. Weil. As a result of the option acceleration, all stock options
granted to him by Inprise that would have vested by November 19, 2000 became
vested as of May 19, 1999.
Change in Control Arrangements. Dale Fuller, JoAnne Butler and Hobart McK.
Birmingham are each a party to a change in control agreement with Inprise. Mr.
Fuller and Ms. Butler entered into their respective change in control
agreements when they became executive officers. Mr. Birmingham entered into his
change in control agreement shortly after the Inprise Board approved the form
of the agreement in April 1998. Mr. Birmingham's agreement was subsequently
amended in certain respects by his resignation agreement. Mr. Fuller's
agreement and Ms. Butler's agreement provide severance benefits in the event
Mr. Fuller or
36
<PAGE>
Ms. Butler, as the case may be, are "involuntarily terminated" within one year
following a change in control of Inprise. An involuntary termination of
employment includes a termination of an executive officer's employment by
Inprise without cause or a constructive termination of an executive officer's
employment. The merger with Corel will constitute a change in control of
Inprise.
Upon a qualifying involuntary termination of employment after the merger
with Corel, each change in control agreement, other than Mr. Birmingham's
agreement, provides that the executive officer will be entitled to receive
severance pay from Inprise in a lump sum amount equal to the executive
officer's annual base salary in effect at the time of the termination. In
addition, other than in respect of Mr. Birmingham, Inprise must continue an
executive officer's existing health insurance coverage, or reimburse an
executive officer for COBRA premiums paid by the executive officer if health
coverage continuation is not permitted by law. The health coverage benefit will
continue until the earlier of (i) the expiration of twelve months from the date
of the termination of the executive officer's employment or (ii) the date on
which the executive officer commences new employment. The change in control
agreements provide that, during the two year period following a qualifying
involuntary termination of employment, Inprise shall retain a terminated
executive officer as a consultant to provide services to Inprise at Inprise's
request for up to eight hours per week. For actually providing services,
an executive officer will be entitled to a payment of $1,000 per day and
reasonable out-of-pocket expenses.
Each change in control agreement further provides that if any payment or
benefit to be received by an executive officer pursuant to the agreement or
otherwise would result in an "excess parachute payment," such payment or
benefit shall be reduced if the executive officer's after tax position is
improved by the reduction. Each change in control agreement also provides that
unvested stock options to purchase shares of Inprise stock held by an executive
officer will vest and become exercisable upon a change in control of Inprise
(e.g., upon the consummation of the merger with Corel).
37
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information, as of February 29, 2000, with
respect to the beneficial ownership of common stock by (i) each stockholder
known to us to be the beneficial owner of more than five percent (5%) of common
stock; (ii) each current director; (iii) each executive officer named in the
Summary Compensation Table; and (iv) all current executive officers and
directors as a group. Except as indicated in the footnotes to this table, the
persons named in the table have sole voting and investment power with respect
to all shares shown as beneficially owned by them, subject to community
property laws where applicable. Except as indicated in the footnotes to this
table, the percentage of ownership has been calculated based on the number of
outstanding shares of common stock as of February 29, 2000.
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percentage
Name Ownership of Class
- ---- ---------- ----------
<S> <C> <C>
5% Stockholders:
Corel Corporation(1)................................... 12,000,000 19.70%
Merrill Lynch & Co., Inc.(2)........................... 4,621,300 7.98%
Named Executive Officers and Directors:
Dale Fuller(3)......................................... 800,000 1.31%
David Heller(4)........................................ 212,500 *
William K. Hooper...................................... -- *
William F. Miller, Jr.(5).............................. 120,000 *
Frederick A. Ball(6)................................... 72,916 *
Hobart McK. Birmingham(7).............................. 151,640 *
JoAnne M. Butler(8).................................... 42,428 *
John Walshe............................................ -- *
John Floisand(9)....................................... -- *
James Weil(9).......................................... -- *
Delbert Yocam(9)....................................... -- *
All current directors and executive officers as a group
(8 persons)........................................... 1,399,484 2.29%
</TABLE>
- --------
* Less than 1%.
(1) Information is based on a Schedule 13D filed by Corel on February 18, 2000.
Pursuant to a stock option agreement entered into between Inprise and Corel
on February 6, 2000 (the "Corel Option Agreement"), Corel was granted by
Inprise an irrevocable option to purchase up to 12,000,000 shares of common
stock, subject to adjustments, at a purchase price per share equal to
$14.94 per share. Corel expressly disclaims beneficial ownership of all
such shares. The option is not currently exercisable and may only be
exercised under certain circumstances described in the Corel Option
Agreement. The address of Corel Corporation is 1600 Carling Avenue, Ottawa,
Ontario, Canada K1Z 8R7.
(2) Information is based on a Schedule 13G/A filed on February 7, 2000. Number
of shares which may be deemed beneficially owned includes shares held by
various fund related to or managed by Merrill Lynch & Co., Inc. The address
of Merrill Lynch & Co., Inc. is World Financial Center, North Tower, 250
Vesey Street, New York, New York 10281.
(3) Represents options exercisable within 60 days of February 29, 2000 to
acquire 800,000 shares.
(4) Represents options exercisable within 60 days of February 29, 2000 to
acquire 212,500 shares.
(5) Represents options exercisable within 60 days of February 29, 2000 to
acquire 120,000 shares.
(6) Represents options exercisable within 60 days of February 29, 2000 to
acquire 72,916 shares.
(7) Includes options exercisable within 60 days of February 29, 2000 to acquire
150,503 shares.
(8) Includes option exercisable within 60 days of February 29, 2000 to acquire
40,286 shares.
(9) Individual is a former executive officer of Inprise. See "Employment
Contracts, Termination of Employment and Change in Control Arrangements."
Mr. Yocam left the Company on March 31, 1999. Mr. Floisand left the Company
on October 29, 1999. Mr. Weil left the Company on August 19, 1999.
38
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On December 17, 1999, Inprise made a minority equity investment in
TurboLinux, Inc., a company that focuses on Linux software and services. Dale
Fuller, the Interim President and Chief Executive Officer, also invested
personal funds in TurboLinux, Inc.
On March 31, 1999, James Weil, formerly the President of the Inprise
division and formerly the President of the former InterBase Software
subsidiary, agreed to forfeit options to acquire 2,500,000 shares of InterBase
common stock exercisable at $0.075 per share. In consideration for the
forfeiture of such options, Mr. Weil was paid $0.683 for each outstanding
option ($1,707,500 in the aggregate).
The Company intends to enter into a consulting agreement with former
Director, Harry Saal. The terms and conditions of the agreement have not yet
been finalized.
39
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
Upon written request, Inprise will provide, without charge, a copy of our
annual report on Form 10-K, including the consolidated financial statements,
financial statement schedules and any exhibits for our most recent fiscal year.
All requests should be sent to:
Inprise Corporation
100 Enterprise Way,
Scotts Valley, California 95066-3249
(831) 431-1000
Attention: Investor Relations
(a) The following documents are filed as part of this report:
1.Consolidated Financial Statements
Report of Independent Accountants for Inprise Corporation
Consolidated Balance Sheets at December 31, 1999 and December 31, 1998
Consolidated Statements of Operations for the Years ended December 31, 1999,
and December 31, 1998, and the Nine Months ended December 31, 1997
Consolidated Statements of Comprehensive Income for the Years ended December
31, 1999, and December 31, 1998, and the Nine Months ended December 31, 1997
Consolidated Statements of Stockholders' Equity for the Years ended December
31, 1999, December 31, 1998, and the Nine Months ended December 31, 1997
Consolidated Statements of Cash Flows for the Years ended December 31, 1999,
and December 31, 1998, and the Nine Months ended December 31, 1997
Notes to Consolidated Financial Statements
2.Consolidated Financial Statement Schedule
Schedule II--Valuation and Qualifying Accounts
All other schedules are omitted because they are either not required, not
applicable or the required information is otherwise included.
3.Exhibits
The following exhibits are filed as part of, or incorporated by reference
into, this Form 10-K.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
2.1 Agreement and Plan of Merger among Borland International, Inc., Aspen
Acquisition Corporation and Open Environment Corporation dated May 11,
1996 (previously filed as an exhibit to Registrant's Registration
Statement on Form S-4 filed with the Commission on October 11, 1996
and incorporated herein by reference).
2.2 Agreement and Plan of Merger among Borland International, Inc., Vixen
Acquisition Corporation and Visigenic Software, Inc. dated as of
November 17, 1997 (previously filed as an exhibit to Registrant's
Current Report on Form 8-K filed with the Commission on November 21,
1997 and incorporated herein by reference.)
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
2.3 Merger Agreement, dated as of February 6, 2000, by and among Corel
Corporation, Carleton Acquisition Co., and Inprise Corporation
(previously filed as an Exhibit to Registrant's Current Report on
Form 8-K on Inprise Corporation which was filed with the Commission on
February 10, 2000 and incorporated herein by reference).
3.1 Restated Certificate of Incorporation of Inprise Corporation
(previously filed with the Commission on August 13, 1998 as an exhibit
to Registrant's Registration Statement on Form S-8 and incorporated
herein by reference).
3.2 Amended By-laws of Inprise Corporation (previously filed with the
Commission on August 13, 1998 as an exhibit to Registrant's
Registration Statement on Form S-8 and incorporated herein by
reference).
4.1 Rights Agreement, dated as of December 20, 1991, between Inprise
Corporation and ChaseMellon Shareholder Services, L.L.C., as successor
to Manufacturers Hanover Trust Company of California (previously filed
with the Commission on December 23, 1991, as an exhibit to
Registrant's Registration Statement on Form 8A and incorporated herein
by reference).
4.2 Amendment to Rights Agreement, dated as of February 6, 2000, between
Inprise Corporation and ChaseMellon Shareholder Services, L.L.C., as
successor to Manufacturers Hanover Trust Company of California
(previously filed with the Commission on February 11, 2000 as an
exhibit to Registrant's Registration Statement on Form 8A/A and
incorporated herein by reference).
4.3 Certificate of Designation for Series B Preferred Stock (previously
filed with the Commission on July 14, 1997 as an exhibit to
Registrant's Current Report on Form 8-K and incorporated herein by
reference).
4.4 Certificate of Designation of Series C Convertible Preferred Stock for
Inprise Corporation, dated June 7, 1999 (previously filed with the
Commission on July 6, 1999 as an exhibit to Registrant's Current
Report on Form 8-K and incorporated herein by reference).
4.5 Certificate of Correction Filed to Correct a Certain Error in the
Certificate of Designation of Series C Convertible Preferred Stock of
Inprise Corporation filed in the Office of the Secretary of State of
Delaware on June 8, 1999, dated June 9, 1999 (previously filed with
the Commission on July 6, 1999 as an exhibit to Registrant's Current
Report on Form 8-K and incorporated herein by reference).
10.1 Loan commitment secured by a mortgage entered into with Sanwa Bank
California, Wells Fargo Bank, and Pacific Trust Fund Company dated
September 17, 1987 and amendment thereto dated April 27, 1988
(previously filed as an exhibit to Registrant's Amendment No. 1 to
Registration Statement on Form S-1 filed with the Commission on
December 12, 1989 and incorporated herein by reference.)
10.2 Form of Convertible Securities Subscription Agreement for Series B
Preferred Stock (previously filed as an exhibit to Registrant's
Current Report on Form 8-K filed with the Commission on July 14, 1997
and incorporated herein by reference).
10.3 Form of Registration Rights Agreement for Series B Preferred Stock
(previously filed as an exhibit to Registrant's Current Report on Form
8-K filed with the Commission on July 14, 1997 and incorporated herein
by reference).
10.4 (intentionally omitted)
10.5 Preferred Stock Purchase Agreement between Inprise Corporation and
Microsoft Corporation, dated June 7, 1999 (previously filed with the
Commission on July 6, 1999 as an exhibit to Registrant's Current
Report on Form 8-K and incorporated herein by reference).
10.6 Investor Rights Agreement between Inprise Corporation and Microsoft
Corporation, dated June 7, 1999 (previously filed with the Commission
on July 6, 1999 as an exhibit to Registrant's Current Report on Form
8-K and incorporated herein by reference).
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.7 Form of Indemnity Agreement.*
10.8 Employment Agreement with Delbert W. Yocam, as amended (previously
filed as an exhibit to Registrant's Annual Report on Form 10-K for the
year ended March 31, 1997 and incorporated herein by reference).
10.9 Third Addendum to Employment Agreement with Delbert W. Yocam
(previously filed as an exhibit to Registrant's Quarterly Report for
the fiscal quarter ended September 30, 1997 filed with the Commission
on November 14, 1997 and incorporated herein by reference).
10.10 1990 Employee Stock Purchase Plan (previously filed as an exhibit to
Registrant's Annual Report an Form 10-K for the year ended March 31,
1993 filed with the Commission on July 2, 1993 and incorporated herein
by reference).
10.11 Non-Employee Directors' Stock Option Plan (previously filed as an
exhibit to Registrant's Current Report on Form 8-K filed with the
Commission on December 27, 1991 and incorporated herein by reference).
10.12 1992 Stock Option Plan (previously filed as an exhibit to Registrant's
Registration Statement on Form S-8 filed with the Commission on July
4, 1992 and incorporated herein by reference).
10.13 1993 Stock Option Plan (previously filed as an exhibit to Registrant's
Registration Statement on Form S-8 filed with the Commission on March
11, 1993 and incorporated herein by reference).
10.14 1997 Stock Option Plan (previously filed as an exhibit to Registrant's
Registration Statement on Form S-8 (filed with the Commission on
December 19, 1997 and incorporated herein by reference).
10.15 1997 Employee Stock Purchase Plan (previously filed as an exhibit to
Registrant's Annual Report on Form 10-K for the year ended March 31,
1990 and incorporated herein by reference).
10.16 1999 Employee Stock Purchase Plan (previously filed as an exhibit to
Registrant's Proxy Statement filed on May 11, 1999).
10.17 Employment Agreement with Dale Fuller (previously filed as an exhibit
to Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1999).
10.18 Inprise Corporation Dale Fuller Individual Stock Option Plan.*
10.19 Employment Agreement with Frederick A. Ball (previously filed as an
exhibit to Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999).
10.20 Retention Agreement with Jerome Leite (previously filed as an exhibit
to Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999).
10.21 Consulting Agreement with 54th Street Partners, LLC concerning John
Walshe.*
10.22 Employment Agreement with JoAnne M. Butler.*
10.23 Employment Agreement with Hobart McK. Birmingham.*
10.24 Resignation Agreement of Hobart McK. Birmingham.*
10.25 Stock Option Agreement, dated as of February 6, 2000, by and between
Inprise Corporation, as grantor, and Corel Corporation, as grantee,
(incorporated by reference to Current Report on Form 8-K which was
filed with the Commission on February 10, 2000).
10.26 Stock Option Agreement, dated as of February 6, 2000, by and between
Inprise Corporation, as grantee and Corel Corporation, as grantor
(incorporated herein by reference to Inprise Corporation's Current
Report on Form 8-K which was filed with the Commission on February 10,
2000).
10.27 Agreement of Purchase and Sale and Joint Escrow Instructions, dated
December 30, 1999, by and between Inprise Corporation and
ScanlanKemperBard Companies (incorporated herein by reference to the
Current Report on Form 8-K which was filed with the Comission on March
2, 2000).
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.28 First Amendment to Agreement of Purchase and Sale and Joint Escrow
Instructions, dated January 27, 2000, by and between Inprise
Corporation and ScanlanKemperBard Companies (incorporated herein by
reference to the Current Report on Form 8-K which was filed with the
Commission on March 2, 2000).
10.29 Second Amendment to Agreement of Purchase and Sale and Joint Escrow
Instructions, dated February 8, 2000, by and between Inprise
Corporation and ScanlanKemperBard Companies (incorporated herein by
reference to the Current Report on Form 8-K which was filed with the
Commission on March 2, 2000).
10.30 Third Amendment to Agreement of Purchase and Sale and Joint Escrow
Instructions, dated February 11, 2000, by and between Inprise
Corporation and ScanlanKemperBard Companies (incorporated herein by
reference to the Current Report on Form 8-K which was filed with the
Commission on March 2, 2000).
10.31 Fourth Amendment to Agreement of Purchase and Sale and Joint Escrow
Instructions, dated February 15, 2000, by and between Inprise
Corporation and ScanlanKemperBard Companies (incorporated herein by
reference to the Current Report on Form 8-K which was filed with the
Commission on March 2, 2000).
10.32 Fifth Amendment to Agreement of Purchase and Sale and Joint Escrow
Instructions, dated February 16, 2000, by and between Inprise
Corporation and ScanlanKemperBard Companies (incorporated herein by
reference to the Current Report on Form 8-K which was filed with the
Commission on March 2, 2000).
10.33 Sixth Amendment to Agreement of Purchase and Sale and Joint Escrow
Instructions, dated February 17, 2000, by and between Inprise
Corporation and ScanlanKemperBard Companies (incorporated herein by
reference to the Current Report on Form 8-K which was filed with the
Commission on March 2, 2000).
10.34 Form of Change in Control Agreement.*
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants.
23.2 Consent of Arthur Andersen LLP, Independent Public Accountants.
27.1 Financial Data Schedule.
</TABLE>
- --------
* Filed herewith.
A copy of any exhibit will be furnished (at a reasonable cost) to any
stockholder of the Company upon receipt of a written request. Such request
should be sent to Inprise Corporation, 100 Enterprise Way, Scotts Valley,
California USA 95066-3249, Attn: Secretary.
(a)Reports on Form 8-K
1. Report on Form 8-K filed on February 10, 2000 to report that Inprise has
entered into a merger agreement with Corel Corporation and Corel's
merger subsidiary.
2. Report on Form 8-K filed on March 2, 2000 to report the sale of
Inprise's corporate headquarters.
43
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on our behalf by the undersigned, thereunto duly authorized, in the City of
Scotts Valley, California, on the 3rd day of April 2000.
INPRISE CORPORATION
(Registrant)
/s/ Frederick A. Ball
By: _________________________________
Frederick A. Ball,
Vice President Finance and
Chief Financial Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities as indicated on the 30th day of March 2000.
/s/ William F. Miller
_______________________________
William F. Miller,
Chairman of the Board and
Director
/s/ Dale Fuller
_______________________________
Dale Fuller,
Interim President, Chief
Executive Officer and Director
(principal executive officer)
/s/ David Heller
_______________________________
David Heller,
Director
/s/ William Hooper
_______________________________
William Hooper,
Director
/s/ Frederick A. Ball
_______________________________
Frederick A. Ball,
Vice President Finance and
Chief Financial Officer
(principal financial and
accounting officer)
44
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants for Inprise Corporation................ 46
Report of Independent Public Accountants for Visigenic Software, Inc. ... 47
Consolidated Balance Sheets as of December 31, 1999 and 1998............. 48
Consolidated Statements of Operations for the Years ended December 31,
1999, 1998, and the Nine Months ended December 31, 1997................. 49
Consolidated Statements of Comprehensive Income for the Years ended
December 31, 1999, 1998 and the Nine Months ended December 31, 1997..... 50
Consolidated Statements of Stockholders' Equity for the Years ended
December 31, 1999, 1998 and the Nine Months ended December 31, 1997..... 51
Consolidated Statements of Cash Flows for the Years ended December 31,
1999, 1998 and the Nine Months ended December 31, 1997.................. 54
Notes to Consolidated Financial Statements............................... 55
</TABLE>
45
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS FOR INPRISE CORPORATION
To the Board of Directors and Stockholders of INPRISE CORPORATION:
In our opinion, based upon our audits and the report of other auditors, the
consolidated financial statements listed in the index appearing under Item
14(a)1 and 2 present fairly, in all material respects, the financial position
of Inprise Corporation and its subsidiaries at December 31, 1999 and 1998, and
the results of their operations and their cash flows for the year ended
December 31, 1999 and 1998, and the nine months ended December 31, 1997, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States that 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Jose, California
January 27, 2000, except for Note 1,
which is as of March 17, 2000
46
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS FOR VISIGENIC SOFTWARE, INC.
To Visigenic Software, Inc.:
We have audited the accompanying consolidated balance sheet of Visigenic
Software, Inc. and subsidiaries (a Delaware corporation and wholly-owned
subsidiary of Inprise Corporation) as of December 31, 1997 and the related
consolidated statements of operations, stockholders' equity and cash flows for
the nine-month period ended December 31, 1997 (not separately presented
herein). These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Visigenic Software, Inc.
and subsidiaries as of December 31, 1997 and the results of their operations
and their cash flows for the nine-month period ended December 31, 1997 in
conformity with generally accepted accounting principles.
