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As filed with the Securities and Exchange Commission on April 12, 1999
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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COMPUWARE CORPORATION
(Exact name of Registrant as specified in charter)
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MICHIGAN 7371, 7372 38-2007430
(State or other jurisdiction of (Primary standard industrial (I.R.S. Employer Identification
incorporation or organization) classification code number) No.)
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31440 NORTHWESTERN HIGHWAY
FARMINGTON HILLS, MICHIGAN 48334-2564
(248) 737-7300
(Address, including zip code and telephone number, including
area code, or registrant's principal executive offices)
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PETER KARMANOS, JR., CHAIRMAN
COMPUWARE CORPORATION
31440 NORTHWESTERN HIGHWAY
FARMINGTON HILLS, MICHIGAN 48334-2564
(248) 737-7300
(Name, address, including zip code, and telephone number,
including area code, of agent for service for Registrant)
COPIES TO:
DONALD J. KUNZ, ESQ.
HONIGMAN MILLER SCHWARTZ AND COHN
2290 FIRST NATIONAL BUILDING
DETROIT, MICHIGAN 48226
(313) 256-7800
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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Common Stock.......................... $19,383,483 $5,389
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(1) Estimated solely for the purpose of calculating the registration fee based
upon the average of the high and low prices of the Common Stock as reported
on the Nasdaq Stock Market on April 8, 1999 in accordance with Rule 457(c)
of the General Rules and Regulations under the Securities Act of 1933, as
amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
THIS PRELIMINARY PROSPECTUS IS NOT YET COMPLETED. APRIL 12, 1999.
1,021,864 Shares
COMPUWARE CORPORATION
Common Stock
(Par Value $0.01 per Share)
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Compuware Corporation
31440 Northwestern Highway
Farmington Hills, Michigan 48334
(248) 737-7300
- - The 1,021,864 shares of Common Stock are being offered by the Selling
Shareholders described in this Prospectus under "Selling Shareholders."
- - We will not receive any of the proceeds from the offering.
- - Our Common Stock is quoted on the Nasdaq National Market under the symbol
"CPWR".
- - On April 8, 1999, the last reported sale price for the Common Stock, as
reported on the Nasdaq National Market, was $19.00 per share.
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 5.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is April , 1999
<PAGE> 3
TABLE OF CONTENTS
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PAGE
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Prospectus Summary.......................................... 3
Risk Factors................................................ 5
Use of Proceeds............................................. 9
Dividend Policy............................................. 9
Capitalization.............................................. 9
Price Range of Our Common Stock............................. 9
Selected Consolidated Financial Data........................ 10
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 12
Business.................................................... 24
Management.................................................. 32
Security Ownership of Certain Beneficial Owners and
Management................................................ 35
Compensation of Executive Officers and Directors............ 37
Related Party Transactions.................................. 39
Description of Capital Stock................................ 40
Selling Shareholders........................................ 43
Plan of Distribution........................................ 44
Legal Matters............................................... 44
Experts..................................................... 44
Where You Can Find More Information......................... 44
Cautionary Statement Regarding Forward-Looking Statements... 46
Index to Financial Statements............................... F-1
</TABLE>
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING DESCRIBED HEREIN AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY SELLING SHAREHOLDER. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SHARES OF
COMMON STOCK TO WHICH IT RELATES, OR AN OFFER OR SOLICITATION TO ANY PERSON IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL, OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL.
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this Prospectus.
The summary is not complete and does not contain all of the information that you
should consider before investing in the Common Stock. You should read the entire
Prospectus carefully. Throughout the Prospectus, we use the term "we" or "the
Company" to refer to Compuware Corporation, a business corporation organized
under Michigan law.
THE COMPANY
We provide software products and professional services designed to increase
the productivity of the information systems departments of our target market,
the 20,000 largest enterprises worldwide. We have historically focused on the
testing and implementation environment in the mainframe market, where we have
extensive experience and have established long-term customer relationships. We
also operate in the client/server market, with products and professional
services in the application development, testing and implementation and systems
management environments.
- - OUR BUSINESS STRATEGY
Our focus is to provide products and professional services to improve the
productivity of both mainframe and client/server programmers and analysts in our
target market, the 20,000 largest enterprises worldwide deploying data
processing technology.
- - PRODUCTS DIVISION
We will continue to develop, market and support high-quality testing and
implementation programmer productivity software as well as client/server
application development, testing and implementation and systems management
software and to work closely with our customers to meet their evolving needs.
- - PROFESSIONAL SERVICES DIVISION
We offer a broad range of professional services, including business systems
analysis, design and programming, software conversion, systems planning and
systems consulting. Our business approach to professional services delivery
emphasizes the hiring of experienced staff, extensive ongoing training, high
staff utilization and immediate, productive deployment of new personnel at
client accounts.
- - CUSTOMERS
Our products and professional services are used by the information systems
departments of a wide variety of large commercial and government organizations.
As of December 31, 1998, approximately 225,000 copies of our software products
had been licensed by over 14,000 customers.
- - SALES AND MARKETING
We market our testing and implementation tools, client/server systems
management tools and client/server application development tools primarily
through a direct sales force in the United States, Canada, Europe, Japan,
Asia/Pacific, Brazil, and South Africa as well as through independent
distributors in over 25 other countries.
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- - PRODUCT DEVELOPMENT AND DISTRIBUTION
We have been successful in developing acquired products and technologies
into marketable software for our distribution channels. We believe that our
future growth lies, in part, in continuing to identify promising technologies
from all potential sources, including independent software developers,
customers, small startup companies and internal research and development.
- - PRODUCT MAINTENANCE AND CUSTOMER SUPPORT
All customers who subscribe to our maintenance and support services are
entitled to receive technical support and advice, including problem resolution
services and assistance in product installation, error corrections and any
product enhancements released by us during the maintenance period.
- - EMPLOYEES
As of December 31, 1998, we employed 10,080 people worldwide, with 1,957 in
products sales, sales support and marketing; 594 in research and development;
292 in product maintenance and customer support; 6,312 in professional services
marketing and delivery; and 925 in other general and administrative functions.
THE OFFERING
Common Stock offered by the
Selling Shareholders.................... 1,021,864 shares
Common Stock outstanding as of
March 31, 1999, which includes
the shares offered by the selling
shareholders............................ 367,926,388 shares
NASDAQ symbol............................. CPWR
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RISK FACTORS
In addition to the other information in this Prospectus, you should
carefully consider the following factors before investing in the Common Stock.
OUR QUARTERLY FINANCIAL RESULTS VARY AND MAY BE ADVERSELY AFFECTED BY
CERTAIN RELATIVELY FIXED COSTS.
Our revenues vary from quarter to quarter, with the largest portion of
revenues historically recognized in the third and fourth quarters of each fiscal
year. We believe that these quarterly patterns are partly attributable to the
budgeting and purchasing cycles of customers and to our sales commission
policies on our software products, which compensate sales personnel for meeting
or exceeding annual quotas. We typically do not have a material backlog of
unfilled orders, and revenues in any quarter are substantially dependent on
orders booked in the quarter. Our professional services revenues may fluctuate
quarterly due to the completion or commencement of significant assignments, the
number of working days in a quarter and the utilization rate of professional
services personnel.
Our quarterly operating results may fluctuate due to numerous factors,
including the demand for our products and professional services, the size and
timing of customers' orders, the introduction of new products and product
enhancements by us or our competitors, price changes by us, changes in the
proportion of revenues attributable to licenses versus service fees, product
mix, commencement or conclusion of significant services contracts, changes in
foreign currency exchange rates, timing of acquisitions and associated costs,
and competitive conditions in the industry. Net income may be disproportionately
affected by a reduction in revenues because only a small portion of our expenses
varies with revenues.
OUR INABILITY TO DEVELOP NEW PRODUCTS OR PRODUCT ENHANCEMENTS MAY ADVERSELY
AFFECT OUR BUSINESS.
Our success will depend in part on our ability to develop product
enhancements and new products which keep pace with continuing changes in
technology and customer preferences. Our failure to develop technological
improvements or to adapt our products to technological change may, over time,
have a material adverse effect on our business. In addition, the majority of our
products are purchased by customers using IBM and IBM-compatible mainframe
computing platforms and, to a much lesser extent, workstations and personal
computers. Worldwide, computing power is increasingly provided by alternative
computing platforms, including client/server networks, workstations and personal
computers ("PCs"). A significant shift in the way our customers use computing
platforms may have a material adverse effect on our business.
A SIGNIFICANT PERCENTAGE OF OUR REVENUE COMES FROM OVERSEAS, SUBJECTING US
TO EXCHANGE RATE AND OTHER RISKS.
We derived approximately $313.3 million, $253.8 million and $208.8 million
of revenues from foreign operations and export sales in fiscal 1998, 1997 and
1996, respectively, which constituted approximately 27.5%, 31.2% and 34.0% of
total revenues for those periods. We expect that such sales will continue to
generate a significant percentage of our total revenues. Products are priced in
the currency of the country in which they are sold. Changes in the exchange
rates of foreign currencies or exchange controls may adversely affect our
results of operations. The international business is also subject to other
risks, including the need to comply with foreign and U.S. export laws and the
greater difficulty of managing business overseas. In addition, our foreign
operations are affected by general economic conditions in the international
markets in which we do business. A prolonged economic downturn in Europe or Asia
Pacific may have a material adverse effect on our business.
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ALMOST ALL OF OUR PRODUCTS HAVE RESULTED FROM ACQUISITIONS, AND IF WE CAN
NO LONGER FIND SUITABLE ACQUISITION CANDIDATES, OUR BUSINESS MAY BE ADVERSELY
AFFECTED.
Substantially all of our products have been developed from acquired
technology and products. To date, we have been successful in developing acquired
products and technologies into marketable software suitable for our distribution
channels. We believe that our future growth lies, in part, in continuing to
identify, acquire and then develop promising technologies and products. While we
are continually searching for acquisition opportunities, there are presently no
agreements, arrangements or understandings with respect to any material
acquisition and there can be no assurance that we will continue to be successful
in identifying, acquiring and developing products and technology. If any
potential acquisition opportunities are identified, there can be no assurance
that we will consummate and successfully integrate any such acquisitions and
there can be no assurance as to the timing or effect on our business of any such
acquisitions.
A MAJORITY OF OUR REVENUE FROM SOFTWARE PRODUCTS IS DEPENDENT ON OUR
CUSTOMERS' CONTINUED USE OF IBM MAINFRAME PRODUCTS.
Our currently available run-time software products, which comprise the
majority of our revenues from software products, are designed for use with IBM
and IBM-compatible mainframe computers. Specifically, these software products
target users of the MVS and VSE operating systems, the CICS communications
subsystem and the IMS and DB2 database management systems. As a result, future
sales of our existing run-time products and associated recurring maintenance
revenues are dependent upon continued use of IBM and IBM-compatible mainframes
and their related systems software. In addition, because our run-time products
operate in conjunction with IBM systems software, changes to IBM systems
software may require us to adapt our run-time products to these changes. An
inability to do so, or any delay in doing so, may adversely affect our operating
results.
WE MAY LOSE BUSINESS TO MANY COMPETITORS.
The markets for our software products are highly competitive and
characterized by continual change and improvement in technology. Our competitors
include BMC Software, Inc., Rational Software Corporation, Mercury Interactive
Corporation, Computer Associates International, Inc., Informix Corporation,
Oracle Corporation, PLATINUM technology International, inc., Sybase, Inc., and
VIASOFT, Inc. None of the competitors competes in all of our product lines. In
addition, although we believe our products are generally complementary to those
marketed by IBM, IBM does offer some products that are directly competitive and
there can be no assurance that IBM will not choose to offer significant
competing products in the future. The principal competitive factors affecting
the market for our software products include: responsiveness to customer needs,
functionality, performance, reliability, ease of use, quality of customer
support, vendor reputation and price. We believe, based on our current market
position, that we have competed effectively in the software products marketplace
to date. Nevertheless, a variety of external and internal events and
circumstances could adversely affect our competitive capacity. Our ability to
remain competitive will depend, to a great extent, upon our performance in
product development and customer support. To be successful in the future, we
must respond promptly and effectively to the challenges of technological change
and our competitors' innovations by continually enhancing our own product
offerings.
The market for data processing professional services is highly competitive,
fragmented and characterized by low barriers to entry. Our principal competitors
in professional services include Andersen Consulting, Computer Sciences
Corporation, Electronic Data Systems Corporation, IBM Global Services and
numerous small regional and local firms in the markets in which we have
professional services offices. Several of these competitors have substantially
greater financial, marketing, recruiting and training resources than we do. The
principal competitive factors affecting
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the market for our professional services include responsiveness to customer
needs, breadth and depth of technical skills offered, availability and
productivity of personnel, ability to demonstrate achievement of results and
price. Due to the continued increase in revenues in professional services, we
believe that we have competed effectively to date in all these areas. There is
no assurance that we will be able to compete as successfully in the future.
CURRENT LAWS MAY NOT ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS.
We regard our software as proprietary and attempt to protect it with
copyrights, trademarks, trade secret laws and restrictions on disclosure,
copying and transferring title. Despite these precautions, it may be possible
for unauthorized third parties to copy certain portions of our products or to
obtain and use information that we regard as proprietary. Currently, we have
three patents and nine applications pending. However, existing patent and
copyright laws afford only limited practical protection. In addition, the laws
of some foreign countries do not protect our proprietary rights to the same
extent as do the laws of the United States. Furthermore, as the number of
software products in the industry increases and the functionality of these
products further overlaps, we believe that software developers will become
increasingly subject to infringement claims. Any such claims, with or without
merit, can be time consuming and expensive to defend.
OUR SOFTWARE AND TECHNOLOGY MAY INFRINGE THE PROPRIETARY RIGHTS OF OTHERS.
During the due diligence stage of any software acquisition, we research and
investigate the title to the software we will be acquiring from the seller. This
investigation generally includes without limitation, litigation searches,
copyright and trademark searches, review of development documents and interviews
with key employees of the seller regarding development, title and ownership of
the software products being acquired. The acquisition document itself generally
contains representations, warranties and covenants concerning the title and
ownership of the software products as well as indemnification and remedy
provisions in the event the representations, warranties and covenants are
breached by the seller. Our new hires sign an offer letter which states that the
new employee is being hired for his or her talent and skill rather than for any
trade secrets or proprietary information of others of which he or she may have
knowledge. Further, our employees execute an employee agreement that provides
that work developed for us or our clients belongs to us or our clients,
respectively. Although we have not received any material claims that our
products infringe on the proprietary rights of third parties, there can be no
assurance that third parties will not assert infringement claims against us in
the future with respect to current and future products or that any such
assertion may not require us to enter into royalty arrangements or result in
costly litigation.
WE DEPEND ON KEY EMPLOYEES AND TECHNICAL PERSONNEL.
Our success will depend in part upon the continued service of our key
senior management and technical personnel. All of our executive officers are
subject to employment contracts and we maintain key man life insurance on all
such personnel in amounts ranging from $1.0 million to $7.2 million. Our future
success also depends on our continuing ability to attract and retain highly
qualified technical, managerial and marketing personnel. The market for
professional services and software products personnel has historically been, and
we expect that it will continue to be, intensely competitive. To date, we have
been successful in attracting and retaining qualified technical personnel. There
can be no assurance, however, that we will continue to be successful in
attracting or retaining such personnel. The loss of certain key employees or our
inability to attract and retain other qualified employees could have a material
adverse effect on our business.
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DIFFICULTIES IN ACQUIRING CONTROL OF OUR COMPANY UNDER OUR CHARTER AND
MICHIGAN LAW MAY DISCOURAGE FUTURE TRANSACTIONS GENERATING SIGNIFICANT
SHAREHOLDER VALUE.
Certain provisions of our Restated Articles of Incorporation and Bylaws and
of Michigan law could delay or make more difficult a merger, tender offer or
proxy contest. Michigan law provides that certain business combinations between
covered Michigan corporations and a holder of 10% or more of the corporation's
stock can only be consummated if approved by a 90% shareholder vote and by a
two-thirds vote of unaffiliated shareholders, unless five years have elapsed
since the acquisition by the 10% shareholder of its stock and unless certain
other conditions are satisfied. Although such provisions are not applicable to
us at this time, Michigan law allows the Board of Directors to choose to be
subject to such provisions at any time. As a result, these provisions could
discourage a third party from paying to the shareholders a premium in a tender
offer or other change of control transaction. In addition, the Board of
Directors has authority to issue up to 5,000,000 shares of Class A Preferred
Stock and to fix the rights, preferences, privileges and restrictions, including
voting rights, of those shares without any further vote or action by the
shareholders. The rights of the holders of the Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future. While we believe that the ability to
issue Preferred Stock provides desirable flexibility in connection with possible
acquisitions and other corporate purposes, the issuance of Preferred Stock could
have the effect of making it more difficult for a third party to acquire a
majority of the outstanding voting stock of the Company.
OUR COMMON STOCK PRICE IS SUBJECT TO SIGNIFICANT MARKET VOLATILITY.
We believe that factors such as quarterly fluctuations in results of
operations and announcements of acquisitions or new products by us or by our
competitors may cause the market price of the Common Stock to fluctuate.
Moreover, in recent years the stock market in general, and the shares of
technology companies in particular, have experienced extreme price fluctuations.
These broad market and industry fluctuations may adversely affect the market
price of our Common Stock.
RISKS RELATED TO POTENTIAL YEAR 2000 PROBLEMS MAY ADVERSELY AFFECT OUR
BUSINESS
The Year 2000 problem is the result of the widespread practice of using
only 2 digits instead of 4 to represent the year in computing equipment and
computer software. Failure to address this problem could cause erroneous results
in the proper interpretation of years after 1999. If we fail to properly
recognize and address the Year 2000 problem as it may affect our business
operations, our business, financial condition, and results of operations could
be materially and adversely affected. The Company has instituted various
projects to address this issue which include but are not limited to three major
areas: 1) the software products which the Company develops and markets, 2) its
internal information technology (IT) assets, and 3) aspects not directly related
to the Company's IT assets or software products ("non-IT assets"). This last
area includes such items as embedded systems in infrastructure components (such
as building security and HVAC systems), as well as the business relationships
the Company has with its customers and suppliers, especially those third parties
with whom the Company has a systems interaction.
The Company expects to be able to identify all Year 2000 problems that
could materially adversely affect its business operations. However, the Company
cannot guarantee that the projects it has undertaken to address the Year 2000
issue will be sufficient to resolve any or all Year 2000 problems with respect
to those operations. Further, we believe it is not possible to determine with
complete certainty that all Year 2000 problems affecting us, our suppliers, or
our customers have been identified or corrected. In addition, no one can
accurately predict how many Year 2000 problem-related failures will occur or the
severity, duration, or financial consequences of these perhaps inevitable
failures.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Year 2000."
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USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the Common Stock
offered by the Selling Shareholders.
DIVIDEND POLICY
We have not paid any cash dividends on our Common Stock since fiscal 1986.
Our loan agreement expressly prohibits the payment of any cash dividends on
Common Stock. We currently expect that we will retain any earnings for use in
the operation and expansion of our business and do not anticipate paying any
cash dividends on our Common Stock in the foreseeable future.
CAPITALIZATION
The following table sets forth the total capitalization of the Company at
December 31, 1998. Common Stock and Additional paid-in capital have been
adjusted to reflect the 2-for-1 stock split that was effective March 1, 1999.
<TABLE>
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AT DECEMBER 31, 1998
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(IN THOUSANDS)
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Long-term debt.............................................. $ 3,719
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Shareholders' equity:
Preferred Stock; no shares issued or outstanding.......... --
Common Stock, $.01 par value; 1,600,000,000 shares
authorized, 370,089,822 shares issued and
outstanding............................................ 3,700
Additional paid-in capital................................ 381,332
Retained earnings......................................... 653,350
Foreign currency translation adjustment................... (3,276)
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Total shareholders' equity............................. 1,035,106
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Total capitalization................................. $1,038,825
==========
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PRICE RANGE OF OUR COMMON STOCK
Our Common Stock trades on the Nasdaq National Market under the symbol
"CPWR". The following table sets forth the high and low bid prices for our
Common Stock as reported on the Nasdaq National Market for fiscal years 1999 and
1998. All prices have been adjusted to reflect the 2-for-1 stock split effective
March 1, 1999.
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HIGH LOW
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Fiscal Year Ended March 31, 1999
First Quarter............................................... 26.69 20.56
Second Quarter.............................................. 31.50 21.50
Third Quarter............................................... 39.91 17.94
Fourth Quarter.............................................. 37.56 20.88
Fiscal Year Ended March 31, 1998
First Quarter............................................... 12.69 7.75
Second Quarter.............................................. 16.35 11.32
Third Quarter............................................... 19.75 14.10
Fourth Quarter.............................................. 25.63 15.57
</TABLE>
The last reported sale price of the Common Stock on the Nasdaq National Market
on April 8, 1999 was $19.00. As of March 26, 1999, there were 77,843 record
holders of our Common Stock.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and the notes thereto
included elsewhere in this Prospectus. The consolidated statement of operations
data set forth below with respect to the fiscal years ended March 31, 1998, 1997
and 1996 and the consolidated balance sheet data at March 31, 1998 and 1997 are
derived from, and are qualified by reference to, the audited consolidated
financial statements included elsewhere in this Prospectus. The consolidated
statement of operations data for the years ended March 31, 1995 and 1994 and the
consolidated balance sheet data at March 31, 1996, 1995 and 1994 are derived
from audited financial statements not included in this Prospectus. The
consolidated statement of operations data for the nine months ended December 31,
1998 and 1997 and the consolidated balance sheet data at December 31, 1998 and
1997 are derived from the unaudited financial statements that, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the information set forth
therein. Operating results for the nine months ended December 31, 1998 are not
necessarily indicative of the results that may be expected for the fiscal year
ending March 31, 1999.
<TABLE>
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NINE MONTHS ENDED
DECEMBER 31,
YEAR ENDED MARCH 31, (UNAUDITED)
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1998 1997 1996 1995 1994 1998 1997
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(IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
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STATEMENT OF OPERATIONS DATA:
Revenues:
Software license fees....... $ 467,251 $318,907 $226,690 $223,589 $163,563 $ 450,986 $298,845
Maintenance fees............ 244,273 209,521 184,039 153,828 116,399 242,158 176,986
Professional services
fees...................... 427,794 284,468 203,630 156,460 114,395 445,166 305,663
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Total revenues............ 1,139,318 812,896 614,359 533,877 394,357 1,138,310 781,494
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Operating expenses:
Cost of software license
fees...................... 22,874 20,881 20,146 14,894 10,612 20,892 15,966
Cost of maintenance......... 31,203 27,278 26,867 24,111 19,138 27,761 22,715
Cost of professional
services.................. 365,948 250,405 174,215 133,823 99,129 363,767 263,102
Software product
development............... 54,416 44,494 42,792 31,825 25,596 48,121 42,144
Sales and marketing......... 325,793 256,139 204,403 174,829 120,338 298,594 223,543
Administrative and
general................... 58,965 48,233 38,537 33,951 28,431 52,888 42,701
Restructuring and merger-
related costs............. 3,606 10,688 10,547(1) 3,606
Purchased research and
development............... 3,160 21,790 24,943 11,990 4,350
---------- -------- -------- -------- -------- ---------- --------
Total operating
expenses................ 865,965 669,220 542,591 435,970 303,244 816,373 613,777
---------- -------- -------- -------- -------- ---------- --------
Income from operations........ 273,353 143,676 71,768 97,907 91,113 321,937 167,717
Interest and investment
income, net................. 17,417 5,710 7,015 5,805 2,797 20,274 8,284
---------- -------- -------- -------- -------- ---------- --------
Income before merger costs-
escrow claims............... 290,770 149,386 78,783 103,712 93,910 342,211 176,001
Merger costs-escrow claims.... 8,531(1)
---------- -------- -------- -------- -------- ---------- --------
Income before income taxes.... 290,770 149,386 78,783 95,181 93,910 342,211 176,001
Income tax provision.......... 96,826 51,950 34,541 33,084 31,623 116,316 58,608
---------- -------- -------- -------- -------- ---------- --------
Net income.................... $ 193,944 $ 97,436 $ 44,242 $ 62,097 $ 62,287 $ 225,895 $117,393
========== ======== ======== ======== ======== ========== ========
Basic earnings per share(2 and
3).......................... $ 0.55 $ 0.29 $ 0.13 $ 0.17 $ 0.18 $ 0.62 $ 0.34
Diluted earnings per share (2
and 3)...................... 0.50 0.27 0.12 0.16 0.17 0.56 0.31
Shares used in computing net
income per share(3):
Basic earnings per
share................... 352,274 340,770 347,516 358,058 349,394 365,212 349,906
Diluted earnings per
share................... 387,426 359,740 358,950 381,476 371,252 401,476 384,316
(footnotes on following page)
</TABLE>
10
<PAGE> 12
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
YEAR ENDED MARCH 31, (UNAUDITED)
------------------------------------------------------------------ ---------------------
1998 1997 1996 1995 1994 1998 1997
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD
END):
Working capital............... $ 362,324 $179,508 $141,842 $195,941 $149,542 $ 566,833 $254,063
Total assets.................. 1,072,640 755,407 555,726 524,095 401,875 1,508,190 937,810
Long-term debt, less current
maturities.................. 6,956 6,068 -- -- -- 3,719 6,876
Total shareholders' equity.... 708,296 445,636 318,985 336,201 253,925 1,035,106 611,266
</TABLE>
- -------------------------
(1) Reflects merger costs incurred in connection with the acquisition,
restructuring and integration of Uniface Holding B.V.
(2) See notes 1 and 9 of Notes to the Consolidated Financial Statements and
Exhibit 11.1 for the basis of computing earnings per share.
(3) Adjusted to reflect the 2-for-1 stock split effective March 1, 1999 (see
note 15 of Notes to Consolidated Financial Statements).
11
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31, 1998 AND 1997
The following table sets forth, for the periods indicated, certain
operational data from the Company's consolidated statements of operations as a
percentage of total revenues and the percentage change in such items compared to
the prior period:
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL REVENUES
--------------
NINE MONTHS
ENDED PERIOD-TO-
DECEMBER 31, PERIOD
-------------- CHANGE
1998 1997 1997 TO 1998
---- ---- ------------
<S> <C> <C> <C>
REVENUES:
Software license fees..................................... 39.6% 38.2% 50.9%
Maintenance fees.......................................... 21.3 22.7 36.8
Professional services fees................................ 39.1 39.1 45.6
----- ----- -----
Total revenues......................................... 100.0 100.0 45.7
----- ----- -----
OPERATING EXPENSES:
Cost of software license fees............................. 1.8 2.0 30.9
Cost of maintenance....................................... 2.4 2.9 22.2
Cost of professional services............................. 32.0 33.7 38.3
Software product development.............................. 4.2 5.4 14.2
Sales and marketing....................................... 26.2 28.6 33.6
Administrative and general................................ 4.7 5.5 23.9
Purchased research and development........................ 0.4 *
Merger-related costs...................................... 0.5 *
----- ----- -----
Total operating expenses 71.7 78.6 33.0
----- ----- -----
INCOME FROM OPERATIONS...................................... 28.3 21.4 92.0
OTHER INCOME................................................ 1.8 1.1 144.7
----- ----- -----
INCOME BEFORE INCOME TAXES.................................. 30.1 22.5 94.4
INCOME TAX PROVISION........................................ 10.2 7.5 98.5
----- ----- -----
NET INCOME.................................................. 19.9% 15.0% 92.4%
===== ===== =====
</TABLE>
- -------------------------
* Period-to-period change expressed as a percentage is not meaningful.