Arthur Anderson LLP
San Jose, California
April 1, 1998
47
<PAGE>
INPRISE CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value and share amounts)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents......................... $ 192,013 $ 81,137
Short-term investments............................ 5,680 3,225
Accounts receivable, net of allowances of $14,457
and $8,293....................................... 27,303 43,515
Inventories....................................... 520 763
Other current assets.............................. 7,619 9,613
--------- ---------
Total current assets............................ 233,135 138,253
Property and equipment, net......................... 75,002 111,149
Other non-current assets............................ 4,879 4,386
--------- ---------
$ 313,016 $ 253,788
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable.................................. $ 7,761 $ 12,280
Accrued expenses.................................. 33,972 35,954
Short-term restructuring.......................... 9,968 3,274
Income taxes payable.............................. 5,808 2,983
Deferred revenue.................................. 12,273 14,513
Other current liabilities......................... 8,115 7,764
--------- ---------
Total current liabilities....................... 77,897 76,768
Long-term debt and other............................ 19,462 19,138
Commitments and contingencies (Notes 7, 9 and 16)
Mandatorily redeemable convertible preferred stock;
$50,000 par value; 1,470 shares authorized, none
and 738 issued and outstanding..................... -- 36,873
Stockholders' equity:
Preferred stock; $.01 par value; 1,000,000 shares
authorized; 625 and none issued and outstanding.. -- --
Common stock; $.01 par value; 100,000,000 shares
authorized; 60,672,547 and 48,140,000 issued and
outstanding...................................... 607 481
Additional paid-in capital........................ 464,527 386,468
Accumulated deficit .............................. (229,572) (251,751)
Cumulative comprehensive income................... 5,300 6,155
--------- ---------
240,862 141,353
Less common stock in treasury at cost 4,473,800 and
3,472,000 shares at December 31, 1999 and 1998..... (25,205) (20,344)
--------- ---------
Total liabilities and stockholders' equity...... $ 313,016 $ 253,788
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
48
<PAGE>
INPRISE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended Nine Months
December 31, Ended
------------------ December 31,
1999 1998 1997
-------- -------- ------------
<S> <C> <C> <C>
Licenses and other revenue................... $150,550 $166,214 $132,075
Service revenue.............................. 24,256 22,898 13,861
-------- -------- --------
Net revenues............................... 174,806 189,112 145,936
Cost of licenses and other revenue........... 19,267 15,683 18,145
Cost of service revenue...................... 22,676 15,402 7,545
-------- -------- --------
Cost of revenues........................... 41,943 31,085 25,690
-------- -------- --------
Gross profit................................. 132,863 158,027 120,246
Selling, general and administrative.......... 123,530 112,781 86,545
Research and development..................... 42,257 47,324 38,249
Restructuring and merger related charges..... 12,090 15,848 --
Other non-recurring charges.................. 8,193 -- --
Write-down on sale of real estate............ 29,677 -- --
-------- -------- --------
Total operating expenses................. 215,747 175,953 124,794
-------- -------- --------
Operating loss............................... (82,884) (17,926) (4,548)
Interest income, net and other............... 6,232 3,785 1,736
Gain on sale of real estate.................. -- 1,135 --
Income from patent cross license agreement
and other................................... 105,065 -- --
Gain on long-term investment................. 2,937 16,972 --
-------- -------- --------
Income (loss) before income taxes............ 31,350 3,966 (2,812)
Income tax (benefit) provision............... 8,666 (4,380) 1,082
-------- -------- --------
Net income (loss)............................ $ 22,684 $ 8,346 $ (3,894)
======== ======== ========
Income (loss) per share--basic (See Note 4).. $ 0.40 $ 0.16 $ (0.09)
Income (loss) per share--diluted (See Note
4).......................................... $ 0.35 $ 0.14 $ (0.09)
Shares used in computing basic income (loss)
per share................................... 54,810 50,118 49,640
Shares used in computing diluted income
(loss) per share............................ 63,408 57,384 49,640
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
49
<PAGE>
INPRISE CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
<TABLE>
<CAPTION>
Year Ended Nine Months
December 31, Ended
---------------- December 31,
1999 1998 1997
------- ------- ------------
<S> <C> <C> <C>
Net income (loss).................................. $22,684 $ 8,346 $(3,894)
Other comprehensive income (loss):
Foreign currency translation adjustments......... (855) 2,308 637
------- ------- -------
Comprehensive income (loss)........................ $21,829 $10,654 $(3,257)
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
50
<PAGE>
INPRISE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Preferred
Stock
--------------
Shares Amounts
------ -------
<S> <C> <C>
Balance at March 31, 1997....................................... -- $ --
Issuance of common stock...................................... -- --
Employee stock option, employee stock purchase plan and other,
net.......................................................... -- --
Value attributable to warrants issued in connection with
preferred stock.............................................. -- --
Accretion of warrant value attributable to preferred stock.... -- --
Adjustment to reflect the changes in year end for iO.......... -- --
Translation adjustment........................................ -- --
Net loss...................................................... -- --
------ ------
Balance at December 31, 1997.................................... -- $ --
Employee stock option, employee stock purchase plan and other,
net.......................................................... -- --
Repurchase of common stock.................................... -- --
Premium on repurchase of preferred stock...................... -- --
Value attributable to warrants issued in connection with
preferred stock.............................................. -- --
Accretion of warrant value attributable to preferred stock.... -- --
Translation adjustment........................................ -- --
Net income.................................................... -- --
------ ------
Balance at December 31, 1998.................................... -- $ --
Employee stock option, employee stock purchase plan and other,
net.......................................................... -- --
Repurchase of common stock.................................... -- --
Conversion of mandatorily redeemable convertible preferred
stock........................................................ -- --
Issuance of series C preferred stock.......................... 1 --
Accretion attributable to preferred stock..................... -- --
Translation adjustment........................................ -- --
Net income.................................................... -- --
------ ------
Balance at December 31, 1999.................................... 1 $ --
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
51
<PAGE>
INPRISE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY--(Continued)
(in thousands)
<TABLE>
<CAPTION>
Common Stock
--------------------------------
Number of Additional Accumulated
Shares Amount Paid in Capital (Deficit)
--------- ------ --------------- -----------
<S> <C> <C> <C> <C>
Balance at March 31, 1997......... 48,881 $488 $368,420 $(255,244)
Issuance of common stock........ 171 1 687 --
Employee stock option, employee
stock purchase plan and
other, net..................... 1,693 19 12,076 --
Value attributable to warrants
issued in connection with
preferred stock................ -- -- 711 --
Accretion of warrant value
attributable to preferred
stock.......................... -- -- -- (569)
Adjustment to reflect the change
in year end for iO............. -- -- -- 16
Translation adjustment.......... -- -- -- --
Net loss........................ -- -- -- (3,894)
------ ---- -------- ---------
Balance at December 31, 1997...... 50,745 $508 $381,894 $(259,691)
Employee stock option, employee
stock purchase plan and
other, net..................... 867 8 4,634 --
Repurchase of common stock...... (3,472) (35) -- --
Premium on repurchase of
preferred stock................ -- -- (351) --
Value attributable to warrants
issued in connection with
preferred stock................ -- -- 291 --
Accretion of warrant value
attributable to preferred
stock.......................... -- -- -- (406)
Translation adjustment.......... -- -- -- --
Net income...................... -- -- -- 8,346
------ ---- -------- ---------
Balance at December 31, 1998...... 48,140 $481 $386,468 $(251,751)
Employee stock option, employee
stock purchase plan and
other, net..................... 2,703 27 15,763 --
Repurchase of common stock...... (1,001) (10) -- --
Conversion of mandatorily
redeemable convertible
preferred stock................ 10,831 109 36,791 --
Issuance of series C preferred
stock.......................... -- -- 25,000 --
Accretion attributable to
preferred stock................ -- -- 505 (505)
Translation adjustment.......... -- -- -- --
Net income...................... -- -- -- 22,684
------ ---- -------- ---------
Balance at December 31, 1999...... 60,673 $607 $464,527 $(229,572)
====== ==== ======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
52
<PAGE>
INPRISE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY--(Continued)
(in thousands)
<TABLE>
<CAPTION>
Treasury Stock Cumulative
--------------- Comprehensive
Shares Amounts Income Total
------ -------- ------------- --------
<S> <C> <C> <C> <C>
Balance at March 31, 1997............. -- -- $3,210 $116,874
Issuance of common stock............ -- -- -- 688
Employee stock option, employee
stock purchase plan and
other, net......................... -- -- -- 12,095
Value attributable to warrants
issued in connection with
preferred stock.................... -- -- -- 711
Accretion of warrant value
attributable to preferred stock.... -- -- -- (569)
Adjustment to reflect the changes in
year end for iO.................... -- -- -- 16
Translation adjustment.............. -- -- 637 637
Net loss............................ -- -- -- (3,894)
----- -------- ------ --------
Balance at December 31, 1997.......... -- -- $3,847 $126,558
Employee stock option, employee
stock purchase plan and
other, net......................... -- -- -- 4,642
Repurchase of common stock.......... 3,472 $(20,344) -- (20,379)
Premium on repurchase of preferred
stock.............................. -- -- -- (351)
Value attributable to warrants
issued in connection with
preferred stock.................... -- -- -- 291
Accretion of warrant value
attributable to preferred stock.... -- -- -- (406)
Translation adjustment.............. -- -- 2,308 2,308
Net income.......................... -- -- -- 8,346
----- -------- ------ --------
Balance at December 31, 1998.......... 3,472 $(20,344) $6,155 $121,009
Employee stock option, employee
stock purchase plan and
other, net......................... -- -- -- 15,790
Repurchase of common stock.......... 1,001 (4,861) -- (4,871)
Conversion of mandatorily redeemable
convertible preferred stock........ -- -- -- 36,900
Issuance of Series C preferred
stock.............................. -- -- -- 25,000
Accretion attributable to preferred
stock.............................. -- -- -- --
Translation adjustment.............. -- -- (855) (855)
Net income.......................... -- -- -- 22,684
----- -------- ------ --------
Balance at December 31, 1999.......... 4,473 $(25,205) $5,300 $215,657
===== ======== ====== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
53
<PAGE>
INPRISE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(in thousands)
<TABLE>
<CAPTION>
Year Ended Nine Months
December 31, Ended
------------------ December 31,
1999 1998 1997
-------- -------- ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................ $ 22,684 $ 8,346 $ (3,894)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization.............. 15,331 9,304 9,155
Non-cash restructuring costs............... 63 2,943 162
Write-off on sale of real estate........... 29,677 -- --
(Gain)/loss on sale of fixed assets and
real estate............................... 698 (1,135) --
Gain on sale of long term investment....... (2,937) (16,972) --
Changes in assets and liabilities:
Accounts receivable........................ 15,175 (7,829) (8,555)
Inventories................................ 243 24 260
Other assets............................... (331) (4,481) 85
Accounts payable and accrued expenses...... (6,060) (7,292) (4,573)
Income taxes payable....................... 4,000 (1,071) (409)
Short-term restructuring................... 6,665 2,014 (3,462)
Deferred revenue........................... (1,229) 2,084 1,932
Other...................................... (1,507) (2,730) 351
-------- -------- --------
Cash provided by (used in) operating
activities.............................. 82,472 (16,795) (8,948)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment, net... (7,754) (18,214) (4,418)
Sale of fixed assets and real estate......... -- 5,043 2,360
Proceed from sale of long-term investment.... 2,937 16,567 --
Net change in short-term investments......... (2,455) (1,382) 158
-------- -------- --------
Cash (used in) provided by investing
activities.............................. (7,272) 2,014 (1,900)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock,
net......................................... 15,790 4,642 12,673
Proceeds from issuance of convertible
preferred stock, net........................ 25,000 -- --
Proceeds from issuance of mandatorily
convertible redeemable preferred stock,
net......................................... -- 11,000 27,500
Redemption of common stock................... (4,871) (20,379) --
Redemption of mandatorily redeemable
convertible preferred stock................. -- (1,951) --
Repayment of capital lease obligations and
other debt activity......................... (149) (157) (156)
-------- -------- --------
Cash provided by (used in) financing
activities.............................. 35,770 (6,845) 40,017
-------- -------- --------
Effect on exchange rate changes on cash.. (94) 2,055 (625)
-------- -------- --------
Net change in cash and cash equivalents....... 110,876 (19,571) 28,544
Net cash adjustment to conform the year end of
acquired companies (Note 5).................. -- -- 126
Beginning cash and cash equivalents........... 81,137 100,708 72,038
-------- -------- --------
Ending cash and cash equivalents.............. $192,013 $ 81,137 $100,708
======== ======== ========
Cash paid during the year for:
Interest..................................... $ 906 $ 1,016 $ 811
Income taxes................................. $ 6,463 $ 697 $ 1,092
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
54
<PAGE>
INPRISE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUBSEQUENT EVENTS
Plan to Merge with Corel Corporation
On February 6, 2000, we entered into a merger agreement with Corel, pursuant
to which Inprise, upon completion of the merger, will become a wholly-owned
subsidiary of Corel. Corel is one of the world's largest developers of business
productivity, graphics and operation solutions. Under the terms of the merger
agreement, Inprise stockholders will receive 0.747 of a share of Corel common
stock for each share of Inprise common stock held. Upon closing of the
transaction. On a fully diluted basis, Inprise stockholders will own
approximately 44% of Corel and Corel stockholder's will own about 56%. The
boards of directors of both companies have approved the transaction. The merger
is contingent upon the receipt of various regulatory approvals and the approval
of both companies' stockholders.
Dr. Michael C.J. Cowpland, Corel's Chairman of the Board, President and
Chief Executive Officer, will remain as President, Chief Executive Officer and
a director of the combined company. Dale Fuller, Inprise's Interim President
and Chief Executive Officer, will be Chairman of the Board of Directors of the
combined company. The Corel board will also be comprised of a designee of
Inprise agreed to by Corel and three individuals who are current members of the
Corel board. Corel has agreed that it will recommend and support the election
of Dale Fuller and the other Inprise designee to the Corel board at Corel's
2001 and 2002 annual meetings of shareholders. In addition, without the consent
of Dale Fuller and the other Inprise designee, the Corel board will not have
more than six members prior to the election of directors at Corel's 2003 annual
meeting of shareholders. Corel's obligation to cause Mr. Fuller to be appointed
as chairman of the Corel board continues until Corel's 2003 annual meeting of
the shareholders or for such longer time as may be agreed to by Mr. Fuller and
the Corel board. The operations of the combined company will be headquartered
in Ottawa, Ontario, Canada with the Inprise operations remaining in its current
Silicon Valley locations.
Sale of the Corporate Facilities
On March 17, 2000, the Company completed the sale of our corporate
facilities at 100 Enterprise Way, Scotts Valley, California, to Enterprise Way
Associates, LLC as assignee of the ScalanKemperBard. We received approximately
$44.1 in consideration for the facility. Consideration in the transaction was
net of $2.5 million held in escrow to cover potential costs to improve the
building and $0.4 million in other disposal costs. We recorded a write-down of
the corporate facility of $29.7 million during the quarter ended December 31,
1999. As of December 31, 1999, the net book value of the facility, including
land and improvements, was $44.1 million, inclusive of the write-down of $29.7
million for the corporate facility recorded during the quarter ended
December 31, 1999. In conjunction with the sale of the facility, we entered
into a long-term lease arrangement to use approximately 44% of the building for
corporate purposes.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Inprise Corporation, formerly Borland International, Inc., was incorporated
in California in 1983 and reincorporated in Delaware in 1989. We maintain our
executive offices at 100 Enterprise Way, Scotts Valley, California 95066-3249,
and our main telephone number at that location is 831-431-1000. We also
maintain Internet web sites at www.inprise.com and www.borland.com. Inprise is
a leading provider of Internet-enabling software and services designed to
reduce the complexity of application development for corporations and
individual programmers.
We market and distribute our products through our direct sales force, single
and two-tier distribution, value added resellers ("VARs"), independent software
vendors ("ISVs") and the Internet. This multiple distribution approach allows
customers to select the channel that addresses their particular needs and
provides us with broad coverage of worldwide markets.
55
<PAGE>
INPRISE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Principles of Consolidation
The consolidated financial statements include the accounts of Inprise
Corporation and our subsidiaries, all of which are wholly-owned. All
significant intercompany accounts and transactions have been eliminated.
Change in Fiscal Year End
During 1997, we changed our year end from March 31 to December 31 for
financial reporting purposes. As a result of this change the accompanying
consolidated financial statements include the nine month transition period from
April 1, 1997 to December 31, 1997. The unaudited condensed results of
operations for the comparable period of the prior year are summarized below,
amounts in thousands:
<TABLE>
<CAPTION>
Nine Month Period
Ended
Condensed consolidated statement of operations data December 31, 1996
--------------------------------------------------- -----------------
(unaudited)
<S> <C>
Net revenues............................................... $127,556
Gross profit............................................... $ 99,337
Income tax provision....................................... $ 274
Net loss................................................... $(83,692)
Loss per share--basic...................................... $ (1.89)
</TABLE>
Acquisition
On February 27, 1998, we completed the acquisition of Visigenic Software,
Inc. ("Visigenic") in a transaction accounted for as a pooling of interests
and, as a result, our previously issued financial statements for the periods
presented in this Form 10-K have been restated to include the assets,
liabilities and operating results of Visigenic in accordance with generally
accepted accounting principles and the instructions in Regulation S-X.
Revenue Recognition
Revenue from the sale of software products, including sales to distributors
and retail dealers, is recognized upon shipment when no significant vendor
obligations remain, the fee is fixed and collection of the receivable is
probable. In instances where a significant vendor obligation exists, revenue
recognition is delayed until the obligation has been satisfied. Allowances for
estimated future returns and exchanges are provided at that time based on our
return policies. Service revenues from customer maintenance fees for ongoing
customer support and product updates, including maintenance bundled with
software licenses, is recognized ratably over the period of the contract and
revenue from other services, including training, are recognized as performed.
We have recognized revenues for all periods ending prior to January 1, 1998 in
accordance with Statement of Position 91-1, "Software Revenue Recognition."
In October 1997 and March 1998, the American Institute of Certified Public
Accountants ("AICPA") issued Statement of Position No. 97-2, "Software Revenue
Recognition" ("SOP No. 97-2") and Statement of Position No. 98-4, "Deferral of
the Effective Date of a Provision of SOP No. 97-2" ("SOP No. 98-4"). SOP 98-4
defers for one year the application of certain provisions of SOP 97-2. In
December 1998, the AICPA issued Statement of Position No. 98-9, "Modification
of SOP No. 97-2 with Respect to Certain Transactions" ("SOP No. 98-9"), which
is effective for transactions entered into beginning April 1, 1999. SOP 98-9
extends the effective date of SOP 98-4 and provides additional interpretive
guidance. The adoption of SOP 97-2, SOP 98-4 and SOP 98-9 have not had and are
not expected to have a material impact on our results of operations, financial
position or cash flows.
56
<PAGE>
INPRISE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Cash, Cash Equivalents and Short-Term Investments
We consider all highly liquid investments a maturity of three months or less
when acquired to be cash equivalents. Short-term investments are held as
securities available for sale under the provisions of Statement of Financial
Accounting No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." The securities are carried at fair market value with the
unrealized gains and losses, net of tax, reported as a separate component of
stockholders' equity.
Short-term investments, consisting principally of time deposits, at December
31, 1999 and 1998 were $5.7 million and $3.2 million, respectively. Unrealized
gains and losses have been insignificant for all periods presented.
Foreign Exchange Contracts
We enter into forward exchange contracts to manage our exposure to currency
fluctuations. We have outstanding short-term forward exchange contracts to
exchange various foreign currencies (principally Japanese yen, Australian
dollars, Canadian dollars and German marks) for U.S. dollars in the amount of
$14.4 million and $13.2 million at December 31, 1999 and 1998, respectively.
Our accounting policy for these instruments, which do not qualify as accounting
hedges, is based upon the guidance of Statement of Financial Accounting
Standard No. 8, "Accounting for the Translation of Foreign Currency
Transactions and Foreign Currency Financial Statements" ("FAS No. 8"). The
forward exchange contracts are marked-to-market and unrealized gains and losses
are included in current period net income. The net gain or loss on such foreign
currency contracts and underlying transactions have been insignificant for all
periods presented.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement No. 133 "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133"). SFAS 133 establishes accounting and reporting
standards for derivative instruments, embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. The accounting for changes in the fair value
of the derivative depends on the intended use of the derivative and the
resulting designation. SFAS 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. (See Note 2. Recent Accounting
Pronouncements for delay in adoption of SFAS 133). We will adopt SFAS 133 in
the second quarter ending June 30, 2000. We believe that the adoption of this
standard will not have a significant effect on the results of operations,
financial position, capital resources or liquidity.
Financial Instruments
The fair value of our financial instruments, including cash and cash
equivalents, accounts and notes receivable, accounts and notes payable, and
long-term debt, is based upon the present value of the cash flows or securities
with similar terms, and approximates carrying value.
Concentration of Credit Risk
Financial instruments that potentially subject us to significant
concentrations of credit risk consist principally of cash, cash equivalents,
short-term investments and trade accounts receivable. We place our cash, cash
equivalents and short-term investments in a variety of financial instruments
such as commercial paper. We, by policy, limit the amount of credit exposure to
any one financial institution or commercial issuer.
We offer credit terms on the sale of our software products to distributors,
retail dealers and certain end-user customers. We perform ongoing credit
evaluations of our customers' financial condition and, generally,
57
<PAGE>
INPRISE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
require no collateral from our customers. We maintain an allowance for
uncollectible accounts receivable based upon the expected collectibility of all
accounts receivable.
We are exposed to credit loss in case of non-performance by counterparties
to foreign exchange contracts, but we do not anticipate non-performance by
these counterparties.
Inventories
Inventories consist primarily of completed product and are stated at the
lower of cost or market value. Cost is determined on a first-in, first-out
basis.
Property and Equipment
Property and equipment is stated at cost and depreciated using the straight-
line method based on the following estimated useful lives:
<TABLE>
<S> <C>
Buildings................................................... 31.5 years
Computer equipment.......................................... 3 to 5 years
Furniture, fixtures and equipment........................... 5 years
Leasehold improvements...................................... Lease term
</TABLE>
Depreciation expense for the years ended December 31, 1999 and 1998, and the
nine months ended December 31, 1997 was $13.5 million, $9.2 million, and $8.0
million, respectively. Maintenance and repairs are expensed as incurred. The
cost of assets and related accumulated depreciation are removed from the
accounts upon retirement or other disposition; any resulting gain or loss is
reported as income or expense.
We capitalized costs associated to internal use software in accordance with
the provisions of Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP 98-1"). We
capitalized approximately $2.8 million and $7.2 million in costs associated to
the development and deployment of internal use software during 1999 and 1998,
respectively. We had approximately $8.5 million and $8.3 million in unamortized
internal use software costs as of December 31, 1999 and 1998, respectively. We
amortized approximately $2.6 million and $0.4 million in costs associated to
internal use software during 1999 and 1998, respectively.
Stock-Based Compensation Plans
We account for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," ("APB 25") and related Interpretations. Under APB 25,
compensation cost is measured as the excess, if any, of the closing market
price of our stock at the date of grant over the exercise price of the option
granted. Compensation cost for stock options, if any, is recognized ratably
over the vesting period. Our policy is to grant options with an exercise price
equal to the closing market price of our stock on the grant date. Accordingly,
no compensation has been recognized for our stock option plans. We provide
additional pro forma disclosures as required under Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"). See Note 14.
We account for stock options issued to non-employees under EITF Issue No.
96-18, "Accounting for Equity Instruments with Variable Terms that are Issued
for Consideration Other Than Employee Services under FASB Statement No. 123."
We record the expense of such services based upon the estimated fair value of
the equity instrument using the Black-Scholes pricing model. Assumptions used
to value the equity instruments are
58
<PAGE>
INPRISE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
consistent with equity instruments issued to employees, see Note 14. The value
of the equity instrument is charged to earnings over the term of the service
agreement. The charges to operating expenses in 1999 and 1998 for equity
instruments issued to non-employees were immaterial.
Research and Development
We capitalize certain product rights acquired from others and internal
software development costs incurred after technological feasibility has been
demonstrated. Such capitalized amounts are amortized commencing with product
introduction at the greater of the straight-line basis utilizing the estimated
economic lives, which range from two to four years, or the ratio of actual
revenues achieved to the total anticipated revenues over the lives of the
products.
No internal development costs were capitalized during the years ended
December 31, 1999 and 1998, and the nine months ended December 31, 1997.
Amortization of internal software development costs charged to cost of revenues
during the years ended December 31, 1999 and 1998, and nine months ended
December 31, 1997 was none, none, and $203,000, respectively. There were no
unamortized product rights and capitalized development costs recorded at
December 31, 1999 and 1998.
Goodwill
Goodwill represents the excess of the aggregate purchase price over the fair
market value of the tangible and intangible assets acquired in various
acquisitions and is being amortized over the estimated useful life of seven
years. Amortization of goodwill charged to operating expenses during the years
ended December 31, 1999 and 1998, and the nine months ended December 31, 1997
was $1,805,000, $87,000, and $859,000, respectively. At December 31, 1999 and
1998, we had approximately $1,761,000 and $1,425,000 of unamortized goodwill,
respectively.
Advertising Costs
We expense the production costs of advertising, including direct response,
the first time the advertising takes place. Advertising expense was $3.6
million, $4.0 million, and $10.1 million during the years ended December 31,
1999 and 1998, and the nine months ended December 31, 1997, respectively.
Foreign Currency Translation
The functional currency of our non-U.S. subsidiaries' is the local currency.
The balance sheet accounts of these subsidiaries are translated into U.S.
dollars at the exchange rate as of the balance sheet date. Revenues, costs and
expenses are translated using an average rate. Resulting exchange gains and
losses are reported as a component of stockholders' equity.
Management Estimates and Assumptions
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for
59
<PAGE>
INPRISE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. In July 1999, the Financial
Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement NO. 133," which deferred the effective date until the first fiscal
quarter ending on or after June 30, 2000. We will adopt SFAS No. 133 in our
quarter ending June 30, 2000.
NOTE 3. CONSOLIDATED BALANCE SHEET COMPONENTS
Details of certain balance sheet captions are as follows (amounts in
thousands):
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Property and equipment, including capitalized leases:
Buildings.......................................... $ 80,201 $ 99,703
Computer equipment................................. 77,370 72,217
Furniture, fixtures and equipment.................. 22,095 28,207
Other.............................................. 7,819 3,026
--------- ---------
187,485 203,153
Less accumulated depreciation and amortization..... (126,833) (116,529)
--------- ---------
60,652 86,624
Land............................................... 14,350 24,525
--------- ---------
Total............................................ $ 75,002 $ 111,149
========= =========
Depreciation Expense............................... $ 13,526 $ 9,217
========= =========
Accrued expenses:
Accrued payroll and incentives..................... 14,976 9,600
Advertising and customer sales incentives.......... 2,549 1,017
Professional fees and settlement costs............. 9,862 14,851
Other.............................................. 6,585 10,486
--------- ---------
Total............................................ $ 33,972 $ 35,954
========= =========
Long-term debt and other non-current liabilities:
Non-current portion of accrued restructuring
charges........................................... $ 2,550 $ 2,907
Mortgage notes payable............................. 8,943 9,104
Deferred and other taxes........................... 5,700 5,700
Long-term deferred revenue and other............... 2,269 1,427
--------- ---------
Total............................................ $ 19,462 $ 19,138
========= =========
</TABLE>
60
<PAGE>
INPRISE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 4. EARNINGS PER SHARE
The following is a reconciliation of the computation of basic and diluted
earnings per share (in thousands, except per share data):
<TABLE>
<CAPTION>
Years Ended Nine Months
December 31, Ended
--------------- December 31,
1999 1998 1997
------- ------- ------------
<S> <C> <C> <C>
Numerator:
Net income (loss)............................... $22,684 $ 8,346 $(3,894)
Accretion charge relating to convertible
preferred stock................................ 505 406 569
------- ------- -------
Income (loss) available to common stockholders.. $22,179 $ 7,940 $(4,463)
======= ======= =======
Denominator:
Denominator for basic income (loss) per share
weighted average shares........................ 54,810 50,118 49,640
Effect of dilutive securities
Series B mandatorily convertible preferred
stock........................................ 3,987 5,846 --
Series C convertible preferred Stock.......... 3,920 -- --
Employee stock options........................ 691 1,420 --
------- ------- -------
Denominator for diluted income (loss) per share
adjusted weighted average shares and assumed
conversions.................................... 63,408 57,384 49,640
======= ======= =======
Income (loss) per share--basic.................. $ 0.40 $ 0.16 $ (0.09)
Income (loss) per share--diluted................ $ 0.35 $ 0.14 $ (0.09)
</TABLE>
Options to purchase approximately 9,095,000, 10,789,000, and 11,871,000
shares of common stock were outstanding at December 31, 1999, 1998 and 1997,
respectively, were not included in the computation of diluted EPS as the
inclusion of such options would have been antidilutive.
The 550 shares of Series B mandatorily redeemable convertible preferred
stock outstanding at December 31, 1997 were not included in the computation of
diluted EPS for the nine months ended December 31, 1997, as the inclusion of
the mandatorily redeemable convertible preferred stock would have been
antidilutive. The 308,000, 308,000 and 220,000 warrants to purchase common
shares outstanding at December 31, 1999, 1998 and 1997, respectively, were not
included in the computation of diluted EPS for the years ended December 31,
1999 and 1998 and the nine months ended December 31, 1997, as the inclusion of
the warrants would have been antidilutive.
NOTE 5. ACQUISITIONS
Visigenic Software, Inc.
On February 27, 1998, we issued approximately 12,118,060 shares of Inprise
Common Stock in exchange for all of the outstanding common stock of Visigenic.
We also reserved approximately 2,527,284 shares for issuance in connection with
Visigenic's outstanding employee stock options. The merger was accounted for as
a pooling of interests and, accordingly, our consolidated financial statements
have been restated for all periods prior to the merger to include the
operations of Visigenic.
61
<PAGE>
INPRISE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Following the merger Visigenic's year end has been conformed to our year end
of December 31 (see Note 2). The following unaudited pro forma combined
financial information assumes that the merger occurred on the first day of the
earliest period presented (in thousands of dollars, except per share amounts).
<TABLE>
<CAPTION>
Proforma
Nine Months Ended December 31, 1997 Borland Visigenic Combined
----------------------------------- -------- --------- --------
<S> <C> <C> <C>
Net revenues................................... $127,485 $18,451 $145,936
Net income (loss).............................. $ 4,424 $(8,318) $ (3,894)
Income (loss) per share--basic................. $ 0.10 $ (0.58) $ (0.09)
Income (loss) per share--diluted............... $ 0.10 $ (0.58) $ (0.09)
</TABLE>
This pro forma combined financial information is provided for comparative
purposes only and does not purport to be indicative of the results which
actually would have been obtained if the merger had been effected for the
periods indicated, or of the results which may be obtained in the future.
Apogee Information Systems, Inc.
On November 30 1998, we completed our acquisition of Apogee Information
Systems, Inc. ("Apogee"). Apogee provides application design and development
consulting services to clients primarily in the United States. We purchased all
of Apogee's outstanding shares of common stock for approximately $4.0 million
in cash of which approximately $1.6 million has been paid as of December 31,
1999. The remaining consideration is payable upon Apogee reaching certain
revenue levels. The transaction was accounted for as a purchase. As a result of
a purchase price allocation, the excess of the purchase price over net assets
acquired is $1.5 million, which is being amortized on a straight-line basis
over a period of approximately two years.
NOTE 6. RESTRUCTURING AND MERGER RELATED CHARGES
During December 1999, we recorded a restructuring charge of $34.8 million.
The restructuring charge consists primarily of a loss on sale of our Scotts
Valley facility of $29.7 million; a $3.1 million charge for discontinuation of
our European information system implementation and other miscellaneous
restructuring related costs of $3.1 million. In addition, the Company recorded
a charge of a $3.0 million for severance costs associated with organizational
changes implemented during the fourth quarter. The Company expects to pay these
costs over the next year. Employee terminations represented approximately 5% of
the total employee workforce as of December 31, 1999. These charges were
offset, in part, by the reversal of restructuring charges totaling $4.1
million, that were taken in both the first quarter of 1999 and 1998, which will
not be utilized.
In January 1999 we announced the restructuring of our corporate operations.
A restructuring charge of $7.0 million was recorded during the quarter ended
March 31, 1999 of which $6.7 million related to severance costs associated with
the elimination of duplicate workforce and $0.3 million related to termination
of certain lease agreements.
In connection with the acquisition of Visigenic, we implemented a worldwide
realignment of our corporate structure. In the quarter ended March 31, 1998, we
recorded a $19.3 million restructuring and merger related charge of which $9.9
million related to severance costs associated with the elimination of a
duplicate workforce, $3.2 million to terminate certain lease agreements and the
write-off of certain fixed assets and $2.5 million for other costs associated
with the restructuring. Additionally, we charged to income approximately
$3.7 million in expenses associated with the merger. As part of the first
quarter restructure, we had recorded a restructuring charge of approximately
$3.4 million for severance costs associated to the anticipated closure of
certain operations. As of December 31, 1998, Company did not anticipate any
further severance costs associated with these operations. Accordingly, we
reversed the charge during the quarter ended December 31, 1998.
62
<PAGE>
INPRISE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes our restructuring activity for the years
ended December 31, 1999 and 1998, and the nine months ended December 31, 1997
(amounts in thousands):
<TABLE>
<CAPTION>
Severance Other Asset
and Benefits Charges Facilities Other Total
------------ ----------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
Accrual as of March 31,
1997................... $ 2,047 $ -- $ 1,959 $ 952 $ 4,958
Cash paid during the
nine months ended
December 31, 1997...... (1,976) -- (1,387) (155) (3,518)
Non-cash costs.......... -- -- -- (162) (162)
------- ------- ------- ------- -------
Accrual as of December
31, 1997............... 71 -- 572 635 1,278
1998 restructuring...... 9,863 2,900 336 2,482 15,581
Cash paid during 1998... (4,275) -- -- (2,719) (6,994)
Non-cash costs.......... -- (2,748) (195) -- (2,943)
Reversal of previous
restructure............ (3,356) -- -- (292) (3,648)
------- ------- ------- ------- -------
Accrual at December 31,
1998................... $ 2,303 $ 152 $ 713 $ 106 $ 3,274
1999 restructuring...... 9,682 4,727 641 1,169 16,219
Cash paid during 1999... (5,060) -- (357) (234) (5,651)
Reversal of previous
restructure............ (3,922) (115) -- 163 (3,874)
------- ------- ------- ------- -------
Accrual at December 31,
1999................... $ 3,003 $ 4,764 $ 997 $ 1,204 $ 9,968
======= ======= ======= ======= =======
</TABLE>
NOTE 7. LONG-TERM DEBT
Long-term debt at December 31, 1999 represents outstanding mortgage notes.
The 10.75% mortgage notes are repayable in equal monthly installments over a
thirty-year term ending in 2018. Certain land, buildings and improvements are
held as collateral under the terms of the notes.
Minimum annual repayments of these notes at December 31, 1999 are as
follows, amounts in thousands:
<TABLE>
<CAPTION>
Calendar year:
--------------
<S> <C>
2000............................................ $ 161
2001............................................ 180
2002............................................ 200
2003............................................ 222
2004............................................ 247
Thereafter...................................... 8,094
------
9,104
Less current portion............................ (161)
------
Long-term portion............................... $8,943
======
</TABLE>
Interest expense for all obligations was approximately $1.0 million, $1.0
million, and $0.8 million for the years ended December 31, 1999 and 1998, and
the nine months ended December 31, 1997, respectively.
63
<PAGE>
INPRISE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 8. INCOME TAXES
Income (loss) before income taxes consisted of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended Year Ended Nine Months Ended
December 31, 1999 December 31, 1998 December 31, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
US.................... $24,824 $(2,366) $(10,673)
Non US................ 6,526 6,332 7,861
------- ------- --------
$31,350 $ 3,966 $ (2,812)
======= ======= ========
</TABLE>
The provision (benefit) for income taxes consisted of the following (in
thousands):
<TABLE>
<CAPTION>
Year Ended Year Ended Nine Months Ended
December 31, 1999 December 31, 1998 December 31, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Current:
Federal............... $2,113 $(3,800) $ --
State................. 2,535 (981) --
Non US................ 4,476 198 1,082
------ ------- ------
9,124 (4,583) 1,082
------ ------- ------
Deferred:
Federal............... -- -- --
State................. -- -- --
Non US................ (458) 203 --
------ ------- ------
(458) 203 --
------ ------- ------
Income tax provision
(benefit)............ $8,666 $(4,380) $1,082
====== ======= ======
</TABLE>
The following is a reconciliation of the difference between the actual
provision (benefit) for income taxes and the provision computed by applying the
federal statutory rate on income (loss) before income taxes (in thousands):
<TABLE>
<CAPTION>
Year Ended Year Ended Nine Months Ended
December 31, 1999 December 31, 1998 December 31, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Tax provision (benefit)
computed at US
statutory rate......... $10,973 $ 1,388 $ (984)
State taxes............. 2,535 -- --
Limitation (benefit) on
utilization of US
losses................. (6,575) 828 3,736
Non US withholding
taxes.................. 1,252 1,415 1,101
Subsidiaries' results
subject to tax rates
other than U.S.
statutory rates........ 482 (55) --
Limitation (benefit) on
utilization of non US
losses................. -- -- (2,771)
Resolution of certain
prior years' US tax
exposures.............. -- (4,781) --
Resolution of certain
prior years' non US tax
exposures.............. -- (3,175) --
------- ------- -------
Income tax provision
(benefit).............. $ 8,666 $(4,380) $ 1,082
======= ======= =======
</TABLE>
64
<PAGE>
INPRISE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Under FAS 109, deferred tax assets and liabilities are recognized for the
expected future tax consequences of differences between the carrying amounts of
assets and liabilities and their respective tax bases using enacted tax rates
in effect for the year in which the differences are expected to reverse.
Deferred tax assets are comprised of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Accrued expenses....................... $ 4,309 $ 11,660
Accounts receivable reserves........... 1,897 1,274
Inventory valuation.................... 310 1,242
Depreciation, amortization and other... 2,527 10,682
U.S. federal and state loss and credit
carryforwards......................... 96,900 101,136
Non U.S. loss carryforwards............ 7,204 8,689
--------- ---------
Gross deferred tax assets.............. 113,147 134,683
Deferred tax assets valuation
allowance............................. (112,452) (134,480)
--------- ---------
Deferred tax asset--net................ $ 695 $ 203
========= =========
</TABLE>
On December 31, 1999 and December 31, 1998, the Company had reserved a
substantial portion of its deferred tax assets. The Company believes sufficient
uncertainty exists regarding the realizability of the deferred tax assets such
that a valuation allowance has been provided.
For U.S. federal income tax purposes, the Company has net operating loss
carryforwards of approximately $204 million at December 31, 1999. There are
also available U.S. federal tax credit carryforwards of approximately $23
million. These loss and credit carryforwards expire between 2000 and 2014, if
not utilized. The Company also has Alternative Minimum Tax (AMT) credit
carryforwards for U.S. federal income tax purposes of approximately $2 million,
which does not expire. Utilization of federal and state net operating loss and
tax credit carryforwards may be subject to a substantial annual limitation due
to the ownership change limitations provided by the Internal Revenue Code of
1986, as amended, and similar state provisions. The annual limitation may
result in the expiration of net operating loss and tax credit carryforwards
before full utilization. The Company also has approximately $12 million of net
operating loss carryforwards in various foreign jursidictions. Certain of these
loss carryforwards will begin to expire in 2000, if not utilized.
Deferred tax assets and related valuation allowances of approximately $37
million relate to certain U.S. operating loss carryforwards resulting from the
exercise of employee stock options, the tax benefit of which, when recognized,
will be accounted for as a credit to additional paid-in capital rather than a
reduction of the income tax provision.
During the tax year ended December 31, 1998 the Company recorded an income
tax benefit of approximately $4.8 million resulting from a settlement reached
with the U.S. Internal Revenue Service (IRS). This settlement resolved
differences concerning certain disputed deductions related to the tax years
ending 1984-1992. In addition, the Company recorded an income tax benefit of
approximately $3.2 million related to the resolution of certain non-U.S. tax
issues which were previously provided for. Excluding the tax benefits of $4.8
million and $3.2 million, the Company would have incurred an income tax expense
of approximately $3.6 million.
Applicable U.S. income and non-U.S. withholding taxes have not been provided
on undistributed earnings of approximately $18.0 million of the Company's
foreign subsidiaries as such earnings are considered to be permanently invested
in foreign operations.
65
<PAGE>
INPRISE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 9. LEASES
We lease certain of our office and operating facilities, and certain
furniture and equipment under various operating and capital leases. Lease terms
range from one to seventeen years.
Minimum annual lease commitments and minimum future sublease income at
December 31, 1999 are as follows, amounts in thousands:
<TABLE>
<CAPTION>
Operating Sublease
Calendar year: Leases Income
-------------- --------- --------
<S> <C> <C>
2000............................... $ 5,230 $3,021
2001............................... 4,190 2,218
2002............................... 3,486 998
2003............................... 3,091 489
2004............................... 2,142 279
Thereafter......................... 8,356 --
------- ------
$26,495 $7,005
======= ======
</TABLE>
Rent expense for all operating leases was approximately $4.2 million, $3.6
million, and $3.3 million for the years ended December 31, 1999 and 1998, and
the nine months ended December 31, 1997, respectively. Minimum sublease income
was approximately $3.0 million, $2.1 million, and $1.5 million for the years
ended December 31, 1999 and 1998, and the nine months ended December 31, 1997,
respectively.
NOTE 10. SERIES B MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK
In prior years, we issued 770 shares of Series B mandatorily redeemable
convertible preferred stock ("Series B Shares") for $38.5 million. For each
Series B Share, we also issued to the purchaser a warrant to purchase 400
shares of our common stock at a per share price equal to 125% of the closing
price of the common stock on the issuance date. We recorded a charge of
approximately $0.4 million to the income available to common stockholders for
the value of the warrants during the year ended December 31, 1998. In December
1998, we redeemed 32 Series B Shares for total consideration of approximately
$1.95 million.
During the year ended December 31, 1999, all remaining outstanding shares of
Series B Mandatorily Redeemable Convertible Preferred Stock were converted into
approximately 10,831,000 shares of common stock at an average conversion rate
of $3.41 per share.