12
<PAGE> 14
NINE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO THE
NINE MONTHS ENDED DECEMBER 31, 1997
Total revenues for the first nine months of fiscal 1999 were $1.1 billion,
an increase of $356.8 million, or 45.7%, as compared to $781.5 million for the
first nine months of fiscal 1998. The Company experienced growth in license
fees, maintenance fees, and professional services fees during the nine months
ended December 31, 1998 as compared to the nine months ended December 31, 1997.
Software license fees increased $152.1 million, or 50.9%, to $451.0 million
in the first nine months of fiscal 1999 from $298.8 million in the first nine
months of fiscal 1998. All of the Company's product families experienced growth
in license fees, with the largest percentage increase in its client/server
testing and implementation products.
Maintenance fee revenues increased $65.2 million, or 36.8%, to $242.2
million in the first nine months of fiscal 1999 from $177.0 million in the first
nine months of fiscal 1998. The Company continues to experience growth in
maintenance fees for all of its product families due to the growth in the number
of installed copies of its products.
Revenues from professional services increased $139.5 million, or 45.6%, to
$445.2 million in the first nine months of fiscal 1999 from $305.7 million in
the first nine months of fiscal 1998. The majority of the Company's professional
services offices experienced growth in revenues. The overall increase was due
primarily to increased business at new and existing clients.
Cost of software license fees increased $4.9 million, or 30.9%, to $20.9
million in the first nine months of fiscal 1999 from $16.0 million in the first
nine months of fiscal 1998. The increase was due primarily to an increase in
amortization of internally developed software products and to a lesser extent
increased author royalties. As a percentage of software license fees, these
costs decreased to 4.6% in the first nine months of fiscal 1999 from 5.3% for
the same period in fiscal 1998.
Cost of maintenance increased $5.0 million, or 22.2%, to $27.8 million in
the first nine months of fiscal 1999 from $22.7 million in the first nine months
of fiscal 1998. The increase in the cost of maintenance was due primarily to the
increase in maintenance and support staff needed to support the worldwide growth
of the installed product base. As a percentage of maintenance fees, these costs
decreased to 11.5% in the first nine months of fiscal 1999 from 12.8% during the
same period of fiscal 1998.
Cost of professional services increased $100.7 million, or 38.3%, to $363.8
million in the first nine months of fiscal 1999 from $263.1 million in the first
nine months of fiscal 1998. The increase in these expenses was due primarily to
the growth in the Services Division billable staff by 1,457 to 5,667 people at
December 31, 1998 from 4,210 at December 31, 1997. As a percentage of
professional services fees, these costs decreased to 81.7% in the first nine
months of fiscal 1999 from 86.1% in the first nine months of fiscal 1998.
Software product development costs increased $6.0 million, or 14.2%, to
$48.1 million in the first nine months of fiscal 1999 from $42.1 million in the
first nine months of fiscal 1998. Before the capitalization of internally
developed software products, total research and development expenditures
increased $7.3 million to $57.0 million, or 14.6%, in the first nine months of
fiscal 1999 from $49.7 million in the first nine months of fiscal 1998.
Capitalized research and development expenditures increased $1.3 million to $8.9
million, or 17.1%, in the first nine months of fiscal 1999 from $7.6 million in
the first nine months of fiscal 1998.
Sales and marketing costs increased $75.1 million, or 33.6%, to $298.6
million in the first nine months of fiscal 1999 from $223.5 million in the first
nine months of fiscal 1998. The increase in
13
<PAGE> 15
sales and marketing costs was due primarily to the expansion of the worldwide
sales force, higher sales commissions associated with increased product sales
and increased advertising expenditures. As a percentage of software license fees
these costs declined to 66.2% in the first nine months of fiscal 1999 as
compared to 74.8% in the first nine months of fiscal 1998.
Administrative and general costs increased $10.2 million, or 23.9%, to
$52.9 million in the first nine months of fiscal 1999 from $42.7 million in the
first nine months of fiscal 1998. The increase in these costs was due primarily
to the increase in corporate support systems, facilities, and employee
development programs in order to support the Company's growth. As a percentage
of total revenue, these costs decreased to 4.7% in the first nine months of
fiscal 1999 from 5.5% in the first nine months of fiscal 1998.
During the first nine months of fiscal 1999, the Company recognized $4.4
million of expense for purchased research and development associated with the
acquisition of products from CenterLine Software, Inc., Vireo Software, Inc.,
and Cardume Software Limited. During the first nine months of fiscal 1998, the
Company recognized $3.6 million for merger-related costs associated with the
merger of NuMega Technologies, Inc.
Income from operations increased $154.2 million, or 92.0%, to $321.9
million in the first nine months of fiscal 1999 from $167.7 million in the first
nine months of fiscal 1998. As a percentage of revenues, income from operations
increased to 28.3% in the first nine months of fiscal 1999 from 21.4% in the
same period of fiscal 1998. Excluding special charges of $4.4 million for the
fiscal 1999 purchased research and development discussed above and the NuMega
merger related expenses of $3.6 million in fiscal 1998, income from operations
would have increased $155.0 million, or 90.5%, to $326.3 million in the first
nine months of fiscal 1999 from $171.3 million in the first nine months of
fiscal 1998. As a percentage of total revenues, income from operations,
exclusive of special charges, increased to 28.7% in the first nine months of
fiscal 1999 from 21.9% in the same period of fiscal 1998.
Net interest and investment income for the first nine months of fiscal 1999
was $20.3 million as compared to $8.3 million in the first nine months of fiscal
1998. This increase in income was due to higher average cash and investment
balances resulting from cash generated from higher operating earnings.
In the first nine months of fiscal 1999, the Company had an income tax
provision of $116.3 million, which was an effective tax rate of 34.0%, as
compared to an income tax provision of $58.6 million, which was an effective tax
rate of 33.3% in the first nine months of fiscal 1998. The increase in the
effective tax rate was due to the growth in pre-tax earnings which dilutes the
effect of the tax credits on the effective tax rate.
14
<PAGE> 16
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED MARCH 31, 1998, 1997 AND 1996
The following table sets forth for the periods indicated, certain
operational data from the Company's consolidated statements of operations as a
percentage of total revenues and the percentage change in such items compared to
the prior period:
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL REVENUES PERIOD-TO-PERIOD
--------------------------- CHANGE
FISCAL YEAR ENDED -----------------
MARCH 31, 1997 1996
--------------------------- TO TO
1998 1997 1996 1998 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Software license fees......................... 41.0% 39.2% 36.9% 46.5% 40.7%
Maintenance fees.............................. 21.4 25.8 30.0 16.6 13.8
Professional services fees.................... 37.6 35.0 33.1 50.4 39.7
----- ----- ----- ----- ------
Total revenues........................... 100.0 100.0 100.0 40.2 32.3
----- ----- ----- ----- ------
Operating expenses:
Cost of software license fees................. 2.0 2.6 3.3 9.5 3.6
Cost of maintenance........................... 2.7 3.4 4.4 14.4 1.5
Cost of professional services................. 32.1 30.8 28.3 46.1 43.7
Software product development.................. 4.8 5.4 7.0 22.3 4.0
Sales and marketing........................... 28.6 31.5 33.3 27.2 25.3
Administrative and general.................... 5.2 5.9 6.3 22.3 25.2
Restructuring and merger-related costs........ 0.3 1.7 100.0 (100.0)
Purchased research and development............ 0.3 2.7 4.0 (85.5) (12.6)
----- ----- ----- ----- ------
Total operating expenses................. 76.0 82.3 88.3 29.4 23.3
----- ----- ----- ----- ------
Income from operations.......................... 24.0 17.7 11.7 90.3 100.2
Interest and investment income, net............. 1.5 0.7 1.1 205.0 (18.6)
----- ----- ----- ----- ------
Income before income taxes...................... 25.5 18.4 12.8 94.6 89.6
Income tax provision 8.5 6.4 5.6 86.4 50.4
----- ----- ----- ----- ------
Net income...................................... 17.0% 12.0% 7.2% 99.0% 120.2%
===== ===== ===== ===== ======
</TABLE>
FISCAL 1998 COMPARED TO FISCAL 1997
Total revenues for fiscal 1998 were $1.1 billion, an increase of $326.4
million, or 40.2%, as compared to $812.9 million for fiscal 1997. The Company
experienced growth in all revenue categories during fiscal 1998.
Software license fees increased $148.3 million, or 46.5%, to $467.3 million
in fiscal 1998 from $318.9 million in fiscal 1997. Almost all of the Company's
product families experienced growth in license sales. These increases were
spread primarily in the third and fourth quarter, and were due primarily to
increased demand for the Company's mainframe testing and implementation
products, and to a lesser extent, client/server testing and implementation
products.
Maintenance fee revenues increased $34.8 million, or 16.6%, to $244.3
million in fiscal 1998 from $209.5 million in fiscal 1997. The Company continues
to experience growth in maintenance fees for all of its product families due to
the growth in the number of installed copies of its products and its relatively
high rate of maintenance contract renewals.
15
<PAGE> 17
Revenues from professional services increased $143.3 million, or 50.4%, to
$427.8 million in fiscal 1998 from $284.5 million in fiscal 1997. This increase
was due primarily to increased business at new and existing clients equal to
$31.8 million, $16.7 million and $13.1 million at Compuware's Farmington Hills,
Michigan, Milwaukee, Wisconsin and Columbus, Ohio branches, respectively.
Revenues from professional services related to client/server systems increased
$53.9 million in fiscal 1998 over fiscal 1997.
Revenues from North American operations increased $266.9 million, or 47.8%
to $826.0 million in fiscal 1998 from $559.0 million in fiscal 1997.
International revenues increased $59.5 million, or 23.4%, to $313.3 million in
fiscal 1998 from $253.9 million in fiscal 1997.
During fiscal 1998, the overall strengthening of the dollar against
European and Japanese currencies had a negative impact on Compuware's foreign
revenues, as compared to fiscal 1997. If exchange rates had been the same as
they were in fiscal 1997, international revenues during fiscal 1998 would have
increased $87.7 million, or 34.6%, instead of $59.5 million, or 23.4%, as
reported. However, the impact on revenue was partially offset by the exchange
rate impact on foreign expenses, the majority of which are in sales and
marketing. The $69.7 million or 27.2% increase in sales and marketing expenses
over fiscal 1997 would have been $85.7 million, or 33.4%, if foreign exchange
rates in fiscal 1998 had been the same as they were in fiscal 1997. As indicated
from the above comments, Compuware's future operating results may be adversely
impacted by the overall strengthening of the U.S. dollar against foreign
currencies of countries where Compuware conducts business; conversely, future
operating results may be favorably impacted by an overall weakening of the U.S.
dollar against foreign currencies.
Cost of software license fees increased $2.0 million, or 9.5%, to $22.9
million in fiscal 1998 from $20.9 million in fiscal 1997. Cost of software
license fees includes amortization of capitalized software, the cost of
preparing and disseminating products to customers and the cost of author
royalties. The Company capitalizes the cost of internally developed software
when technological feasibility has been achieved. The increase in these costs is
due primarily to an increase in amortization of purchased and internally
developed software products, and to a lesser extent, to increased packaging and
distribution costs. As a percentage of software license fees, these costs
decreased to 4.9% in fiscal 1998 from 6.5% in fiscal 1997.
Cost of maintenance increased $3.9 million, or 14.4%, to $31.2 million in
fiscal 1998 from $27.3 million in fiscal 1997. Cost of maintenance consists of
the cost of maintenance programmers and product support personnel and the
computing, facilities and benefits costs allocated to such personnel. The
increase in cost of maintenance was due primarily to the increase in maintenance
and support staff in order to support the worldwide growth of the installed
base. As a percentage of maintenance fees, these costs decreased to 12.8% for
fiscal 1998 from 13.0% in fiscal 1997. The Company will continue to look for
ways to reduce this percentage while maintaining superior service levels and
high renewal rates.
Cost of professional services increased $115.5 million, or 46.1%, to $365.9
million in fiscal 1998 from $250.4 million in fiscal 1997. Cost of professional
services includes all costs of the Company's professional services business,
including the personnel costs of the professional, management and administrative
staff of the Company's services business and the facilities and benefits costs
allocated to such personnel. The increase in these expenses was due primarily to
an increase of 1,033 professional staff to 4,555 people at the end of fiscal
1998, as compared to 3,522 people at the end of fiscal 1997. As a percentage of
professional services fees, these costs decreased to 85.5% in fiscal 1998 from
88.0% in fiscal 1997. The Company believes that the demand for its services
offerings will allow higher rates and staff utilization in order to maintain or
improve services margins.
16
<PAGE> 18
Software product development costs increased $9.9 million, or 22.3% to
$54.4 million in fiscal 1998 from $44.5 million in fiscal 1997. Before the
capitalization of internally developed software products, total research and
development expenditures increased to $65.0 million, or 19.8%, in fiscal 1998
from $54.3 million in fiscal 1997. Software product development costs consist of
the cost of programming personnel, the facilities, computing and benefits costs
allocated to such personnel and the costs of preparing user and installation
guides for the Company's software products, less the amount of software
development costs capitalized during the fiscal year. The increase in these
costs was due primarily to a 27.5% increase in software development staff needed
to meet the demand for new and enhanced products. Those major development
projects that achieved technological feasibility for fiscal 1998 included five
new interactive analysis and debugging products, two new fault management
products, four new file and data management products, five automated testing
products and two systems management products.
Sales and marketing costs increased $69.7 million, or 27.2%, to $325.8
million in fiscal 1998 from $256.1 million in fiscal 1997. Sales and marketing
costs consist of the sales and marketing expenses associated with the Company's
products business, which include costs of direct sales, sales support and
marketing staff, the facilities and benefits costs allocated to such personnel
and the costs of marketing and sales incentive programs. The increase in sales
and marketing costs was largely attributable to the expansion of the worldwide
sales force, higher sales commissions associated with increased product sales,
and increased advertising expenditures. The direct sales and sales support staff
increased by 686 to 1,816 people at the end of fiscal 1998, as compared to 1,130
at the end of fiscal 1997. Approximately 56% of the Company's direct sales force
is selling client/server products. The proportion of client/server sales
representatives is expected to increase gradually over the next few years. As a
percentage of software license fees, sales and marketing costs decreased from
80.3% in fiscal 1997 to 69.7% in fiscal 1998.
Administrative and general costs increased $10.7 million, or 22.3%, to
$59.0 million in fiscal 1998 from $48.2 million in fiscal 1997. Administrative
and general costs consist of facilities, computing, compensation and benefit
costs of the Company's executive officers, legal, human resources, finance,
administrative and recruiting staffs and other personnel. The increase in these
costs was due primarily to the increase in the costs of executive compensation,
plus additional costs of employee development programs, legal services and
corporate communications necessary to support the Company's growth. As a
percentage of total revenues, administrative and general costs decreased from
5.9% in fiscal 1997 to 5.2% in fiscal 1998.
During fiscal 1998, the Company incurred special charges of $3.2 million
related to purchased research and development incurred in connection with the
acquisition of UnderWare, Inc. Since the research and development in process had
not reached technological feasibility, this amount was expensed in accordance
with Statement of Financial Accounting Standards No. 2. The Company also
incurred $3.6 million of merger-related costs incurred in connection with the
merger and integration of NuMega Technologies, Inc.
Net interest and investment income for fiscal 1998 was $17.4 million as
compared to $5.7 million in fiscal 1997. This increase in income was due
primarily to higher average cash and investment balances resulting from cash
generated from higher operating earnings and to interest received on prior
years' amended federal tax returns.
Income before income taxes increased approximately $141.4 million, or
94.6%, to $290.8 million, as compared to income before income taxes of $149.4
million in fiscal 1997. Excluding special charges, Compuware's income before
income taxes would have increased $126.3 million, or 73.8%, to $297.5 million
from $171.2 million in fiscal 1997. As a percentage of total revenues, income
before
17
<PAGE> 19
income taxes exclusive of special charges was 26.1% in fiscal 1998, as compared
to 21.1% in fiscal 1997.
The Company's provision for income taxes was $96.8 million in fiscal 1998,
which represents an effective tax rate of 33.3%, as compared to an income tax
provision of $52.0 million in fiscal 1997, which represents an effective tax
rate of 34.8%. The difference between the effective tax rate for fiscal 1998 and
1997 was due primarily to the non-deductibility of the purchased research and
development costs incurred during fiscal 1997 in connection with the DRD
Promark, Inc. acquisition. The effective tax rate for fiscal 1997 would have
been 33.6% without this cost.
FISCAL 1997 COMPARED TO FISCAL 1996
Total revenues for fiscal 1997 were $812.9 million, an increase of $198.5
million, or 32.3%, as compared to $614.4 million for fiscal 1996. The Company
experienced growth in all revenue categories during fiscal 1997.
Software license fees increased $92.2 million, or 40.7%, to $318.9 million
in fiscal 1997 from $226.7 million in fiscal 1996. Almost all of the Company's
product families experienced growth in license sales. These increases were
accomplished in all four quarters, and were due primarily to increased demand
for the Company's mainframe products, and to a lesser extent, the expansion of
the testing and implementation and systems management sales forces.
Maintenance fee revenues increased $25.5 million, or 13.8%, to $209.5
million in fiscal 1997 from $184.0 million in fiscal 1996. The Company continues
to experience growth in maintenance fees for all of its product families due to
the growth in the number of installed copies of its products and its relatively
high rate of maintenance contract renewals.
Revenues from professional services increased $80.8 million, or 39.7%, to
$284.5 million in fiscal 1997 from $203.6 million in fiscal 1996. This increase
was due primarily to increased business at new and existing clients equal to
$17.1 million, $13.5 million and $10.1 million at Compuware's Minneapolis,
Minnesota, Farmington Hills, Michigan and Columbus, Ohio branches, respectively.
In addition, the acquisition of Adams and Reynolds, Inc. in early fiscal 1997,
contributed approximately $8.8 million in growth in services revenue. Revenues
from professional services related to client/server systems increased $16.8
million in fiscal 1997 over fiscal 1996.
Revenues from North American operations increased $153.5 million, or 37.8%
to $559 million in fiscal 1997 from $405.6 million in fiscal 1996. International
revenues increased $45.1 million, or 21.6%, to $253.8 million in fiscal 1997
from $208.8 million in fiscal 1996.
During fiscal 1997, the overall strengthening of the dollar against
European and Japanese currencies had a negative impact on Compuware's foreign
revenues, as compared to fiscal 1996. If exchange rates had been the same as
they were in fiscal 1996, international revenues during fiscal 1997 would have
increased $58 million, or 28.1%, instead of $45.1 million, or 21.6%, as
reported. However, the impact on revenue was partially offset by the exchange
rate impact on foreign expenses, the majority of which are in sales and
marketing. The $51.7 million or 25.3% increase in sales and marketing expenses
over fiscal 1996 would have been $57.6 million, or 28.2%, if foreign exchange
rates in fiscal 1997 had been the same as they were in fiscal 1996. As indicated
from the above comments, Compuware's future operating results may be adversely
impacted by the overall strengthening of the U.S. dollar against foreign
currencies of countries where Compuware conducts business; conversely, future
operating results may be favorably impacted by an overall weakening of the U.S.
dollar against foreign currencies.
18
<PAGE> 20
Cost of software license fees increased $735,000, or 3.6%, to $20.9 million
in fiscal 1997 from $20.1 million in fiscal 1996. Cost of software license fees
includes amortization of capitalized software, the cost of preparing and
disseminating products to customers and the cost of author royalties. The
Company capitalizes the cost of internally developed software when technological
feasibility has been achieved. The increase in these costs is due primarily to
an increase in amortization of purchased and internally developed software
products, and to a lesser extent, to increased packaging and distribution costs.
As a percentage of software license fees, these costs decreased to 6.5% in
fiscal 1997 from 8.9% in fiscal 1996.
Cost of maintenance increased $411,000, or 1.5%, to $27.3 million in fiscal
1997 from $26.9 million in fiscal 1996. Cost of maintenance consists of the cost
of maintenance programmers and product support personnel and the computing,
facilities and benefits costs allocated to such personnel. The increase in cost
of maintenance was due primarily to the increase in maintenance and support
staff in order to support the worldwide growth of the installed base. As a
percentage of maintenance fees, these costs decreased to 13.0% for fiscal 1997
from 14.6% in fiscal 1996.
Cost of professional services increased $76.2 million, or 43.7%, to $250.4
million in fiscal 1997 from $174.2 million in fiscal 1996. Cost of professional
services includes all costs of the Company's professional services business,
including the personnel costs of the professional, management and administrative
staff of the Company's services business and the facilities and benefits costs
allocated to such personnel. The increase in these expenses was due primarily to
an increase of 1,141 professional staff to 3,522 people at the end of fiscal
1997, as compared to 2,381 people at the end of fiscal 1996. As a percentage of
professional services fees, these costs increased to 88.0% in fiscal 1997 from
85.6% in fiscal 1996.
Software product development costs increased $1.7 million, or 4.0% to $44.5
million in fiscal 1997 from $42.8 million in fiscal 1996. Before the
capitalization of internally developed software products, total research and
development expenditures decreased to $54.3 million, or 2.5%, in fiscal 1997
from $55.7 million in fiscal 1996. Software product development costs consist of
the cost of programming personnel, the facilities, computing and benefits costs
allocated to such personnel and the costs of preparing user and installation
guides for the Company's software products, less the amount of software
development costs capitalized during the fiscal year. The decrease in these
costs was due primarily to the consolidation of product development facilities
and cross-training of certain development staff personnel. This was offset by a
5.5% increase in software development staff needed to meet the demand for new
and enhanced products. Those major development projects that achieved
technological feasibility for fiscal 1997 included the major new release of
UNIFACE, two new interactive analysis and debugging products, two new fault
management products, two new file and data management products, three automated
testing products and one systems management product.
Sales and marketing costs increased $51.7 million, or 25.3%, to $256.1
million in fiscal 1997 from $204.4 million in fiscal 1996. Sales and marketing
costs consist of the sales and marketing expenses associated with the Company's
products business, which include costs of direct sales, sales support and
marketing staff, the facilities and benefits costs allocated to such personnel
and the costs of marketing and sales incentive programs. The increase in sales
and marketing costs was largely attributable to the expansion of the worldwide
sales force and higher sales commissions associated with increased product
sales. Including the increase in sales staff for the Company's client/server
products, the direct sales and sales support staff increased by 307 to 1,130
people at the end of fiscal 1997, as compared to 823 at the end of fiscal 1996.
As a percentage of software license fees, sales and marketing costs decreased
from 90.2% in fiscal 1996 to 80.3% in fiscal 1997.
Administrative and general costs increased $9.7 million, or 25.2%, to $48.2
million in fiscal 1997 from $38.5 million in fiscal 1996. Administrative and
general costs consist of facilities, computing,
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<PAGE> 21
compensation and benefit costs of the Company's executive officers, legal, human
resources, finance, administrative and recruiting staffs and other personnel.
The increase in these costs was due primarily to the increase in the costs of
executive compensation, plus additional costs of employee development programs,
legal services and corporate communications necessary to support the Company's
growth. As a percentage of total revenues, administrative and general costs
decreased from 6.3% in fiscal 1996 to 5.9% in fiscal 1997.
During fiscal 1997, the Company incurred special charges of $21.8 million
related to purchased research and development acquired in connection with the
purchases of Direct Technology Limited and DRD Promark, Inc. Since the research
and development in process had not reached technological feasibility, this
amount was expensed in accordance with Statement of Financial Accounting
Standards No. 2.
Net interest and investment income for fiscal 1997 was $5.7 million as
compared to $7.0 million in fiscal 1996. This decrease in income was due
primarily to lower average cash and investment balances as a result of large
cash expenditures for acquisitions.
Income before income taxes increased approximately $70.6 million, or 89.6%,
to $149.4 million, as compared to income before income taxes of $78.8 million in
fiscal 1996. Excluding special charges, Compuware's income before income taxes
would have increased $56.8 million, or 49.6%, to $171.2 million from $114.4
million in fiscal 1996. As a percentage of total revenues, income before income
taxes exclusive of special charges was 21.1% in fiscal 1997, as compared to
18.6% in fiscal 1996.
The Company's provision for income taxes was $52.0 million in fiscal 1997,
which represents an effective tax rate of 34.8%, as compared to an income tax
provision of $34.5 million in fiscal 1996, which was an effective tax rate of
43.8%. The difference between the effective tax rates in fiscal 1997 and 1996 is
due primarily to the nondeductibility of the purchased research and development
incurred in connection with the DRD Promark Inc. and CoroNet acquisitions,
respectively. Without these expenses, the effective tax rates for fiscal 1997
and 1996 would have been 33.6% and 33.3%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, the Company held $683.4 million in cash and
investments. The Company has no debt other than the $3.7 million of notes issued
in connection with certain acquisitions.
Compuware believes its available cash resources, together with cash flow
from operations, will be sufficient to meet its cash needs for the foreseeable
future.
On February 23, 1999, the Company acquired M.I.S. International, Inc. and
Simco International, Inc. in exchange for 1,021,864 shares of common stock,
valued at approximately $31 million. The acquisition will be accounted for as a
purchase and the acquired companies' results of operations (which are not
material in relation to the Company) will be included in the Company's statement
of income after February 23, 1999. The Company will continue to evaluate
business acquisition opportunities that fit the Company's strategic plans.
On March 15, 1999, the Board of Directors authorized the Company to buy
back up to $500,000,000 of the Company's Common Stock. As of April 8, 1999, the
Company has spent a total of $206.6 million in connection with the buy back.
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<PAGE> 22
YEAR 2000
The Year 2000 problem is the result of the widespread practice of using
only 2 digits instead of 4 to represent the year in computing equipment and
computer software. Failure to address this problem could cause erroneous results
in the proper interpretation of years after 1999. The Company has instituted
various projects to address this issue which include three major areas: the
software products which the Company develops and markets, its internal
information technology (IT) assets, and aspects not directly related to the
Company's IT assets or software products ("non-IT assets"). This last area
includes such items as embedded systems in infrastructure components (such as
building security and HVAC systems), as well as the business relationships the
Company has with its customers and suppliers, especially those third parties
with whom the Company has a systems interaction.
The Company undertook a project to inventory and assess the impact of the
Year 2000 on its software products in the middle of 1994. As a part of this
project the Company identified the software products that would be supported
beyond December 31, 1999. Plans were put in place to complete the necessary
changes to make the identified software products Year 2000 compliant. The
Company believes that all of the Company's current product offerings are Year
2000 compliant and that plans are on schedule to ensure compliance for those
products the Company will continue to support.
The Company has established a WEB page to update customers on the Year 2000
status of the software products. This site assists the customers in
understanding the Year 2000 strategy. Part of the site gives customers access to
frequently asked Year 2000 questions. The Company is committed to supporting our
customers into the year 2000 and beyond. The strategy provides leadership and
tools needed to meet the challenge of the millennium change.
The Company has undertaken a project to inventory, assess and remediate its
significant internal software applications and other IT assets. Many of these
applications are essential for day-to-day operations. The Company believes it
has completed remediation, testing, and implementation for all critical
software. The remediation and testing activities have been performed exclusively
by internal resources.
The Company is also in the process of assessing and remediating its other
IT and non-IT assets. These include areas such as PCs, networks, voice mail,
email, building security, etc. This portion of the project is planned for
completion by October 1, 1999, and appears to be on schedule.
The Company has also undertaken a project to identify and assess its
significant third-party suppliers, and is developing a plan to address vendor or
supplier Year 2000 issues (through remediation, repair, replacement, or upgrade)
so as to avoid any business disruption. In most cases, the Company is forced to
rely on third party representations, without any ability to do independent
testing or evaluation. Contingency plans are being developed for certain key
third parties which are deemed to be critical for the Company's operation. Based
upon the information received to date, the Company does not expect any material
financial impacts from third party vendors. Embedded systems and other non-IT
systems are being evaluated for Year 2000 compliance, and being repaired or
replaced as necessary.
The costs for Year 2000-related activities are being budgeted as necessary.
Costs of the Company's Year 2000 compliance activities have not been and are not
expected to have a material impact on the Company's results of operations or
financial position. This expectation assumes that the Company will not be
obligated to incur significant Year 2000 related costs on behalf of its
customers or suppliers, and that the Company's critical vendors will be able to
meet their commitments to the Company.
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<PAGE> 23
The Company will be adequately prepared to meet the challenges of the
coming of Year 2000 without significant impact to the Company's ability to carry
on its normal business operations. Management estimates that we are
approximately 85% complete with all remediation efforts, which includes 100%
completion of all critical business systems and supported software products. The
balance of the efforts yet to be expended are in the areas of non-IT assets,
monitoring supplier compliance, and contingency planning.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued SFAS No. 130 "Reporting
Comprehensive Income" and SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" in June 1997. The Company is required to
adopt these Statements with its fiscal year ending March 31, 1999. The adoption
of these new standards are not expected to have a material impact on the
Company's financial statements. In March 1998, the AICPA released SOP 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use", which establishes guidance on accounting for the costs of
computer software developed or obtained for internal use. The Company is
required to adopt this pronouncement with its fiscal year ending March 31, 1999.
The adoption of SOP 98-1 is not expected to have a material impact on the
Company's financial statements.
In October 1997, the American Institute of Certified Public Accountants
(AICPA) released Statement of Position (SOP) 97-2, "Software Revenue
Recognition", which supersedes SOP 91-1, "Software Revenue Recognition". SOP
97-2 establishes standards for recognizing revenues related to software products
and related services. The Company adopted this pronouncement prospectively with
its fiscal year ending March 31, 1999. The adoption of SOP 97-2 is not expected
to have a material impact on the Company's financial statements.
In December 1998, the AICPA issued Statement of Position 98-9,
"Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain
Transactions" ("SOP 98-9"). The provisions of SOP 98-9 are effective for
transactions entered into in fiscal years beginning after March 15, 1999. The
Company has not yet determined the effect, if any, of SOP 98-9 on its future
revenues and results of operations. These and future changes to, and
interpretations of, accounting standards and rules could affect the timing of
revenue recognition.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). The Company is required to
adopt this statement for the year ending March 31, 2001. SFAS 133 establishes
methods of accounting for derivative financial instruments and hedging
activities related to those instruments as well as other hedging activities. The
Company has not determined the effect, if any, that adoption will have on its
financial position or results of operations.
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<PAGE> 24
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Investment Portfolio
The table below provides information about the Company's investment
portfolio. For investment securities, the table presents principal cash flows
and related weighted average interest rates by expected maturity dates (in
thousands, except interest rates) at March 31, 1998:
<TABLE>
<CAPTION>
FAIR VALUE AT
FY 1999 FY 2000 FY 2001 TOTAL MARCH 31, 1998
-------- -------- ------- -------- --------------
<S> <C> <C> <C> <C> <C>
Cash Equivalents.................... $182,366 $182,366 $182,366
Average Interest Rate............... 5.02% 5.02%
Investments......................... 54,349 $103,659 $4,062 162,070 162,191
Average Interest Rate............... 3.91% 3.97% 4.03% 3.95%
Average Interest Rate (tax
equivalent)....................... 6.01% 6.11% 6.20% 6.08%
</TABLE>
Foreign Exchange Hedging
Compuware uses a hedging program employing forward contracts on the local
currencies of its major foreign subsidiaries to reduce its exposure to currency
fluctuations on intercompany foreign currency denominated balance sheet
positions. Rather than hedging individual transactions denominated in one
currency the Company hedges the aggregate of such transactions in each currency,
or the balance due from the foreign subsidiary to the U.S. at a given point,
usually at month end. The normal holding period for any hedge entered into is 30
to 90 days. The Company does not take firm delivery of the foreign currency
amounts and it does not hedge anticipated transactions or outstanding
commitments. The difference between the contract rate and the current market
rate on the maturity date is paid or received from the bank on the settlement
date. The gain or loss incurred as of month end on any open contract is
recognized in the Statement of Income. See note 1 of Notes to Consolidated
Financial Statements. The Board of Directors has approved the Company's hedging
program. The Chief Financial Officer reviews and approves all hedging
transactions.
The Company had $45.5 million of short-term foreign exchange forward
contracts at March 31, 1998, denominated in German, Belgium, Austrian, French,
Japanese, Australian, Dutch, Italian and Swiss currencies. The Company does not
anticipate any material adverse effect on its consolidated financial position,
results of operations, or cash flows resulting from the use of these
instruments. There can be no assurance that these strategies will be effective
in eliminating or reducing transaction losses.
The following table provides information about the Company's foreign
exchange forward contracts at March 31, 1998. The table presents the value of
the contracts in U.S. dollars at the contract maturity date and the fair value
of the contracts at March 31,1998 (in thousands, except contract rates):
<TABLE>
<CAPTION>
FORWARD FAIR VALUE
CONTRACT DATE MATURITY DATE CONTRACT POSITION IN AT
IN 1998 IN 1998 RATE U.S. DOLLARS MARCH 31, 1998
------------- ------------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C>
German Marks............ Mar-31 May-29 1.84466 $11,926 $11,959
Belgium Francs.......... Feb-27 Apr-30 37.29500 3,754 3,684
Austrian Shilling....... Mar-31 May-29 13.01440 3,688 3,710
French Francs........... Mar-31 May-29 6.18440 7,600 7,627
Japanese Yen............ Mar-31 May-29 132.06200 3,407 3,411
Australian Dollar....... Mar-31 May-29 1.50750 3,317 3,309
Dutch Guilders.......... Mar-31 May-29 2.07965 4,809 4,824
Italian Lire............ Mar-31 May-29 1,824.32000 1,370 1,375
Swiss Francs............ Mar-31 May-29 1.51950 5,607 5,632
</TABLE>
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<PAGE> 25
BUSINESS
We provide software products and professional services designed to increase
the productivity of the information systems departments of our target market,
the 20,000 largest enterprises worldwide. We have historically focused on the
testing and implementation environment in the mainframe market, where we have
extensive experience and have established long-term customer relationships. We
also operate in the client/server market, with products and professional
services in the application development, testing and implementation and systems
management environments.
We were incorporated in Michigan in 1973. Our executive offices are located
at 31440 Northwestern Highway, Farmington Hills, Michigan 48334-2564, and our
telephone number is (248) 737-7300.
OUR BUSINESS STRATEGY
Our focus is to provide products and professional services to improve the
productivity of both mainframe and client/server programmers and analysts in our
target market, the 20,000 largest enterprises worldwide deploying data
processing technology. These companies invest substantial resources to build and
maintain large, complex, mission-critical applications. As a result, this target
market can benefit most from our product and professional services offerings. We
have developed software products and professional services for the mainframe and
client/server markets. We believe that each market includes three environments:
1. The application development environment in which application software is
initially constructed;
2. The testing and implementation environment in which application software
is executed, debugged, tested and maintained in a series of repetitive,
ongoing cycles for the life of the application; and
3. The systems management environment in which operating systems,
databases, applications and telecommunications networks are managed.
We have chosen not to compete in the application development and systems
management environments of the mainframe market because these are mature markets
served by several other large companies.
PRODUCTS DIVISION
Mainframe Market
We believe that the market for mainframe products is well-defined, mature
and is influenced by large, well-established companies. The prevalence of IBM
and IBM-compatible mainframes over the past thirty years has resulted in a set
of well-established standards in today's mainframe market.
We intend to remain focused on developing, marketing and supporting
high-quality testing and implementation programmer productivity software and to
work closely with our customers to meet their evolving needs. In doing so, we
believe we can leverage our customer relationships, market presence and testing
and implementation expertise to better serve our mainframe clients, as well as
the faster-growing client/server market. In addition, we intend to bridge the
mainframe and client/server markets with integrated product offerings.
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<PAGE> 26
Mainframe Testing and Implementation Tools
We currently offer testing and implementation software products that focus
on improving the productivity of programmers and analysts in application
testing, test data preparation, error analysis and maintenance of systems
running on IBM and IBM-compatible mainframes.
Our testing and implementation products are functionally rich, focused on
user needs and require minimal user training. We strive to ensure a common "look
and feel" across our products and emphasize ease of use in all aspects of
product design and functionality. Most products can be used immediately without
modification of customer development practices and standards, can be quickly
integrated into day-to-day testing, debugging, and maintenance activities and
provide demonstrable benefits soon after installation.
Our mainframe testing and implementation products are grouped into the
following four product families:
- File and Data Management.
Our file and data management products include the File-AID and XPERT
series products. These products provide a consistent, familiar and secure
method for IS professionals to access data across all strategic
environments in order to automate the creation of test data, quickly
resolve production data problems and manage changes to data and databases.
- Fault Management.
Our Abend-AID products assist programmers in more quickly and
accurately analyzing and diagnosing software errors generally occurring
during testing and implementation. These errors, which result in the
abnormal end of the application execution, must be corrected before the
program at fault is restarted.
- Interactive Analysis and Debugging.
Our XPEDITER interactive debugging products enable programmers to
identify and resolve errors in complex software efficiently and accurately.
PATHVU interactive analysis products enable programmers to assess the
quality of program code, document program logic and trace the flow of the
program's logical execution.
- Automated Testing.
Our QA Hiperstation simulates the on-line systems environment,
allowing programmers to test on-line applications under production
conditions without requiring actual users at terminals. These products
capture actual production transactions, allow test data to be created by
modification of these transactions, and then execute application programs
using the test data in a simulated on-line environment. QA Solutions is a
complete line of testing services that supplements our testing products.
Client/Server Market
In contrast to the mainframe market, the client/server market is
characterized by multiple hardware, software and network configurations, as well
as evolving standards and practices. As a result, it is a burdensome task for
large organizations to develop, deploy and maintain software applications that
address the wide-ranging needs of individual users, departments and the
enterprise as a whole. We believe our client/server products address these
challenges and that we are
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well-positioned to successfully market client/server application development,
testing and implementation and systems management software to our target market.
In the last four years, we have developed products and made acquisitions in
the application development, testing and implementation and systems management
environments of the client/server market. We believe we have made substantial
progress in penetrating the market in all three environments because of the
quality and visibility of our UNIFACE, EcoSystems, QA Center and DevPartner
Studio products.
Client/Server Application Development Tools
Our client/server application development toolset, UNIFACE, is designed to
assist software developers in the creation, deployment and maintenance of
complex client/server applications. UNIFACE enables software developers to
create applications that are not tied to any specific hardware platform,
operating system, database management system, or graphical user interface.
Application objects are captured in a central repository, which permits their
re-use in the development of technology-independent applications and allows for
easier management and maintenance of applications. In addition, UNIFACE
insulates applications development and deployment from the individual technical
components which comprise a computing environment. This reduces development and
maintenance costs, permits applications to be developed once using existing
technology, and then permits the application to be deployed into different
computing technology without significant redevelopment.
UNIFACE runs on Microsoft Windows, Windows 98, Windows/NT, DOS, VMS,
MPE/IX, OS/2, Macintosh System 7 and a variety of UNIX platforms. In addition,
applications built with UNIFACE have access to relational and non-relational
data sources, including Oracle, Sybase, Informix, Ingres, DB2/6000 and RdB.
Client/Server Testing and Implementation Tools
Our client/server testing and implementation toolset is rapidly evolving to
improve the productivity of programmers and analysts who work in the various
client/server computing platforms. Similar to their mainframe counterparts,
these products can be used immediately without modification of customer
development practices and standards, can be quickly integrated into day-to-day
testing, debugging and maintenance activities and provide demonstrable benefits
soon after installation.
Our client/server testing and implementation products are grouped into the
following four product lines:
- File and Data Management.
File-AID/CS is a test data management tool designed to save time and
reduce the level of expertise required to manipulate data during the
development, testing and support of client/server applications. Users can
age, reformat, generate, convert, copy, compare, modify and view data
without being an expert in numerous database environments. File-AID/CS
eliminates the need to write programs, scripts or SQL or use multiple
utilities. It works with Oracle, Sybase, Microsoft SQL Server, Informix,
DB2 UDB and many other file and database types.
- NuMega.
Our DevPartner Studio is the SmartDebugging(TM) companion for
Microsoft(R) Visual Studio(TM) 97. It accelerates team development of
multi-language components for Windows and
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<PAGE> 28
Internet applications. DevPartner Studio SmartDebugging tools automatically
detect, diagnose and facilitate resolution of software errors and
performance problems.
- Interactive Analysis and Debugging.
Our XPEDITER/SQL provides interactive analysis and resolution of SQL
program errors.
- Automated Testing.
Our line of QA/Center products addresses the growing demand for
automated testing solutions for client/server and web applications. QARun
is our enterprise-wide script development and test execution tool for
client/server applications. QADirector provides test management. QALoad is
used for server load and performance testing. These products are augmented
by QASolutions, a complete line of testing services.
Client/Server Systems Management Tools
EcoSYSTEMS is our suite of products for improving service level management
of enterprise networks, servers, distributed databases and client/server
applications in a variety of environments. Supported environments include
Windows NT, UNIX, Oracle, Sybase and Informix. EcoTOOLS simplifies
troubleshooting by allowing users to monitor vital service level metrics, as
well as the ability to automatically initiate corrective actions to help prevent
application downtime. EcoSCOPE gathers and monitors data for managing
application performance. Fault XPERT allows real-time responses to application
failures.
PROFESSIONAL SERVICES DIVISION
We believe that the demand for professional services is driven by the need
to control costs, the greater level of resources necessary to support complex
and rapidly changing hardware, software and communication technologies, the need
for a larger technical staff for ongoing maintenance, and more recently, the
increased growth of the client/server market.
The rapid growth of the client/server market has created strong demand for
professional services and consulting to assist customers in building new
client/server environments. Generally, these customers do not have a sufficient
staff of programmers with the expertise to implement client/server systems and
applications. We believe we have a competitive advantage in the client/server
market by providing products as well as professional services. For an
organization implementing a client/server system, we offer software tools and
professional services to deliver complete client/server solutions. We have
trained a significant segment of our professional services staff in UNIFACE,
EcoSystems, QA Center and other major client/server technologies so that we can
assign such personnel to fulfill client/server-oriented consulting and
implementation requirements.
The need to modify applications systems for the Year 2000 has created
demand for professional services and consulting to assist customers in sizing,
analyzing, converting and testing their applications programs for Year 2000
compliance. We believe we have a competitive advantage by combining our products
and services offerings in order to provide clients with comprehensive, efficient
Year 2000 solutions. Our PRODUCTION 2000 offerings demonstrate our unique
capability to respond to our customers' evolving, and sometimes transient,
needs. We believe that our long term success, however, will depend upon our
ability to respond effectively to changes in customer needs beyond the Year
2000.
We offer a broad range of professional services, including business systems
analysis, design and programming, software conversion, systems planning and
systems consulting. Our business approach
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<PAGE> 29
to professional services delivery emphasizes the hiring of experienced staff,
extensive ongoing training, high staff utilization and immediate, productive
deployment of new personnel at client accounts.
Our objective in the professional services division is to create long-term
relationships with clients in which our professional staff joins with the
client's information systems organization to plan, design, program, implement
and maintain technology-based solutions that achieve client business goals.
Typically, the professional services staff is integrated with the client's
development team on a specific application or project. Professional services
staff work primarily at client sites or at our Development Centers in Farmington
Hills, Michigan; Milwaukee, Wisconsin; Columbus, Ohio; Colorado Springs,
Colorado; Phoenix, Arizona; Cleveland, Ohio; Washington, D.C.; and Minneapolis,
Minnesota. We also have professional services operations in our international
locations.
CUSTOMERS
Our products and professional services are used by the information systems
departments of a wide variety of large commercial and government organizations.
As of December 31, 1998, approximately 225,000 copies of our software products
had been licensed by over 14,000 customers.
SALES AND MARKETING
We market our testing and implementation tools, client/server systems
management tools and client/server application development tools primarily
through a direct sales force in the United States, Canada, Europe, Japan,
Asia/Pacific, Brazil, and South Africa as well as through independent
distributors in over 25 other countries. Our combined products sales and
marketing staff as of December 31, 1998 numbered 871 in the United States
(including headquarters support for international sales), 37 in Canada, 798 in
Europe, 101 in Japan, 184 in Asia/Pacific, 55 in Brazil and 53 in South Africa,
for a total of 2,099 worldwide.
We market our professional services primarily through account managers
located in offices throughout North America, Europe and Asia/Pacific. Senior
professional services executives support branch marketing efforts by identifying
new business opportunities and making joint sales calls. This marketing
structure enables us to keep abreast of, and respond quickly to, the changing
needs of our clients and to call on the actual users of our professional
services on a regular basis. UNIFACE and QA Solutions professional services are
generally provided in conjunction with product sales, but have substantial
follow-up business as well.
PRODUCT DEVELOPMENT AND MANUFACTURING
We have been successful in developing acquired products and technologies
into marketable software for our distribution channels. We believe that our
future growth lies in part in continuing to identify promising technologies from
all potential sources, including independent software developers, customers,
small startup companies and internal research and development.
Our product development staff consisted of 594 employees as of December 31,
1998. Product development is performed primarily at our headquarters in
Farmington Hills, Michigan, and at our offices in Campbell, California; Nashua,
New Hampshire and Amsterdam, The Netherlands.
Total research and development costs incurred internally by Compuware were
$57.0 million through December 31, 1998, and were $65.0 million, $54.3 million
and $55.7 million during fiscal 1998, 1997 and 1996, respectively. Of these
amounts, $8.9 million, $10.6 million, $9.8 million and $12.9 million were
capitalized during the same periods, respectively. Capitalization of internally
developed software products begins when technological feasibility of the product
is established.
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<PAGE> 30
Software product development expense in the statement of operations includes all
expenditures for research and development net of amounts capitalized.
Our software products are distributed as object code on standard magnetic
cartridges and diskettes, together with printed documentation. We purchase
cartridges, diskettes and documentation printing from outside vendors. The
product duplication, packing and distribution to our customers is performed at
our corporate headquarters in Farmington Hills, Michigan.
PRODUCT MAINTENANCE AND CUSTOMER SUPPORT
We believe that effective support of our customers and products during both
the trial period and for the license term is a substantial factor in product
acceptance and subsequent new product sales. We believe our installed base is a
significant asset and intend to continue to provide high levels of customer
support and periodic product upgrades to assure a continuing high level of
customer satisfaction. Through the first three quarters of fiscal year 1999
(i.e., through December 31, 1998), over 95% of our existing customers renewed at
least one of their maintenance arrangements. We had 292 employees as of December
31, 1998 devoted to maintenance and customer support services.
All customers who subscribe to our maintenance and support services are
entitled to receive technical support and advice, including problem resolution
services and assistance in product installation, error corrections and any
product enhancements released by us during the maintenance period. Maintenance
and support services are provided primarily by telephone access to technical
personnel located in Farmington Hills, Michigan; Campbell, California; Nashua,
New Hampshire; and in the offices of our foreign subsidiaries and distributors.
Licensees have the option of renewing their maintenance agreements each
year for an annual fee of approximately 15% of the then-current list price of
the licensed product. They also have the option of committing to maintenance for
up to five years on a contractual basis. Through the first three quarters of
fiscal year 1999 (i.e., through December 31, 1998), maintenance fees represented
approximately 21.3% of our total revenue. For fiscal years 1998, 1997 and 1996,
maintenance fees represented approximately 21.4%, 25.8% and 30.0%, respectively,
of our total revenues.
COMPETITION
The markets for our software products are highly competitive and
characterized by continual change and improvement in technology. Our competitors
include BMC Software, Inc., Computer Associates International, Inc., Informix
Corporation, Mercury Interactive Corporation, Oracle Corporation, PLATINUM
technology International, inc., Rational Software Corporation, Sybase, Inc. and
VIASOFT, Inc. None of the competitors competes in all of our product lines.
Although we believe our mainframe products are generally complementary to those
marketed by IBM, IBM does offer some products that are directly competitive and
there can be no assurance that IBM will not choose to offer significant
competing products in the future. The principal competitive factors affecting
the market for our software products include: responsiveness to customer needs,
functionality, performance, reliability, ease of use, quality of customer
support, vendor reputation and price. We believe, based on our current market
position, that we have competed effectively in the software products
marketplace. Nevertheless, a variety of external and internal events and
circumstances could adversely affect our competitive capacity. Our ability to
remain competitive will depend, to a great extent, upon our performance in
product development and customer support. To be successful in the future, we
must respond promptly and effectively to the challenges of technological change
and our competitors' innovations by continually enhancing our own product
offerings.
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The market for data processing professional services is highly competitive,
fragmented and characterized by low barriers to entry. Our principal competitors
in professional services include Andersen Consulting, Computer Sciences
Corporation, Electronic Data Systems Corporation, IBM Global Services, Analysts
International Corporation, Keane, Inc. and numerous other regional and local
firms in the markets in which we have professional services offices. Several of
these competitors have substantially greater financial, marketing, recruiting
and training resources than we do. The principal competitive factors affecting
the market for our professional services include responsiveness to customer
needs, breadth and depth of technical skills offered, availability and
productivity of personnel, ability to demonstrate achievement of results and
price.
PROPRIETARY RIGHTS
We regard our products as proprietary trade secrets and confidential
information. We rely largely upon a combination of trade secret, copyright and
trademark laws together with our license agreements with customers and our
internal security systems, confidentiality procedures and employee agreements to
maintain the trade secrecy of our products. We typically provide our products to
users under nonexclusive, nontransferable licenses. Under the general terms and
conditions of our standard product license agreement, the licensed software may
be used solely for the licensee's own internal operations on designated
computers at specific sites. Under certain circumstances, we make source code
for our products available to our customers under an escrow arrangement which
restricts access to and use of the source code. Although we take steps to
protect our trade secrets, there can be no assurance that misappropriation will
not occur. In addition, the laws of some foreign countries do not protect our
proprietary rights to the same extent as the laws of the United States.
We seek to protect our software, documentation and other written materials
under copyright law, which affords only limited protection. We also assert
trademark rights in our product names. We have been granted three patents and
have nine patent applications pending for certain product technology and have
plans to seek additional patents in the future. However, because the industry is
characterized by rapid technological change, we believe that factors such as the
technological and creative skills of our personnel, new product developments,
frequent product enhancements, name recognition and reliable product maintenance
are more important to establishing and maintaining a technology leadership
position than the various legal protections of our technology.
There can be no assurance that third parties will not assert infringement
claims against us in the future with respect to current and future products or
that any such assertion may not require us to enter into royalty arrangements or
result in costly litigation.
EMPLOYEES
As of December 31, 1998, we employed 10,080 people worldwide, with 1,957 in
products sales, sales support and marketing; 594 in research and development;
292 in product maintenance and customer support; 6,312 in professional services
marketing and delivery; and 925 in other general and administrative functions.
None of our domestic employees is represented by a labor union. We have
experienced no work stoppages and believe that our relations with our employees
are good. Our success will depend in part on our continued ability to attract
and retain highly qualified personnel in a competitive market for experienced
and talented software developers, professional services staff and sales and
marketing personnel.
30
<PAGE> 32
PROPERTIES
The Company's executive offices, research and development, principal
marketing, primary professional services office, customer service and support
facilities are located in approximately 225,000 square feet that the Company
owns in an executive office park in Farmington Hills, Michigan. The Company also
leases approximately 80,000 square feet in the same office park. In addition,
the Company owns approximately 40,000 square feet in nearby West Bloomfield,
Michigan which houses its production, distribution and additional services
facilities.
LEGAL PROCEEDINGS
The Company is currently not a party to any material legal proceedings.
31
<PAGE> 33
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers and directors and their respective ages and
positions as of March 31, 1999, are as follows:
Peter Karmanos, Jr.
Mr. Karmanos, age 56, a founder of the Company, has served as a director of
the Company since its inception, as Chairman of the Board since November 1978,
and as Chief Executive Officer since July 1987. From January 1992 until October
1994, Mr. Karmanos served as President of the Company.
Joseph A. Nathan
Mr. Nathan, age 46, has served as a director of the Company since September
1990 and as President and Chief Operating Officer since October 1994. From
December 1990 to October 1994 Mr. Nathan served as Senior Vice President and
Chief Operating Officer-Products Division.
Eliot R. Stark
Mr. Stark, age 46, has served as Executive Vice President, Finance, since
February 1998. From June 1995 through January 1998, Mr. Stark served as Senior
Vice President, Mergers & Acquisitions, Strategic Business Planning, and
Corporate Planning. In 1995, Mr. Stark served at Comerica Bank as Senior Vice
President, Corporate Development and Planning. From 1993 to 1995, Mr. Stark
served at Comerica Bank, as Director, Information Technology.
Denise A. Knobblock
Ms. Knobblock, age 43, has served as Executive Vice President, Human
Resources and Administration since February 1998. From January 1995 through
January 1998, Ms. Knobblock served as Senior Vice President, Administration, and
from August 1991 through December 1994, as the Company's Director, Facilities,
Administration.
Laura Lawson Fournier
Ms. Fournier, age 46, has served as Senior Vice President, Chief Financial
Officer since April 1998. From June 1995 through March 1998, Ms. Fournier served
as Corporate Controller and from February 1990 through May 1995, as the
Company's Director of Internal Audit.
Phyllis Recca
Ms. Recca, age 45, has served as Senior Vice President, Professional
Services Division, since January, 1999. From January 1995 through December 1998,
Ms. Recca served as Vice President, Professional Services, Mideast Region. From
1987 through December 1994, Ms. Recca served as Branch Manager,
Baltimore/Washington.
Stephen H. Fagan
Mr. Fagan, age 44, has served as Senior Vice President, Strategic
Relationships, Europe, since April 1999. From November 1997 through March 1999,
Mr. Fagan served as Senior Vice President, Professional Services. From 1994
through October 1997, Mr. Fagan served as Vice President, Enterprise Products.
32
<PAGE> 34
Henry A. Jallos
Mr. Jallos, age 50, has served as Executive Vice President, Products
Division, since September 1997. From August 1994 through August 1997, Mr. Jallos
served as Senior Vice President, Worldwide Sales.
John N. Shevillo
Mr. Shevillo, age 62, has served as Senior Vice President, Enterprise
Systems, since April 1997. From April 1994 through March 1997, Mr. Shevillo
served as Senior Vice President, Professional Services.