NOTE 11. SERIES C CONVERTIBLE PREFERRED STOCK
In 1999, we sold an aggregate of 625 shares of Series C Convertible
Preferred Stock ("Series C Stock") to Microsoft Corporation (Microsoft) for $25
million. The Series C Stock is without voting rights, until such stock is
converted to common stock. The holders of shares of Series C Stock are not
entitled to receive any dividends except as and when declared by the Board of
Directors. Such dividends would be non-cumulative. In the event of liquidation
and to the extent assets are available, the holder of shares of Series C Stock
are entitled to receive the same consideration as if the shares of Series C
Stock had been converted into common stock immediately prior to such an event.
Each share of Series C Stock is convertible, at the option of the holder,
after the satisfaction of a two year holding period or upon liquidation, into
fully paid and non-assessable shares of common stock based upon a fixed
conversion ratio. The conversion ratio is subject to certain adjustments, stock
splits and other capital reorganizations. The Series C Stock is automatically
convertible into common stock upon the completion of the
66
<PAGE>
INPRISE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
merger with Corel Corporation. At the date of issuance, the Series C Stock had
a beneficial conversion rate valued at $1.7 million. We recorded a charge of
approximately $0.5 million to the income available to common stockholders
during the year ended December 31, 1999.
NOTE 12. COMMON SHARES RESERVED FOR FUTURE ISSUANCE
Shares of common stock reserved for future issuance at December 31, 1999 are
as follows:
<TABLE>
<S> <C>
Employee Stock Purchase Plan.................................. 682,450
Stock Options................................................. 13,139,369
Convertible Preferred Stock................................... 6,720,430
Warrants...................................................... 1,265,000
----------
Total......................................................... 21,807,249
==========
</TABLE>
NOTE 13. STOCK REPURCHASE PROGRAM
On July 21, 1998, our Board of Directors authorized us to repurchase up to
10% of our outstanding share of common stock on a fully diluted basis, or
approximately 5,900,000 shares. We have repurchased approximately 4.4 million
shares at an average price of $5.63 per share.
NOTE 14. EMPLOYEE BENEFIT PLANS
Stock Option Plan
As of December 31, 1999, we have various stock-based compensation plans. The
Employee Option Plans ("EOP") allow for the grant of both incentive stock
options and nonstatutory options. Certain options have been granted that vest
daily or monthly over a specified vesting period from the date of grant.
Options expire at the earlier of either three months after termination of
employment or ten years after the date of grant.
We also grant options to non-employee directors. Each non-employee director,
on the date of election to the Board, is granted an option for the purchase of
30,000 shares of our common stock. Additionally, at the annual stockholders'
meeting each non-employee director is granted an option for the purchase of
7,500 shares of our common stock. All such shares vest one-year from the date
of grant.
On June 4, 1999, our stockholders approved (i) an amendment to our 1997
Stock Option Plan to increase the number of shares of our Common Stock reserved
for issuance thereunder by 1.5 million and (ii) our 1999 Employee Stock
Purchase Plan, including the reservation of 0.8 million shares of our Common
Stock for issuance thereunder.
In August 1998, substantially all outstanding options with a share price in
excess of $6.50 were amended to an exercise price of $6.50 per share, the fair
market value as of the date of the repricing. A total of 6,452,541 options were
amended.
At December 31, 1999, approximately 5,489,000 shares were available for
future grant under the option plans. All options granted under the plan for the
years ended December 31, 1999 and 1998, and the nine months ended December 31,
1997 were priced at market value at the time of grant.
67
<PAGE>
INPRISE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table summarizes our stock option activity and related
weighted average exercise prices within each category for the years ended
December 31, 1999 and 1998, and the nine months ended December 31, 1997
relating to our stock option plans. Amounts are in thousands, except share
price:
<TABLE>
<CAPTION>
Year Ended Year Ended Nine Months Ended
December 31, 1999 December 31, 1998 December 31, 1997
------------------- ------------------- -------------------
Shares Price Shares Price Shares Price
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
beginning of period.... 12,857 $ 6.43 9,348 $ 8.12 8,866 $ 7.59
Stock options:
Granted............... 4,623 $ 4.52 13,134 $ 7.02 3,437 $ 8.46
Exercised............. (2,252) $ 6.16 (559) $ 4.52 (1,722) $ 6.67
Canceled.............. (7,579) $ 6.42 (9,066) $ 9.10 (1,233) $ 7.49
--------- -------- --------- -------- --------- --------
Options outstanding at
end of period.......... 7,650 $ 6.08 12,857 $ 6.43 9,348 $ 8.12
========= ======== ========= ======== ========= ========
Exercisable............. 3,633 6,952 3,832
</TABLE>
The fair value of each option grant, as defined by SFAS 123, is estimated on
the date of grant using the Black-Scholes pricing model. The Black-Scholes
pricing model, as well as other currently accepted option valuation models, was
developed to estimate the fair value of freely tradable, fully transferable
options without vesting restrictions, which significantly differ from our stock
option awards. These models also require highly subjective assumptions,
including future stock price volatility and expected time until exercise, which
greatly affect the calculated fair value on the grant date. The fair value of
each stock option grant is estimated on the date of grant using the Black-
Scholes pricing model with the following weighted average assumptions:
<TABLE>
<CAPTION>
Year Ended Year Ended Nine Months Ended
December 31, 1999 December 31, 1998 December 31, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Expected life........... 2.3 years 2.3 years 3.0 years
Risk-free interest
rate................... 6.39% 4.64% 5.72%
Volatility.............. 88.0% 66.7% 68.6%
Dividend yield.......... 0.00% 0.00% 0.00%
</TABLE>
The weighted-average fair value of the stock options granted under the EOP's
during the years ended December 31, 1999 and 1998, and the nine months ended
December 31, 1997, as defined by SFAS 123, was $3.01, $3.88, and $4.81,
respectively.
The following table summarizes information about fixed stock options
outstanding at December 31, 1999. Amounts are in thousands, except share and
exercise price and contractual life:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------- ------------------------
Number Weighted- Number Weighted-
Outstanding at Average Weighted- Exercisable at Average
Range of December 31, Contractual Average December 31, Exercise
Exercise Prices 1999 Life Exercise Price 1999 Price
--------------- -------------- ----------- -------------- -------------- ---------
(in thousands) (in years) (in thousands)
<S> <C> <C> <C> <C> <C>
$0.2927-$4.0313......... 1,897 9.33 $ 3.59 943 $ 3.40
$4.0625-$4.8750......... 1,612 9.22 4.37 207 4.63
$4.8788-$6.4375......... 1,668 6.57 6.29 1,191 6.35
$6.5000-$6.5000......... 1,669 8.02 6.50 692 6.50
$6.5625-$49.0000........ 804 6.54 14.03 600 15.28
----- ---- ------ ----- ------
$0.2927-$49.0000........ 7,650 8.12 $ 6.08 3,633 $ 6.99
===== =====
</TABLE>
68
<PAGE>
INPRISE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
InterBase Stock Option Plan
In October 1998, the board of directors of InterBase Software Corporation
("InterBase"), a wholly-owned subsidiary, approved the proposal to establish
the InterBase Software Corporation 1998 Stock Option Plan ("InterBase Option
Plan"). During 1999, we merged InterBase into Inprise Corporation. We
repurchased all options outstanding under the InterBase Option Plan at a total
cost of $5.1 million.
Employee Stock Purchase Plan
We have several Employee Stock Purchase Plans. These plans allow eligible
employees of Inprise Corporation and its subsidiaries to purchase shares of
common stock through payroll deductions. Purchases are limited to 15% of the
employee's compensation, subject to a maximum annual employee contribution
limited to a $25,000 market value but limited to no more than 2,500 shares of
stock. The ESPP shares may be purchased by participants at the lower of 85% of
the fair market value at the beginning of the offering period or the purchase
date. Of the 2,150,000 shares of common stock that have been reserved for
issuance under the two plans, 1,457,749 shares were issued through December 31,
1999. Sales under the two plans during the years ended December 31, 1999 and
1998, and the nine months ended December 31, 1997 were 309,434, 298,364, and
77,426 shares of common stock at an average price of $3.85, $5.63, and $6.04
per share, respectively.
Compensation cost (included in pro forma net income and net income per share
amounts) is recognized for the fair value of the employees' purchase rights,
which was estimated using the Black-Scholes model with the following weighted
average assumptions for the years ended December 31, 1999 and 1998, and the
nine months ended December 31, 1997, respectively: an expected life of six
months; expected volatility of 88%, 67%, and 69%; risk-free interest rates of
6.39%, 4.64%, and 5.72%; and dividend yields of 0%. The weighted average fair
value of those purchase rights granted during the years ended December 31, 1999
and 1998, and the nine months ended December 31, 1997, as defined by SFAS 123,
was $4.33, $2.24, and $4.60, respectively.
Pro Forma Net Income and Net Income Per Share
Had we recorded compensation costs based on the estimated grant date fair
value, as defined by FAS 123, for awards granted under our stock option and
stock purchase plans, our pro forma net income and earnings per share for the
years ended December 31, 1999 and 1998, and the nine months ended December 31,
1997 would have been as follows (amounts in thousands, expect per share data):
<TABLE>
<CAPTION>
Year Ended Year Ended Nine Months Ended
December 31, 1999 December 31, 1998 December 31, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net income (loss):
As reported........... $22,684 $ 8,346 $ (3,894)
Pro Forma............. $12,624 $(12,982) $(18,719)
Net income (loss) per
share:
As reported basic..... $ 0.40 $ 0.16 $ (0.09)
As reported diluted... $ 0.35 $ 0.14 $ (0.09)
Pro Forma basic....... $ 0.22 $ (0.26) $ (0.38)
Pro Forma diluted..... $ 0.20 $ (0.26) $ (0.38)
</TABLE>
The pro forma amounts include compensation expense related to the years
ended December 31, 1999 and 1998, and the nine months ended December 31, 1997
stock option grants and stock purchase rights. In future years, the annual
compensation expense will increase relative to the fair value of stock options
and stock purchase rights granted in those future years.
69
<PAGE>
INPRISE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 15. STOCKHOLDER RIGHTS AGREEMENT
In December 1991, we adopted a Stockholder Rights Agreement to protect the
stockholders in the event that a third party proposes an unsolicited takeover
of the Company that has not been recommended or approved by the Board of
Directors.
Under the Stockholder Rights Agreement, each share of our outstanding common
stock carries one preferred share purchase right ("Right"). Each Right entitles
the holder under certain circumstances, to purchase common stock at a 50%
discount from our then current market price. The Rights are redeemable at a
nominal price and expire in 2001.
Effective as of February 6, 2000, the Stockholder Rights Agreement was
amended in order to, among other things, prevent the transactions contemplated
by the merger agreement with Corel and the related option agreement providing
for the grant by Inprise to Corel of options to purchase 12 million shares of
Inprise common stock from causing the Rights to become exercisable.
NOTE 16. LITIGATION
The Company and certain of our former officers and directors were named
defendants in two lawsuits, Kaplan, et al vs. Kahn, et al, and Crook, et al vs.
Kahn, et al, originally filed in the United States District Court for the
Northern District of California in 1993 and 1995, respectively. The lawsuits
alleged certain securities law violations during the periods between 1991 and
1994. In 1996, the parties entered into an agreement to settle both lawsuits.
The agreement was submitted to the Court for approval and monies were deposited
in escrow to fund the settlement. At the time, we recorded an expense for the
amount of our contribution to the settlement. On September 3, 1999, the Court
approved the settlement agreements in both lawsuits, together with a revised
plan of allocation of the settlement proceeds. On March 20, 2000, the Court
entered a final order certifying the settlement class and a final order
certifying the settlement class and dismissing both lawsuits. This order will
become final on April 19, 2000 unless a Notice of Appeal is filed. The Company
does not expect that an appeal will be pursued.
On April 10, 1997, Western Imaging, Inc. ("Western Imaging") filed a
complaint in the U.S. District Court for the Northern District of California
against Visigenic Software, Inc. ("Visigenic"), a company acquired by Inprise
in February 1998, and Corel Corporation, a licensee of Visigenic, alleging
breach of contract, intentional and negligent misrepresentation, copyright
infringement, trademark infringement, misappropriation of trade secrets and
other related claims. On June 2, 1994, Western Imaging purchased from Visigenic
the rights to a software product called "Lumena." Western Imaging claims that
(1) Visigenic failed to deliver all of the source code for Lumena, and (2)
"Lumena" included three additional software products called "Color Tools,"
"Creative License," and "Oasis". Visigenic denies Western Imaging's claims.
These three latter products were also licensed by Visigenic to Corel on a non-
exclusive basis.
Pursuant to the Court's order on February 20, 1998, the parties participated
in a non-binding mediation on July 17, 1998. No settlement was reached. Both
parties thereafter filed motions for summary judgment. The Court denied Western
Imaging's motion. Our motion was granted in part and denied in part. The Court
dismissed Western Imaging's claims for unfair competition, unjust enrichment
and misappropriation of trade secrets. The parties agreed to participate in a
second mediation following additional discovery. The parties participated in
three further mediation sessions, and on October 26, 1999, a confidential
settlement was reached which also included Federal Insurance Company (see next
paragraph). That settlement has now been fully consummated.
In a related matter, Visigenic sued their insurer, Federal Insurance
Company, seeking to obtain a declaration that Federal Insurance owed Visigenic
and Corel a duty of defense and coverage for the Western
70
<PAGE>
INPRISE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Imaging lawsuit and claims based on advertising injury coverage. Both Federal
Insurance and Visigenic filed summary judgment motions in this case, which were
heard by the Court on August 14, 1998. On May 3, 1999, the Court granted our
motion and denied Federal Insurance's motion the effect of which (subject to
appeal) was that Visigenic and Corel would be entitled to reimbursement of
attorneys fees and costs and to payment of future such fees and costs with
respect to the Western Imaging lawsuit. All claims in the Visigenic vs. Federal
Insurance lawsuit have been settled as part of the confidential settlement
referred to in the previous paragraph. That settlement has now been fully
consummated.
We are also involved in various other legal actions arising in the normal
course of our business. We believe that it is unlikely that any of these
actions will have a material adverse impact on our operating results. However,
because of the inherent uncertainties of litigation, the outcome of any of
these actions could be unfavorable and could have a material adverse affect on
our financial condition or results of operations.
71
<PAGE>
INPRISE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
NOTE 17. ENTERPRISE WIDE DISCLOSURES
We have various wholly owned subsidiaries, which develop and/or market our
products in other countries. In certain international markets not covered by
our non-U.S. subsidiaries, we generally sell through independent distributors.
In June 1997 FASB issued Statement No. 131, "Disclosure about Segments of an
Enterprise and Related Information" ("SFAS 131"). This statement establishes
standards for reporting financial information about operating segments in
annual financial statements. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
Reportable segments, as defined by SFAS 131, were identified based upon the
internal reporting structure of the Company. Each reportable segment is
responsible for marketing and selling all our products and services within
their predetermined geographical region. Intercompany transactions are recorded
and either cost or applicable transfer price, as appropriate. Intercompany
transactions and balances are eliminated upon consolidation. Summary financial
information from our reportable segments follows (amounts in thousands):
<TABLE>
<CAPTION>
Year Ended Year Ended Nine Months Ended
December 31, 1999 December 31, 1998 December 31, 1997
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net revenues from
unaffiliated customers:
U.S. operations
(including exports)... $ 76,780 $ 95,712 $ 63,037
European operations.... 60,500 63,654 45,100
Japan operations....... 19,927 16,924 20,075
Other international
operations............ 17,599 12,822 17,724
--------- -------- --------
Net revenues............. $ 174,806 $189,112 $145,936
========= ======== ========
Enterprise............. $ 36,252 $ 47,741 $ 19,552
Development tools and
other................. 114,298 118,473 112,523
Service revenue........ 24,256 22,898 13,861
--------- -------- --------
Net revenue.............. $ 174,806 $189,112 $145,936
========= ======== ========
Intercompany revenues
U.S..................... 8,858 $ 8,527 $ 8,225
Eliminations............. (8,858) (8,527) (8,225)
--------- -------- --------
Reported intercompany
revenue................. $ -- -- $ --
========= ======== ========
Depreciation and
amortization expense:
U.S. operations........ $ 13,060 $ 8,013 $ 8,021
European operations.... 681 671 514
Japan operations....... 431 384 378
Other international
operations............ 1,159 236 242
--------- -------- --------
Depreciation and
amortization expense.... $ 15,331 $ 9,304 $ 9,155
========= ======== ========
Operating results:
U.S. operations........ $(117,026) $(50,452) $(30,600)
European operations.... 25,360 26,757 17,960
Japan operations....... 6,572 3,471 6,541
Other international
operations............ 2,210 2,298 1,551
--------- -------- --------
Operating loss........... $(82,884) $(17,926) $ (4,548)
========= ======== ========
Long-lived assets:
U.S. operations........ $ 71,202 $109,096 $105,866
European operations.... 1,607 1,427 1,436
Japan operations....... 5,135 4,643 3,649
Other international
operations............ 1,937 369 410
--------- -------- --------
Long-lived assets........ $ 79,881 $115,535 $111,361
========= ======== ========
Identifiable assets:
U.S. operations........ $ 86,525 $141,996 $126,426
European operations.... 12,617 13,937 14,058
Japan operations....... 8,374 8,513 8,148
Other international
operations............ 7,807 4,981 4,641
--------- -------- --------
Identifiable assets...... $ 115,323 $169,427 $153,273
General corporate
assets (cash, cash
equivalents, and short
term investments)..... 197,693 84,361 102,551
--------- -------- --------
Total assets............. $ 313,016 $253,788 $255,824
========= ======== ========
</TABLE>
72
<PAGE>
INPRISE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Other international operations include activities of subsidiaries in
Australia, Brazil, Canada, Hong Kong, Singapore and Taiwan.
Revenues, operating results and identifiable assets are classified by
location of our facilities rather than by customer location. Revenues related
to product transfers between geographic areas were not significant. Export
revenues from the U.S. represented $2.8 million, $7.3 million, and $10.0
million, during the years ended December 31, 1999 and 1998, and the nine months
ended December 31, 1997, respectively.
For the years ended December 31, 1999 and 1998, and the nine months ended
December 31, 1997 sales to one customer, Ingram Micro and its subsidiaries,
accounted for approximately 11%, 10%, and 10% of our net revenues,
respectively.
NOTE 18. INVESTMENT IN STARFISH SOFTWARE, INC.
We had a minority common stock interest in Starfish Software, Inc.
("Starfish"). On September 23, 1998 ("Closing Date"), Motorola, Inc.
("Motorola") completed the acquisition of Starfish. The acquisition involved a
combination of cash and Motorola common stock, part of which was withheld in
escrow. Based upon the cash and common stock consideration not subject to, or
released from, escrow, we recorded gains of approximately $2.9 million and
$16.6 million during the years ended December 31, 1999 and 1998, respectively.
73
<PAGE>
SCHEDULE II
INPRISE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
For the Years ended December 31, 1999 and 1998, and the
Nine Months ended December 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Balance Charged to Balance
at Statements Deductions at End
Beginning of From of
of Period Operations Reserves Period
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
December 31, 1999:
Allowance for sales returns, rebates
and doubtful accounts................ $ 8,293 $24,120 $17,956 $14,457
December 31, 1998:
Allowance for sales returns, rebates
and doubtful accounts................ $11,996 $22,613 $26,316 $ 8,293
December 31, 1997:
Allowance for sales returns,rebates
and doubtful accounts................ $16,262 $13,661 $17,927 $11,996
</TABLE>
INPRISE CORPORATION
ACTIVE SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
Jurisdiction
of
Name Incorporation
---- --------------
<S> <C>
INPRISE (AUSTRALIA) PTY, LTD.................................. Australia
INPRISE CANADA, INC........................................... Canada
INPRISE (UK).................................................. United Kingdom
INPRISE (FRANCE).............................................. France
INPRISE GMBH.................................................. Germany
INPRISE (HK) LTD.............................................. Hong Kong
INPRISE (JAPAN) CO., LTD...................................... Japan
INPRISE (SINGAPORE) PTE., LTD................................. Singapore
INPRISE, B.V. (NETHERLANDS)................................... Netherlands
INPRISE TECHNOLOGY, CORPORATION............................... Delaware
INTERBASE, INC................................................ Delaware
APOGEE INFORMATION SYSTEMS, INC............................... United States
INPRISE DO BRASIL............................................. Brasil
INPRISE SALES CORPORATION..................................... USVI
INPRISE INTERACTIVE, INC...................................... Delaware
INPRISE VENTURES, INC......................................... Delaware
</TABLE>
74
<PAGE>
EXHIBIT 10.7
INDEMNITY AGREEMENT
-------------------
This Indemnity Agreement is made as of the DATE, between INPRISE
CORPORATION, a Delaware corporation (the "Corporation") and EMPLOYEE NAME (the
"Indemnitee"), as an Executive Officer of the Corporation.