Thomas Thewes
Mr. Thewes, age 67, a founder of the Company, has served as a director of
the Company since its inception, and has served as Vice Chairman of the Board
since March 1988. Mr. Thewes served as Treasurer from May 1988 until May 1995.
Mr. Thewes served as Senior Vice President from March 1988 until March 1995 and
as Secretary from April 1973 until May 1995.
W. James Prowse
Mr. Prowse, age 56, has served as a director of the Company since December
1986 and served as Executive Vice-President from February 1998 through March 31,
1999. From January 1992 through January 1998, Mr. Prowse served as Senior Vice
President.
William O. Grabe
Mr. Grabe, age 60, has served as a director of the Company since April
1992. Mr. Grabe is a Managing Member of General Atlantic Partners, LLC and has
been affiliated with General Atlantic Partners, LLC or its predecessor since
April 1992. From 1984 until March 1992, Mr. Grabe was an IBM Vice President. Mr.
Grabe is also a director of Baan Company NV, Gartner Group, Inc., LHS Group,
Inc., Marcan Solutions, Inc. and TDS GmbH along with a number of privately held
companies in which General Atlantic Partners, LLC is an investor.
Bernard M. Goldsmith
Mr. Goldsmith, age 55, has served as a director of the Company since July
1992. Mr. Goldsmith has been the Managing Director of Updata Capital, Inc., an
investment banking firm, since 1986.
G. Scott Romney
Mr. Romney, age 57, has served as a director of the Company since January 1996.
Mr. Romney has been a partner at Honigman Miller Schwartz and Cohn, a law firm,
since 1977. The law firm serves as counsel to the Company.
William R. Halling
Mr. Halling, age 60, has served as a director of the Company since October
1996. Mr. Halling is the President of The Economic Club of Detroit. Mr. Halling
was with KPMG Peat Marwick from 1961 through 1993, where he served as a Managing
Partner and member of the Board of Directors.
Lowell P. Weicker, Jr.
Mr. Weicker, age 67, has served as a director of the Company since October
1996. Mr. Weicker is presently a visiting professor at the University of
Virginia in Charlottesville, Virginia, and currently serves on the Board of
Directors of Duty Free International, HPSC, Inc., UST Corporation, and
33
<PAGE> 35
Phoenix Duff & Phelps Mutual Funds. From 1990 through 1994, Mr. Weicker served
as the Governor of Connecticut, and from 1970 through 1988, as a U.S. Senator
from Connecticut. From 1962 through 1968, Mr. Weicker served as a Connecticut
State Representative.
Elizabeth A. Chappell
Ms. Chappell, age 41, has served as a director of the Company since October
1997. Ms. Chappell is the Chief Executive Officer of The Chappell Group, Inc., a
consulting firm. From September 1979 to September 1994, Ms. Chappell served as a
Vice President with ATT.
Elaine K. Didier
Ms. Didier, age 51, has served as a director of the Company since October
1997. Ms. Didier served as the Interim Director of Academic Outreach at the
University of Michigan until her retirement in March 1999. Prior to her
assignment as Interim Director, Ms. Didier held other positions with the
University, including Director of Information Resources.
COMPENSATION OF DIRECTORS
Under the current Non-Employee Director Stock Option Plan, new non-employee
directors receive a one-time grant of 20,000 shares of Common Stock which are
exercisable over a four year period. As of April 1, 1999, under the Non-Employee
Director Stock Option Plan, non-employee directors receive an annual grant of
40,000 option shares of Common Stock. In addition, non-employee directors
receive additional grants of 2,000 option shares for each Board of Directors
meeting attended in person, 1,000 option shares for each Board of Directors
Committee meeting attended in person, 500 option shares for each Board of
Directors meeting attended by telephone, and 250 option shares for each Board of
Directors Committee meeting attended in person. On March 9, 1999, current
non-employee directors received a one-time grant of 30,000 option shares. All
directors are also entitled to reimbursement for out-of-pocket expenses incurred
in connection with attendance at Board of Director and Committee meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As of March 31, 1999 and 1998, Messrs. Goldsmith, Halling and Weicker
served as members of the Company's Compensation Committee. As of March 31, 1997,
Messrs. Karmanos, Goldsmith, Halling and Weicker served as members of the
Company's Compensation Committee. Messrs. Goldsmith, Halling and Weicker have
never been officers or employees of the Company or any of its subsidiaries.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act ("Section 16(a)") requires the Company's
directors and executive officers, and persons who own more than 10% of a
registered class of the Company's equity securities, to file with the Commission
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of the Company. Officers, directors and greater than
10% shareholders are required by Commission regulation to furnish the Company
with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations, for fiscal year
1999, a Form 4 was not filed in a timely manner for (i) Mr. Goldsmith, a
director, (ii) Ms. Didier, a director, and (iii) Michael J. Lobsinger, party to
a Voting Agreement, dated November 5, 1992, under which Mr. Karmanos voted the
shares
34
<PAGE> 36
of certain shareholders of the Company. The Voting Agreement was terminated
effective March 1, 1999. Other than the forms referenced, during the fiscal year
ended March 31, 1999, all Section 16(a) filing requirements applicable to its
officers, directors and greater than 10% beneficial owners were complied with.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table shows as of March 31, 1999 the beneficial ownership of
Compuware Common Stock by each current director, by each executive officer
listed in the Summary Compensation Table on page 37, and by all directors and
executive officers as a group.
<TABLE>
<CAPTION>
BENEFICIAL PERCENT
NAME OWNERSHIP(1) OF CLASS
---- ------------ --------
<S> <C> <C>
Stephen H. Fagan............................................ 795,216(2) *
Henry A. Jallos............................................. 544,358(3) *
Peter Karmanos, Jr.......................................... 22,255,678(4) 6.0
Joseph A. Nathan............................................ 1,779,730(5) *
W. James Prowse............................................. 2,068,979(6) *
John N. Shevillo............................................ 162,910(7) *
Thomas Thewes............................................... 12,870,292(8) 3.5
Bernard M. Goldsmith........................................ 291,928(9) *
William O. Grabe............................................ 172,500(10) *
G. Scott Romney............................................. 174,500(11) *
William R. Halling.......................................... 66,500(12) *
Lowell P. Weicker, Jr....................................... 14,500(13) *
Elizabeth A. Chappell....................................... 28,500(14) *
Elaine K. Didier............................................ 23,500(15) *
By all executive officers and directors as a group (18
persons).................................................. 39,287,931 10.7
Massachusetts Financial Services............................ 31,337,902(16) 8.5
FMR Corp. .................................................. 39,910,680(17) 10.8
</TABLE>
- -------------------------
* Less than one percent.
(1) Except as otherwise noted, each beneficial owner identified in this table
has sole investment power with respect to the shares shown in the table to
be owned by the person or entity.
(2) Includes (i) 4,478 shares owned directly by Mr. Fagan; (ii) 538 shares held
for Mr. Fagan through the Company's ESOP; and (iii) 790,200 option shares
which are fully vested.
(3) Includes (i) 4,778 shares owned directly by Mr. Jallos; (ii) 33,230 shares
held for Mr. Jallos through the Company's ESOP; and (iii) 506,350 option
shares which are fully vested.
(4) Includes (i) 5,550 shares owned directly by Mr. Karmanos; (ii) 6,029,080
shares held by Mr. Karmanos's trusts; (iii) 11,211,202 shares held by Mr.
Karmanos's Stock Limited Partnership; (iv) 2,978,000 shares Mr. Karmanos is
entitled to vote pursuant to shareholder agreements with certain
shareholders; (v) 377,600 shares held for Mr. Karmanos through the
Company's ESOP; (vi) 1,033,188 shares held by Mr. Karmanos's wife (under a
voting agreement, dated July 1, 1997) and (vii) 621,058 option shares which
are fully vested. The shareholder group referenced in (iv) above includes
shares beneficially owned by (a) Thomas Thewes and the Thewes entities and
(b) General Atlantic Partners II, L.P., General Atlantic Partners, LLC, and
GAP-Amsterdam Partners, L.P. (under a shareholder agreement, dated October
22, 1992).
35
<PAGE> 37
(5) Includes (i) 180,132 shares owned directly by Mr. Nathan; (ii) 183,054
shares held for Mr. Nathan through the Company's ESOP; and (iii) 1,416,544
option shares which are fully vested.
(6) Includes (i) 879,139 shares held by Mr. Prowse's trust; (ii) 272,240 shares
held for Mr. Prowse through the Company's ESOP; (iii) 901,600 option shares
which are fully vested; and (iv) 16,000 option shares which will vest
within 60 days.
(7) Includes (i) 4,994 shares owned directly by Mr. Shevillo; (ii) 77,916
shares held for Mr. Shevillo through the Company's ESOP; and (iii) 80,000
option shares which are fully vested.
(8) Includes (i) 10,036,880 shares held by Mr. Thewes's trusts; (ii) 1,000,000
shares held by The Thewes Family Limited Partnership; (iii) 1,560,000
shares held by The Thewes GST Limited Partnership; (iv) 236,272 shares held
for Mr. Thewes through an IRRA; (v) 14,640 option shares which are fully
vested; and (vi) 22,500 option shares which will vest within 60 days.
(9) Includes (i) 39,428 shares owned directly by Mr. Goldsmith; (ii) 230,000
option shares which are fully vested; and (iii) 22,500 option shares which
will vest within 60 days.
(10) Includes (i) 40,000 shares owned directly by Mr. Grabe; (ii) 110,000 option
shares which are fully vested; and (iii) 22,500 option shares which will
vest within 60 days.
(11) Includes (i) 10,238 shares owned directly by Mr. Romney; (ii) 2,000 shares
owned by Mr. Romney's wife; (iii) 139,762 option shares which are fully
vested; and (iv) 22,500 option shares which will vest within 60 days.
(12) Includes (i) 4,000 shares owned directly by Mr. Halling; (ii) 50,000 option
shares which are fully vested; and (iii) 12,500 option shares which will
vest within 60 days.
(13) Includes (i) 800 shares owned directly by Mr. Weicker; (ii) 1,200 shares
owned by Mr. Weicker's wife; and (iii) 12,500 option shares which will vest
within 60 days.
(14) Includes (i) 6,000 shares owned directly by Ms. Chappell; (ii) 20,000
option shares which are fully vested; and (iii) 2,500 option shares which
will vest within 60 days.
(15) Includes (i) 2,600 shares owned directly by Ms. Didier; (ii) 18,400 option
shares which are fully vested; and (iii) 2,500 option shares which will
vest within 60 days.
(16) The shares listed are from Schedule 13G dated February 11, 1999. The
address for Massachusetts Financial Services is 500 Boylston Street, 25th
Floor, Boston, Massachusetts 02116.
(17) The shares listed are from Schedule 13G for shares held on March 31, 1999.
The address for FMR Corp. is 82 Devonshire Street, Boston, Massachusetts
02109-3614.
36
<PAGE> 38
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Summary Compensation Table
The following table sets forth information for each of the fiscal years
ended March 31, 1998, 1997 and 1996 concerning the compensation of Compuware's
Chief Executive Officer and of each of Compuware's other five most highly
compensated executive officers whose total annual salary and bonus exceeded
$100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ----------------
---------------------- SECURITIES
FISCAL ALL OTHER UNDERLYING
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS COMPENSATION(3) OPTION AWARDS(5)
- ---------------------------- ------ ------ ----- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Peter Karmanos, Jr.(2)....... 1998 $600,000 $1,600,000 $ 0 1,280,000
Chairman of the Board and 1997 500,000 1,330,000 0 1,064,000
Chief Executive Officer 1996 636,000 0 2,657(1) 80,000
Joseph A. Nathan............. 1998 500,000 1,333,333 0 1,066,666
President and 1997 400,000 1,064,000 0 851,200
Chief Operating Officer 1996 530,000 0 2,657(1) 400,000
Stephen H. Fagan............. 1998 315,000 933,006 0 672,000
Senior Vice President 1997 300,000 798,000 0 638,400
Professional Services 1996 350,000 0 1,550(1) 220,000
W. James Prowse(4)........... 1998 350,000 466,667 0 373,334
Executive Vice President 1997 320,000 445,600 0 356,480
Corporate Marketing and 1996 320,000 0 2,657(1) 100,000
Communications
John N. Shevillo............. 1998 300,000 841,715 0 640,000
Senior Vice President 1997 300,000 798,000 0 638,400
Enterprise Solutions 1996 424,000 0 2,657(1) 160,000
Henry A. Jallos.............. 1998 330,000 880,000 0 704,000
Senior Vice President 1997 300,000 798,000 0 638,400
Worldwide Sales 1996 320,000 0 2,657(1) 240,000
</TABLE>
- -------------------------
(1) The amounts shown for 1996 represent the value of the stock allocation,
valued at $2,657 under the provisions of the Compuware Employee Stock
Ownership Plan (ESOP), a qualified contribution plan open to all Compuware
employees after the completion of one year of service. Each executive
officer, excluding Mr. Fagan, received an allocation of 924.32 common shares
on March 31, 1996. Mr. Fagan received an allocation of 539.20 common shares
on March 31, 1996 valued at $1,550. The amount shown is based on the closing
price of Compuware's Common Stock on The Nasdaq Stock Market, Inc. in 1996
of $2.875. The numbers of common shares allocated to the executive officers
and the closing price of the Common Stock have been adjusted to reflect the
2-for-1 stock split effective February 25, 1999.
(2) In fiscal 1998, 1997 and 1996, Compuware paid premiums of approximately
$185,000 in each year in connection with a split dollar life insurance
arrangement maintained on the life of Mr. Karmanos. In connection with that
arrangement, the insurance premiums paid with respect to term life insurance
and a portion of the whole life insurance were paid by Mr. Karmanos's
37
<PAGE> 39
children or trusts for their benefit. The premiums paid by Compuware will be
repaid to it upon the earliest to occur of Mr. Karmanos's death or retirement,
the cancellation of the policies or the transfer of the policies to Mr.
Karmanos's children or trusts for their benefit. It is currently
anticipated that such premiums will be repaid to Compuware in approximately
5 years, when the policies, if still outstanding, will be transferred to
Mr. Karmanos's children or trusts for their benefit. At that time, the cash
surrender value of the policies is expected to be equal to the aggregate
premiums to be repaid to Compuware.
(3) The executive officers elected not to receive an ESOP allocation for fiscal
1998 or 1997.
(4) Mr. Prowse retired from the Company on March 31, 1999, although he continues
to serve as a director.
(5) Adjusted to reflect the 2-for-1 stock split effective March 1, 1999.
Option Grants in Last Fiscal Year
The following table sets forth information concerning the number of options
granted, exercise price and potential realized value at assumed annual rates of
stock price appreciation for the option term for grants to each of the executive
officers named in the Summary Compensation Table for the year ended March 31,
1998. The information presented below reflects the executive stock option grant
covering 7,288,794 shares on April 1, 1998 pursuant to the fiscal 1998 executive
bonus plan. The information is also adjusted to reflect the 2-for-1 stock split
effective March 1, 1999.
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZED VALUE
AT ASSUMED ANNUAL RATES
PERCENTAGE OF OF STOCK PRICE
TOTAL OPTIONS APPRECIATION
GRANTED TO FOR OPTION TERM
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION -------------------------
NAME GRANTED FISCAL 1998 PRICE DATE 5% ($) 10% ($)
---- ------- ------------- -------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Peter Karmanos, Jr.......... 1,280,000 7.18% $24.563 4/1/08 19,772,447 50,107,262
Joseph A. Nathan............ 1,066,666 5.98 24.563 4/1/08 16,477,028 41,756,026
W. James Prowse............. 373,334 2.09 24.563 4/1/08 5,766,974 14,614,644
John N. Shevillo............ 640,000 3.59 24.563 4/1/08 9,886,223 25,053,631
Stephen H. Fagan............ 672,000 3.77 24.563 4/1/08 10,380,534 26,306,313
Henry A. Jallos............. 704,000 3.95 24.563 4/1/08 10,874,845 27,558,994
</TABLE>
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<PAGE> 40
Aggregated Option Exercises and Fiscal 1998 Option Value Table
The following table sets forth information concerning the number of options
exercised, value realized (market price less the exercise price) and the value
of unexercised in-the-money stock options held by each of the executive officers
named in the Summary Compensation Table above as of March 31, 1998:
AGGREGATED OPTION EXERCISES IN FISCAL 1998
AND OPTION VALUES AT MARCH 31, 1998
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS/SARS AT IN-THE-MONEY
MARCH 31, 1998 OPTIONS/SARS AT
(#)(2) MARCH 31, 1998 ($)
SHARES ------------------ ---------------------
ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(2) REALIZED UNEXERCISABLE UNEXERCISABLE/(1)
---- -------------- -------- ------------- -----------------
<S> <C> <C> <C> <C>
Peter Karmanos, Jr...... 1,440,000 $21,904,942 3,729,600 85,704,660
2,288,000 39,353,500
W. James Prowse......... 864,000 12,857,865 1,665,600 38,382,780
912,960 16,547,420
Joseph A. Nathan........ 480,000 6,531,225 1,801,600 40,798,400
2,502,400 46,224,800
Stephen H. Fagan........ 860,000 11,639,142 1,384,300 31,391,117
1,717,700 31,176,389
John N. Shevillo........ 390,000 5,863,926 274,800 6,243,747
1,596,800 25,886,100
Henry A. Jallos......... 144,000 2,321,665 735,600 16,750,275
1,756,800 32,036,100
</TABLE>
- -------------------------
(1) Represents the amount by which the market price of the Company's common
stock exceeded the exercise price of the outstanding options on March 31,
1998. Market price is based on the closing price on The Nasdaq Stock Market,
Inc. on that date of $24.688 (as adjusted to reflect the 2-for-1 stock split
approved by the shareholders of the Company on February 25, 1999).
(2) Adjusted to reflect the 2-for-1 stock split effective March 1, 1999.
RELATED PARTY TRANSACTIONS
George Karmanos, the brother of Peter Karmanos, Jr., owns Karmanos Printing
and Graphics, which provides certain printing services to the Company, including
the printing of Company brochures, stationery, envelopes, business cards,
invoices and other office supplies. For fiscal 1999 the Company paid $948,822 to
such company for printing costs. The costs for such printing in fiscal 1998 were
$1,045,742 and in fiscal 1997 were $759,000. The Company believes that such
printing services were provided to the Company on terms that were no less
favorable to the Company than could have been obtained from unaffiliated third
parties.
Peter Karmanos, Jr. owns 67% of the common stock of Compuware Sports
Corporation ("CSC"), which operates an amateur hockey program in southeastern
Michigan. Thomas Thewes, a director of the Company, owns 33% of the common stock
of CSC. One of CSC's teams, the Plymouth Whalers, plays in the Ontario Hockey
League and supplies players to the National Hockey League ("NHL"); the other
team, the Compuware Junior Ambassadors, plays in the North
39
<PAGE> 41
American Junior Hockey League ("NAJHL"), which primarily supplies players to
leading college hockey programs. On September 8, 1992, Compuware entered into a
one year Promotion Agreement with CSC to promote and sponsor Compuware's
business ("Promotion Agreement"). The Promotion Agreement with CSC automatically
renews for successive one year terms, unless terminated with 60 days prior
notice by either party.
The CSC teams play their home games at the Compuware Arena in Plymouth,
Michigan. The Compuware Arena is owned and managed by entities controlled by
interests of Peter Karmanos, Jr. and interests of Thomas Thewes. On December 1,
1996, Compuware entered into an Advertising Agreement with the Arena to promote
and sponsor Compuware's business, including but not limited to the right for the
Arena to be named "Compuware Arena" and the placement of fixed advertising in
and about the Arena. The Advertising Agreement will terminate by its terms on
November 30, 2016. Pursuant to the Promotion and Advertising Agreements, the
Company paid an aggregate of $1,235,000 in fiscal 1999 and $1,065,000 in fiscal
1998. In fiscal 1997, the Company paid $600,000 pursuant to the Promotion
Agreement.
Peter Karmanos, Jr. and Thomas Thewes, both directors of the Company, are
the major stockholders of the Carolina Hurricanes Hockey Club of the National
Hockey League. Prior to the Club's relocation to North Carolina in 1997, the
Club was known as the Hartford Whalers Hockey Club. The Company recognized
approximately $286,000 in revenues for computer programming services to the Club
in 1997.
Bernard M. Goldsmith, a director of the Company, is the managing director
of The Updata Group, Inc. ("Updata"). Updata received approximately $295,000
from the Company upon the completion of the acquisition in May 1996 of Adams &
Reynolds & Company for services rendered to the Company in connection with the
acquisition.
The Company, pursuant to a Promissory Note, dated April 8, 1999, provided a
loan in the amount of $3,000,000 to Peter Karmanos, Jr. As provided in the
Promissory Note, the loan is payable in full on or before June 30, 1999, and is
subject to annual interest at the Applicable Federal Rate (4.99%).
The Company, pursuant to a Promissory Note dated March 18, 1999, provided a
secured loan in the amount of $1,384,685 to Eliot Stark, Executive Vice
President. As provided in the Promissory Note, the loan is payable in full on or
before March 17, 2000, is subject to the annual accrual of interest at the
Applicable Federal Rate (4.67%), compounded monthly, and becomes immediately due
and payable should Mr. Stark's employment terminate with the Company for any
reason prior to the loan being paid in full.
G. Scott Romney, a director of the Company, is a partner in the law firm of
Honigman Miller Schwartz and Cohn ("Honigman"). Honigman was engaged by the
Company to perform legal services in fiscal 1999, and it is anticipated that
Honigman will continue to be so engaged in fiscal 2000.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 1,600,000,000 shares of
Common Stock, $.01 par value per share, and 5,000,000 shares of Class A
Preferred Stock
The following summary of certain provisions of each class of the Company's
capital stock does not purport to be complete and is subject to, and qualified
in its entirety by, the provisions of the
40
<PAGE> 42
Company's Restated Articles of Incorporation, which is included as an exhibit to
the Registration Statement of which this Prospectus forms a part, and by
provisions of applicable law.
COMMON STOCK
The Common Stock is entitled to one vote for each share held of record on
all matters submitted to a vote of shareholders. The holders of Common Stock are
not entitled to cumulative voting rights with respect to the election of
directors, and as a consequence, minority shareholders will not be able to elect
directors on the basis of their votes alone. Subject to preferences that may be
applicable to any then outstanding Preferred Stock, holders of Common Stock are
entitled to receive ratably such dividends as may be declared by the Board of
Directors out of funds legally available therefor. See "Dividend Policy." In the
event of a liquidation, dissolution or winding up of the Company, holders of
Common Stock have no preemptive rights and no right to convert their Common
Stock into any other securities, except as indicated above. There are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are, and all shares of Common Stock to be
outstanding upon completion of this offering will be, validly issued, fully paid
and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
shareholders, to issue up to 5,000,000 shares of Class A Preferred Stock in one
or more series, and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, conversion rights, voting rights, rights and
terms of redemption, liquidation preferences and sinking fund terms. The
issuance of Class A Preferred Stock may have the effect of delaying, deferring
or preventing a change in control of the Company without any further action by
the shareholders. The Board of Directors, without shareholder approval, can
issue Class A Preferred Stock, with voting and conversion rights which could
adversely affect the voting power of the holders of Common Stock. In addition,
such Class A Preferred Stock may have other rights, including economic rights
senior to the Common Stock, and as a result, the issuance thereof could have a
material adverse effect on the market value of the Common Stock. The Company has
no present plan to issue any additional shares of Class A Preferred Stock.
MICHIGAN LAW
Chapter 7A and 7B of the Michigan Business Corporation Act may affect
attempts to acquire control of the Company. In general, under Chapter 7A,
"business combinations" (defined to include, among other transactions, certain
mergers, dispositions of assets or shares and recapitalizations) between covered
Michigan business corporations or their subsidiaries and an "interested
shareholder" (defined as the direct or indirect beneficial owner of at least 10%
of the voting power of a covered corporation's outstanding shares) can only be
consummated if approved by at least 90% of the votes of each class of the
corporation's shares entitled to vote and by at least two-thirds of such voting
shares not held by the interested shareholder or affiliates, unless five years
have elapsed after the person involved became an "interested shareholder" and
unless certain price and other conditions are satisfied. The Board of Directors
has the power to elect to be subject to Chapter 7A as to specifically identified
or unidentified interested shareholders. Upon completion of the offering, FMR
Corp. will beneficially own more than 10% of the outstanding Common Stock and,
if the Board of Directors elects to be subject to Chapter 7A, will be able to
prevent attainment of the required supermajority approval of such transactions.
See "Security Ownership of Certain Beneficial Owners and Management."
41
<PAGE> 43
In general, under Chapter 7B, an entity that acquires "Control Shares" of
the Company may vote the Control Shares on any matter only if a majority of all
shares, and of all non- "Interested Shares," of each class of shares entitled to
vote as a class, approve such voting rights. Interested Shares are shares owned
by officers of the Company, employee-directors of the Company and the entity
making the Control Share Acquisition. Control Shares are shares that when added
to shares already owned by an entity, would give the entity voting power in the
election of directors over any of the three thresholds: one-fifth, one-third and
a majority. The effect of the statute is to condition the acquisition of voting
control of a corporation on the approval of a majority of the pre-existing
disinterested shareholders. The Board of Directors may amend the bylaws before a
Control Share Acquisition occurs to provide that Chapter 7B does not apply to
the Company.
TRANSFER AGENT AND REGISTRAR
EquiServe Limited Partnership has been appointed as the transfer agent and
registrar for the Company's Common Stock.
42
<PAGE> 44
SELLING SHAREHOLDERS
The persons listed in the first column of the table below are the "Selling
Shareholders." The Selling Shareholders are the former shareholders of M.I.S.
International, Inc. a Michigan corporation ("MIS") and Simco International,
Inc., a Michigan corporation ("Simco"), both acquired by Compuware pursuant to
an Agreement and Plan of Merger, dated as of February 23, 1999 (the "Merger
Agreement"). In connection with the acquisition of MIS and Simco by Compuware,
the Selling Shareholders received an aggregate of 510,932 shares of Compuware
Common Stock for their stock in MIS and Simco. On March 1, 1999, Compuware split
its Common Stock 2 for 1. On a post-split basis, the Selling Shareholders
received an aggregate of 1,021,864 shares of Common Stock. Of the 510,932
(1,021,864 post-split) shares received by the Selling Shareholders, up to 51,092
(102,184 post-split) may be held in escrow to secure the indemnification
obligations of the Selling Shareholders as provided in the Merger Agreement.
The following table shows for each Selling Shareholder, as of the date of
this Prospectus, certain information with regard to beneficial ownership of
Common Stock of the Company:
<TABLE>
<CAPTION>
AMOUNT AND PERCENT
AMOUNT OF OF BENEFICIAL
AMOUNT OF BENEFICIAL COMMON OWNERSHIP
OWNERSHIP OF COMMON STOCK OF COMMON STOCK
NAME STOCK PRIOR TO OFFERING HEREBY OFFERED AFTER OFFERING(1)
---- ----------------------- -------------- ------------------
<S> <C> <C> <C>
Michael M. Bahn Revocable............ 421,066* 421,066 0(0%)
Trust, dated January 23, 1995
Mary C. Bahn Revocable............... 302,118* 302,118 0(0%)
Trust, dated January 23, 1995
Mary C. Bahn 1999.................... 149,340* 149,340 0(0%)
Qualified Annuity Trust
Michael J. Bahn, Jr.................. 49,780* 49,780 0(0%)
Marisa R. Bahn....................... 49,780* 49,780 0(0%)
Renee C. Phillips 1999............... 49,780* 49,780 0(0%)
Qualified Annuity Trust
</TABLE>
- -------------------------
* Represents less than 1% of outstanding Common Stock.
(1) Based on the number of shares outstanding at the date of this Prospectus;
assumes all of the shares offered hereby are sold by the Selling
Shareholders.
43
<PAGE> 45
PLAN OF DISTRIBUTION
The shares offered hereby may be sold from time to time by the Selling
Shareholders, or by pledgees, donees, transferees or other successors in
interest of the Selling Shareholders. Such sales may be made on the Nasdaq
National Market, or otherwise, at prices and on terms then prevailing or at
prices related to the then-current market prices, or in negotiated transactions
at negotiated prices. The shares may be sold by one or a combination of the
following: (a) a block trade in which the broker or dealer so engaged will
attempt to sell the shares as agent, but may position and resell a portion of
the block as principal to facilitate the transaction; (b) purchases by a broker
or dealer as principal and resale by such broker or dealer for its account
pursuant to this Prospectus; and (c) ordinary brokerage transactions and
transactions in which the broker solicits purchasers. In effecting sales,
brokers or dealers engaged by the Selling Shareholders may arrange for other
brokers or dealers to participate. Brokers or dealers will receive commissions
or discounts from Selling Shareholders in amounts to be negotiated immediately
prior to the sale. The Selling Shareholders and any broker-dealers that
participate in the distribution may be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Acts, and any commission received by
them and any profit on the resale of shares sold by them may be deemed to be
underwriting discounts and commissions.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Honigman Miller Schwartz and Cohn, Detroit, Michigan. G.
Scott Romney, a director of the Company, is also a partner of Honigman Miller
Schwartz and Cohn, Detroit, Michigan.
EXPERTS
The financial statements as of March 31, 1998 and 1997 and for each of the
three years in the period ended March 31, 1998 included in this Prospectus and
the related financial statement schedule included elsewhere in the registration
statement have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein and elsewhere in the registration
statement, and have been so included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission") relating to its business, financial position, results of
operations and other matters. Such reports and other information can be
inspected and copied at the Public Reference Section maintained by the
Commission at Room 1024 Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and its Regional Offices located at Citicorp Center, 500 West Madison
Street, 14th Floor, Suite 1400, Chicago, Illinois 60661, and 7 World Trade
Center, 13th Floor, Suite 1300 New York, New York 10048. Copies of such material
can also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such material
may also be accessed electronically by means of the Commission's home page on
the Internet at http://www.sec.gov.
44
<PAGE> 46
The Company has filed with the Commission in Washington, D.C., a
Registration Statement on Form S-1 under the Securities Act of 1933 (the
"Securities Act") with respect to the securities offered hereby. As permitted by
the rules and regulations of the Commission, this Prospectus omits certain
information contained in the Registration Statement. For further information
with respect to the Company and the securities offered hereby, reference is
hereby made to the Registration Statement and to the exhibits and schedules
filed therewith. Statements contained in this Prospectus regarding the contents
of any documents filed with, or incorporated by reference in, the Registration
Statement as exhibits are not necessarily complete, and each such statement is
qualified in all respects by reference to the copy of the applicable documents
filed with the Commission. The Registration Statement, including the exhibits
and schedules thereto, may be inspected at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of all or any part thereof may be obtained from such
office upon payment of the prescribed fees.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus, including the documents incorporated by reference in this
Prospectus, contains certain "forward-looking statements" as defined in the
Private Securities Litigation Reform Act of 1995 and information relating to us
that are based on the beliefs of our management, as well as assumptions made by
and information currently available to our management. When used in this
Prospectus, the words "estimate," "project," "believe," "anticipate," "intend,"
"expect" and similar expressions are intended to identify forward-looking
statements. Such statements reflect our current views with respect to future
events. These statements are subject to risks and uncertainties that could cause
actual results to differ materially from those contemplated in the
forward-looking statements. Many of these risks are discussed under "Risk
Factors", which begins on page 5 below. You are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date of
this Prospectus. We do not undertake any obligation to publicly release any
revisions to these forward-looking statements to reflect events or circumstances
after such date or to reflect the occurrence of unanticipated events.
45
<PAGE> 47
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of March 31, 1998 and 1997... F-3
Consolidated Statements of Income for the Years Ended March
31, 1998, 1997 and 1996................................... F-4
Consolidated Statements of Shareholders' Equity for the
Years Ended March 31, 1998, 1997 and 1996................. F-5
Consolidated Statements of Cash Flows for the Years Ended
March 31, 1998, 1997 and 1996............................. F-6
Notes to Consolidated Financial Statements for the Years
Ended March 31, 1998, 1997 and 1996....................... F-7
Unaudited Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheet as of December 31,
1998...................................................... F-23
Condensed Consolidated Statements of Income for the Nine
Months Ended December 31, 1998 and 1997................... F-24
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended December 31, 1998 and 1997................... F-25
Notes to Condensed Consolidated Financial Statements for the
Nine Months Ended December 31, 1998 and 1997.............. F-26
</TABLE>
F-1
<PAGE> 48
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of Compuware Corporation:
We have audited the accompanying consolidated balance sheets of Compuware
Corporation and subsidiaries as of March 31, 1998 and 1997, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended March 31, 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Compuware Corporation and its
subsidiaries as of March 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1998 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Detroit, Michigan
May 4, 1998 (March 1, 1999 as to the effects
of the stock split described in Note 15)
F-2
<PAGE> 49
COMPUWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF MARCH 31,
-------------------------
NOTES 1998 1997
----- ---- ----
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................ $ 206,278 $107,341
Investments.............................................. 4 54,349 26,604
Accounts receivable, less allowance for doubtful accounts
of $8,812 and $6,941.................................. 388,573 290,922
Deferred tax asset....................................... 10 14,133 9,747
Income taxes refundable.................................. 2,594 9,593
Prepaid expenses and other current assets................ 10,348 7,605
---------- --------
Total current assets.................................. 676,275 451,812
---------- --------
INVESTMENTS................................................ 4 107,721 44,465
---------- --------
PROPERTY AND EQUIPMENT, LESS ACCUMULATED DEPRECIATION AND
AMORTIZATION............................................. 5 84,494 70,578
---------- --------
CAPITALIZED SOFTWARE, LESS ACCUMULATED AMORTIZATION OF
$70,243 AND $53,933...................................... 50,455 53,355
---------- --------
OTHER:
Accounts receivable...................................... 64,282 54,637
Deferred tax asset....................................... 10 12,926 11,084
Excess of cost of investment over fair value of net
assets acquired, less accumulated amortization of
$9,835 and $5,417..................................... 2 57,607 55,700
Other assets............................................. 6 18,880 13,776
---------- --------
Total other assets.................................... 153,695 135,197
---------- --------
TOTAL ASSETS.......................................... $1,072,640 $755,407
========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable......................................... $ 19,985 $ 24,275
Accrued expenses......................................... 71,104 53,562
Accrued bonuses and commissions.......................... 42,688 30,100
Deferred revenue......................................... 180,174 164,367
---------- --------
Total current liabilities............................. 313,951 272,304
LONG-TERM DEBT............................................. 7 6,956 6,068
DEFERRED REVENUE........................................... 43,437 31,399
---------- --------
Total liabilities..................................... 364,344 309,771
SHAREHOLDERS' EQUITY:
Preferred stock, no par value -- authorized 5,000,000
shares................................................
Common stock, $.01 par value -- authorized 1,600,000,000
shares; issued and outstanding 360,341,946 and
343,727,080 shares in 1998 and 1997, respectively..... 8, 15 3,603 3,438
Additional paid-in capital............................... 8, 15 280,867 210,413
Retained earnings........................................ 427,455 232,630
Foreign currency translation adjustment.................. (3,629) (845)
---------- --------
Total shareholders' equity............................ 708,296 445,636
---------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............ $1,072,640 $755,407
========== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 50
COMPUWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------------
NOTES 1998 1997 1996
----- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
REVENUES:
Software license fees.......................... $ 467,251 $318,907 $226,690
Maintenance fees............................... 244,273 209,521 184,039
Professional services fees..................... 427,794 284,468 203,630
---------- -------- --------
Total revenues.............................. 1,139,318 812,896 614,359
---------- -------- --------
OPERATING EXPENSES:
Cost of software license fees.................. 22,874 20,881 20,146
Cost of maintenance............................ 31,203 27,278 26,867
Cost of professional services.................. 365,948 250,405 174,215
Software product development................... 54,416 44,494 42,792
Sales and marketing............................ 325,793 256,139 204,403
Administrative and general..................... 58,965 48,233 38,537
Restructuring and merger-related costs......... 2,3 3,606 10,688
Purchased research and development............. 2 3,160 21,790 24,943
---------- -------- --------
Total operating expenses.................... 865,965 669,220 542,591
---------- -------- --------
INCOME FROM OPERATIONS........................... 273,353 143,676 71,768
OTHER INCOME..................................... 17,417 5,710 7,015
---------- -------- --------
INCOME BEFORE INCOME TAXES....................... 290,770 149,386 78,783
INCOME TAX PROVISION............................. 96,826 51,950 34,541
---------- -------- --------
NET INCOME....................................... $ 193,944 $ 97,436 $ 44,242
========== ======== ========
Basic earnings per share......................... $ 0.55 $ 0.29 $ 0.13
========== ======== ========
Diluted earnings per share....................... $ 0.50 $ 0.27 $ 0.12
========== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 51
COMPUWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
------------------------------------------------------------------------------------------
FOREIGN UNREALIZED
COMMON STOCK ADDITIONAL CURRENCY LOSS ON TOTAL
-------------------- PAID-IN RETAINED TRANSLATION MARKETABLE SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT SECURITIES EQUITY
------ ------ ---------- -------- ----------- ---------- -------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT APRIL 1, 1995, AS
RESTATED (NOTES 8 AND
15)....................... 364,057,136 $3,640 $183,910 $149,257 $ 271 $(877) $336,201
Net income................ 44,242 44,242
Issuance of common
stock................... 720,000 8 1,500 1,508
Purchase of common
stock................... (23,326,400) (234) (11,735) (58,305) (70,274)
Return of Uniface escrow
shares.................. (5,429,752) (54) 54
Acquisition tax
benefits................ 3,852 3,852
Foreign currency
translation
adjustment.............. (1,287) (1,287)
Unrealized loss on
marketable securities... (88) (88)
Exercise of employee stock
options and related tax
benefit (Note 13) and
other................... 2,363,200 24 4,807 4,831
----------- ------ -------- -------- ------- ----- --------
BALANCE AT MARCH 31, 1996... 338,384,184 3,384 182,388 135,194 (1,016) (965) 318,985
Net income................ 97,436 97,436
Issuance of common
stock................... 320,000 4 2,326 2,330
Acquisition tax
benefits................ 6,603 6,603
Foreign currency
translation
adjustment.............. 171 171
Realized gain on sale of
marketable securities
(Note 4)................ 965 965
Exercise of employee stock
options and related tax
benefit (Note 13)....... 5,022,896 50 19,096 19,146
----------- ------ -------- -------- ------- ----- --------
BALANCE AT MARCH 31, 1997... 343,727,080 3,438 210,413 232,630 (845) -- 445,636
Net income................ 193,944 193,944
NuMega acquisition (Note
2)...................... 6,683,206 66 3,734 881 4,681
Issuance of common
stock................... 1,450,616 14 12,731 12,745
Acquisition tax
benefits................ 6,485 6,485
Foreign currency
translation
adjustment.............. (2,784) (2,784)
Exercise of employee stock
options and related tax
benefit (Note 13)....... 8,481,044 85 47,504 47,589
----------- ------ -------- -------- ------- ----- --------
BALANCE AT MARCH 31, 1998... 360,341,946 $3,603 $280,867 $427,455 $(3,629) $ -- $708,296
=========== ====== ======== ======== ======= ===== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 52
COMPUWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------------------------
1998 1997 1996
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income........................................ $ 193,944 $ 97,436 $ 44,242
Adjustments to reconcile net income to cash
provided by operations:
Purchased research and development.............. 3,160 21,790 24,943
Depreciation and amortization................... 36,504 31,401 21,915
Tax benefit from exercise of stock options...... 30,402 5,306 1,467
Issuance of common stock to Employee Stock
Ownership Trust.............................. 3,500 2,330 1,508
Acquisition tax benefits........................ 6,485 6,603 3,852
Deferred income taxes........................... (6,108) (4,256) (10,219)
Other........................................... 240 (290) 999
Net change in assets and liabilities, net of
effects from acquisitions:
Accounts receivable.......................... (104,702) (88,574) (57,736)
Prepaid expenses and other current assets.... (2,118) 1,361 5,153
Other assets................................. (6,255) 88 (5,898)
Accounts payable and accrued expenses........ 22,582 25,960 15,935
Deferred revenue............................. 26,206 37,797 39,000
Refundable income taxes...................... 6,765 (2,618) (6,965)
--------- --------- --------
Net cash provided by operating
activities........................... 210,605 134,334 78,196
--------- --------- --------
CASH USED IN INVESTING ACTIVITIES:
Purchase of:
Businesses...................................... (5,198) (69,083) (26,113)
Property and equipment.......................... (28,006) (23,442) (15,789)
Capitalized software............................ (13,823) (14,544) (13,647)
Minority interest in subsidiary................. (9,419)
Investments:
Proceeds from maturity.......................... 85,682 63,202 162,227
Purchases....................................... (172,865) (74,491) (95,340)
Other............................................. (246) (2,661)
--------- --------- --------
Net cash used in investing activities... (134,210) (118,604) (742)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt......................... (3,890)
Net proceeds from sale of common stock............ 9,245
Repurchase of common stock........................ (70,274)
Net proceeds from exercise of stock options....... 17,187 13,840 3,364
--------- --------- --------
Net cash provided by (used in) financing
activities........................... 22,542 13,840 (66,910)
--------- --------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS......... 98,937 29,570 10,544
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.... 107,341 77,771 67,227
--------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR.......... $ 206,278 $ 107,341 $ 77,771
========= ========= ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 53
COMPUWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business -- Compuware Corporation develops, markets and supports an
integrated set of systems software products designed to improve the productivity
of data processing professionals in application development, implementation and
maintenance. In addition, the Company's professional services division offers
business systems analysis, design, programming and implementation as well as
software conversion and systems planning and consulting. The Company's products
and services are offered worldwide across a broad spectrum of technologies,
including mainframe, mid-range and client/server platforms.
Basis of Presentation -- The consolidated financial statements include the
accounts of Compuware Corporation and its wholly owned subsidiaries after
elimination of all significant intercompany balances and transactions. The
financial statements have been prepared in conformity with generally accepted
accounting principles which require management to make estimates and assumptions
that affect the reported amounts of assets, liabilities and the disclosure of
contingencies at March 31, 1998 and 1997 and the results of operations for the
years ended March 31, 1998, 1997 and 1996. While management has based their
assumptions and estimates on the facts and circumstances known at March 31,
1998, final amounts may differ from estimates.
Revenue Recognition -- Revenue from licensing of software products is
recognized upon shipment of the products, provided that no significant
obligations remain and collection of the related receivable is deemed probable.
A portion of new license fees, generally 15%, is deferred and recognized ratably
over the initial maintenance period, generally one year. Annual product
maintenance fees are recognized as revenue ratably over the contract period.
Professional services fees are recognized in the period the services are
performed.
Cash and Cash Equivalents -- For the purpose of the statement of cash
flows, the Company considers all investments with an original maturity of three
months or less to be cash equivalents.
Investments consist of municipal obligations and marketable equity
securities. Municipal obligations are classified as held-to-maturity and carried
at amortized cost. Marketable equity securities are classified as
available-for-sale and are carried at market value. Unrealized gains and losses
on available-for-sale securities are reported as a separate component of
shareholders' equity, net of tax. Those investments that mature within one year
from the balance sheet date are classified as short-term. The amortization of
bond premiums and discounts is included in interest income.
Property and Equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the related assets.
Capitalized Software includes the costs of purchased and internally
developed software products and are stated at the lower of unamortized cost or
net realizable value. Net purchased software included in capitalized software at
March 31, 1998 and 1997 is $14,249,000 and $20,284,000, respectively. In
accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased
or Otherwise Marketed", capitalization of internally developed software products
begins when technological feasibility of the product is established. Software
product development includes all expenditures for research and development, net
of amounts capitalized. Total software development costs incurred
F-7
<PAGE> 54
COMPUWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
internally by the Company were $65,015,000, $54,292,000 and $55,705,000 in
fiscal 1998, 1997 and 1996, respectively, of which $10,599,000, $9,798,000 and
$12,913,000, respectively, were capitalized.
The amortization for both internally developed and purchased software
products is computed on a product-by-product basis. The annual amortization is
the greater of the amount computed using (a) the ratio that current gross
revenues for a product bear to the total of current and anticipated future
revenues for that product or (b) the straight-line method over the remaining
estimated economic life of the product, including the period being reported on.
Amortization begins when the product is available for general release to
customers. The amortization period for capitalized software generally
approximates five years. Capitalized software amortization is included in "Cost
of software license fees" in the Statements of Income.
Excess of Cost Over Fair Value of Net Assets Acquired ("goodwill") is being
amortized over periods ranging from 15 to 20 years using the straight-line
method.
Fair Value of Financial Instruments -- The carrying value of cash
equivalents, accounts receivable, accounts payable and long-term debt
approximated fair values due to the short-term maturities of these instruments.
Income Taxes -- The Company accounts for income taxes using the asset and
liability approach. Deferred income taxes are provided for the differences
between the tax bases of assets or liabilities and their reported amounts in the
financial statements.
Foreign Currency Translation -- The Company's foreign subsidiaries use the
local currency as the functional currency. Accordingly, assets and liabilities
in the consolidated balance sheets have been translated at the rate of exchange
at the respective balance sheet dates, and revenues and expenses have been
translated at average exchange rates prevailing during the year the transactions
occur. Translation adjustments have been excluded from the results of operations
and are reported as a separate component of shareholders' equity.
Foreign Currency Transactions and Derivatives -- Gains and losses from
foreign currency transactions are included in the determination of net income.
To offset the risk of future currency fluctuations on receivables due from
foreign subsidiaries, the Company enters into foreign exchange contracts to sell
currencies at specified rates on specific dates. Market value gains and losses
on these contracts are recognized, offsetting foreign exchange gains or losses
on foreign receivables. The Company does not use foreign exchange contracts to
hedge anticipated transactions. The net foreign currency transaction gain (loss)
was ($627,000), ($1,446,000) and $192,000 for the fiscal years ended March 31,
1998, 1997 and 1996, respectively. These amounts are included in "Sales and
marketing" in the Statements of Income.
At March 31, 1998, the Company had contracts maturing through May 1998 to
sell $45,478,000 in foreign currencies. At March 31, 1997, the Company had
contracts maturing through May 1997 to sell $51,937,000 in foreign currencies.
Earnings Per Share -- Effective in December 1997, the Company adopted SFAS
No. 128, "Earnings per Share", which replaces the presentation of primary
earnings per share ("EPS") and fully diluted EPS with presentation of basic EPS
and diluted EPS, respectively. Basic EPS is computed by dividing earnings
available to common stockholders by the weighted-average number of
F-8
<PAGE> 55
COMPUWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
common shares outstanding for the period. Similar to fully diluted EPS, diluted
EPS assumes the issuance of common stock for all potentially dilutive equivalent
shares outstanding. All prior-period EPS data have been restated. The adoption
of this new accounting standard did not have a material effect on the Company's
reported EPS amounts on a diluted basis.
Recently Issued Accounting Pronouncements -- The Financial Accounting
Standards Board issued SFAS No. 130, "Reporting Comprehensive Income", and SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information",
in June 1997. The Company is required to adopt these Statements with its fiscal
year ending March 31, 1999. The adoption of these new standards are not expected
to have a material impact on the Company's financial statements. In October
1997, the American Institute of Certified Public Accountants (AICPA) released
Statement of Position (SOP) 97-2, "Software Revenue Recognition", which
supersedes SOP 91-1, "Software Revenue Recognition". SOP 97-2 establishes
standards for recognizing revenues related to software products and related
services. The Company is required to adopt this pronouncement prospectively with
its fiscal year ending March 31, 1999. The adoption of SOP 97-2 is not expected
to have a material impact on the Company's financial statements. In March 1998,
the AICPA released SOP 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use", which establishes guidance on
accounting for the costs of computer software developed or obtained for internal
use. The Company is required to adopt this pronouncement with its fiscal year
ending March 31, 1999. The adoption of SOP 98-1 is not expected to have a
material impact on the Company's financial statements.
2. ACQUISITIONS
UnderWare, Inc. -- In March 1998, the Company acquired UnderWare, Inc., a
privately held software product company, for approximately $3,500,000 cash. The
acquisition has been accounted for as a purchase and, accordingly, assets and
liabilities acquired have been recorded at fair value as of the date of
acquisition. The amount by which the acquisition cost exceeded the fair value of
the net assets acquired was approximately $141,000 and is being amortized over a
fifteen-year period on a straight-line basis. Of the total purchase price,
$3,160,000 was allocated to in-process research and development based upon
independent valuations of the expected future cash flows, less costs to complete
the development. In accordance with SFAS No. 2, "Accounting for Research and
Development Costs", this amount was expensed as of the purchase date. The
company that provided the independent valuation for the UnderWare acquisition is
Valuation Counselors.
NuMega Technologies, Inc. -- In December 1997, the Company issued
approximately 6,682,000 shares of its common stock in exchange for all of the
outstanding common stock of NuMega Technologies, Inc. (NuMega). In addition,
options to acquire approximately 1,776,000 shares of the Company's common stock
were exchanged for all outstanding NuMega options. The merger has been accounted
for by the pooling of interests method, and accordingly, the assets and
liabilities of NuMega were combined with those of the Company at their book
value. The financial results of NuMega have been included in the accompanying
financial statements since October 1, 1997. Due to the immaterial size of NuMega
when compared with the Company, prior periods were not restated to include the
financial results of NuMega. The Company also incurred approximately $3,606,000
of special charges related to the merger and integration of NuMega. Such costs
consisted primarily of financial advisory fees and professional fees.
F-9
<PAGE> 56
COMPUWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
Vine Systems Company Ltd. -- In April 1997, the Company acquired Vine
Systems Company Ltd., a professional services firm, for approximately 3,100,000
pounds sterling (approximately $5,022,000). Of the total purchase price
approximately $566,000 was paid in cash. The Company issued notes for the
remaining $4,456,000, of which approximately $3,656,000 was repaid during fiscal
1998. The acquisition has been accounted for as a purchase and, accordingly,
assets and liabilities acquired have been recorded at fair value as of the date
of acquisition. The amount by which the acquisition cost exceeded the fair value
of the net assets acquired was approximately $4,841,000 and is being amortized
over a fifteen-year period on a straight-line basis.
During fiscal 1997, the Company completed the acquisition of certain
professional service companies for a combined total of $48,045,000 net cash
expended. The companies purchased were Technalysis ($25,061,000), Adams &
Reynolds ($12,410,000), MC Squared Incorporated ($9,212,000) and Virtual
Innovations, Inc. ($362,000). All of the acquisitions were accounted for as
purchases and, accordingly, assets and liabilities acquired have been recorded
at fair value as of their respective acquisition dates. The aggregate amount by
which the acquisition cost exceeded the fair value of the net assets acquired
was approximately $44,177,000 and is being amortized over a fifteen-year period
on a straight line basis.
The Company also acquired all of the outstanding stock of certain
privately-held software product companies for an aggregate cost of $29,637,000
during fiscal 1997. The companies purchased were Direct Technology Limited
($23,800,000) and DRD Promark, Inc. ($5,837,000). Of the total purchase price,
$23,837,000 was paid in cash and $5,800,000 in notes that are due in April 1999.
The aggregate amount by which the acquisition cost exceeded the fair value of
the net assets acquired was approximately $3,165,000 and is being amortized over
a fifteen-year period on a straight-line basis. Of the total purchase price,
$21,790,000 was allocated to in-process research and development based upon
independent valuations of the expected future cash flows, less costs to complete
the development and in accordance with SFAS No. 2 this amount was expensed as of
the purchase date. The company that provided the independent valuation for these
acquisitions is Valuation Counselors.
In September 1995, the Company acquired all non-Company owned outstanding
stock of Compuware Nordic AS (Nordic) for approximately $9,419,000. Nordic was
formerly a majority owned subsidiary which distributes the Company's products in
Norway and Denmark. The acquisition of the minority interest has been accounted
for as a purchase. The amount by which the acquisition cost exceeded the fair
value of the net assets acquired of approximately $8,592,000 is being amortized
over a fifteen-year period on a straight-line basis.
In November 1995, the Company acquired all of the outstanding stock of
CoroNet Systems, Inc. for approximately $27,000,000 in cash. The acquisition has
been accounted for as a purchase and, accordingly, assets and liabilities
acquired have been recorded at fair value as of the date of the acquisition. Of
the total purchase price, $24,943,000 was allocated to in-process development
projects based on their expected future cash flows, less costs to complete the
development, and in accordance with SFAS No. 2 this amount was expensed as of
the purchase date.
3. RESTRUCTURING COSTS
In fiscal 1996, the Company recognized $10,688,000 of special charges
related to the reorganization of the Company's operating units and the
decentralization of certain corporate office
F-10
<PAGE> 57
COMPUWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
functions. The components of the restructuring reserve, as ultimately executed,
included $5,806,000 for severance related costs for employees made redundant by
the reorganization, and $4,882,000 for estimated future leasing costs of
abandoned offices in the United States and Europe. At March 31, 1998, the costs
accrued for future lease expenses of approximately $3,286,000 are expected to be
paid over a period not to exceed the remaining lease terms, which extend through
April 2002.
4. INVESTMENTS
Municipal obligations -- The Company's municipal obligations are classified
as held-to-maturity and are carried at amortized cost. The Company will receive
the face value of these bonds at their maturity date and, accordingly, has not
recognized any gain or loss resulting from current fair value fluctuations. The
amortized cost and aggregate fair value of the debt securities, by maturity, are
as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------
1998 1997
--------------------- --------------------
LESS THAN 1-5 LESS THAN 1-5
ONE YEAR YEARS ONE YEAR YEARS
--------- ----- --------- -----
<S> <C> <C> <C> <C>
Amortized cost.................................... $54,349 $107,721 $26,604 $44,465
Aggregate fair value.............................. 54,419 107,772 26,614 44,209
------- -------- ------- -------
Difference between amortized cost and fair
value........................................... $ (70) $ (51) $ (10) $ 256
======= ======== ======= =======
</TABLE>
Marketable equity securities -- There were no marketable equity securities
held during fiscal 1998. During fiscal 1997, the Company sold securities that
had been classified as available-for-sale for approximately $6.2 million. The
gain realized during fiscal 1997 related to these sales was approximately
$905,000. The Company uses the specific identification method as a basis for
determining cost and calculating realized gains.