RECITALS
WHEREAS, the Indemnitee is director and/or officer of the Corporation and
the Corporation wishes the Indemnitee to continue in such capacity; and
WHEREAS, the Indemnitee has indicated that the indemnities available under
the Corporation's Certificate of Incorporation and Bylaws may not provide
adequate protection against the risks associated with service to the
Corporation, particularly in view of the fact that the cost of adequate
insurance remains prohibitive; and
WHEREAS, the Corporation and the Indemnitee are aware of the substantial
growth in the number of lawsuits filed against corporate officers and directors
in connection with their activities in such capacities and also recognize that
the cost of defending against such lawsuits, whether or not meritorious, is
typically beyond the financial resources of most officers and directors of the
Corporation; and
WHEREAS, in order to induce and encourage a highly experienced and capable
person such as the Indemnitee to serve as an officer or director of the
Corporation, the Board of Directors of the Corporation has determined, after due
consideration and investigation of the terms and provisions of this Agreement
and various other options available to the Corporation and the Indemnitee in
lieu hereof, that the following Agreement is not only reasonable and prudent but
necessary to promote and ensure the best interests of the Corporation and its
stockholders; and
WHEREAS, the Corporation desires to have the Indemnitee continue to serve
as an officer and/or director of the Corporation, as the case may be, free from
undue concern for unpredictable, inappropriate or unreasonable legal risks and
personal liabilities by reason of his acting in good faith in the performance of
his duty to the Corporation; and the Indemnitee desires to continue to serve as
an officer and/or director of the Corporation, provided, and on the express
condition, that he is furnished with the indemnity hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the agreements set
forth below, the Corporation and the Indemnitee do hereby agree as follows:
1. Agreement to Serve. Indemnitee agrees to serve and/or continue to
------------------
serve as director and/or officer of the Corporation, at the will of the
Corporation or under separate contract, as the case may be, for so long as
he/she is duly elected or appointed or until his/her resignation or removal.
2. Definitions. When used in this Agreement:
-----------
(a) The term "Proceeding" shall include any threatened, pending or
completed action, suit or proceeding, or any inquiry or
investigation, whether brought in the name of the Corporation or
otherwise and whether of a civil, criminal, administrative or
<PAGE>
investigative nature, including, but not limited to, actions,
suits or proceedings brought under or predicated upon the
Securities Act of 1933, as amended, the Securities Exchange Act
of 1934, as amended (the "Act"), their respective state
counterparts or any rule or regulation promulgated thereunder, in
which Indemnitee may be or may have been involved as a party or
otherwise, by reason of the fact that the Indemnitee is or was a
director, officer, employee, agent or fiduciary of the
Corporation, by reason of any action taken by him or of any
inaction on his part while acting as such director, officer,
employee, agent or fiduciary or by reason of the fact that he is
or was serving at the request of the Corporation as a director,
officer, employee, trustee, fiduciary or agent of another
corporation, partnership, joint venture, employee benefit plan,
trust or other enterprise, whether or not he is serving in such
capacity at the time any liability or expense is incurred for
which indemnification or reimbursement can be provided under this
Agreement.
(b) The term "Expenses" shall include, without limitation thereto,
expenses of investigations, judicial or administrative
proceedings or appeals, damages, judgments, fines, penalties or
amounts paid in settlement by or on behalf of the Indemnitee,
attorneys' fees and disbursements and any expenses of
establishing a right to indemnification under this Agreement.
(c) The term "Change in Control" shall mean a change in control of
the Corporation of a nature that would be required to be reported
in response to Item 6(e) of Schedule 14A of Regulation 14A (or
any similar item on any similar schedule or form) under the Act,
whether or not the Corporation is subject to such reporting
requirement, and shall, without limitation, be deemed to have
occurred if (i) any person is or becomes the direct or indirect
"beneficial owner" (as defined in Rule 13d-3 under the Act) of
securities representing 20% or more of the combined voting power
of the Corporation's outstanding securities without the prior
approval of at least two-third's of the Corporation's directors
in office immediately prior to such person attaining such
percentage interest; (ii) the Corporation is a party to a merger,
consolidation, sale of assets or other reorganization, or a proxy
contest, as a result of which members of the Board of Directors
in office immediately prior to such event constitute less than a
majority of the Board of Directors thereafter; or (iii) during
any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors
(including for this purpose any new director whose election or
nomination for election by the Corporation's stockholders was
approved by at least two-thirds of the directors then still in
office who were directors at the beginning of such period) cease
for any reason to constitute a majority of the Board of
Directors.
3. Indemnification. Subject to the limitations set forth in Section 4,
---------------
the Corporation will indemnify the Indemnitee and pay on behalf of the
Indemnitee all Expenses incurred by the Indemnitee in any Proceeding, whether
the claim which gave rise thereto occurred prior to or after the date of this
Agreement.
4. Limitations on Indemnification. The Corporation shall not be
------------------------------
obligated under this Agreement to make any payment of Expenses to the
Indemnitee:
(a) which payment the Corporation is prohibited by applicable law
from paying as indemnity;
-2-
<PAGE>
(b) for which payment is actually made to the Indemnitee under an
insurance policy, except in respect of any excess beyond the
amount of payment under such insurance policy;
(c) resulting from a claim, issue or matter decided in a Proceeding
adversely to the Indemnitee based upon or attributed to the
Indemnitee gaining any personal profit or advantage to which
Indemnitee was not legally entitled;
(d) resulting from a claim, issue or matter decided in a Proceeding
adversely to the Indemnitee for an accounting of profits made
from the purchase or sale by the Indemnitee of securities of the
Corporation within the meaning of Section 16(b) of the Act, or
similar provisions of any state statutory law or common law;
(e) in connection with a claim, issue or matter in any Proceeding
brought about or contributed to by the dishonesty of the
Indemnitee seeking payment hereunder; provided, that
notwithstanding the foregoing, the Indemnitee shall be
indemnified under this Agreement as to any claims, issues or
matters upon which suit may be brought against him by reason of
any alleged dishonesty on his part, unless it shall be decided in
a Proceeding that he committed (i) acts of active and deliberate
dishonesty, (ii) with actual dishonest purpose and intent, and
(iii) which acts were material to the cause of action so
adjudicated; or
(f) in connection with any Proceeding initiated by the Indemnitee
against the Corporation or any director or officer of the
Corporation (other than a Proceeding initiated by Indemnitee
pursuant to Section 6(b)) unless the Corporation has joined in or
consented to the initiation of such Proceeding.
For purposes of this Section and Section 5, the phrase "decided in a
Proceeding" shall mean a decision by a court, arbitrator or other judicial agent
having the requisite legal authority to make such a decision, which decision has
become final and from which no appeal or other review proceeding is permissible.
5. Advances of Expenses. The Expenses incurred by Indemnitee pursuant to
--------------------
Section 3 in any Proceeding shall be paid by the Corporation as incurred and in
advance of the final disposition of the Proceeding at the written request of the
Indemnitee. The Indemnitee hereby agrees and undertakes to repay such amounts
if it shall ultimately be decided in a Proceeding that the Indemnitee is not
entitled to be indemnified by the Corporation pursuant to this Agreement or
otherwise.
6. Right of Indemnitee to Indemnification and Procedure Upon Application.
---------------------------------------------------------------------
(a) Any indemnification or advance under Section 3 or 5 hereof shall
be made no later than 30 days after receipt of the written
request of the Indemnitee, unless a determination is made within
said 30 day period, (i) if a Change in Control shall not have
occurred, by (a) the Board of Directors of the Corporation by a
majority vote of a quorum thereof consisting of directors who
were not parties to such Proceeding, or (b) independent legal
counsel in a written opinion (which counsel shall be appointed by
a majority of all the directors, including interested directors,
if such a quorum is not obtainable, or, even if obtainable, a
majority of disinterested directors so directs), or (ii) if a
Change in Control shall have occurred, by independent legal
counsel selected by the Indemnitee
-3-
<PAGE>
in a written opinion (unless the Indemnitee requests that such
determination be made by the Board of Directors of the
Corporation, in which case by the persons provided for in clause
(i) of this Section 6(a)), that the Indemnitee is not entitled to
indemnification for any of the reasons set forth in Section 4.
(b) If the Corporation fails to pay any written request for
indemnification or advance under Section 3 or 5 hereof within
said 30 day period, the right to indemnification or advances as
provided by this Agreement shall be enforceable by the Indemnitee
in any court of competent jurisdiction. The burden of proving
that indemnification or advances are not appropriate shall be on
the Corporation. Neither the failure of the Corporation
(including its Board of Directors or independent legal counsel)
to have made a determination prior to the commencement of such
action that indemnification or advances are proper in the
circumstances because the Indemnitee has met the applicable
standard of conduct, nor a determination by the Corporation
(including its Board of Directors or independent legal counsel)
that the Indemnitee has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption
that the Indemnitee has not met the applicable standard of
conduct. The Indemnitee's Expenses incurred in connection with
successfully establishing his right to indemnification or
advances, in whole or in part, in any such Proceeding shall also
be paid by the Corporation.
7. Indemnification Hereunder Not Exclusive. The indemnification and
---------------------------------------
advancement of Expenses provided by this Agreement shall not be deemed exclusive
of any other rights to which Indemnitee may be entitled under the Bylaws, any
other agreement providing for indemnification, any vote of stockholders or
disinterested directors, the Delaware General Corporation Law, or otherwise,
both as to action in his official capacity and as to action in another
capacity while holding such office. To the extent that a change in the Delaware
General Corporation Law (whether by statute or judicial decision) permits
greater indemnification by agreement than would be afforded currently under
the Corporation's Certificate of Incorporation, Bylaws and this Agreement, it is
the intent of the parties hereto that Indemnitee shall enjoy by this Agreement
the greater benefit so afforded by such change.
8. Partial Indemnification. If the Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Corporation for some or a
portion of the Expenses incurred by him in any Proceeding but not, however, for
the total amount thereof, the Corporation shall nevertheless indemnify the
Indemnitee for the portion of such Expenses to which the Indemnitee is entitled.
9. Liability Insurance. To the extent the Corporation maintains an
-------------------
insurance policy or policies providing directors' and officers' liability
insurance, the Indemnitee shall be covered by such policy or policies, in
accordance with its or their terms, to the maximum extent of the coverage
available for any Corporation director and/or officer.
10. Amendments, Etc. No supplement, modification or amendment of this
---------------
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver.
-4-
<PAGE>
11. Subrogation. In the event of payment under this Agreement, the
-----------
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee, who shall execute all papers required and
shall do everything that may be necessary to secure such rights, including the
execution of such documents necessary to enable the Corporation effectively to
bring suit to enforce such rights.
12. No Duplication of Payments. The Corporation shall not be liable under
--------------------------
this Agreement to make any payment in connection with any claim made against the
Indemnitee to the extent the Indemnitee has otherwise actually received payment
(under any other indemnification agreement, insurance policy, Certificate of
Incorporation or Bylaw provision or otherwise) of the amounts otherwise
indemnifiable hereunder.
13. Binding Effect, Etc.. This Agreement shall be binding upon and inure
---------------------
to the benefit of and be enforceable by the parties hereto and their respective
successors, permitted assigns (including any direct or indirect successor by
purchase, merger, consolidation or otherwise to all or substantially all of the
business and/or assets of the Corporation), spouses, heirs, and personal and
legal representatives. This Agreement shall continue as to the Indemnitee even
though the Indemnitee may have ceased to be a director and/or officer of the
Corporation. This Agreement is not assignable by the Indemnitee.
14. Severability. The provisions of this Agreement shall be severable in
------------
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
15. Notices. The Indemnitee, as condition precedent to his right to be
-------
indemnified under this Agreement, shall give notice to the Corporation as
promptly as practicable of any Proceeding which may give rise to his right to be
indemnified under this Agreement. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed duly
given if (i) delivered by hand and receipted for by the party addressed or (ii)
mailed by certified or registered mail with postage prepaid, properly addressed,
on the date of such notice being postmarked. Notice to the Corporation shall be
directed to: 100 Borland Way, Scotts Valley, California 95066 Attention:
Corporate Secretary (or such other address as the Corporation shall designate in
writing to the Indemnitee). Notice to the Indemnitee shall be directed to the
address shown on the signature page of this Agreement, or as subsequently
modified by written notice.
16. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in such state without giving effect to the
principles of conflict of laws.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this Indemnity
Agreement effective as of the date first above written.
INPRISE CORPORATION
By: ____________________________________
Name:
INDEMNITEE
By: ____________________________________
Name: EMPLOYEE NAME
-6-
<PAGE>
Exhibit 10.18
Inprise Corporation Dale Fuller Individual Stock Option Plan
INPRISE CORPORATION
100 Enterprise Way
Scotts Valley, CA 95066
Notice of Grant of Stock Options and Option Agreement
ID: 94-2895440
Dale Fuller Option Number: 00014873
Plan: FUL
ID: 4168
Effective 4/9/1999, you have been granted a(n) Non-Qualified Stock Option to buy
1,000,000 shares of INPRISE CORPORATION (the Company) stock at $3.6250 per
share.
The total option price of the shares granted is $3,625,000.00.
Shares in each period will become fully vested on the date shown.
Shares Vest Type Full Vest Expiration
1,000,000 Monthly 10/9/1999 4/9/2009
By your signature and the Company's signature below, you and the Company agree
that these options are granted under and governed by the terms and conditions of
the Company's Stock Option Plan as amended and the Option Agreement, all of
which are attached and made a part of this document.
INPRISE CORPORATION Date: May 24, 1999
/s/
Dale Fuller Date: May 26, 1999
/s/
INPRISE CORPORATION
NONSTATUTORY STOCK OPTION AGREEMENT
(100% ACCELERATION OF VESTING)
The Company has granted to the individual (the "Optionee") named in the Notice
of Grant of Stock Options (the "Notice") to which this Nonstatutory Stock Option
Agreement is attached an option to purchase certain shares of Stock upon the
terms and conditions set forth in this Option Agreement (the "Option") and the
Notice. The Option has been granted pursuant to the Inprise Corporation Dale
Fuller Individual Stock Option Plan (the "Plan"). By signing the Notice, the
Optionee represents that the Optionee is familiar with the terms and provisions
of this Option Agreement and accepts the Option subject to all of the terms and
provisions hereof. The Optionee agrees to accept as binding, conclusive and
final all decisions or interpretations of the Board upon any questions arising
under this Option Agreement.
1
<PAGE>
1. Definitions and Construction.
----------------------------
1.1 Definitions. Whenever used herein, the following terms
shall have their respective meanings set forth below:
(a) "Board" means the Board of Directors of the Company. If
one or more Committees have been appointed by the Board to administer the Plan,
"Board" shall also mean such Committee(s).
(b) "Code" means the Internal Revenue Code of 1986, as
amended, and any applicable regulations promulgated thereunder.
(c) "Committee" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted in the Plan, including, without limitation, the power to amend
or terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.
(d) "Company" means Inprise Corporation, a Delaware
corporation, or any successor corporation thereto.
(e) "Consultant" means any person, including an advisor,
engaged by a Participating Company to render services other than as an Employee
or a Director.
(f) "Date of Option Grant" means the effective date of
grant as set forth in the Notice.
(g) "Director" means a member of the Board or of the board
of directors of any other Participating Company.
(h) "Disability" means the permanent and total disability
of the Optionee within the meaning of Section 22(e)(3) of the Code.
(i) "Employee" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) in the
records of a Participating Company; provided, however, that neither service as a
Director nor payment of a director's fee shall be sufficient to constitute
employment for this purpose. The Company shall determine in good faith and in
the exercise of its discretion whether an individual has become or has ceased to
be an Employee and the effective date of such individual's employment or
termination of employment, as the case may be. For purposes of an individual's
rights, if any, under the Plan as of the time of the Company's determination,
all such determinations by the Company shall be final, binding and conclusive,
notwithstanding that the Company or any governmental agency subsequently makes a
contrary determination.
(j) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(k) "Exercise Price" means the purchase price per share of
Stock as set forth in the Notice and as adjusted from time to time pursuant to
Section 9.
2
<PAGE>
(l) "Fair Market Value" means, as of any date, the value of
a share of stock or other property as determined by the Board, in its sole
discretion, or by the Company, in its sole discretion, if such determination is
expressly allocated to the Company herein, subject to the following:
(i) If, on such date, there is a public market for the
Stock, the Fair Market Value of a share of Stock shall be the closing price of a
share of Stock (or the mean of the closing bid and asked prices of a share of
Stock if the Stock is so quoted instead) as quoted on the Nasdaq National
Market, the Nasdaq Small-Cap Market or such other national or regional
securities exchange or market system constituting the primary market for the
Stock, as reported in the Wall Street Journal or such other source as the
-------------------
Company deems reliable. If the relevant date does not fall on a day on which the
Stock has traded on such securities exchange or market system, the date on which
the Fair Market Value shall be established shall be the last day on which the
Stock was so traded prior to the relevant date, or such other appropriate day as
shall be determined by the Board, in its sole discretion.
(ii) If, on such date, there is no public market for
the Stock, the Fair Market Value of a share of Stock shall be as determined by
the Board without regard to any restriction other than a restriction which, by
its terms, will never lapse.
(m) "Number of Option Shares" means the total number of
shares of Stock subject to the Option as set forth in the Notice and as adjusted
from time to time pursuant to Section 9.
(n) "Option Expiration Date" means the date ten (10) years
after the Date of Option Grant.
(o) "Parent Corporation" means any present or future
"parent corporation" of the Company, as defined in Section 424(e) of the Code.
(p) "Participating Company" means the Company or any Parent
Corporation or Subsidiary Corporation.
(q) "Participating Company Group" means, at any point in
time, all corporations collectively which are then Participating Companies.
(r) "Securities Act" means the Securities Act of 1933, as
amended.
(s) "Service" means the Optionee's employment or service
with the Participating Company Group, whether in the capacity of an Employee, a
Director or a Consultant. The Optionee's Service shall not be deemed to have
terminated merely because of a change in the capacity in which the Optionee
renders Service to the Participating Company Group or a change in the
Participating Company for which the Optionee renders such Service, provided that
there is no interruption or termination of the Optionee's Service. Unless
otherwise designated by the Company or required by law, a leave of absence shall
not be treated as Service for purposes of determining the Optionee's Vested
Shares. The Optionee's Service shall be deemed to have terminated either upon an
actual termination of Service or upon the corporation for which the Optionee
performs Service ceasing to be a Participating Company. Subject to the
foregoing, the Company, in its sole discretion, shall determine whether the
Optionee's Service has terminated and the effective date of such termination.
(t) "Stock" means the common stock of the Company, as
adjusted from time to time in accordance with Section 9.
3
<PAGE>
(u) "Subsidiary Corporation" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
(v) "Vested Shares" means that portion of the Number of
Option Shares which have vested in accordance with vesting schedule set forth in
the Notice. Provided that the Optionee's Service has not terminated prior to the
relevant date, an initial installment of shares will become Vested Shares on the
initial "Full Vest" date set forth in the Notice, and thereafter the remaining
shares will become Vested Shares in substantially equal installments at the
periodic rate set forth in the Notice, with the last such installment vesting on
the last "Full Vest" date set forth in the Notice.
1.2 Construction. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of this Option Agreement. Except when otherwise indicated by the
context, the singular shall include the plural and the plural shall include the
singular. Use of the term "or" is not intended to be exclusive, unless the
context clearly requires otherwise.
2. Tax Status of Option.
--------------------
This Option is intended to be a Nonstatutory Stock Option and shall
not be treated as an Incentive Stock Option within the meaning of Section 422(b)
of the Code.
3. Administration.
--------------
All questions of interpretation concerning this Option Agreement
shall be determined by the Board. All determinations by the Board shall be final
and binding upon all persons having an interest in the Option. Any officer of a
Participating Company shall have the authority to act on behalf of the Company
with respect to any matter, right, obligation, or election which is the
responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
4. Exercise of the Option.
----------------------
4.1 Right to Exercise. Except as otherwise provided herein, the
Option shall be exercisable prior to the termination of the Option (as provided
in Section 6) in an amount not to exceed that portion of the Number of Option
Shares which have become Vested Shares less the number of shares previously
acquired upon exercise of the Option. Notwithstanding the foregoing, the Option
may not be exercised as to less than ten (10) shares at any one time or, if
less, the number of shares then remaining exercisable pursuant to the Option. In
no event shall the Option be exercisable for more shares than the Number of
Option Shares.
4.2 Method of Exercise. Exercise of the Option shall be by
written notice to the Company which must state the election to exercise the
Option, the number of whole shares of Stock for which the Option is being
exercised and such other representations and agreements as to the Optionee's
investment intent with respect to such shares as may be required pursuant to the
provisions of this Option Agreement. The written notice must be signed by the
Optionee and must be delivered to the Chief Financial Officer of the Company, or
other authorized representative of the Participating Company Group, prior to the
termination of the Option as set forth in Section 6, accompanied by full payment
of the aggregate Exercise Price for the number of shares of Stock being
purchased and the tax withholding obligations, if any, as provided in Section
4.4. The Option shall be deemed to be exercised upon receipt by the Company of
such written notice, the aggregate Exercise Price, and tax withholding
obligations, if any.
4
<PAGE>
4.3 Payment of Exercise Price.
(a) Forms of Consideration Authorized. Except as otherwise
provided below, payment of the aggregate Exercise Price for the number of shares
of Stock for which the Option is being exercised shall be made (i) in cash or
cash equivalent, (ii) by tender to the Company of whole shares of Stock owned by
the Optionee having a Fair Market Value (as determined by the Company without
regard to any restrictions on transferability applicable to such stock by reason
of federal or state securities laws or agreements with an underwriter for the
Company) not less than the aggregate Exercise Price, (iii) by means of a
Cashless Exercise, as defined in Section 4.3(c), or (iv) by any combination of
the foregoing.
(b) Tender of Stock. Notwithstanding the foregoing, the
Option may not be exercised by tender to the Company of shares of Stock to the
extent such tender of Stock would constitute a violation of the provisions of
any law, regulation or agreement restricting the redemption of the Company's
stock. The Option may not be exercised by tender to the Company of shares of
Stock unless such shares either have been owned by the Optionee for more than
six (6) months or were not acquired, directly or indirectly, from the Company.
(c) Cashless Exercise. A "Cashless Exercise" means the
assignment in a form acceptable to the Company of the proceeds of a sale or loan
with respect to some or all of the shares of Stock acquired upon the exercise of
the Option pursuant to a program or procedure approved by the Company
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System). The Company reserves, at any and all
times, the right, in the Company's sole and absolute discretion, to decline to
approve or terminate any such program or procedure.
4.4 Tax Withholding. At the time the Option is exercised, in or
in part, or at any time thereafter as requested by the Company, the Optionee
hereby authorizes withholding from payroll and any other amounts payable to the
Optionee, and otherwise agrees to make adequate provision for (including by
means of a Cashless Exercise to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Participating Company Group, if any, which arise in
connection with the Option, including, without limitation, obligations arising
upon (i) the exercise, in whole or in part, of the Option, (ii) the transfer, in
whole or in part, of any shares acquired upon exercise of the Option, (iii) the
operation of any law or regulation providing for the imputation of interest, or
(iv) the lapsing of any restriction with respect to any shares acquired upon
exercise of the Option. The Optionee is cautioned that the Option is not
exercisable unless the tax withholding obligations of the Participating Company
Group are satisfied. Accordingly, the Optionee may not be able to exercise the
Option when desired even though the Option is vested, and the Company shall have
no obligation to issue a certificate for such shares.
4.5 Certificate Registration. Except in the event the Exercise
Price is paid by means of a Cashless Exercise, the certificate for the shares as
to which the Option is exercised shall be registered in the name of the
Optionee, or, if applicable, in the names of the heirs of the Optionee.
4.6 Restrictions on Grant of the Option and Issuance of Shares.
The grant of the Option and the issuance of shares of Stock upon exercise of the
Option shall be subject to compliance with all applicable requirements of
federal, state or foreign law with respect to such securities. The Option may
not be exercised if the issuance of shares of Stock upon exercise would
constitute a violation of any applicable federal, state or foreign securities
laws or other law or regulations or the requirements of any stock exchange or
market system upon which the Stock may then be listed. In addition, the Option
may not be exercised unless (i) a registration statement under the Securities
Act shall at the time of exercise of the
5
<PAGE>
Option be in effect with respect to the shares issuable upon exercise of the
Option or (ii) in the opinion of legal counsel to the Company, the shares
issuable upon exercise of the Option may be issued in accordance with the terms
of an applicable exemption from the registration requirements of the Securities
Act. THE OPTIONEE IS CAUTIONED THAT THE OPTION MAY NOT BE EXERCISED UNLESS THE
FOREGOING CONDITIONS ARE SATISFIED. ACCORDINGLY, THE OPTIONEE MAY NOT BE ABLE TO
EXERCISE THE OPTION WHEN DESIRED EVEN THOUGH THE OPTION IS VESTED. Questions
concerning this restriction should be directed to the Chief Financial Officer of
the Company. The inability of the Company to obtain from any regulatory body
having jurisdiction the authority, if any, deemed by the Company's legal counsel
to be necessary to the lawful issuance and sale of any shares subject to the
Option shall relieve the Company of any liability in respect of the failure to
issue or sell such shares as to which such requisite authority shall not have
been obtained. As a condition to the exercise of the Option, the Company may
require the Optionee to satisfy any qualifications that may be necessary or
appropriate, to evidence compliance with any applicable law or regulation and to
make any representation or warranty with respect thereto as may be requested by
the Company.
4.7 Fractional Shares. The Company shall not be required to
issue fractional shares upon the exercise of the Option.
5. Nontransferability of the Option.
--------------------------------
The Option may be exercised during the lifetime of the Optionee
only by the Optionee or the Optionee's guardian or legal representative and may
not be assigned or transferred in any manner except by will or by the laws of
descent and distribution. Following the death of the Optionee, the Option, to
the extent provided in Section 7, may be exercised by the Optionee's legal
representative or by any person empowered to do so under the deceased Optionee's
will or under the then applicable laws of descent and distribution.
6. Termination of the Option.
-------------------------
The Option shall terminate and may no longer be exercised on the
first to occur of (a) the Option Expiration Date, (b) the last date for
exercising the Option following termination of the Optionee's Service as
described in Section 7, or (c) a Change in Control to the extent provided in
Section 8.
7. Effect of Termination of Service.
--------------------------------
7.1 Option Exercisability.
(a) Disability. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of twenty-four (24) months after the date on which the Optionee's
Service terminated, but in any event no later than the Option Expiration Date.
(b) Death. If the Optionee's Service with the
Participating Company Group is terminated because of the death of the Optionee,
the Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee's legal
representative or other person who acquired the right to exercise the Option by
reason of the Optionee's death at any time prior to the expiration of twenty-
four (24) months after the date on which the Optionee's Service terminated, but
in any event no later than the Option Expiration Date. The Optionee's Service
shall
6
<PAGE>
be deemed to have terminated on account of death if the Optionee dies within
three (3) months after the Optionee's termination of Service.
(c) Termination After Change In Control. If the Optionee's
Service with the Participating Company Group ceases as a result of Termination
After Change in Control (as defined below), the Option, to the extent
unexercised and exercisable on the date on which the Optionee's Service
terminated, may be exercised by the Optionee (or the Optionee's guardian or
legal representative) at any time prior to the expiration of three (3) months
(or six (6) months if the Optionee is subject to restrictions on transfer to
comply with "Pooling-of-Interests" accounting rules) after the date on which the
Optionee's Service terminated, but in any event no later than the Option
Expiration Date.
(d) Other Termination of Service. If the Optionee's
Service with the Participating Company Group terminates for any reason, except
Disability, death, Termination After Change in Control or Cause as provided in
Section 7.4 below, the Option, to the extent unexercised and exercisable by the
Optionee on the date on which the Optionee's Service terminated, may be
exercised by the Optionee within twenty-four (24) months (or such other longer
period of time as determined by the Board, in its sole discretion) after the
date on which the Optionee's Service terminated, but in any event no later than
the Option Expiration Date.
7.2 Extension if Exercise Prevented by Law. Notwithstanding the
foregoing, if the exercise of the Option within the applicable time periods set
forth in Section 7.1 is prevented by the provisions of Section 4.6, the Option
shall remain exercisable until three (3) months after the date the Optionee is
notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date.
7.3 Extension if Optionee Subject to Section 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 7.1 of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day
after the Optionee's termination of Service, or (iii) the Option Expiration
Date.
7.4 Termination for Cause. Except as otherwise provided in a
contract of employment or service between a Participating Company and the
Optionee, and notwithstanding any other provision of this Option Agreement to
the contrary, if the Optionee's Service with the Participating Company Group is
terminated for Cause as defined below, the Option shall terminate and cease to
be exercisable immediately upon such termination of Service.
7.5 Certain Definitions.
(a) "Termination After Change in Control" means termination
by the Participating Company Group of the Optionee's Service with the
Participating Company Group for any reason other than for Cause (as defined
below) within a period of six (6) months after a Change in Control.
(b) "Cause" means any of the following: (i) the Optionee's
theft, dishonesty, or falsification of any Participating Company documents or
records; (ii) the Optionee's improper use or disclosure of a Participating
Company's confidential or proprietary information; (iii) any action by the
Optionee which has a detrimental effect on a Participating Company's reputation
or business; (iv) the Optionee's failure or inability to perform any reasonable
assigned duties after written notice from the Participating Company Group of,
and a reasonable opportunity to cure, such failure or inability; (v) any
7
<PAGE>
material breach by the Optionee of any agreement of employment or service
between the Optionee and the Participating Company Group, which breach is not
cured pursuant to the terms of such agreement; or (vi) the Optionee's conviction
(including any plea of guilty or nolo contendere) of any criminal act which
impairs the Optionee's ability to perform his or her duties with the
Participating Company Group. A determination by the Board that the Optionee was
terminated for Cause shall be final and binding upon the Optionee for all
purposes and shall not be subject to review by any governmental agency or court
of law.
8. Change in Control.
-----------------
8.1 Definitions.
(a) An "Ownership Change Event" shall be deemed to have
occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a
single or series of related transactions by the stockholders of the Company of
more than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company
is a party;
(iii) the sale, exchange, or transfer of all or
substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "Change in Control" shall be deemed to have occurred
if any of the following occurs with respect to the Company:
(i) an Ownership Change Event or a series of related
Ownership Change Events (collectively, the "Transaction") wherein the
stockholders of the Company immediately before the Transaction do not retain
immediately after the Transaction, in substantially the same proportions as
their ownership of shares of the Company's voting stock immediately before the
Transaction, direct or indirect beneficial ownership of more than fifty percent
(50%) of the total combined voting power of the outstanding voting stock of the
Company or the corporation or corporations to which the assets of the Company
were transferred (the "Transferee Corporation(s)"), as the case may be;
(ii) the acquisition by any "person" or "group" (as
such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act), other
than the Company, a Subsidiary Corporation, or any employee benefit plan
sponsored by the Company or a Subsidiary Corporation, of direct or indirect
beneficial ownership of twenty percent (20%) or more of the total combined
voting power of the outstanding voting stock of the Company, unless such
acquisition has been approved by a majority of the members of the Board in
office prior to such acquisition; or
(iii) during any two consecutive years, individuals
who at the beginning of such period constituted the Board cease for any reason
to constitute at least a majority of the Board, unless the election or
nomination for election by the stockholders of the Company of each new member of
the Board was a approved by a vote of at least a majority of the individuals
then still in office who were members of the Board at the beginning of such
period.
8
<PAGE>
For purposes of subsection 8.1(b)(i), indirect beneficial ownership shall
include, without limitation, an interest resulting from ownership of the voting
stock of one or more corporations which, as a result of the Transaction, own the
Company or the Transferee Corporation(s), as the case may be, either directly or
through one or more subsidiary corporations. The Board shall have the right to
determine whether multiple sales or exchanges of the voting stock of the Company
or multiple Ownership Change Events are related, and its determination shall be
final, binding and conclusive.
8.2 Effect of Change in Control on Option. In the event of a
Change in Control, any unexercised portion of the Option shall be immediately
exercisable and vested in full as of the date ten (10) days prior to the date of
the Change in Control. Any exercise of the Option that was permissible solely by
reason of this Section 8.2 shall be conditioned upon the consummation of the
Change in Control. In addition, the surviving, continuing, successor, or
purchasing corporation or parent corporation thereof, as the case may be (the
"Acquiring Corporation"), may either assume the Company's rights and obligations
under the Option or substitute for the Option a substantially equivalent option
for the Acquiring Corporation's stock. For purposes of this Section 8.2, the
Option shall be deemed assumed if, following the Change in Control, the Option
confers the right to purchase in accordance with its terms and conditions, for
each share of Stock subject to the Option immediately prior to the Change in
Control, the consideration (whether stock, cash or other securities or property)
to which a holder of a share of Stock on the effective date of the Change in
Control was entitled. The Option shall terminate and cease to be outstanding
effective as of the date of the Change in Control to the extent that the Option
is neither assumed or substituted for by the Acquiring Corporation in connection
with the Change in Control nor exercised as of the date of the Change in
Control. Notwithstanding the foregoing, if the corporation the stock of which is
subject to the Option immediately prior to an Ownership Change Event described
in Section 8.1(a)(i) constituting a Change in Control or an event described in
Section 8.1(b)(ii) or (iii) is the surviving or continuing corporation and
immediately after such Ownership Change Event less than fifty percent (50%) of
the total combined voting power of its voting stock is held by another
corporation or by other corporations that are members of an affiliated group
within the meaning of Section 1504(a) of the Code without regard to the
provisions of Section 1504(b) of the Code, the Option shall not terminate unless
the Board otherwise provides in its sole discretion.
9. Adjustments for Changes in Capital Structure.
--------------------------------------------
In the event of any stock dividend, stock split, reverse stock
split, recapitalization, combination, reclassification, or similar change in the
capital structure of the Company, appropriate adjustments shall be made in the
number, Exercise Price and class of shares of stock subject to the Option. If a
majority of the shares which are of the same class as the shares that are
subject to the Option are exchanged for, converted into, or otherwise become
(whether or not pursuant to an Ownership Change Event) shares of another
corporation (the "New Shares"), the Board may unilaterally amend the Option to
provide that the Option is exercisable for New Shares. In the event of any such
amendment, the Number of Option Shares and the Exercise Price shall be adjusted
in a fair and equitable manner, as determined by the Board, in its sole
discretion. Notwithstanding the foregoing, any fractional share resulting from
an adjustment pursuant to this Section 9 shall be rounded up or down to the
nearest whole number, as determined by the Board, and in no event may the
Exercise Price be decreased to an amount less than the par value, if any, of the
stock subject to the Option. The adjustments determined by the Board pursuant to
this Section 9 shall be final, binding and conclusive.
10. Rights as a Stockholder, Employee or Consultant.
-----------------------------------------------
The Optionee shall have no rights as a stockholder with respect to
any shares covered by the Option until the date of the issuance of a certificate
for the shares for which the Option has been
9
<PAGE>
exercised (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company). No adjustment shall be made
for dividends, distributions or other rights for which the record date is prior
to the date such certificate is issued, except as provided in Section 9. If the
Optionee is an Employee, the Optionee understands and acknowledges that, except
as otherwise provided in a separate, written employment agreement between a
Participating Company and the Optionee, the Optionee's employment is "at will"
and is for no specified term. Nothing in this Option Agreement shall confer upon
the Optionee, whether an Employee or Consultant, any right to continue in the
Service of a Participating Company or interfere in any way with any right of the
Participating Company Group to terminate the Optionee's Service as an Employee
or Consultant, as the case may be, at any time.
11. Legends.
-------
The Company may at any time place legends referencing any
applicable federal, state or foreign securities law restrictions on all
certificates representing shares of stock subject to the provisions of this
Option Agreement. The Optionee shall, at the request of the Company, promptly
present to the Company any and all certificates representing shares acquired
pursuant to the Option in the possession of the Optionee in order to carry out
the provisions of this Section.
12. Binding Effect.
--------------
Subject to the restrictions on transfer set forth herein, this
Option Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective heirs, executors, administrators, successors and
assigns.
13. Termination or Amendment.
------------------------
The Board may terminate or amend the Plan or the Option at any
time; provided, however, that except as provided in Section 8.2 in connection
with a Change in Control, no such termination or amendment may adversely affect
the Option or any unexercised portion hereof without the consent of the Optionee
unless such termination or amendment is necessary to comply with any applicable
law or government regulation. No amendment or addition to this Option Agreement
shall be effective unless in writing.
14. Notices.
-------
Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given (except to the extent that this
Option Agreement provides for effectiveness only upon actual receipt of such
notice) upon personal delivery or upon deposit in the United States Post Office,
by registered or certified mail, with postage and fees prepaid, addressed to the
other party at the address of such party as set forth in the Notice or at such
other address as such party may designate in writing from time to time to the
other party.
15. Integrated Agreement.
--------------------
This Option Agreement and the Notice constitute the entire
understanding and agreement of the Optionee and the Participating Company Group
with respect to the subject matter contained herein and therein, and there are
no agreements, understandings, restrictions, representations, or warranties
among the Optionee and the Participating Company Group with respect to such
subject matter other than those as set forth or provided for herein or therein.
To the extent contemplated herein, the provisions of this Option Agreement shall
survive any exercise of the Option and shall remain in full force and effect.
10
<PAGE>
16. Applicable Law.
--------------
This Option Agreement shall be governed by the laws of the State of
California as such laws are applied to agreements between California residents
entered into and to be performed entirely within the State of California.
11
<PAGE>
EXHIBIT 10.21
AGREEMENT
- ---------
This Agreement, dated as of October 28, 1999 (this "Agreement") is between
Inprise Corporation, a Delaware corporation (the "Company"), and 54th Street
Partners, LLC (the "Consultant").
Recitals
A. Consultant is in the business of providing business management advice,
strategies and recruitment services;
B. Consultant desires to perform, and the Company desires to have Consultant
perform management consulting services for the Company as hereinafter set forth.
NOW, THEREFORE, the parties hereto agrees as follows:
1. Services
--------
The Company hereby engages Consultant and Consultant hereby accepts
such engagement to immediately place certain individuals into interim positions
at the company as set forth below. All such placements are subject to the
approval of the Board of Directors or the appropriate subcommittee thereof of
the Company. Such placements are temporary and may be terminated by the Company
at any time.
(a) Interim Placements:
--- ------------------
(i) Interim Chief Operating Officer
Consultant shall place John Walshe, a partner of Consultant, in the
position of Interim Chief Operating Officer, subject to the terms and
conditions, scope of services, and fee schedule set forth on Exhibit A hereto,
which exhibit is fully incorporated herein.
(ii) Interim Vice President of Sales Operations
Consultant shall place Scott Carpenter, a staff consultant with
Consultant, or another individual acceptable to the Company with similar
experience, in the position of Interim Vice President of Sales Operations,
subject to the terms and conditions, scope of services, and fee schedules set
forth on Exhibit B hereto, which exhibit is fully incorporated herein.
(iii) Interim Vice President of Customer Service, Technical
Support, and Professional Services
<PAGE>
Consultant shall place Annette Yamashita, a partner of Consultant, in
the position of Interim Vice President of Customer Service, subject to the terms
and conditions, scope of services, and fee schedule set forth on Exhibit C
hereto, which exhibit is fully incorporated herein.
(iv) Interim Human Resources Support
Consultant shall provide interim human resources support, subject to
the terms and conditions, scope of services, and fee schedule set forth on
Exhibit D hereto, which exhibit is fully incorporated herein.
2. Payment
-------
Payment of the fees stated in Exhibits A-D will be due and payable
upon completion of each month's services. In the event of termination prior to
the month's end the service fee will be prorated based upon the portion of the
month completed.
(a) Performance Bonus: In consideration for the services performed
--- -----------------
hereunder, Company shall pay Consultant a performance bonus to be calculated as
follows: (i) in the event on January 31, the price of the Company's common stock
(as determined based on a 10-day moving average prior to such date or a 30-day
moving average subsequent to such date, whichever is higher) exceeds $6.00 and
this contract has not been terminated, the company will pay the Consultant
$125,000. In addition, for the first such incremental $2.00 increase above
said $6.00 price, the Company shall pay $125,000 to the Consultant. For the
second such incremental $2.00 increase above an $8.00 price, the Company shall
pay $250,000, and for the third such incremental $2.00 increase above $10.00,
the Company shall pay $125,000; (ii) in the event of termination of this
agreement prior to the January 31, 2000, the calculation of the bonus payable
will be calculated using the average price of the Company's Common stock during
the ten business days prior to termination of the agreement and; (iii) in the
event of a merger, consolidation, or sale of all or substantially all of the
assets of the Company the calculation of the bonuses payable will be based upon
the equivalent price per share paid by the buyer in cash or through exchange of
stock. However, the transaction code named "Maroon", and all other transactions
under discussion prior to October 20, 1999 as disclosed to John Walshe in his
capacity as Interim Chief Operating Officer, are specifically excluded for
purposes of the section. In no event, will the performance bonuses payable
under this agreement exceed $500,000.
(b) Expenses: Any reasonable, out-of-pocket expenses, in accordance
--------
with the Company's travel and expense reimbursement policy, will be reimbursed
by the Company.
(c) Invoices: Consultant shall invoice the Company on a monthly basis
--------
for the Services. The Company will pay each invoice no later than thirty days
after its receipt by the Company.
<PAGE>
(d) Taxes: Prior to commencing the services, Consultant must provide
-----
Company with its IRS Form W-9 and Employer Identification Number. Consultant is
responsible for filing all tax returns, tax declarations, and tax schedules, and
for the payment of all taxes resulting from fees or other compensation. Company
will not withhold any employment taxes from Consultant's fees. Company will
report the amount paid to you on IRS Form 1099, to the extent required to do so
by law.
3. Termination
-----------
(a) General. This Agreement shall commence on the date hereof and
-------
shall continue in full force and effect until terminated by either party
pursuant to Section 3(b) below.
(b) Termination of Agreement. Either party may terminate this
------------------------
Agreement at any time upon written notice to the other, subject to the exception
in Exhibit A.