5. PROPERTY AND EQUIPMENT
Property and equipment, summarized by major classification, is as follows
(in thousands):
<TABLE>
<CAPTION>
MARCH 31,
--------------------
1998 1997
---- ----
<S> <C> <C>
Land........................................................ $ 1,776 $ 1,297
Buildings................................................... 28,777 26,293
Leasehold improvements...................................... 14,227 10,242
Furniture and fixtures...................................... 29,678 24,601
Computer equipment and software............................. 59,279 47,069
-------- --------
133,737 109,502
Less accumulated depreciation and amortization.............. 49,243 38,924
-------- --------
Total....................................................... $ 84,494 $ 70,578
======== ========
</TABLE>
F-11
<PAGE> 58
COMPUWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
6. RELATED PARTY TRANSACTIONS
At March 31, 1997 the Company had a $300,000 note receivable, included in
"Other assets", from a company controlled by certain shareholders of the
Company. The note was repaid in fiscal 1998.
The Company has agreed to pay 75% of the annual premiums on a life
insurance policy for the Chief Executive Officer. The Company has received a
collateral assignment of the policy and will recover the premiums advanced upon
the termination of the policy or the death of the officer. For each of the years
ended March 31, 1998 and 1997, the total premiums paid by the Company were
approximately $185,000. The aggregate amount paid of approximately $1,113,000 is
included in "Other assets".
The following items included in operations were paid to or from companies
controlled by certain officers or directors of the Company or their affiliates
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
REVENUES
Professional services fees................................ $ -- $286 $1,346
EXPENSES
Marketing and promotion................................... $1,354 $823 $ 644
Printing.................................................. 1,046 759 908
Professional services..................................... 232 618 185
</TABLE>
7. CREDIT FACILITIES AND LONG-TERM DEBT
Cash paid for interest totaled approximately $810,000, $450,000 and
$313,000 for the years ended March 31, 1998, 1997 and 1996, respectively.
Revolving Bank Credit Facility -- The Company has a revolving bank credit
facility which provides for borrowings of up to $30,000,000 through September 1,
1999. The Company is obligated for a commitment fee of .125% per annum for any
unused portion of the credit facility. The Company may choose between various
interest rate options. The revolving credit arrangement contains affirmative and
negative covenants including limitations on dividend payments, loans and
advances. The Company had no borrowings outstanding during fiscal 1998 or 1997.
Long-term debt -- The Company's long-term debt includes $6.1 million of
pound-denominated notes issued as part of the Direct Technology Limited
acquisition (see note 2 of Notes to Consolidated Financial Statements). The
notes are due April 30, 1999 and interest is paid semiannually at the six month
LIBOR rate. The Company also has approximately $800,000 of pound-denominated
notes outstanding at March 31, 1998 that were issued as part of the Vine Systems
acquisition (see note 2 of Notes to Consolidated Financial Statements). The
notes are due March 31, 2001 and interest is paid semiannually using the six
month LIBOR rate.
F-12
<PAGE> 59
COMPUWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
8. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
On April 3, 1997 the Company's shareholders approved an increase in the
Company's authorized shares of common stock from 80,000,000 to 200,000,000
shares to permit a two-for-one stock split which was previously approved by the
Board of Directors. The stock split was effected by means of a 100% stock
dividend as of April 14, 1997 to holders of record April 4, 1997. In August
1997, the Company's shareholders approved an increase in the Company's
authorized shares of common stock from 200,000,000 to 400,000,000 shares. In
October 1997, the Company's Board of Directors approved a two-for-one stock
split, payable as a 100% stock dividend to shareholders of record on October 22,
1997.
The effect of the stock splits has been retroactively reflected as of April
1, 1995. All references throughout the consolidated financial statements to
number of shares, per share amounts and stock option data have been restated to
reflect the stock splits.
9. EARNINGS PER COMMON SHARE
Earnings per common share ("EPS") data were computed as follows (in
thousands, except for per share data):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
BASIC EPS:
Numerator: Net Income..................................... $193,944 $97,436 $44,242
-------- ------- -------
Denominator:
Weighted-average common shares outstanding............. 352,274 340,770 347,516
-------- ------- -------
Basic EPS................................................. $ 0.55 $ 0.29 $ 0.13
======== ======= =======
DILUTED EPS:
Numerator: Net Income..................................... $193,944 $97,436 $44,242
-------- ------- -------
Denominator:
Weighted-average common shares outstanding............. 352,274 340,770 347,516
Dilutive effect of stock options....................... 35,152 18,970 11,434
-------- ------- -------
Total Shares........................................... 387,426 359,740 358,950
-------- ------- -------
Diluted EPS............................................... $ 0.50 $ 0.27 $ 0.12
======== ======= =======
</TABLE>
F-13
<PAGE> 60
COMPUWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
10. INCOME TAXES
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
------------------
1998 1997
---- ----
<S> <C> <C>
Deferred tax assets:
Accrued vacation.......................................... $ 2,582 $ 2,682
Purchased software........................................ 9,410 9,371
Net operating loss carryforwards.......................... 35,139 26,138
Other..................................................... 12,055 7,288
------- -------
59,186 45,479
Less: valuation allowance................................. 8,891 5,065
------- -------
Net deferred tax assets.............................. 50,295 40,414
Current portion........................................... 14,512 10,267
------- -------
Long-term portion......................................... $35,783 $30,147
======= =======
Deferred tax liabilities:
Capitalized research and development costs................ $ 9,605 $10,576
Purchased software........................................ 2,565 3,373
Other..................................................... 11,066 5,634
------- -------
Total deferred tax liabilities....................... 23,236 19,583
Current portion........................................... 379 520
------- -------
Long-term portion......................................... $22,857 $19,063
======= =======
</TABLE>
The income tax provision (benefit) includes the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current:
Federal................................................. $ 96,629 $ 46,073 $ 41,354
Foreign................................................. 4,316 6,506 952
State................................................... 5,800 4,500 3,000
-------- -------- --------
Total current tax provision............................... 106,745 57,079 45,306
-------- -------- --------
Deferred:
Federal................................................. 1,309 6,050 (382)
Foreign................................................. (11,228) (11,179) (10,383)
-------- -------- --------
Total deferred tax benefit................................ (9,919) (5,129) (10,765)
-------- -------- --------
Total income tax provision................................ $ 96,826 $ 51,950 $ 34,541
======== ======== ========
</TABLE>
F-14
<PAGE> 61
COMPUWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
The Company's income tax expense differed from the amount computed on
pre-tax income at the U.S. federal income tax rate of 35% for the following
reasons (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Federal income tax at statutory rates....................... $101,769 $52,285 $27,574
Increase (decrease) in taxes:
Items related to acquisitions............................. 1,792 9,332
Foreign Sales Corporation subsidiary...................... (6,462) (4,638) (3,190)
Research and development credit........................... (1,700) (1,300) (325)
Other, net................................................ 3,219 3,811 1,150
-------- ------- -------
Provision for income taxes.................................. $ 96,826 $51,950 $34,541
======== ======= =======
</TABLE>
At March 31, 1998 the Company has net operating loss carryforwards for
income tax purposes of approximately $101,173,000 which expire as follows (in
thousands):
<TABLE>
<S> <C>
Year ending March 31:
1999............................................. $ 480
2000............................................. 5,737
2001............................................. 2,238
2002............................................. 6,787
2003............................................. 13,908
2004............................................. 2,430
2005............................................. 2,035
2008............................................. 898
2010............................................. 919
2011............................................. 274
Unlimited carryforward............................. 65,467
</TABLE>
Of this amount, approximately $4,511,000 is available to offset U.S.
federal income taxes and approximately $96,662,000 relates to various foreign
jurisdictions. In addition, approximately $921,000 of tax credits expiring
through the year 2002 are available to offset future U.S. federal income tax
liabilities.
Cash paid for income taxes totaled approximately $55,481,000, $46,760,000
and $45,414,000 for the years ended March 31, 1998, 1997 and 1996, respectively.
F-15
<PAGE> 62
COMPUWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
11. GEOGRAPHIC SEGMENT INFORMATION
Revenues and income (loss) for each of the three years in the period ended
March 31, 1998 and identifiable assets at March 31, 1998, 1997 and 1996 are as
follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenue:
North America.......................................... $ 825,989 $559,058 $405,603
European subsidiaries.................................. 217,478 180,095 150,656
Other international operations......................... 95,851 73,743 58,100
---------- -------- --------
Total revenue..................................... $1,139,318 $812,896 $614,359
========== ======== ========
Income (loss) before taxes:
North America(1)....................................... $ 309,602 $174,643 $107,486
European subsidiaries.................................. (13,733) (19,985) (22,203)
Other international operations......................... (5,099) (5,272) (6,500)
---------- -------- --------
Total income before taxes(2)...................... $ 290,770 $149,386 $ 78,783
========== ======== ========
Identifiable assets:
North America.......................................... $ 837,568 $568,458 $404,463
European subsidiaries.................................. 176,107 139,307 122,448
Other international operations......................... 58,965 47,642 28,815
---------- -------- --------
Total assets...................................... $1,072,640 $755,407 $555,726
========== ======== ========
</TABLE>
- -------------------------
(1) Includes net intercompany royalty income of approximately $114,973,000,
$87,548,000 and $71,105,000 for the years ended March 31, 1998, 1997 and
1996, respectively. The income (loss) from foreign subsidiaries reflects the
corresponding net royalty expense.
(2) Income before taxes also includes $6,766,000, $21,790,000 and $35,631,000 of
special charges for the years ended March 31, 1998, 1997 and 1996,
respectively. Exclusive of these charges, income (loss) before taxes is as
follows:
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income (loss) before special charges and
taxes:
North America............................. $316,368 $196,433 $139,964
European subsidiaries..................... (13,733) (19,985) (19,284)
Other international operations............ (5,099) (5,272) (6,266)
-------- -------- --------
Total income before special charges
and taxes......................... $297,536 $171,176 $114,414
======== ======== ========
</TABLE>
12. COMMITMENTS AND CONTINGENCIES
Leases -- The Company leases building and office space and computer
equipment under various operating lease agreements extending through fiscal
2005. Certain of these leases contain provisions
F-16
<PAGE> 63
COMPUWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
for renewal options and escalation clauses. The following is a schedule of
future minimum rental payments for the next five years (in thousands):
<TABLE>
<S> <C>
Year ending March 31:
1999............................................. $23,710
2000............................................. 19,134
2001............................................. 14,230
2002............................................. 10,525
2003............................................. 7,241
Thereafter....................................... 8,503
-------
Total....................................... $83,343
=======
</TABLE>
Lease expense for the years ended March 31, 1998, 1997 and 1996 under all
operating leases amounted to approximately $19,193,000, $16,815,000 and
$10,078,000, respectively.
Employment Contracts -- The Company has entered into employment agreements
with certain key employees that include noncompete provisions in exchange for
specified terms of employment.
13. BENEFIT PLANS
Employee Stock Ownership Plan -- In July 1986, the Company established an
Employee Stock Ownership Plan (ESOP) and Trust. Under the terms of the ESOP, the
Company makes annual contributions to the Plan for the benefit of substantially
all employees of the Company. The contribution may be in the form of cash or
common shares of the Company. The Board of Directors may authorize contributions
between a maximum of 25% of eligible compensation and a minimum sufficient to
cover current obligations of the Plan. The Company made contributions of
$3,500,000, $2,330,000 and $1,508,000 in fiscal 1998, 1997 and 1996,
respectively. The provisions of SFAS No. 123 do not apply to the Employee Stock
Ownership Plan. This is a non-leveraged ESOP plan.
Employee Stock Purchase Plan -- During fiscal 1997, the Company adopted the
Global Employee Stock Purchase Plan (GESPP) under which the Company is
authorized to issue up to eight million shares of common stock to eligible
employees. Each offering period is limited to six months and a maximum number of
1,000,000 common shares. The Company's first offering period began January 1,
1997. Under the terms of the plan, employees elect to have up to 10 percent of
their annual earnings withheld to purchase Company stock, with a value not to
exceed $25,000, at the close of the offering period. The purchase price is 85
percent of the first or last day's closing market price for each offering
period, whichever is lower. During fiscal 1998, the Company sold approximately
1,250,258 shares to eligible employees.
NuMega Technologies, Inc. 1996 Stock Option Plan -- In connection with the
NuMega acquisition (see note 2 of Notes to Consolidated Financial Statements),
options to acquire approximately 1,775,662 shares of the Company's common stock
were exchanged for all outstanding NuMega incentive and nonqualified stock
options, of which 1,040,462 were outstanding at March 31, 1998. The option
prices range from $1.32 to $11.83 and expire in 10 years.
1998 Employee Stock Option Plan -- In August 1997, the Company adopted the
Fiscal 1998 Stock Option Plan. The plan provides for grants of options to
purchase up to 16,000,000 shares of the
F-17
<PAGE> 64
COMPUWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
Company's common stock to employees of the Company, of which 6,071,248 were
outstanding at March 31, 1998. Under the terms of the plan, the Company may
grant nonqualified options at the fair market value of the stock on the date of
grant. During fiscal 1998, the Company granted 6,841,640 options under the 1998
Employee Stock Option Plan.
1996 Employee Stock Option Plan -- In August 1995, the Company adopted the
1996 Employee Stock Option Plan. The plan provides for grants of options to
purchase up to 28,600,000 shares of the Company's common stock to employees of
the Company, of which 26,372,104 were outstanding at March 31, 1998. Under the
terms of the plan, the Company may grant nonqualified options at the fair market
value of the stock on the date of grant. During fiscal 1998, the Company granted
3,548,272 options under the 1996 Employee Stock Option Plan.
1993 Employee Stock Option Plan -- In November 1992, the Company adopted
the 1993 Employee Stock Option Plan. The plan provides for grants of options to
purchase up to 21,600,000 shares of the Company's common stock to officers and
key employees of the Company, of which 9,322,182 non qualified options were
outstanding at March 31, 1998. Under the terms of the plan, the Company may
grant incentive stock options at the fair market value of the stock on the date
of grant or nonqualified stock options at a price not less than 50% of fair
market value or $1.00 per share. The plan also provides for stock appreciation
rights which may be granted independently, or in conjunction with any stock
option granted under the plan. Stock options and appreciation rights expire 10
years from the date of grant. In addition, the Company may award shares of
restricted stock to participants subject to the terms and conditions specified
at the time of the award. During fiscal 1998, the Company granted 54,000
nonqualified options under the 1993 Employee Stock Option Plan.
1992 Employee Stock Option Plan -- The 1992 Employee Stock Option Plan
provides for grants of options to purchase shares of common stock to officers
and key employees of the Company. Under this plan, up to 16,800,000 shares of
common stock may be granted to officers and key employees. The provisions of the
plan are identical to the Company's 1993 Employee Stock Option Plan. During
fiscal 1998, the Company granted 56,400 nonqualified options under the 1992
Employee Stock Option Plan of which 7,416,284 were outstanding at March 31,
1998.
Non-Employee Director Stock Option Plan -- In July 1992, the Company
adopted the Stock Option Plan for Non-Employee Directors. Under this plan,
2,400,000 shares of common stock are reserved for issuance to non-employee
directors of the Company who have not been employees of the Company, any
subsidiary of the Company or any entity which controls more than 10% of the
total combined voting power of the Company's capital stock for at least one year
prior to becoming director. In June 1995, the Compensation Committee amended the
provisions of this plan to provide for the one-time grant of 20,000 option
shares to each new non-employee director in addition to an annual grant of 5,000
option shares to each non-employee director. During fiscal 1998, 400,000 options
were granted under the Non-Employee Director Stock Option Plan of which
1,480,000 options were outstanding at March 31, 1998.
Options generally vest in cumulative annual installments over a three to
five year period. All options were granted at fair market value and expire 10
years from the date of grant.
At March 31, 1998, a total of 399,108 options were outstanding under plans
that were terminated by the Company, of which 354,264 are fully vested. All
outstanding options under the terminated plans remain in effect in accordance
with the terms under which they were granted.
F-18
<PAGE> 65
COMPUWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its plans. Accordingly, no compensation cost has been recognized
for its fixed stock option plans and its stock purchase plan.
If compensation cost for the Company's stock-based compensation plans had
been determined based on the fair value at the grant dates for fiscal 1998, 1997
and 1996 consistent with the method prescribed by SFAS No. 123, Compuware's net
earnings and earnings per share would have been adjusted to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net Earnings
As reported............................................... $193,944 $97,436 $44,242
Pro forma................................................. 172,394 85,319 37,565
Earnings per Share
As reported:
Basic earnings per share............................... 0.55 0.29 0.13
Diluted earnings per share............................. 0.50 0.27 0.12
Pro forma:
Basic earnings per share............................... 0.49 0.25 0.11
Diluted earnings per share............................. 0.44 0.24 0.10
</TABLE>
The pro forma amounts for compensation cost may not be indicative of the
effects on net earnings and earnings per share for future years.
Under SFAS No. 123, the fair value of each option grant is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions for grants in 1998, 1997 and 1996, respectively:
expected volatility of 51.50, 55.22 and 64.73 percent; risk-free interest rates
of 5.7, 6.6 and 6.6 percent; and expected lives at date of grant of 4.9, 4.3 and
4.8 years. Dividend yields were not a factor as the Company has never issued
cash dividends and has no plans to do so in the future.
Under SFAS No. 123, the fair value of the employees' purchase rights were
estimated using the Black-Scholes model with assumptions that, except for an
expected life of six months and a risk-free interest rate of 5.26 percent for
fiscal 1998, were consistent with those used for the Company's stock purchase
plans described above. The weighted average fair value of those purchase rights
granted in fiscal 1998 were $2.47.
F-19
<PAGE> 66
COMPUWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
A summary of the status of fixed stock option grants under Compuware's
stock-based compensation plans as of March 31, 1998, 1997 and 1996, and changes
during the years ending on those dates is as follows (shares in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
------------------------- ------------------------- -------------------------
SHARES SHARES SHARES
UNDER WEIGHTED-AVERAGE UNDER WEIGHTED-AVERAGE UNDER WEIGHTED-AVERAGE
OPTION EXERCISE PRICE OPTION EXERCISE PRICE OPTION EXERCISE PRICE
------ ---------------- ------ ---------------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of
year............... 50,636 $ 3.83 40,416 $2.31 29,156 $1.97
NuMega acquisition... 1,776 1.66
Granted.............. 10,540 14.90 17,696 6.90 16,054 2.87
Exercised............ (8,482) 2.07 (5,022) 2.75 (2,364) 1.21
Forfeited............ (2,368) 7.43 (2,454) 2.74 (2,430) 2.92
------ ------ ------
Outstanding at end of
year............... 52,102 $ 6.13 50,636 $3.83 40,416 $2.31
====== ====== ======
Options exercisable
at year end..... 17,090 $ 2.71 21,290 $2.02 20,452 $1.80
====== ====== ======
Weighted-average fair
value of options
granted during the
year............... $ 7.58 $ 3.68 $ 1.74
====== ====== ======
</TABLE>
The following table summarizes information about fixed stock options
outstanding at March 31, 1998 (shares in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------- -------------------------
SHARES SHARES
UNDER WEIGHTED-AVERAGE WEIGHTED-AVERAGE UNDER WEIGHTED-AVERAGE
OPTION REMAINING LIFE EXERCISE PRICE OPTION EXERCISE PRICE
------ ---------------- ---------------- ------ ----------------
<S> <C> <C> <C> <C> <C>
Range of Exercise Prices
$ 0.05 to $ 4.50........ 28,018 6.12 $ 2.35 15,616 $ 2.02
4.51 to 9.00........ 14,728 8.83 7.53 972 6.60
9.01 to 13.50........ 174 9.22 11.65 10 11.25
13.51 to 18.50........ 8,690 9.49 15.04 392 16.06
18.51 to 22.50........ 492 9.80 20.50 100 19.00
------ ------
52,102 7.49 6.13 17,090 2.71
====== ======
</TABLE>
The maximum number of shares for which additional options may be granted
was 13,401,204 at March 31, 1998, 5,440,736 at March 31,1997 and 20,695,248 at
March 31, 1996. At March 31, 1998, a total of 65,502,592 shares of the Company's
common stock are reserved for issuance under all option plans. Income tax
benefits associated with the exercise of stock options are reflected as
adjustments to additional paid-in capital.
F-20
<PAGE> 67
COMPUWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for the years ended March 31, 1998 and 1997
is as follows (in thousands, except for per share data):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- ----
<S> <C> <C> <C> <C> <C>
Fiscal 1998:
Revenues........................... $224,478 $247,381 $309,635 $357,824 $1,139,318
Operating income................... 39,998 49,804 77,915 105,636 273,353
Pre-tax income..................... 42,387 51,949 81,665 114,769 290,770
Net Income(1)...................... 28,272 34,650 54,471 76,551 193,944
Basic earnings per share(1)........ 0.08 0.10 0.15 0.21 0.55
Diluted earnings per share(1)...... 0.08 0.09 0.14 0.19 0.50
Fiscal 1997:
Revenues........................... $162,338 $184,266 $213,713 $252,579 $ 812,896
Operating income................... 3,651 25,646 47,020 67,359 143,676
Pre-tax income..................... 4,883 26,694 48,345 69,464 149,386
Net income(2)...................... 3,257 16,100 32,246 45,833 97,436
Basic earnings per share(2)........ 0.01 0.05 0.09 0.13 0.29
Diluted earnings per share(2)...... 0.01 0.05 0.09 0.13 0.27
</TABLE>
- -------------------------
(1) In fiscal 1998, the Company incurred special pre-tax charges totaling
$3,606,000 and $3,160,000 in the third and fourth quarters, respectively.
The charges include $3,606,000 for merger-related costs and $3,160,000 for
purchased research and development, expensed in connection with the NuMega
and UnderWare acquisitions, respectively (Note 2). Excluding these charges,
in fiscal 1998 net income was $56,876,000 and $78,659,000 for the third and
fourth quarters, respectively, basic earnings per share was $0.16 and $0.22,
and diluted earnings per share was $0.14 and $0.20 for the third and fourth
quarters, respectively. For the year ended March 31, 1998, net income and
earnings per share, excluding special charges, was $198,457,000 and $0.56
per share -- basic and $0.51 per share -- diluted.
(2) In fiscal 1997, the Company incurred special pre-tax charges totaling
$16,670,000 and $5,120,000 in the first and second quarters, respectively.
The charges include $16,670,000 and $5,120,000 for purchased research and
development expensed in connection with the Direct Technology and DRD
Promark acquisitions, respectively (Note 2). Excluding these charges, in
fiscal 1997 net income was $14,376,000 and $21,220,000 for the first and
second quarters, respectively, basic earnings per share was $0.04 and $0.06,
and diluted earnings per share was $0.04 and $0.06 for the first and second
quarters, respectively. For the year ended March 31, 1997, net income and
earnings per share, excluding special charges, was $113,675,000 and $0.33
per share -- basic and $0.32 per share -- diluted.
15. SUBSEQUENT EVENTS
On February 25, 1999, the Company's shareholders approved an increase in
the Company's authorized shares of common stock from 400,000,000 to
1,600,000,000 shares to permit a two for one
F-21
<PAGE> 68
COMPUWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
stock split which was previously approved by the Board of Directors. The stock
split was effected by means of a 100% stock dividend as of March 1, 1999 to
holders of record on January 26, 1999.
The effect of the stock split has been retroactively reflected and all
references throughout the consolidated financial statements to number of shares,
per share amounts, and stock option data have been restated to reflect the stock
split.
F-22
<PAGE> 69
COMPUWARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
(UNAUDITED)
(IN
THOUSANDS)
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................... $ 157,064
Investments................................................. 351,997
Accounts receivable, net.................................... 437,858
Deferred tax asset.......................................... 16,155
Income taxes refundable.....................................
Prepaid expenses and other current assets................... 18,816
----------
Total current assets................................... 981,890
----------
INVESTMENTS................................................. 174,379
----------
PROPERTY AND EQUIPMENT, LESS ACCUMULATED DEPRECIATION AND
AMORTIZATION.............................................. 92,245
----------
CAPITALIZED SOFTWARE, LESS ACCUMULATED AMORTIZATION......... 50,476
----------
OTHER:
Accounts receivable......................................... 123,870
Deferred tax asset.......................................... 10,438
Excess of cost over fair value of net assets acquired, less
accumulated amortization.................................. 58,885
Other....................................................... 16,007
----------
Total other assets..................................... 209,200
----------
TOTAL ASSETS................................................ $1,508,190
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................................ $ 20,737
Accrued expenses............................................ 149,213
Income taxes payable........................................ 22,474
Deferred revenue............................................ 222,633
----------
Total current liabilities.............................. 415,057
----------
DEFERRED REVENUE............................................ 54,308
LONG TERM DEBT.............................................. 3,719
----------
Total liabilities...................................... 473,084
----------
SHAREHOLDERS' EQUITY:
Common stock................................................ 3,700
Additional paid-in capital.................................. 381,332
Retained earnings........................................... 653,350
Foreign currency translation adjustment..................... (3,276)
----------
Total shareholders' equity............................. 1,035,106
----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $1,508,190
==========
</TABLE>
See notes to condensed consolidated financial statements.
F-23
<PAGE> 70
COMPUWARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
----------------------
1998 1997
---- ----
(UNAUDITED)
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
REVENUES:
Software license fees....................................... $ 450,986 $298,845
Maintenance fees............................................ 242,158 176,986
Professional services fees.................................. 445,166 305,663
---------- --------
Total revenues......................................... 1,138,310 781,494
---------- --------
OPERATING EXPENSES:
Cost of software license fees............................... 20,892 15,966
Cost of maintenance......................................... 27,761 22,715
Cost of professional services............................... 363,767 263,102
Software product development................................ 48,121 42,144
Sales and marketing......................................... 298,594 223,543
Administrative and general.................................. 52,888 42,701
Purchased research and development.......................... 4,350
Merger-related costs........................................ 3,606
---------- --------
Total operating expenses............................... 816,373 613,777
---------- --------
INCOME FROM OPERATIONS...................................... 321,937 167,717
OTHER INCOME................................................ 20,274 8,284
---------- --------
INCOME BEFORE INCOME TAXES.................................. 342,211 176,001
INCOME TAX PROVISION........................................ 116,316 58,608
---------- --------
NET INCOME.................................................. $ 225,895 $117,393
========== ========
Basic earnings per share.................................... $ 0.62 $ 0.34
========== ========
Diluted earnings per share.................................. $ 0.56 $ 0.31
========== ========
</TABLE>
See notes to condensed consolidated financial statements.
F-24
<PAGE> 71
COMPUWARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
--------------------
1998 1997
---- ----
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $225,895 $117,393
Adjustments to reconcile net income to cash provided by
operations:
Depreciation and amortization............................... 30,661 26,864
Tax benefit from exercise of stock options.................. 77,102 27,481
Deferred income taxes....................................... 466 (487)
Other....................................................... 731 (471)
Net change in assets and liabilities, net of effects from
acquisitions:
Accounts receivable......................................... (108,873) (65,340)
Prepaid expenses and other current assets................... (8,468) (1,506)
Other assets................................................ 2,453 (771)
Accounts payable and accrued expenses....................... 36,173 9,312
Deferred revenue............................................ 53,330 1,825
Income taxes................................................ 25,068 (10,433)
-------- --------
Net cash provided by operating activities.............. 334,538 103,867
-------- --------
CASH USED IN INVESTING ACTIVITIES:
Purchase of:
Businesses................................................ (4,624) (709)
Property and equipment.................................... (19,304) (21,670)
Capitalized software...................................... (12,946) (10,686)
Investments:
Proceeds from maturity.................................... 217,479 53,465
Purchases................................................. (585,038) (134,230)
-------- --------
Net cash used in investing activities (404,433) (113,830)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from exercise of stock options................. 13,948 14,871
Net proceeds from sale of common stock...................... 9,512 3,710
Payment of long term debt................................... (2,779) (3,890)
-------- --------
Net cash provided by financing activities.............. 20,681 14,691
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (49,214) 4,728
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 206,278 107,341
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $157,064 $112,069
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
F-25
<PAGE> 72
COMPUWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED DECEMBER 31, 1998
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of Compuware Corporation and its wholly owned subsidiaries
(collectively, the "Company"). All intercompany balances and transactions have
been eliminated in consolidation.