4. Insurance
---------
During the term of this Agreement, Consultant shall maintain at
Consultant's expense, for Consultant and Consultant's employees, workers'
compensation and other insurance as appropriate or required by law, including,
but not limited to, comprehensive general liability insurance in the amount of
$2,000,000 per occurrence.
5. Confidentiality
---------------
a. "Confidential Information" means all information relating to the
business or assets of Company that is not generally known by non-Company
personnel, including information you create or discover while performing the
services under this Agreement, and information obtained by Company in confidence
from third parties. The existence and terms of this Agreement shall be
Confidential Information.
b. Consultant agrees that Consultant and each individual placed
hereunder will not disclose, use or copy the Confidential Information, except as
required in the lawful performance of Consultant's duties to Company.
Consultant will take all reasonable measures to protect the Confidential
Information from any unauthorized or premature disclosure, use or destruction.
Consultant's obligation to protect the Confidential Information shall survive at
all times after the termination of Consultant's engagement with Company.
6. Ownership rights
----------------
a. Consultant hereby assign to Company all right, title and interest
in and to the work performed by Consultant under this Agreement (including all
copyrights, trademarks, trade secret rights patent rights and other proprietary
rights with respect to the work). Consultant agrees not to use the work created
under this Agreement for Consultant's own benefit or the benefit of any party
other
<PAGE>
than Company. You agree to execute any other documents as Company may reasonably
require from time to time to register, record or perfect the rights granted
hereunder.
b. Consultant hereby irrevocably appoint the President and General
Counsel of Company each to act as your agent and attorney-in-fact to perform all
acts necessary to obtain and/or maintain patents, copyrights, mask work rights,
and similar rights, to any creations assigned to Company by you under this
Agreement if (a) Consultant is unavailable, within the meaning of any applicable
laws, or (b) Consultant refuses to perform those acts. Consultant acknowledges
that the grant of the foregoing power of attorney is coupled with an interest
and shall survive the death, disability, liquidation and/or dissolution of
Consultant or any of Consultant's employees.
7. LIMITATION OF LIABILITY
-----------------------
IN NO EVENT SHALL COMPANY BE LIABLE TO CONSULTANT FOR ANY CONSEQUENTIAL,
INDIRECT, SPECIAL OR INCIDENTAL DAMAGES ARISING FROM OR RELATING TO THIS
AGREEMENT, EVEN IF COMPANY HAS ABEEN ADVISED OF THE POSSIBILITY OF SUCH
POTENTIAL LOSS OR DAMAGE. IN NO EVENT SHALL COMPANY BE LIABLE FOR AMOUNTS IN
EXCESS OF THE AMOUNTS PAYABLE IN ACCORDANCE WITH THE TERMS OF THIS AGREEMENT.
8. Solicitation for Hire
---------------------
Neither Consultant (and it's interim placements provided hereunder) nor Company
shall solicit for hire any employee, contractor or any other personnel of the
other party for a period of six (6) months from the Consultant's conclusion of
services for the Company.
9. General Provisions.
(a) Indemnification. Company hereby agrees that the Company shall
---------------
indemnify and hold Consultant and each officer, employee, attorney, agent and
affiliate of Consultant (the "Indemnitees") harmless from and against any
losses, damages, liabilities, actions and claims suffered by the Indemnitees in
connection with arising out of, or in any way the result of this Agreement, the
advisory services provided pursuant thereto, and shall reimburse any of the
Indemnitees for any reasonable legal or other expenses incurred in connection
with investigating, responding to, or defending against any such loss, damage,
liability, action or claim, including, without limitation, any reasonable legal
or other expenses incurred in connection with compliance with, or seeking
protective orders or other appropriate relief concerning discovery and other
similar procedures in any action or proceedings provided that the Indemnitors'
--------
obligation to indemnify shall not extend to any losses, damages, liabilities,
actions or claims arising as a result of the negligence or willful misconduct of
an Indemnitee.
(b) Entire Agreement. This Agreement expresses the entire agreement
----------------
of the parties and supersedes all prior promises, representations,
understandings, arrangements and agreements with respect to the subject matter
hereof, and may not be amended, modified, superceded or canceled except by a
written instrument executed by all parties hereto.
<PAGE>
(c) Waiver. No waiver of any of the provisions of this Agreement
------
shall be deemed, or shall constitute, a waiver of any other provision, whether
or not similar, nor shall any waiver constitute a continuing waiver. No waiver
shall be binding unless executed in writing by the party making the waiver.
(d) Severability. Any provision of this Agreement which is prohibited
------------
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
(e) Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(f) Notices. Any notice required or permitted to be given under this
-------
Agreement by Company to Consultant shall be in writing personally delivered or
sent by registered or certified United States mail, return receipt requested,
postage prepaid or personally delivered and addressed to 54th Street Partners,
LLC, 2085 Hamilton Avenue, Suite 350, San Jose, California 95125, Attention:
Mark Shepherd, or such other address as the Consultant may specify from time to
time by like notice to the Company. Any notice required or permitted to be
given under the Agreement by the Consultant to the Company shall be in writing,
sent by registered or certified United States mail, return receipt requested,
postage prepared or personally delivered and addressed to Company, 100
Enterprise Way, Scotts Valley, California, 95066, Attention: General Counsel,
or at such other address as Consultant may specify from time to time by like
notice to the Company. Any notice personally delivered shall be effective upon
delivery. Any notice sent by mail in the manner provided herein shall be
effective on the date of delivery or refusal indicated on the return receipt.
(g) Warranty. Each of the parties signing this Assignment hereby
--- --------
warrants and represents that it has the full legal power, authority, and right
to execute, deliver, and perform the obligations under this Assignment, and that
the assignment contemplated hereby has been duly authorized by all requisite
actions on their part, respectively, and that no remaining action or third party
action is required to make this Assignment binding upon each party.
(h) Governing Law. This Agreement, including the validity,
--- -------------
interpretation, construction and performance of this Agreement, shall be
governed by and construed in accordance with substantive laws of the State of
California and the federal laws of the United States of America.
(i) Survivability. The provisions of Section 5, 6, 7, 8, and 9 shall
--- --------------
survive the termination or expiration of this agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement as of the date
first stated above.
COMPANY: CONSULTANT:
INPRISE CORPORATION 54TH STREET PARTNERS, LLC
/s/ /s/
- ----------------------------------- ---------------------------------
Name: Name:
- ----------------------------------- ---------------------------------
Title: Title:
EXHIBIT A
Position: Interim Chief Operating Officer, reporting to the Chief Executive
Officer.
1. Description of Services: The Interim Chief Operating Officer shall manage
day-to-day operations of the Company, including Sales, Marketing,
Operations, and Research & Development, and such other duties as may be
assigned by the CEO from time to time. He or she shall devote his or her
full time and energies to the performance of his or her duties for the
Company.
2. Monthly Fee: $50,000
3. Start Date: October 11, 1999
4. Minimum Term: Through January 31, 2000, but may be terminated by either
party at any time on 30 days' notice. If terminated prior to three months
the Company will pay the balance due for the three month period.
5. Monthly Objectives: To be provided by the Chief Executive Officer.
<PAGE>
EXHIBIT 10.22
July 29, 1999
JoAnne Butler
Dear JoAnne,
On behalf of INPRISE Corporation, I am pleased to offer you the position of
Vice President and General Counsel of the company. In such position you will
report to Dale Fuller, CEO, and your office will be located in our Scotts Valley
headquarters. Your start date in this position was April 12, 1999.
Base Salary. Your initial base salary will be $190,000 per year ($15,833
per month), payable at the same frequency as payroll is distributed to other
INPRISE employees.
Performance Bonus. You shall be eligible for an annual bonus based upon a
target bonus of $76,000. All or part of the bonus shall be payable based upon
performance criteria and metrics to be agreed among yourself and Dale Fuller and
subject to the approval of the Organization and Compensation Committee of the
Board. Bonuses shall be determined and paid in accordance with INPRISE's
executive bonus program, which currently calls for bonuses to be paid quarterly.
Qptions. I am also pleased to confirm that you were granted options for
the purchase of 176,500 shares of the company's Common Stock. The exercise
price is equal to the fair market value of INPRISE's common stock as of the date
of the Board of Director's Meeting held April 27, 1999. The options are subject
to the standard terms and conditions of INPRISE's stock option plans, including
four year vesting, with one quarter of the shares vesting after one year and the
remaining shares vesting daily over the following three years. Notwithstanding
the foregoing, in the event the company is acquired or is subject to a change in
control, the vesting of the option will be accelerated and the option shall be
exercisable in full. For these purposes an "acquisition of the company" shall
mean a merger or other transaction in which the company or substantially all of
its assets is sold or merged and as a result of such transaction, the holders of
the company's common stock prior to such transaction do not own or control a
majority of the outstanding shares of the successor corporation and a "change in
control" shall mean the election of nominees constituting a majority of the
Company's Board of Directors of the company which nominees were not approved by
a majority of the Company's Board of Directors prior to such election or the
acquisition by a third party of twenty percent (20%) or more of the company's
outstanding shares which acquisition was without the approval of a majority of
the Board of Directors of the company in office prior to such acquisition.
Benefits. You will be eligible to participate in INPRISE's fringe benefits
program as of your first day of full time work (subject to standard plan waiting
periods, if applicable). These benefits include, but are not limited to,
medical and dental insurance, 401(k) plan and vacation and will be further
explained upon reporting for work.
Confidentiality. INPRISE is very impressed with the skills and experience
that you will bring to us and we hope that you will consider this offer
carefully. Should you accept this offer, I would like to remind you that it is
INPRISE's policy to avoid situations where information or materials might come
into our hands that are considered proprietary by individuals or companies other
than INPRISE. Indeed, as a condition of
<PAGE>
employment, you will be required to sign an agreement not to expose either you
or us to legal liability by divulging trade secrets or confidential information
of any employer. We are interested in employing you because of your skills and
abilities, not because of any trade secrets you may have learned elsewhere.
Thus, it is important that you take care not to bring, even inadvertently, any
books, drawings, notes, materials, etc., except your personal effects as you
leave your current employer.
Termination. As with all employment at INPRISE, your employment is
considered "at will". That means that both you and INPRISE have the right to
terminate employment at any time with or without advance notice, and with or
without cause. Notwithstanding the foregoing, if the company terminates your
employment for other than cause or there is a constructive termination, the
company agrees that you will be entitled to a severance payment equal to 12
months of base salary. The foregoing severance benefits are net of any benefits
you are entitled to under law or otherwise.
For purposes of this Agreement, termination for "cause" shall mean
termination of your employment relationship with INPRISE for any of the
following reasons: (i) your engaging in an act of theft, embezzlement,
misappropriation of funds or property, or fraud against, or with respect to the
business of INPRISE; (11) a willful breach by you of any material term of this
Agreement and, if such breach is capable of being cured, the failure by you to
cure such breach within thirty (30) days of written notice of such breach; (111)
if you are convicted of a felony that materially impairs your performance of
duties for INPRISE; or (iv) as a result of your reckless or willful misconduct,
you commit any act that causes, or knowingly fails to take reasonable and
appropriate action to prevent, any material injury to the financial condition or
business reputation of INPRISE.
"Constructive termination" shall mean any one or more of the following: (1)
without your express written consent, the relocation of the principal place of
your employment to a location that is more than fifty (50) miles from the
company's current headquarters; (ii) any failure by INPRISE to pay, or any
material reduction by INPRISE of, your base salary or benefits (unless
reductions comparable in amount and duration are concurrently made for all other
employees of INPRISE with responsibilities, organizational level and title
comparable to yours) or (iii) a material diminution of your responsibilities.
In the event of any dispute or claim relating to or arising out of your
employment relationship with INPRISE, this agreement, or the termination of your
employment with INPRISE for any reason (including, but not limited to, any
claims of breach of contract, wrongful termination or age, sex, race, national
origin, disability or other discrimination or harassment), you and INPRISE agree
that all such disputes shall be fully, finally and exclusively resolved by
binding arbitration conducted by the American Arbitration Association in Santa
Clara County, California. You and INPRISE hereby waive that this arbitration
provision shall not apply to any disputes or claims relating to or arising out
of the actual or alleged misuse or misappropriation of INPRISE's property,
including, but not limited to, its trade secrets or proprietary information.
<PAGE>
This agreement, the confidentiality and stock option agreements referred to
above constitute the entire agreement between you and INPRISE regarding the
terms and conditions of your employment, and they supersede all prior
negotiations, representations or agreements between you and INPRISE. The
provisions of this agreement regarding "at will" employment and arbitration may
only be modified by a document signed by you and the President of INPRISE.
We are very excited about you joining us. Please take the time to review
this letter and, if appropriate, to sign and return a copy to me. We all look
forward to a mutually beneficial relationship and in the meantime, should you
have any questions, please do not hesitate to contact me at any time.
Sincerely,
INPRISE CORPORATION
/s/ Dale Fuller
Chief Executive Officer
AGREED AND ACCEPTED:
/s/ JoAnne M. Butler
Date: August 9, 1999
<PAGE>
EXHIBIT 10.23
January 22, 1997
Hobart McK. Birmingham
Dear Hobey,
On behalf of Borland International, Inc., I am pleased to offer you the
position of Vice President and General Counsel of the company. In such
position you will initially report to me. Your office will be located in our
Scotts Valley headquarters and it is anticipated that you will begin work no
later than February 10, 1997.
Base Salary. Your initial base salary will be $190,000 per year ($15,833
per month), payable at the same frequency as payroll is distributed to other
Borland employees.
Performance Bonus. You shall be eligible for an annual bonus based upon a
target bonus of forty percent (40%) of base salary. All or part of the bonus
shall be payable based upon performance criteria and metrics to be agreed among
yourself and myself and subject to the approval of the Organization and
Compensation Committee of the Board. Bonuses shall be determined and paid in
accordance with Borland's executive bonus program which currently calls for
bonuses to be paid quarterly.
Options. I am also pleased to confirm that you will be granted options
for the purchase of 175,000 shares of the company's Common Stock. The exercise
price will be equal to the fair market value of Borland's common stock as of
the effective date of hire. The options will be subject to the standard terms
and conditions of Borland's stock option plans, including four year vesting,
with one quarter of the shares vesting after one year and the remaining shares
vesting daily over the following three years. Notwithstanding the foregoing,
in the event the company is acquired or is subject to a change in control, the
vesting of the option will be accelerated and the option shall be exercisable
in full. For these purposes an "acquisition of the company" shall mean a
merger or other transaction in which the company or substantially all of its
assets is sold or merged and as a result of such transaction, the holders of
the company's common stock prior to such transaction do not own or control a
majority of the outstanding shares of the successor corporation and a "change
in control" shall mean the election of nominees constituting a majority of the
Company's Board of Directors of the company which nominees were not approved by
a majority of the Company's Board of Directors prior to such election or the
acquisition by a third party of twenty percent (20%) or more of the company's
outstanding shares which acquisition was without the approval of a majority of
the Board of Directors of the company in office prior to such acquisition.
Benefits. You will be eligible to participate in Borland's fringe benefits
program as of your first day of full time work (subject to standard plan waiting
periods, if applicable). These benefits include, but are not limited to,
medical and dental insurance, 401 (k) plan and vacation and will be further
explained upon reporting for work.
Apartment Allowance. We understand that you will be commuting from San
Francisco for an indefinite period. In connection therewith, for up to a one
year period, Borland will cover the costs of an apartment in the Scotts Valley
area in an amount not to exceed $1,500 per month.
Confidentiality. Borland is very impressed with the skills and experience
that you will bring to us and we hope that you will consider this offer
carefully. Should you accept this offer, I would like to remind you that it is
Borland's policy to avoid situations where information or materials might come
into our hands that are considered proprietary by individuals or companies other
than Borland. Indeed, as a condition of employment,
<PAGE>
you will be required to sign an agreement not to expose either you or us to
legal liability by divulging trade secrets or confidential information of any
employer. We are interested in employing you because of your skills and
abilities, not because of any trade secrets you may have learned elsewhere.
Thus, it is important that you take care not to bring, even inadvertently, any
books, drawings, notes, materials, etc., except your personal effects as you
leave your current employer.
Termination. As with all employment at Borland, your employment is
considered "at will." That means that both you and Borland have the right to
terminate employment at any time with or without advance notice, and with or
without cause. Notwithstanding the foregoing, if the company terminates your
employment for other than cause or there is a constructive termination, the
company agrees that you will be entitled to a severance payment equal to 12
months of base salary. The foregoing severance benefits are net of any benefits
you are entitled to under law or otherwise.
For purposes of this Agreement, termination for "cause" shall mean
termination of your employment relationship with Borland for any of the
following reasons: (i) your engaging in an act of theft, embezzlement,
misappropriation of funds or property, or fraud against, or with respect to the
business of Borland; (ii) a willful breach by you of any material term of this
Agreement and, if such breach is capable of being cured, the failure by you to
cure such breach within thirty (30) days of written notice of such breach; (iii)
if you are convicted of a felony that materially impairs your performance of
duties for Borland; or (iv) as a result of your reckless or willful misconduct,
you commit any act that causes, or knowingly fails to take reasonable and
appropriate action to prevent, any material injury to the financial condition or
business reputation of Borland.
"Constructive termination" shall mean any one or more of the following:
(i) without your express written consent, the relocation of the principal place
of your employment to a location that is more than fifty (50) miles from the
company's current headquarters; (ii) any failure by Borland to pay, or any
material reduction by Borland of, your base salary or benefits (unless
reductions comparable in amount and duration are concurrently made for all
other employees of Borland with responsibilities, organizational level and
title comparable to yours) or (iii) a material diminution of your
responsibilities.
We are very excited about the possibility of you joining us. Please take
the time to review this letter and, if appropriate, to sign and return a copy
to me. We all look forward to a mutually beneficial relationship and in the
meantime, should you have any questions, please do not hesitate to contact me
at any time.
Sincerely,
BORLAND INTERNATIONAL, INC.
/s/ Delbert Yocam
<PAGE>
Chairman of the Board and Chief Executive Officer
AGREED AND ACCEPTED:
/s/ Hobart McK. Birmingham
Date: February 7, 1997
<PAGE>
EXHIBIT 10.24
RESIGNATION AGREEMENT
- ---------------------
1. Hobart McK. Birmingham ("Employee") has decided to resign from his
employment with Inprise Corporation (the "Company"). Employee and the Company
are parties to a Change in Control Agreement (the "Change Agreement") of April
21, 1998, and the Company is currently in the process of negotiating a sale of
the Company to Corel, Inc. (the "Transaction"). It is the Company's desire to
provide Employee with certain benefits that he would not otherwise be entitled
to receive upon his resignation and to resolve any claims that Employee has or
may have against the Company. Accordingly, Employee and the Company agree as
set forth below. This Agreement will become effective on the eighth day after
it is signed by Employee, provided that Employee has not revoked this Agreement
(by written notice to Fred Ball at the Company) prior to that date.
2. Employee hereby resigns voluntarily from any positions that he holds as an
officer of the Company effective as of March 17, 2000. Employee hereby resigns
voluntarily from his employment with the Company effective upon the first to
occur of the following: (a) June 30, 2000 (but only if the Transaction is
terminated on or before that date); (b) the date on which the Transaction closes
or is terminated, or (c) March 17, 2001. Through March 17, 2000, Employee will
continue to be employed by the Company on a full-time basis with his current
duties and responsibilities. During the period between March 17, 2000 and June
30, 2000 (or any earlier Resignation Date), Employee will have no specific
duties or responsibilities, except as mutually agreed to by the parties, and
Employee will continue to have the use of an office at the Company. If Employee
performs any work or services for the Company after March 17, 2000 (other than
work related to the sale of Inprise's headquarters building or the transition of
Employee's duties or responsibilities to other Company employees), Employee
shall be paid, in addition to the salary described in paragraph 3(b), the
consulting fee described in Section 6 of the Change Agreement. If the Company
or its successor requests services from Employee at any time after June 30,
2000, Employee will be compensated for such services in accordance with Section
6 of the Change Agreement.
The Company will provide Employee with the following compensation and benefits:
through March 17, 2000, Employee will continue to receive his current base
salary and
<PAGE>
employee fringe benefits from the Company; during the period between March 17
and June 30, 2000, Employee will be paid a salary for such period of $50,000
(payable over such period in accordance with the Company's normal payroll
practices and less applicable withholding); if the Resignation Date occurs prior
to June 30, 2000, any remaining unpaid portion of such salary will be paid to
Employee on the Resignation Date; Employee will continue to receive his current
employee fringe benefits (including his fitness center membership) through the
earlier of June 30, 2000 or the Resignation Date; however, Employee will not
accrue any PTO after March 17, 2000; during the period between June 30, 2000 and
the Resignation Date (if any such period occurs), Employee will not be entitled
to any compensation or employee fringe benefits from the Company other than
continued vesting of his unvested Company stock options, and Employee may elect
to obtain continued group health insurance coverage at his own expense pursuant
to COBRA after June 30, 2000; in lieu of any other severance pay or benefits
that Employee is entitled to receive (including, but not limited to, any
severance pay that Employee is entitled to receive pursuant to Section 3 of the
Change Agreement or any Company policy), the Company will make a severance
payment to Employee on March 17, 2000 of $332,000, less applicable withholding
and less a deduction for Employee's contribution to his 401(k) account that will
result in the maximum 401(k) contribution from Employee in 2000; and if the
Transaction closes on or before March 17, 2001, and such event constitutes a
"Change in Control" as that phrase is defined in the Change Agreement, Employee
will be entitled to the stock option vesting and other benefits described in the
Change Agreement, other than the severance benefits described in Section 3 of
that agreement, which Employee will not be entitled to receive.