In the opinion of management of the Company, the accompanying condensed
consolidated financial statements reflect all adjustments, consisting only of
normal recurring adjustments, that are necessary for a fair presentation of the
results for the interim periods presented. These financial statements should be
read in conjunction with the Company's audited consolidated financial statements
and notes thereto for the year ended March 31, 1998 included in the Company's
Annual Report to Shareholders and the Company's Form 10-K filed with the
Securities and Exchange Commission.
NOTE 2 -- COMPUTATION OF EARNINGS PER COMMON SHARE
Earnings per common share ("EPS") data were computed as follows (in
thousands, except for per share data):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
--------------------
1998 1997
---- ----
<S> <C> <C>
BASIC EPS:
Numerator: Net Income....................................... $225,895 $117,393
-------- --------
Denominator: Weighted-average common shares outstanding..... 365,212 349,906
-------- --------
Basic EPS................................................... $ 0.62 $ 0.34
======== ========
DILUTED EPS:
Numerator: Net Income....................................... $225,895 $117,393
-------- --------
Denominator: Weighted-average common shares outstanding..... 365,212 349,906
Dilutive effect of stock options............................ 36,264 34,410
-------- --------
Total shares................................................ 401,476 384,316
-------- --------
Diluted EPS................................................. $ 0.56 $ 0.31
======== ========
</TABLE>
NOTE 3 -- COMPREHENSIVE INCOME
Effective April 1, 1998, Compuware adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("Statement
130"). Statement 130 establishes standards for reporting and presenting
comprehensive income and its components in consolidated financial statements.
Comprehensive income is defined as net income plus the change in equity of a
business enterprise during a period from transactions and other events and
circumstances from nonowner sources. For the nine-month period ended December
31, 1998 and 1997, Compuware had
F-26
<PAGE> 73
COMPUWARE CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NINE MONTHS ENDED DECEMBER 31, 1998
other comprehensive income resulting from foreign currency translation
adjustments. Comprehensive income for the nine-month period ended December 31,
1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
----------------------
1998 1997
---- ----
<S> <C> <C>
Net income.................................................. $225,895 $117,393
Foreign currency translation adjustment, net of tax......... 233 (1,672)
-------- --------
Total comprehensive income........................... $226,128 $115,721
======== ========
</TABLE>
NOTE 4 -- ACQUISITIONS
In December 1998, the Company acquired certain software products from
Cardume Software Ltd. for $2,250,000 in cash and notes payable that are due
within one year. Of the total purchase price, $1,400,000 was allocated to
in-process research and development and in accordance with SFAS No. 2, this
amount was expensed as of the purchase date.
In October 1998, the Company acquired certain software products from Vireo
Software Inc., for $4,100,000 in cash and notes payable that are due within one
year. Of the total purchase price, $200,000 was allocated to in-process research
and development and in accordance with SFAS No. 2, this amount was expensed as
of the purchase date.
In July 1998, the Company acquired certain software products from
Centerline Software, Inc. for approximately $2,900,000 in cash and notes payable
that are due within one year. Of the total purchase price, $2,750,000 was
allocated to in-process research and development and in accordance with SFAS No.
2, this amount was expensed as of the purchase date.
NOTE 5 -- SUBSEQUENT EVENTS
On February 25, 1999, the Company's shareholders approved an increase in
the Company's authorized shares of Common Stock from 400,000,000 to
1,600,000,000 shares to permit a two for one stock split which was previously
approved by the Board of Directors. The stock split was effected by means of a
100% stock dividend as of March 1, 1999 to holders of record January 26, 1999.
The effect of the stock split has been retroactively reflected and all
references throughout the condensed consolidated financial statements to number
of shares and per share amounts have been restated to reflect the stock split.
F-27
<PAGE> 74
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS.
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the Registrant's expenses in connection with
the issuance and distribution of the securities being registered.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 5,389
Legal Fees and Expenses..................................... 25,000
Accounting Fees and Expenses................................ 28,000
Printing.................................................... 32,000
Miscellaneous............................................... 4,611
-------
Total.................................................. $95,000
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article VI of the Bylaws of the Registrant provides for the indemnification
of the officers and directors of the Registrant in the manner authorized by the
Michigan Business Corporation Act. The Michigan Business Corporation Act
authorities a corporation, under certain circumstances, to indemnify its
directors and officers (including reimbursement for expenses incurred).
Reference is made to Exhibit 3.4 to this Registration Statement for the complete
text of Article VI of the Bylaws.
For provisions regarding the indemnification of the Registrant by the
Selling Shareholders, and the indemnification of the Selling Shareholders by the
Registrant, against certain liabilities, including liabilities under the
Securities Act of 1933, reference is made to Section 8 of the Registration
Rights Agreement, a form of which is filed as Exhibit 4.8 to this Registration
Statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In the three years preceding the filing of the Registration Statement,
Compuware has sold the following securities that were not registered under the
Securities Act:
On December 12, 1997, the Company issued 6,683,206 shares of its Common
Stock to the shareholders of Nu-Mega Technologies, Inc., pursuant to the terms
of an Agreement and Plan of Merger among Nu-Mega, certain shareholders of
Nu-Mega, Compuware Corporation, and Nusub Acquisition, Inc., a New Hampshire
corporation and wholly-owned subsidiary of Compuware.
On February 23, 1999, the Company issued 1,021,864 shares of its Common
Stock to the shareholders of M.I.S. International, Inc. and Simco International,
Inc., pursuant to the terms of an Agreement and Plan of Merger among Compuware
Corporation, CPWRT1, Inc., CPWRT2, Inc., M.I.S. International, Inc., Simco
International, Inc., Autoflex, Inc., and Michael M. Bahn, Mary C. Bahn 1999
Qualified Annuity Trust, Michael M. Bahn Revocable Trust Dated January 23, 1995,
Mary C. Bahn Revocable Trust Dated January 23, 1995, Michael J. Bahn, Marisa R.
Bahn, and Renee C. Phillips 1999 Qualified Annuity Trust.
The sale and issuance of the securities described above was deemed to be
exempt from registration under the Securities Act in reliance on Section 4(2) of
the Securities Act, or Regulation D promulgated thereunder, as transactions by
an issuer not involving a public offering. The recipients of the securities in
each such transaction represented their intention to acquire the
II-1
<PAGE> 75
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were placed on all share
certificates issued in such transactions.
ITEM 16. EXHIBITS
(a) Exhibits
<TABLE>
<C> <S>
2.1 Stock Exchange Agreement, dated as of March 16, 1994, by and
among Compuware Corporation, Uniface Holding B.V., the
Sellers therein and the Sellers' Agent (incorporated by
reference to the corresponding exhibit to the Registration
Statement on Form S-4, as amended, Registration No.
33-78822)
2.2 Agreement and Plan of Merger, dated February 23, 1999, among
Compuware Corporation, CPWRT1, Inc., CPWRT2, Inc., M.I.S.
International, Inc., Simco International, Inc., Autoflex,
Inc., and Michael M. Bahn, Mary C. Bahn 1999 Qualified
Annuity Trust, Michael M. Bahn Revocable Trust Dated January
23, 1995, Mary C. Bahn Revocable Trust Dated January 23,
1995, Michael J. Bahn, Marisa R. Bahn, and Renee C. Phillips
1999 Qualified Annuity Trust
3.4 Certificate of Restated Bylaws of Compuware, as amended
(incorporated by reference to the corresponding exhibit to
the Registration Statement on Form S-1, as amended,
Registration No. 33-53652)
4.7 Certificate of Amendment to the Restated Articles of
Incorporation (incorporated by reference to the
corresponding exhibit to the Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1997)
4.8 Registration Rights Agreement, dated February 23, 1999, by
and among Compuware Corporation, Michael J. Bahn, Marisa R.
Bahn, Renee C. Phillips 1999 Qualified Annuity Trust,
Michael M. Bahn Revocable Trust dated January 23, 1995, Mary
C. Bahn 1999 Qualified Annuity Trust and Mary C. Bahn
Revocable Trust dated January 23, 1995
5.1 Opinion of Honigman Miller Schwartz and Cohn concerning the
legality of the securities being offered
10.4 1992 Stock Option Plan.(1)
10.22 Promotion Agreement, dated March 1, 1990, and Amendment
dated December 26, 1990, between Computer Hockey Corporation
and the Company.(1)
10.23 Agreement, dated October 28, 1982, between Compuware Hockey
Club, L.P. and the Company, as amended.(1)
10.24 Promotion Agreement, dated September 8, 1992, between
Compuware Sports Corporation and the Company.(1)
10.31 Compuware Corporation Shareholder Agreement, dated November
5, 1992, among the Company and certain of its
shareholders.(2)
10.35 Fiscal 1993 Stock Option Plan.(1)
10.36 Stock Option Plan for Non-Employee Directors.(1)
10.50 Registration Rights Agreement dated as of March 16, 1994 by
and among the Company, Uniface Holding B.V., the Sellers
listed therein and the Sellers' Agent.(3)
10.58 Stockholders' Agreement, dated August 1, 1990, by and among
the Company and the Stockholders therein.(4)
</TABLE>
II-2
<PAGE> 76
<TABLE>
<C> <S>
10.59 Employment Agreement, dated as of April 1, 1995, between the
Company and Peter Karmanos, Jr.(5)
10.60 Employment Agreement, dated as of April 1, 1995, between the
Company and Joseph Nathan.(5)
10.61 Employment Agreement, dated as of April 1, 1995, between the
Company and John Shevillo.(5)
10.64 Employment Agreement, dated as of April 1, 1995, between the
Company and Stephen Fagan.(5)
10.65 Employment Agreement, dated as of April 1, 1995, between the
Company and Henry Jallos.(5)
10.66 Employment Agreement, dated as of April 1, 1995, between the
Company and Denise Knobblock.(5)
10.68 Amended and Restated Revolving Loan Agreement.(5)
10.69 Agreement and Plan of Reorganization dated as of October 17,
1995 between CoroNet Systems, Inc. and the Company.(6)
10.70 Escrow Agreement made as of October 17, 1995 between CoroNet
Systems, Inc., the Company and the Escrow Agent.(6)
10.71 Agreement and Plan of Merger, dated as of January 10, 1996,
between the Company and Technalysis Corporation.(7)
10.72 Agreement and Plan of Merger, dated as of May 31, 1996,
between Adams & Reynolds & Company and the Company.(8)
10.73 Agreement for the Sale and Purchase of the Issued Share
Capital of Direct Technology Limited dated May 1996.(8)
10.74 Amendment to Employment Agreement, dated as of April 1,
1996, between the Company and Peter Karmanos, Jr.(9)
10.75 Amendment to Employment Agreement, dated as of April 1,
1996, between the Company and Joseph A. Nathan.(9)
10.76 Amendment to Employment Agreement, dated as of April 1,
1996, between the Company and John N. Shevillo.(9)
10.78 Amendment to Employment Agreement, dated as of April 1,
1996, between the Company and Henry A. Jallos.(9)
10.79 Amendment to Employment Agreement, dated as of April 1,
1996, between the Company and Stephen H. Fagan.(9)
10.80 Employment Agreement, dated as of April 1, 1995, between the
Company and Laura Fournier.(10)
10.81 Employment Agreement, dated as of April 1, 1995, between the
Company and its subsidiaries and affiliates, and Phyllis
Recca.
10.82 Fiscal 1998 Stock Option Plan(11)
10.83 Fiscal 1999 Stock Option Plan
23.1 Independent Auditors' Consent and Report on Schedule
23.2 Consent of Honigman Miller Schwartz and Cohn (contained in
their opinion filed as Exhibit 5.1)
</TABLE>
II-3
<PAGE> 77
<TABLE>
<C> <S>
24.1 Power of Attorney (included after the signature of the
Registrant contained on page II-6 of this Registration
Statement)
</TABLE>
- -------------------------
(1) Incorporated by reference to the corresponding exhibit to the Registration
Statement on Form S-1, as amended (Registration No. 33-53652).
(2) Incorporated by reference to the corresponding exhibit to the Registration
Statement on Form S-1, as amended (Registration No. 33-63400).
(3) Incorporated by reference to the corresponding exhibit to the Registration
Statement on Form S-4, as amended (Registration No. 33-78822).
(4) Incorporated by reference to the corresponding exhibit to the Registration
Statement on Form S-3, as amended (Registration No. 33-82734).
(5) Incorporated by reference to the corresponding exhibit to the 1995 Annual
Report on Form 10-K.
(6) Incorporated by reference to the corresponding exhibit to the Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 1995.
(7) Incorporated by reference to the corresponding exhibit to the Quarterly
Report on Form 10-Q for the quarterly period ended December 31, 1995.
(8) Incorporated by reference to the corresponding exhibit to the 1996 Annual
Report on Form 10-K.
(9) Incorporated by reference to the corresponding exhibit to the 1997 Annual
Report on Form 10-K.
(10) Incorporated by reference to the corresponding exhibit to the 1998 Annual
Report on Form 10-K.
(11) Incorporated by reference to the corresponding exhibit to the Registration
Statement on Form S-3, as amended (Registration No. 333-43915)
ITEM 16.
(b) Schedule
Schedule II -- Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions described under "Item 14
Indemnification of Directors and Officers" above, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-4
<PAGE> 78
(b) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any Prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering; and
(4) That for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of Prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of Prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
II-5
<PAGE> 79
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Farmington Hills, State of Michigan, on April 8, 1999.
COMPUWARE CORPORATION
By: /s/ THOMAS COSTELLO, JR.
------------------------------------
Thomas Costello, Jr.
Vice President,
General Counsel and Secretary
Each person whose signature appears below hereby appoints Thomas Costello,
Jr. his or her true and lawful attorney-in-fact, with power to act and with full
power of substitution, in any and all capacities, to sign any or all amendments
(including post-effective amendments) to the Registration Statement and file the
same with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agents, or their substitutes,
may lawfully cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C> <C>
/s/ PETER KARMANOS, JR. Chairman of the Board, Chief April 8, 1999
------------------------------------------------ Executive Officer and Director
Peter Karmanos, Jr. (Principal Executive Officer)
/s/ THOMAS THEWES Vice Chairman of the Board and April 8, 1999
------------------------------------------------ Director
Thomas Thewes
/s/ JOSEPH A. NATHAN President, Chief Operating April 7, 1999
------------------------------------------------ Officer and Director
Joseph A. Nathan
/s/ LAURA L. FOURNIER Senior Vice President, Chief April 8, 1999
------------------------------------------------ Financial Officer and
Laura L. Fournier Treasurer (Principal Financial
Officer and Principal
Accounting Officer)
/s/ W. JAMES PROWSE Director April 8, 1999
------------------------------------------------
W. James Prowse
/s/ BERNARD M. GOLDSMITH Director April 7, 1999
------------------------------------------------
Bernard M. Goldsmith
/s/ WILLIAM O. GRABE Director April 8, 1999
------------------------------------------------
William O. Grabe
</TABLE>
II-6
<PAGE> 80
<TABLE>
<S> <C> <C> <C>
/s/ WILLIAM R. HALLING Director April 8, 1999
------------------------------------------------
William R. Halling
/s/ G. SCOTT ROMNEY Director April 8, 1999
------------------------------------------------
G. Scott Romney
/s/ LOWELL WEICKER, JR. Director April 8, 1999
------------------------------------------------
Lowell Weicker, Jr.
/s/ ELAINE K. DIDIER Director April 8, 1999
------------------------------------------------
Elaine K. Didier
/s/ ELIZABETH A. CHAPPELL Director April 8, 1999
------------------------------------------------
Elizabeth A. Chappell
</TABLE>
II-7
<PAGE> 81
COMPUWARE CORPORATION AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED MARCH 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ---------- -------------------------- ------------ ----------
ADDITIONS
--------------------------
CHARGED TO
BALANCE AT CHARGED TO OTHER (1) BALANCE AT
BEGINNING COSTS AND ACCOUNTS-- DEDUCTIONS-- END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE PERIOD
----------- ---------- ---------- ---------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended March 31, 1998............. $6,941 $7,260 $5,389 $8,812
Year ended March 31, 1997............. 5,244 5,106 3,409 6,941
Year ended March 31, 1996............. 1,605 7,355 3,716 5,244
</TABLE>
- -------------------------
(1) Write-off of uncollectible accounts, product maintenance cancellations and
service cost overruns.
S-1
<PAGE> 82
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<C> <S>
2.1 Stock Exchange Agreement, dated as of March 16, 1994, by and
among Compuware Corporation, Uniface Holding B.V., the
Sellers therein and the Sellers' Agent (incorporated by
reference to the corresponding exhibit to the Registration
Statement on Form S-4, as amended, Registration No.
33-78822)
2.2 Agreement and Plan of Merger, dated February 23, 1999, among
Compuware Corporation, CPWRT1, Inc., CPWRT2, Inc., M.I.S.
International, Inc., Simco International, Inc., Autoflex,
Inc., and Michael M. Bahn, Mary C. Bahn 1999 Qualified
Annuity Trust, Michael M. Bahn Revocable Trust Dated January
23, 1995, Mary C. Bahn Revocable Trust Dated January 23,
1995, Michael J. Bahn, Marisa R. Bahn, and Renee C. Phillips
1999 Qualified Annuity Trust
3.4 Certificate of Restated Bylaws of Compuware, as amended
(incorporated by reference to the corresponding exhibit to
the Registration Statement on Form S-1, as amended,
Registration No. 33-53652)
4.7 Certificate of Amendment to the Restated Articles of
Incorporation (incorporated by reference to the
corresponding exhibit to the Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1997)
4.8 Registration Rights Agreement, dated February 23, 1999, by
and among Compuware Corporation, Michael J. Bahn, Marisa R.
Bahn, Renee C. Phillips 1999 Qualified Annuity Trust,
Michael M. Bahn Revocable Trust dated January 23, 1995, Mary
C. Bahn 1999 Qualified Annuity Trust and Mary C. Bahn
Revocable Trust dated January 23, 1995
5.1 Opinion of Honigman Miller Schwartz and Cohn concerning the
legality of the securities being offered
10.4 1992 Stock Option Plan.(1)
10.22 Promotion Agreement, dated March 1, 1990, and Amendment
dated December 26, 1990, between Computer Hockey Corporation
and the Company.(1)
10.23 Agreement, dated October 28, 1982, between Compuware Hockey
Club, L.P. and the Company, as amended.(1)
10.24 Promotion Agreement, dated September 8, 1992, between
Compuware Sports Corporation and the Company.(1)
10.31 Compuware Corporation Shareholder Agreement, dated November
5, 1992, among the Company and certain of its
shareholders.(2)
10.35 Fiscal 1993 Stock Option Plan.(1)
10.36 Stock Option Plan for Non-Employee Directors.(1)
10.50 Registration Rights Agreement dated as of March 16, 1994 by
and among the Company, Uniface Holding B.V., the Sellers
listed therein and the Sellers' Agent.(3)
10.58 Stockholders' Agreement, dated August 1, 1990, by and among
the Company and the Stockholders therein.(4)
10.59 Employment Agreement, dated as of April 1, 1995, between the
Company and Peter Karmanos, Jr.(5)
10.60 Employment Agreement, dated as of April 1, 1995, between the
Company and Joseph Nathan.(5)
</TABLE>
<PAGE> 83
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<C> <S>
10.61 Employment Agreement, dated as of April 1, 1995, between the
Company and John Shevillo.(5)
10.64 Employment Agreement, dated as of April 1, 1995, between the
Company and Stephen Fagan.(5)
10.65 Employment Agreement, dated as of April 1, 1995, between the
Company and Henry Jallos.(5)
10.66 Employment Agreement, dated as of April 1, 1995, between the
Company and Denise Knobblock.(5)
10.68 Amended and Restated Revolving Loan Agreement.(5)
10.69 Agreement and Plan of Reorganization dated as of October 17,
1995 between CoroNet Systems, Inc. and the Company.(6)
10.70 Escrow Agreement made as of October 17, 1995 between CoroNet
Systems, Inc., the Company and the Escrow Agent.(6)
10.71 Agreement and Plan of Merger, dated as of January 10, 1996,
between the Company and Technalysis Corporation.(7)
10.72 Agreement and Plan of Merger, dated as of May 31, 1996,
between Adams & Reynolds & Company and the Company.(8)
10.73 Agreement for the Sale and Purchase of the Issued Share
Capital of Direct Technology Limited dated May 1996.(8)
10.74 Amendment to Employment Agreement, dated as of April 1,
1996, between the Company and Peter Karmanos, Jr.(9)
10.75 Amendment to Employment Agreement, dated as of April 1,
1996, between the Company and Joseph A. Nathan.(9)
10.76 Amendment to Employment Agreement, dated as of April 1,
1996, between the Company and John N. Shevillo.(9)
10.78 Amendment to Employment Agreement, dated as of April 1,
1996, between the Company and Henry A. Jallos.(9)
10.79 Amendment to Employment Agreement, dated as of April 1,
1996, between the Company and Stephen H. Fagan.(9)
10.80 Employment Agreement, dated as of April 1, 1995, between the
Company and Laura Fournier.(10)
10.81 Employment Agreement, dated as of April 1, 1995, between the
Company and its subsidiaries and affiliates, and Phyllis
Recca.
10.82 Fiscal 1998 Stock Option Plan(11)
10.83 Fiscal 1999 Stock Option Plan
23.1 Independent Auditors' Consent and Report on Schedule
23.2 Consent of Honigman Miller Schwartz and Cohn (contained in
their opinion filed as Exhibit 5.1)
24.1 Power of Attorney (included after the signature of the
Registrant contained on page II-6 of this Registration
Statement)
</TABLE>
<PAGE> 84
- -------------------------
(1) Incorporated by reference to the corresponding exhibit to the Registration
Statement on Form S-1, as amended (Registration No. 33-53652).
(2) Incorporated by reference to the corresponding exhibit to the Registration
Statement on Form S-1, as amended (Registration No. 33-63400).
(3) Incorporated by reference to the corresponding exhibit to the Registration
Statement on Form S-4, as amended (Registration No. 33-78822).
(4) Incorporated by reference to the corresponding exhibit to the Registration
Statement on Form S-3, as amended (Registration No. 33-82734).
(5) Incorporated by reference to the corresponding exhibit to the 1995 Annual
Report on Form 10-K.
(6) Incorporated by reference to the corresponding exhibit to the Quarterly
Report on Form 10-Q for the quarterly period ended September 30, 1995.
(7) Incorporated by reference to the corresponding exhibit to the Quarterly
Report on Form 10-Q for the quarterly period ended December 31, 1995.
(8) Incorporated by reference to the corresponding exhibit to the 1996 Annual
Report on Form 10-K.
(9) Incorporated by reference to the corresponding exhibit to the 1997 Annual
Report on Form 10-K.
(10) Incorporated by reference to the corresponding exhibit to the 1998 Annual
Report on Form 10-K.
(11) Incorporated by reference to the corresponding exhibit to the Registration
Statement on Form S-3, as amended (Registration No. 333-43915)
<PAGE> 1
EXHIBIT 2.2
AGREEMENT AND PLAN OF MERGER
DATED FEBRUARY 23, 1999
AMONG
COMPUWARE CORPORATION,
CPWRT1, INC.,
CPWRT2, INC.,
M.I.S. INTERNATIONAL, INC.,
SIMCO INTERNATIONAL, INC.,
AUTOFLEX, INC.,
MICHAEL M. BAHN,
MICHAEL J. BAHN,
MARISA R. BAHN,
MICHAEL M. BAHN REVOCABLE TRUST DATED JANUARY 23, 1995,
MARY C. BAHN REVOCABLE TRUST DATED JANUARY 23, 1995,
RENEE C. PHILLIPS 1999 QUALIFIED ANNUITY TRUST, AND
MARY C. BAHN 1999 QUALIFIED ANNUITY TRUST
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
1. Definitions 2
2. The Merger 6
2.1 The Merger 6
2.2 Effectiveness of the Merger 7
3. Conversion of Shares 7
3.1 Conversion of Shares 7
3.2 Issuance of Compuware Stock; Escrow of Compuware Stock 8
3.3 Exchange of Shares 8
3.4 Closing of Corporation's Transfer Books 9
3.5. Fractional Share 9
4. Closing 9
4.1 Closing Date 9
4.2 Actions to be Taken at the Closing 9
5. Corporation's and the Principals' Representations and Warranties 11
5.1 Organization; Power and Authority; Authorization; Due Execution; No Conflicts 11
5.2 Title 12
5.3 Properties and Improvements 12
5.4 Other Assets of MIS, Simco and Autoflex 12
5.5 Claims; Litigation; Compliance with Laws; Approvals 13
5.6 Agreements; Contracts; Warranties 14
5.7 Proprietary Rights 15
5.8 Employees; Employee Benefits 16
5.9 Insurance 18
5.10 Financial Statements 19
5.11 Undisclosed Liabilities 19
5.12 Taxes 20
5.13 Absence of Changes or Events 22
5.14 Environmental and Occupational Matters 24
5.15 Subsidiaries 24
5.16 Capitalization 25
5.17 Bank Accounts 25
5.18 Guarantees 25
5.19 Related Parties 25
5.20 Accounts Receivable 26
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
5.21 Brokers 26
5.22 Year 2000 Compliance 26
5.23 Disclosure 26
6. Additional Representations and Warranties of Shareholders 27
7. Compuware's Representations and Warranties 28
7.1 Organization; Power and Authority 28
7.2 Authorization; Due Execution; No Conflicts 28
7.3 SEC Statements, Reports and Documents 28
7.4 Brokers 29
7.5 No Material Adverse Changes 29
8. Covenants Pending the Closing 30
8.1 Conduct Through the Closing Date 30
8.2 Approvals and Consents 31
8.3 Advice of Changes 31
8.4 Notice of Litigation 31
8.5 Access to Properties and Records; Inspection 31
8.6 Supplemental Information and Documents 31
8.7 Affiliate Agreements 32
8.8 Blue Sky Laws 32
8.9 Tax-Free Reorganization 32
8.10 Tax Matters 33
8.11 Pooling Accounting 34
8.12 Filings 34
8.13 Benefit Plans 34
8.14 Restrictions on Resale 34
8.15 Non-Disclosure Agreement 34
8.16. Registration Agreement 34
8.17 Escrow Agreement 34
8.18 Other Actions 34
8.19 Expenses 35
9. Conditions Precedent to the Parties' Obligations to Close 35
9.1 Conditions Precedent of Compuware 35
9.2 Conditions Precedent of MIS, Simco, Autoflex and the Shareholders 36
9.3 Mutual Condition Precedent 36
10. Default; Termination of Agreement 37
10.1 Default 37
10.2 Termination 37
11. Indemnification 37
11.1 Indemnification by the Shareholders 37
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C> <C>
11.2 Indemnification by Compuware 38
11.3 Claims for Indemnification 38
11.4 Third Party Claims 39
11.5 Limits on Indemnification 40
11.6 Representative 41
11.7 Tax Indemnification Procedure 42
11.8 Consideration 44
12. Miscellaneous 44
12.1 Notices 44
12.2 No Waiver 45
12.3 Successors and Assigns 45
12.4 Severability 45
12.5 Entire Agreement; Amendment 45
12.6 Cost of Litigation 46
12.7 Interpretation 46
12.8 Legend 46
12.9 Counterparts 47
12.10 Applicable Law 47
12.11 Expenses 47
12.12 Press Releases 47
12.13 Further Assurances 47
12.14 Transfer Taxes 47
12.15 Benefit Matters 48
</TABLE>
Exhibits and Schedules
Schedules
Schedule 2.1(d) - Directors and Officers of Surviving Corporation
Schedule 3.1 - Conversion of Shares
Schedule 3.2 - Share Ownership/Payment Instructions
Schedule 5.1 - Jurisdictions Where Qualified
Schedule 5.3 - Properties & Improvements
Schedule 5.4 - Assets
Schedule 5.5 - Claims; Litigation; Compliance with Laws; Approvals
Schedule 5.6 - Agreements; Contracts; Warranties
Schedule 5.7 - Proprietary Rights
Schedule 5.8 - Employees; Employee Benefits
Schedule 5.9 - Insurance
Schedule 5.13 - Absence of Changes or Events
Schedule 5.14 - Environmental & Occupational Matters
Schedule 5.15 - Subsidiaries
Schedule 5.16 - Capitalization
Schedule 5.17 - Bank Accounts
Schedule 5.18 - Guaranties
4
<PAGE> 5
Schedule 5.19 - Related Parties
Schedule 5.20 - Accounts Receivable
Schedule 5.21 - Brokers (MIS, Simco, Autoflex, Shareholders)
Schedule 5.22 - Year 2000 Compliance
Schedule 7.3 - Brokers (Compuware)
Schedule 9.7 - Affiliate Agreements
Exhibits
Exhibit A - Transmittal Letter
Exhibit B Escrow Agreement
Exhibit C - Noncompetition Agreement
Exhibit D Officer's Certificate - Compuware
Exhibit E Opinion of General Counsel of Compuware
Exhibit F - Registration Rights Agreement
Exhibit G - Compuware Affiliate Agreement
Exhibit H Officers' Certificates - MIS, Simco and Autoflex
Exhibit I Opinion of Jaffe, Raitt, Heuer & Weiss
Exhibit J - MIS Affiliate Agreement and Simco Affiliate Agreement
5
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
This Agreement is made on February 23, 1999, among Compuware
Corporation, a Michigan corporation ("Compuware"), CPWRT1, Inc., a Michigan
corporation and wholly-owned subsidiary of Compuware ("CPWRT1"), CPWRT2, Inc., a
Michigan corporation and wholly-owned subsidiary of Compuware ("CPWRT2"), M.I.S.