Employee will be paid all accrued, unused PTO that he earned during his
employment with the Company on March 17, 2000. Employee understands and
acknowledges that he shall not be entitled to any payments or benefits from the
Company other than those expressly set forth in this paragraph 3.
Employee and his successors release the Company and its shareholders, investors,
directors, officers, employees, agents, attorneys, insurers, legal successors
and assigns of and from any and all claims, actions and causes of action,
whether now known or unknown, which Employee now has, or at any other time had,
or shall or may have against those released parties based upon or arising out of
any matter, cause, fact, thing, act or omission whatsoever occurring or existing
at any time up to and including the date on which he signs this Agreement,
including, but not limited to, any claims of breach of contract, wrongful
termination, retaliation, fraud, defamation, infliction of emotional distress or
national origin, race, age, sex, sexual orientation, disability or other
discrimination or harassment under the Civil Rights Act of 1964, the Age
Discrimination In Employment Act of 1967, the Americans with Disabilities Act,
the Fair Employment and Housing Act or any other applicable law. As additional
consideration for the severance payment and other benefits described in
paragraph 3, Employee agrees that he will reaffirm this release of claims in the
space provided at the end of this Agreement on or after the Resignation Date.
This release of claims shall not affect Employee's right to be indemnified by
the Company pursuant to the terms of any indemnity agreement between Employee
and the Company, and it will not apply to any claims against
<PAGE>
individual persons that are based upon defamatory statements made by such
persons about Employee.
Employee acknowledges that he has read section 1542 of the Civil Code of the
State of California, which states in full:
A general release does not extend to claims which the creditor does
not know or suspect to exist in his favor at the time of executing the
release, which if known by him must have materially affected his
settlement with the debtor.
Employee waives any rights that he has or may have under section 1542 to the
full extent that he may lawfully waive such rights pertaining to this general
release of claims, and affirms that he is releasing all known and unknown claims
that he has or may have against the parties listed above.
The Company hereby releases Employee from any claims that it has or may have
against Employee to the same extent that Employee has released the Company in
paragraphs 4 and 5 above.
Employee acknowledges and agrees that he shall continue to be bound by and
comply with the terms of any proprietary rights or confidentiality agreements
between the Company and Employee.
Employee agrees that he shall not directly or indirectly disclose any of the
terms of this Agreement to anyone other than his immediate family or counsel,
except as such disclosure may be required for accounting or tax reporting
purposes or as otherwise may be required by law. Employee further agrees that
he will not, at any time in the future, make any critical or disparaging
statements about the Company, its products or its employees, unless such
statements are made truthfully in response to a subpoena or other legal process.
The Company agrees that it will not, through any of its officers or directors,
make any critical or disparaging statements about Employee, unless such
statements are made truthfully in response to a subpoena or other legal process.
Any successor to the Company or to all or substantially all of the Company's
business and/or assets shall be bound by this Agreement in the same manner and
to the same extent as the Company.
This Agreement and any other agreements referred to above constitute the entire
agreement between the parties with respect to the subject matter hereof, and it
supersedes all prior negotiations and agreements between Employee and the
Company (including, but not limited to, any employment or other agreements),
whether written or oral, with the exception of (a) any agreements described in
paragraphs 4 or 7, (b) any stock option agreements between the parties, (c) any
provisions in Employee's offer letter of January 22, 1997, concerning the
accelerated vesting of Employee's unvested stock options, and (d) the Change
Agreement (other than Sections 3 and 4 of the Change Agreement, which are hereby
terminated and no longer of any legal force or effect). This Agreement may not
be modified or amended except by a document signed by an authorized officer of
the Company and Employee.
<PAGE>
EMPLOYEE UNDERSTANDS THAT HE SHOULD CONSULT WITH AN ATTORNEY PRIOR TO SIGNING
THIS AGREEMENT AND THAT HE IS GIVING UP ANY LEGAL CLAIMS HE HAS AGAINST THE
PARTIES RELEASED ABOVE BY SIGNING THIS AGREEMENT. EMPLOYEE FURTHER UNDERSTANDS
THAT HE MAY HAVE UP TO 21 DAYS TO CONSIDER THIS AGREEMENT, THAT HE MAY REVOKE IT
AT ANY TIME DURING THE 7 DAYS AFTER HE SIGNS IT, AND THAT IT SHALL NOT BECOME
EFFECTIVE UNTIL THAT 7-DAY PERIOD HAS PASSED. EMPLOYEE ACKNOWLEDGES THAT HE IS
SIGNING THIS AGREEMENT KNOWINGLY, WILLINGLY AND VOLUNTARILY IN EXCHANGE FOR THE
COMPENSATION AND BENEFITS DESCRIBED IN PARAGRAPH 3.
Dated: March 20, 2000 /s/ Hobart McK. Birmingham
---------------------------------
Hobart McK. Birmingham
Inprise Corporation
By: /s/ Frederick A. Ball
-----------------------------
Frederick A. Ball
Dated: March 21, 2000
By re-signing this Agreement on or after the Resignation Date, I hereby
extend the release of known and unknown claims set forth in paragraphs 4 and 5
above through and including the Resignation Date. I understand that I may
revoke this Agreement at any time during the seven days after I re-sign it
below.
Date: ______________ ___, 2000 ---------------------------------
Hobart McK. Birmingham
<PAGE>
EXHIBIT 10.34
INPRISE CORPORATION
CHANGE IN CONTROL AGREEMENT
This Change in Control Agreement (the "Agreement") is effective as of DATE,
by and between EMPLOYEE NAME (the "Employee") and Inprise Corporation, a
Delaware corporation (the "Company").
RECITALS
A. The Employee presently serves as POSITION TITLE of the Company and performs
significant strategic and management responsibilities necessary to the continued
conduct of the Company's business and operations.
B. The Board of Directors of the Company (the "Board") has determined that it
is in the best interests of the Company and its stockholders to assure that the
Company will have the continued dedication and objectivity of the Employee,
notwithstanding the possibility or occurrence of a Change in Control (as defined
below) of the Company.
C. The Board believes that it is imperative to provide the Employee with
certain severance benefits upon the Employee's termination of employment
following a Change in Control that will provide the Employee with enhanced
financial security and provide sufficient incentive and encouragement to the
Employee to remain with the Company following a Change in Control.
D. Certain capitalized terms used in the Agreement are defined in Section 6
below.
AGREEMENT
The Employee and the Company agree as set forth below:
(1) Terms of Employment. The Company and the Employee agree that the
Employee's employment is "at will" and that their employment relationship
may be terminated by either party at any time, with or without cause. If
the Employee's employment with the Company terminates for any reason
following a Change in Control, but on or before the first anniversary of
the Change in Control, the Employee shall not be entitled to any payments,
benefits, damages, awards or compensation other than as provided by this
Agreement. During his or her employment with the Company, the Employee
agrees to devote his or her full business time, energy and skill to his or
her duties with the Company. These duties shall include, but not be
limited to, any duties consistent with the Employee's position that may be
assigned to the Employee from time to time by the Company or the Board.
(2) Stock Option Vesting Upon Change in Control. Upon the occurrence
of a Change in Control, with respect to any unvested options to purchase
shares of the stock of the Company held by the Employee, the Employee shall
immediately become vested in full in such options pursuant to the Key
Executive Option Acceleration Program approved by the Board on January 22,
1997.
<PAGE>
(3) Severance Benefits Upon Termination following a Change in
Control. Subject to the limitations set forth in Sections 4 and 5 below, if
the Employee's employment with the Company terminates following a Change in
Control but on or before the first anniversary of such Change in Control,
then the Employee shall be entitled to receive, in addition to the
compensation and benefits earned by the Employee through the date of his or
her termination, severance benefits as follows:
(a) Involuntary Termination. If the Employee's employment with the
Company is terminated as a result of Involuntary Termination,
then the Employee shall be entitled to receive the following
severance benefits:
(i) The Employee shall be entitled to receive severance pay in
an amount equal to one hundred percent (100%) of his or her
annual base salary as in effect at the time of such
termination. Any severance to which the Employee is entitled
pursuant to this section shall be paid in a lump sum, less
applicable withholding, within thirty (30) days following
the Employee's termination.
(ii) The Company shall, if permitted under the Company's existing
health insurance plans, continue the Employee's existing
group health insurance coverage. If not so permitted, the
Company shall reimburse the Employee for any COBRA premiums
paid by the Employee for continued group health insurance
coverage. Such health insurance coverage or reimbursement of
COBRA premiums shall continue until the earlier of (1)
twelve (12) months after the date of the Employee's
Involuntary Termination or (2) the date on which the
Employee commences New Employment.
(b) Voluntary Resignation; Termination For Cause. If the Employee's
employment terminates by reason of the Employee's voluntary resignation
(but not as a result of an Involuntary Termination) or as a result of the
Employee's termination for Cause, then the Employee shall not be entitled
to receive any severance pay or benefits under this Agreement.
(c) Disability; Death. If the Company terminates the Employee's
employment as a result of the Employee's Disability, or death, then the
Employee shall not be entitled to receive any severance pay or benefits
under this Agreement.
4. Release of Claims; Resignation. The Employee's entitlement to any severance
pay or benefits under Section 3(a) is conditioned upon the Employee's execution
and delivery to the Company of (a) a general release of known and unknown claims
in a form satisfactory to the Company and (b) a resignation from all of the
Employee's positions with the Company, including from the Board of Directors and
any committees thereof on which the Employee serves, in a form satisfactory to
the Company.
5. Parachute Payments. In the event that any payment or benefit received or to
be received by the Employee pursuant to this Agreement or otherwise
(collectively, the "Payments") would result in a "parachute payment" as
described in section 280G of the Internal Revenue Code of 1986, as amended,
notwithstanding the other provisions of this Agreement, the amount of such
Payments will not exceed the amount which produces the greatest after-tax
benefit to the Employee. For purposes of the foregoing, the greatest after-tax
benefit will be determined within
<PAGE>
thirty (30) days of the occurrence of such payment to the Employee, in the
Employee's sole and absolute discretion. If no such determination is made by the
Employee within thirty (30) days of the occurrence of such payment, the Company
will promptly make such determination in a fair and equitable manner.
6. Consulting Services. During the twenty-four (24) months following any
Involuntary Termination for which the Employee receives the severance pay and
benefits described in Section 3(a), the Employee shall be retained by the
Company as an independent contractor to provide consulting services to the
Company at its request for up to eight (8) hours per week. These services shall
include any reasonable requests for information or assistance by the Company,
including, but not limited to, the transition of the Employee's duties. Such
services shall be provided as and when reasonably requested by the Company. For
the actual provision of such services, the Company shall pay to the Employee a
consulting fee of $1,000 per day.
7. Definition of Terms. The following terms referred to in this Agreement
shall have the following meanings:
(a) "Cause" shall mean any of the following:
-----
(i) the Employee's theft, dishonesty, misconduct or falsification
of any records of the Company, its successor, or any subsidiary of the
Company or its successor (collectively, the "Company Group");
(ii) the Employee's improper use or disclosure of confidential or
proprietary information of the Company Group;
(iii) any action by the Employee which has a material detrimental
effect on the reputation or business of the Company Group;
(iv) the Employee's failure or inability to perform any
reasonable assigned duties after written notice from the Company Group
of, and a reasonable opportunity to cure, such failure or inability;
(v) any material breach by the Employee of any employment
agreement between the Employee and the Company Group, which breach is
not cured pursuant to the terms of such agreement; or
(vi) the Employee's conviction of any criminal act which impairs
the Employee's ability to perform his or her duties for the Company
Group.
(b) "Change in Control" shall mean an acquisition of the Company as that
phrase is defined in the minutes of the Board meeting of January 22, 1997.
<PAGE>
(c) "Constructive Termination" shall mean any one or more of the following:
(i) without the Employee's express written consent, the
assignment to the Employee of any title or duties, or any limitation of the
Employee's responsibilities, substantially inconsistent with the Employee's
title(s), duties, or responsibilities with the Company Group immediately
prior to the date of the Change in Control;
(ii) without the Employee's express written consent, the
relocation of the principal place of the Employee's employment to a
location that is more than fifty (50) miles from the Employee's principal
place of employment immediately prior to the date of the Change in Control,
or the imposition of travel requirements substantially more demanding of
the Employee than such travel requirements existing immediately prior to
the date of the Change in Control;
(iii) any failure by the Company Group to pay, or any material
reduction by the Company Group of, (1) the Employee's base salary in effect
immediately prior to the date of the Change in Control, or (2) the
Employee's bonus compensation, if any, in effect immediately prior to the
date of the Change in Control (subject to applicable performance
requirements with respect to the actual amount of bonus compensation earned
by the Employee), unless base salary and/or bonus reductions comparable in
amount and duration are concurrently made for a majority of the other
employees of the Company Group who have substantially similar titles and
responsibilities as the Employee;
(iv) any failure by the Company Group to (1) continue to provide
the Employee with the opportunity to participate, on terms no less
favorable than those in effect for the benefit of any employee group which
customarily includes a person holding the employment position or a
comparable position with the Company Group then held by the Employee, in
any benefit or compensation plans and programs, including, but not limited
to, the Company Group's life, disability, health, dental, medical, savings,
profit sharing, stock purchase and retirement plans, if any, in which the
Employee was participating immediately prior to the date of the Change in
Control, or in substantially similar plans or programs, or (2) provide the
Employee with all other fringe benefits (or substantially similar benefits)
provided to any employee group which customarily includes a person holding
the employment position or a comparable position with the Company Group
then held by the Employee, which the Employee was receiving immediately
prior to the date of the Change in Control; or
(v) the failure of the Company to obtain the assumption of the
terms of this Agreement by any successors as contemplated in Section 8(a)
below.
However, the foregoing conditions shall not constitute a Constructive
Termination unless the Employee has given written notice of any such
condition(s) to the Board and allowed the Company Group at least ten (10) days
thereafter to correct such condition(s). If such condition(s) are not corrected
within that ten (10) day period, the Employee may give written notice of his
Constructive Termination to the Board, which shall be an Involuntary
Termination.
(d) "Disability" means the inability of the Employee, in the opinion of a
qualified physician, to perform the essential functions of the Employee's
position with the Company Group, with or without reasonable accommodation,
because of the sickness or injury of the Employee.
<PAGE>
(e) "Involuntary Termination" shall mean the occurrence of either of the
following events after a Change in Control, but on or before the first
anniversary of such Change in Control:
(i) termination by Company Group of the Employee's employment
without Cause; or
(ii) the Employee's Constructive Termination.
"Involuntary Termination" shall not include any termination of the Employee's
employment that is (1) for Cause, (2) a result of the Employee's death or
Disability, or (3) a result of the Employee's voluntary resignation.
(f) "New Employment" shall mean any employment obtained by the Employee
after the termination of the Employee's employment with the Company.
8. Nonsolicitation. During his or her employment with the Company, and for a
period of one (1) year following the termination of his or her employment for
any reason, the Employee shall not directly or indirectly recruit, solicit, or
induce any person who on the date hereof is, or who subsequently becomes, an
employee, sales representative or consultant of the Company, to terminate his or
her relationship with the Company.
9. Successors.
(a) Company's Successors. Any successor to the Company or to all or
substantially all of the Company's business and/or assets shall assume its
obligations under this Agreement and agree expressly in writing to perform the
obligations under this Agreement in the same manner and to the same extent as
the Company would be required to perform such obligations in the absence of a
succession. For all purposes under this Agreement, the term "Company" shall
include any successor to the Company's business and/or assets.
(b) Employee's Successors. All rights of the Employee hereunder shall
inure to the benefit of, and be enforceable by, the Employee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees. The Employee shall have no right to assign any of his
obligations or duties under this Agreement to any other person or entity.
10. Notice.
(a) General. Notices and all other communications contemplated by this
Agreement shall be in writing and shall be deemed to have been duly given when
personally delivered or when mailed by U.S. registered or certified mail, return
receipt requested and postage prepaid. In the case of the Employee, mailed
notices shall be addressed to the Employee at the home address which he or she
most recently communicated to the Company in writing. In the case of the
Company, mailed notices shall be addressed to its corporate headquarters, and
all notices shall be directed to the attention of its Secretary.
(b) Notice of Termination. Any termination by the Company Group or the
Employee of their employment relationship shall be communicated by a written
notice of termination to the other party.
11. Miscellaneous Provisions.
<PAGE>
(a) No Duty to Mitigate. The Employee shall not be required to mitigate the
amount of any payment contemplated by this Agreement (whether by seeking New
Employment or in any other manner), nor shall any such payment be reduced by any
earnings that the Employee may receive from any other source.
(b) Waiver. No provision of this Agreement shall be modified, waived or
discharged unless the modification, waiver or discharge is agreed to in writing
and signed by the Employee and by an authorized officer of the Company (other
than the Employee). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.
(c) Choice of Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California.
(d) Severability. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision hereof, which shall remain in full force and effect.
(e) Arbitration. In the event of any dispute or claim relating to or
arising out of the Employee's employment relationship with the Company, this
Agreement, or the termination of the Employee's employment with the Company for
any reason (including, but not limited to, any claims of breach of contract,
wrongful termination, fraud or age, race, sex, national origin, disability or
other discrimination or harassment), the Employee and the Company agree that all
such disputes shall be fully, finally and exclusively resolved by binding
arbitration conducted by the American Arbitration Association in Santa Clara
County, California. The Employee and the Company knowingly and willingly waive
their respective rights to have any such disputes or claims tried to a judge or
jury. Provided, however, that this arbitration provision shall not apply to any
disputes or claims relating to or arising out of the actual or alleged misuse or
misappropriation of the Company's property, including, but not limited to, its
trade secrets or proprietary information.
(f) Prior Agreements. This Agreement supersedes all prior understandings
and agreements, whether written or oral, regarding the subject matter of this
Agreement.
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the day and year first
above written.
INPRISE CORPORATION
EMPLOYEE
<PAGE>
EXHIBIT 21.1
INPRISE CORPORATION
ACTIVE SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation
- ---- -----------------------------
<S> <C>
INPRISE (AUSTRALIA) PTY, LTD. Australia
INPRISE CANADA, INC. Canada
INPRISE (UK) United Kingdom
INPRISE (FRANCE) France
INPRISE GMBH Germany
INPRISE (HK) LTD. Hong Kong
INPRISE (JAPAN) CO., LTD. Japan
INPRISE (SINGAPORE) PTE., LTD. Singapore
INPRISE, B.V. (NETHERLANDS) Netherlands
INPRISE TECHNOLOGY, CORPORATION Delaware
INTERBASE, INC. Delaware
APOGEE INFORMATION SYSTEMS, INC. United States
INPRISE DO BRASIL Brasil
INPRISE SALES CORPORATION USVI
INPRISE INTERACTIVE, INC. Delaware
INPRISE VENTURES, INC. Delaware
</TABLE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-39185, 33-36975, 33-44301, 333-42495, 333-13707,
333-16313, 333-42809, 333-47175, 333-47177, 444-61315, 333-79249, and 333-87987)
and in the Prospectus constituting part of the Registration Statement on Form S-
3 (No. 333-36357) of Inprise Corporation of our report dated January 27, 2000,
except for Note 1 which is dated as of March 17, 2000, appearing in the Annual
Report to Stockholders which is incorporated in this Annual Report on Form 10K.
We also consent to the incorporation by reference of our report on the Financial
Statement Schedules, which appears in this Form 10K.
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 30, 2000
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
FOR VISIGENIC SOFTWARE, INC.
As independent public accountants, we hereby consent to the incorporation of our
report dated April 1, 1998 on the financial statements of Visigenic Software,
Inc. and subsidiaries for the nine-month period ended December 31, 1997 included
in this Form 10K into Inprise Corporation's previously filed Registration
Statements on Form S-8, File Nos. 33-39185, 33-36975, 33-44301, 33-42495, 333-
13707, 333-16313, 333-42809, 333-47175, 333-47177, 333-61315, 333-79249 and 333-
87987.
San Jose, California
March 30, 2000
<TABLE> <S> <C>
<PAGE>
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 192,013
<SECURITIES> 5,680
<RECEIVABLES> 41,760
<ALLOWANCES> 14,457
<INVENTORY> 520
<CURRENT-ASSETS> 223,135
<PP&E> 231,512
<DEPRECIATION> 186,510
<TOTAL-ASSETS> 313,016
<CURRENT-LIABILITIES> 77,897
<BONDS> 0
0
0
<COMMON> 607
<OTHER-SE> 215,050
<TOTAL-LIABILITY-AND-EQUITY> 313,016
<SALES> 150,550
<TOTAL-REVENUES> 174,806
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