International, Inc., a Michigan corporation ("MIS"), Simco International, Inc.,
a Michigan corporation ("Simco"), Autoflex, Inc., a Michigan corporation and
wholly-owned subsidiary of MIS ("Autoflex") and Michael M. Bahn, Mary C. Bahn
1999 Qualified Annuity Trust, Michael M. Bahn Revocable Trust Dated January 23,
1995, Mary C. Bahn Revocable Trust Dated January 23, 1995, (each, a "Principal"
and collectively, the "Principals"), Michael J. Bahn, Marisa R. Bahn, and Renee
C. Phillips 1999 Qualified Annuity Trust, (including the Principals, each,
individually, a "Shareholder", and collectively, the "Shareholders"). All
capitalized terms used in this Agreement are either defined or referenced in
Section 1 below.
RECITALS
A. MIS is engaged in the business of providing engineering and
information technology professionals to manufacturers. Simco is engaged in the
business of recruiting such engineering and information technology professionals
for employment by MIS.
B. One or more of the Shareholders are the owners of 100,000
shares of common stock, $1.00 par value, of MIS (the "MIS Shares"), which
constitute all of the issued and outstanding capital stock of MIS, and 100
shares of common stock, $1.00 par value, of Simco (the "Simco Shares"), which
constitute all of the issued and outstanding capital stock of Simco (the MIS
Shares and Simco Shares are sometimes collectively referred to as the "Shares").
Each Shareholder owns the number of Shares which are set forth opposite such
Shareholder's name on Schedule 3.2 to this Agreement.
C. The Parties intend for CPWRT1 to be merged with and into MIS,
with MIS being the survivor, and for CPWRT2 to be merged with and into Simco,
with Simco being the survivor (each, a "Merger" and collectively, the
"Mergers").
D. The respective Boards of Directors of Compuware, MIS and Simco
have approved the Mergers upon the terms of this Agreement.
E. In connection with the Mergers, certain of the Shareholders
have agreed to execute and deliver the Noncompetition Agreement to Compuware and
the parties have agreed to take certain other actions, all as described in this
Agreement and in the Related Agreements.
F. The parties intend for the Mergers to be treated as a pooling
of interests for accounting purposes and as a tax-free reorganization.
6
<PAGE> 7
Therefore, the parties agree as follows:
1. Definitions. As used in this Agreement:
"Affiliated Group" means any affiliated group within the
meaning of Code ss.1504(a) or any similar group defined under a similar
provision of state, local or foreign law.
"Agreement" is this Agreement and Plan of Merger.
"Autoflex" is defined in the introductory paragraph of this
Agreement.
"Autoflex Shares" means all of the outstanding shares of
capital stock of Autoflex.
"Claimant" is defined in Section 11.3(a) of this Agreement.
"Closing" is defined in Section 4.1 of this Agreement.
"Closing Date" is the date on which the Closing takes place.
"Code" means the Internal Revenue Code of 1986, as amended,
and the rules and regulations promulgated thereunder.
"Companies" means MIS, SIMCO, Autoflex and any predecessors of
the foregoing.
"Compuware" is defined in the introductory paragraph of this
Agreement.
"Compuware Balance Sheet" is defined in Section 7.3 of this
Agreement.
"Compuware Reports" is defined in Section 7.3 of this
Agreement.
"Compuware Stock" means the common shares of Compuware, par
value $0.01 per share.
"Deferred Intercompany Transaction" has the meaning set forth
in Treasury Regulation ss.1.1502-13 in effect before July 12, 1995.
"Effective Date" means the date on which the Effective Time
occurs.
"Effective Time" is the time at which the Merger becomes
effective pursuant to Section 2.2 of this Agreement.
"Environmental Laws" means any Law which relates to pollution
(or the clean up of the environment), or the protection of air, surface water,
groundwater, drinking water, land (surface or subsurface), human health, the
environment or any other natural resource or the use,
7
<PAGE> 8
storage, recycling, treatment, generation, processing, handling, production or
disposal of Hazardous Materials, including the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, 42 USC ss.ss.9601
et seq. and 40 CFR ss.ss.302.1 et seq., and regulations thereunder; the Federal
Clean Air Act, as amended, 42 USC ss.ss.7401 et seq., and regulations
thereunder; the Resource Conservation and Recovery Act, 42 USC ss.ss.6901 et
seq., as amended, and regulations thereunder; and the Federal Water Pollution
Control Act, 33 USC ss.ss.1251 et seq., as amended, and regulations thereunder.
"EquiServe" means EquiServe, Inc., the transfer agent for
Compuware.
"Escrow Agent" means NBD Bank, a Michigan banking corporation.
"Escrow Agreement" is defined in Section 3.2(b) of this
Agreement.
"Escrow Shares" is defined in Section 3.2(b) of this Agreement
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fees and Costs" means reasonable legal (including attorneys'
and legal assistants') fees, disbursements and costs; reasonable fees,
disbursements and costs of third party consultants and experts; court costs; and
similar items.
"Final Determination" with respect to a Proceeding shall mean
(a) a final decision with respect to the proposed adjustment by an IRS appeals
officer, as evidenced by the issuance of a 90-day letter, IRS Form 870-AD or
like notice, unless judicial proceedings are initiated, (b) a final decision
with respect to the proposed adjustment by the United States Tax Court, Court of
Federal Claims or the appropriate Federal District Court, unless such decision
is appealed, (c) a final non-appealable decision of the United States Supreme
Court or (d) the settlement of the proposed adjustment with the consent of the
Indemnifying Party and the Claimant.
"Financial Statements" is defined in Section 5.10 of this
Agreement.
"GAAP" means generally accepted accounting principles,
consistently applied.
"Governmental Entity" is defined in Section 5.1(c).
"Hazardous Materials" means asbestos-containing materials,
mono- and polychlorinated biphenyls, urea formaldehyde products, radon,
radioactive materials, any "hazardous substance", "hazardous waste",
"pollutant", "Toxic Pollutant", "oil" or "contaminant" as used in, or defined
pursuant to any Environmental Law, and any other substance, waste, pollutant,
contaminant or material, including petroleum products and derivatives, the use,
transport, disposal, storage, treatment, recycling, handling, discharge,
Release, threatened Release, discharge or emission of which is regulated or
governed by any Environmental Law.
"HSR Act" means the Hart-Scott-Rodino Anti-Trust Improvements
Act of 1976, as amended, and the rules and regulations promulgated thereunder.
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"Indemnifying Party" is defined in Section 11.3(a) of this
Agreement.
"Independent Public Accountants" means a firm of independent
nationally recognized accountants mutually selected by Compuware and the
Shareholders.
"Intercompany Transaction" has the meaning set forth in
Treasury Regulations ss.1.1502-13 in effect on or after July 12, 1995.
"IRS" means the Internal Revenue Service and any
successor federal agency.
"Laws" means all applicable federal, state or local laws,
zoning and other ordinances, rules, regulations, building and other codes, and
court or administrative orders, judgments or decrees.
"Liens" is defined in Section 5.2 of this Agreement.
"Loss" shall mean and include any damage, liability, loss,
claim, cost, debt, expense, obligation, tax, assessment, lawsuit or deficiency
of any kind or nature, fixed, actual, accrued or contingent, liquidated or
unliquidated, including, without limitation Fees and Costs incident to
proceedings or investigations or the defense of any of the foregoing, whether or
not litigation has commenced (each, a "Loss").
"MBCA" means the Michigan Business Corporation Act.
"Merger" is defined in Recital C of this Agreement.
"MIS" is defined in the introductory paragraph of this
Agreement.
"MIS Shares" is defined in Recital B of this Agreement.
"Nasdaq" means The Nasdaq Stock Market.
"Noncompetition Agreement" means the Confidentiality and
Non-competition Agreement among Compuware, Michael Bahn and Mary Bahn in the
form attached to this Agreement as Exhibit C.
"Proceeding" is defined in Section 11.7(b)(ii) below.
"Properties" is defined in Section 5.3 of this Agreement.
"Proprietary Rights" are all know-how, marks, symbols,
trademarks, trade names, service marks, copyrights, patents, trade secrets,
licenses, source codes, object codes, inventions, logos and other intellectual
property owned or used by each of MIS, Simco and Autoflex.
"Registration Rights Agreement" means the Registration Rights
Agreement
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among Compuware and the Shareholders in the form attached hereto as Exhibit F.
"Related Agreements" are all written agreements, other than
this Agreement, which are executed and delivered by Compuware, MIS, Simco,
Autoflex or any Shareholder pursuant to this Agreement in connection with the
Mergers or the other transactions contemplated by this Agreement (including the
Noncompetition Agreement and the other agreements contemplated thereunder).
"Release" means spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, disposal,
depositing and placing, including the abandonment or discarding of barrels,
containers, and other closed receptacles containing any Hazardous Material.
"Ruling" means a formal ruling, a determination letter, a
change in method of accounting letter or any similar announcement issued by the
IRS.
"Representative" is defined in Section 11.6.
"SEC" is defined in Section 7.3 of this Agreement.
"Securities Act" means the Securities Act of 1933, as amended.
"Shareholders" is defined in the introductory paragraph of
this Agreement.
"Shares" is defined in Recital A of this Agreement.
"Simco" is defined in the introductory paragraph of this
Agreement.
"Simco Shares" is defined in Recital B of this Agreement.
"Surviving Corporation" means MIS or Simco, as the context
requires.
"Taxes" means all taxes, however denominated, including any
interest, penalties or other additions to tax that may become payable in respect
thereof, imposed by any federal, territorial, state, local or foreign government
or any agency or political subdivision of any such government, which taxes will
include, without limiting the generality of the foregoing, all income or profits
taxes (including, but not limited to, federal income taxes and state income
taxes), single business taxes, real property gains taxes, payroll and employee
withholding taxes, unemployment insurance taxes, social security taxes, sales
and use taxes, ad valorem taxes, excise taxes, franchise taxes, gross receipts
taxes, business license taxes, occupation taxes, real and personal property
taxes, stamp taxes, environmental taxes, transfer taxes, workers' compensation,
Pension Benefit Guaranty Corporation premiums and other governmental charges,
and other obligations of the same or of a similar nature to any of the
foregoing, which MIS, Simco or Autoflex is required to pay, withhold or collect,
whether disputed or not, and will include any transferee or secondary liability
in respect of any or all of the above and any liability in respect of any tax as
a result of being a member of any affiliated, consolidated, combined, unitary or
similar group.
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"Tax Authority" includes the IRS and any state, local, foreign
or other governmental authority (domestic or foreign) responsible for the
administration of any Taxes.
"Tax Liability Issue" is defined in Section 11.7(b)(i) below.
"Tax Loss" means any Loss arising out of, resulting from or
relating to a breach of any representation, warranty or covenant contained in
Section 5.12, 8.9, 8.10, 11.7 or 12.14 of this Agreement (relating specifically
to Taxes).
"Tax Return" or "Tax Returns" means any return, declaration,
report, claim for refund, or information return or statement (including any
schedule or attachment thereto) and any amendment thereof required to be filed
with, or where none is required to be filed with a Tax Authority, the statement
or other document issued by, a Tax Authority in connection with any Tax.
"Third-Party Claim" is defined in Section 11.4 of this
Agreement.
"Transactions" means any of the transactions contemplated by
this Agreement or the Related Agreements.
"Transmittal Letter" is defined in Section 3.2(a).
"Treasury Regulation" or "Treasury Regulations" means any
regulation promulgated under the Code including any amendments or any substitute
or successor provisions thereto.
"Underground Storage Tank" means any container and any related
piping and material handling equipment of which any portion is located below the
level of the soil at any Property, unless all piping and related material
handling equipment is fully exposed and located in the basement of a building at
such Property.
2. The Merger.
2.1 The Merger.
(a) Subject to the terms and conditions of this Agreement
and the MBCA, at the Effective Time, (1) CPWRT1 will be merged with and into MIS
and the separate existence of CPWRT1 will cease and MIS will continue as the
Surviving Corporation and (2) CPWRT2 will be merged with and into Simco and the
separate existence of CPWRT2 will cease and Simco will continue as the Surviving
Corporation.
(b) Upon the effectiveness of the Merger:
(1) the Surviving Corporations will continue
their corporate existence under the laws of the State of
Michigan and will possess all of the rights, privileges,
immunities, powers, franchises and purposes of the constituent
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corporations;
(2) all property of the constituent corporations
will be the property of the Surviving Corporations (the title
to any real estate vested by deed or otherwise in any of the
constituent corporations will not revert or be in any way
impaired by reason of the Mergers); and
(3) the Surviving Corporations will by operation
of law assume all of the liabilities and duties of the
constituent corporations.
(c) The Articles of Incorporation and Bylaws of the
Surviving Corporations will be the Articles of Incorporation and Bylaws of
CPWRT1 in the case of the merger of MIS and CPWRT1 and of CPWRT2 in the case of
the merger of Simco and CPWRT2, and will remain such until amended.
(d) The directors and officers of CPWRT1 and CPWRT2
immediately prior to the Effective Time will be the directors and officers of
the Surviving Corporations, and will serve as such until their respective
successors are duly elected and qualified in the manner provided in the Articles
of Incorporation and Bylaws of the respective Surviving Corporations, or their
earlier death, resignation or removal. Prior to the Effective Time, CPWRT1 or
CPWRT2 will have the right, in each such corporation's sole discretion, to add
to or delete from the directors and officers of each.
2.2 Effectiveness of the Merger. Appropriate Certificates
of Merger will be filed with the Michigan Department of Consumer and Industry
Services Corporation, Securities and Land Development Bureau simultaneously with
the Closing. The Mergers will become effective at the time at which the
Certificates of Merger are so filed. The Shareholders who are signatories to
this Agreement, by execution of this Agreement, consent to the Mergers and waive
their rights to appraisal under the MBCA.
3. Conversion of Shares.
3.1 Conversion of Shares. At the Effective Time, by
virtue of the Mergers and without any action on the part of any holder of
Shares, each MIS Share and each Simco Share will be converted into and represent
the right to receive that number of shares of Compuware Stock determined by (a)
dividing $31,100,000 by the average of the closing sales prices of Compuware
Stock on Nasdaq for the ten trading days immediately preceding the Closing Date,
and (b) allocating such shares of Compuware Stock among the MIS Shares and Simco
Shares with the appropriate conversion factors as shown on Schedule 3.1 to this
Agreement. Each outstanding share of CPWRT1 and of CPWRT2 shall continue to be
outstanding and shall each represent one share of the applicable Surviving
Corporation. The number of shares of Compuware Stock to be issued to the
Shareholders in the Mergers pursuant to this Section 3.1 will be appropriately
adjusted to reflect fully the effect of any stock split, reverse stock split,
stock dividend (including any dividend or distribution of securities convertible
into Compuware Stock), reorganization, recapitalization, or other like change
with respect to Compuware Stock as to which the record date occurs after the
date hereof and prior to the Effective Time.
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3.2 Issuance of Compuware Stock; Escrow of Compuware Stock.
(a) At and after the Effective Time, upon surrender, in accordance
with the terms and conditions of the "Transmittal Letter", the form of which is
attached as Exhibit A, to Compuware by each of the Shareholders of certificates
for the number of MIS Shares and/or Simco Shares set forth opposite such
Shareholder's name on Schedule 3.2 hereto, representing all of the MIS Shares
and/or Simco Shares owned by such Shareholder, Compuware shall promptly issue
and deliver directly to each such Shareholder a certificate, registered in the
name of such Shareholder and representing approximately ninety (90%) percent of
the total number of shares of Compuware Stock into which such Shareholder's MIS
Shares and Simco Shares have been converted, rounded up to the nearest whole
share, as set forth opposite such Shareholder's name on Schedule 3.2 (subject to
adjustment as set forth in Section 3.1 hereof).
(b) In order to provide for the indemnity obligations of the
Shareholders hereunder, Compuware shall deliver to the Escrow Agent a
certificate representing the number of shares of Compuware Stock as provided
below. The Compuware Stock placed in escrow by Compuware shall represent ten
percent (10%) of the total number of shares of Compuware Stock into which the
MIS Shares and Simco Shares have been converted, rounded down to the nearest
whole share, (subject to adjustments as set forth in Section 3.1 hereof),
(together with the Dividend Account (as defined in the Escrow Agreement) and any
Dividend Shares (as defined in the Escrow Agreement (such shares, the Dividend
Account and the Dividend Shares are collectively the "Escrow Shares")). The
Escrow Agent shall hold and administer the Escrow Shares in accordance with the
terms of an escrow agreement dated as of the Effective Date among Compuware, the
Shareholders and the Escrow Agent (the "Escrow Agreement") in the form of
Exhibit B attached hereto. The parties acknowledge and agree that, for
convenience purposes only, Compuware will issue the certificate evidencing the
Escrow Shares in the name of the Escrow Agent, as escrow agent under the Escrow
Agreement. The parties further acknowledge and agree that the Shareholders are
the beneficial owners of the Escrow Shares, subject to the terms and conditions
of the Escrow Agreement.
3.3 Exchange of Shares. After the Effective Time, EquiServe will
act as transfer agent for and on behalf of Compuware, in effecting the exchange
of shares of Compuware Stock for certificates that, before the Effective Time,
represented Shares entitled to be exchanged for Compuware Stock pursuant to
Sections 3.1 and 3.2 above. Upon the surrender and exchange of such holder's
Share certificates, and delivery to EquiServe of executed Transmittal Letters,
the holder will receive, without interest, that number of shares of Compuware
Stock to which such holder is entitled at such time under this Agreement, and
each such certificate will be immediately cancelled. Until so surrendered and
exchanged, (1) each such certificate will be deemed converted, and will
represent solely the right to receive the Compuware Stock with respect to such
certificate pursuant to Sections 3.1 and 3.2 above; and (2) holders of such
certificates will not receive the shares of Compuware Stock to which they would
otherwise be entitled.
3.4 Closing of Corporation's Transfer Books. At the Effective
Time, each holder of a certificate or certificates that represents Shares will
cease to have any rights as a shareholder of either of MIS or Simco, except for
the right to surrender such holder's certificate or certificates in exchange for
Compuware Stock provided pursuant to Sections 3.1 and 3.2 above. The stock
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transfer books of each of MIS and Simco will be closed and no transfer of Shares
will thereafter be made. If, after the Effective Time, certificates representing
Shares are presented to either of the Surviving Corporations or EquiServe, they
will be cancelled and exchanged for shares of Compuware Stock as provided in
Sections 3.1 and 3.2 above.
3.5. Fractional Share. No fraction of a share of Compuware Stock
will be issued by virtue of the Mergers, but in lieu thereof each holder of MIS
Shares or Simco Shares who would otherwise be entitled to a fraction of a share
of Compuware Stock (after aggregating all fractional shares of Compuware Stock
to be received by such holder) will receive from Compuware an amount of cash
(rounded to the nearest whole cent) equal to the product of (a) such fractional
share, multiplied by (b) the average closing sales price of a share of Compuware
Stock on Nasdaq for the ten trading days immediately preceding the Closing Date.
4. Closing.
4.1 Closing Date. The closing of the transactions
contemplated by this Agreement (the "Closing") will take place at the offices of
Honigman Miller Schwartz and Cohn, 2290 First National Building, Detroit,
Michigan at 10:00 a.m. on February 26, 1999 or such earlier day as mutually
agreed.
4.2 Actions to be Taken at the Closing.
(a) At the Closing, Compuware will execute and/or deliver
or cause to be executed and/or delivered the following documents:
(1) Certificates of Merger to be filed in
respect of the Merger;
(2) officers' certificates as provided in
Exhibit D;
(3) an opinion of general counsel as provided in
Exhibit E;
(4) the Escrow Agreement;
(5) the Registration Rights Agreement as
provided in Exhibit F;
(6) the Compuware Affiliate Agreement as
provided in Exhibit G; and
(7) such other documents as may be reasonably
requested by the Shareholders, MIS or Simco.
(b) At the Closing, each of MIS and Simco, and the
Shareholders, as appropriate, will deliver the following
documents:
(1) certified resolutions of its Board of
Directors and shareholders authorizing the execution and
delivery of this Agreement and each Related Agreement to which
it is a party and the consummation of the Merger;
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(2) a copy of the Articles of Incorporation
(certified by an appropriate state official as of a date
within 30 days of the Closing Date) and a good standing
certificate from its state of incorporation and each
jurisdiction in which it is qualified to do business;
(3) a certificate of the Secretary or an
Assistant Secretary of such corporation in such form and
substance as Compuware may reasonably request attesting as to
the incumbency of each officer of such corporation who
executes this Agreement or a Related Agreement, bylaws,
resolutions and such other matters as Compuware may reasonably
request;
(4) the written resignations of the officers and
directors of such corporation as requested by Compuware before
the Closing Date, or documentation and indemnities in form and
substance satisfactory to Compuware as to the removal,
consistent with law, of any non-resigning officer or director;
(5) Certificates of Merger to be filed in
respect of the Merger;
(6) officers' certificates as provided in
Exhibit H;
(7) an opinion of Jaffe, Raitt, Heuer & Weiss as
provided in Exhibit I;
(8) the Escrow Agreement;
(9) the Registration Rights Agreements; and
(10) such additional information and materials as
Compuware may reasonably request.
(c) Each of MIS, Simco and Compuware will cause
certificates of merger to be filed in accordance with Section 2.2 above and will
use commercially reasonable efforts to take any and all other lawful actions and
do any and all other lawful things necessary to effect the Mergers and to enable
the Mergers to become effective.
(d) Compuware and each of Michael Bahn and Mary Bahn will
execute and deliver a confidentiality and noncompetition agreement in the form
of Exhibit C to this Agreement (the "Noncompetition Agreement").
(e) The Shareholders will execute and deliver to
Compuware the MIS Affiliate Agreement and the Simco Affiliate Agreement, as
provided in Exhibit J, respectively.
(f) MIS, Simco, the Shareholders and Compuware will use
commercially reasonable efforts to execute and deliver such other documents and
certificates as are required by the terms of this Agreement and the Related
Agreements (including all governmental and third party consents required to be
delivered by MIS, Simco or the Shareholders) or as may be reasonably requested
by the other party.
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(g) At the Closing, Compuware will cause to be paid in
full the indebtedness of MIS to First Federal as set forth in Schedule 4.2(g)
and the indebtedness of Autoflex to Michigan National Bank as set forth in
Schedule 4.2(g).
5. Corporation's and the Principals' Representations and
Warranties. Each of MIS, Simco and Autoflex and each Principal, jointly and
severally, represent and warrant to Compuware as follows, as of the date of this
Agreement and as of the Closing Date:
5.1 Organization; Power and Authority; Authorization; Due
Execution; No Conflicts.
(a) One or more of the Shareholders are the sole
shareholders of each of MIS and Simco and MIS is the sole shareholder of
Autoflex, each of which (1) is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Michigan, and (2) has the
corporate power and authority to (A) own, operate and lease the properties it
owns, operates and leases, (B) carry on its business as it is now being
conducted, (C) enter into this Agreement and the Related Agreements to which it
is a party and, (D) consummate the transactions contemplated by this Agreement
and the Related Agreements, and (3) is duly qualified or licensed and is in good
standing to do business in each jurisdiction in which the nature of the business
conducted by it has made its qualification or licensing a legal requirement,
except for those jurisdictions where the failure to be so qualified would not
have a material adverse effect on MIS or Simco. Each of MIS, Simco and Autoflex
has delivered to Compuware true and correct copies of its Articles of
Incorporation and Bylaws.
(b) This Agreement and each Related Agreement to which
any of MIS, Simco and Autoflex are parties have been duly authorized by all
necessary corporate action on the part of MIS, Simco and Autoflex and the
Shareholders, as appropriate. Upon the execution and delivery of this Agreement
and the Related Agreements, this Agreement and each Related Agreement will
constitute the legal, valid and binding obligation of the Shareholders and each
of MIS, Simco and Autoflex (as applicable), enforceable against the Shareholders
and each of MIS, Simco and Autoflex (as applicable), in accordance with their
respective terms, subject to judicial discretion regarding specific performance
or other equitable remedies, and except as may be limited by bankruptcy,
reorganization, insolvency, moratorium or other laws relating to or affecting
the enforcement of creditors' rights and remedies generally. No other corporate
authorizations or proceedings on the part of any of MIS, Simco or Autoflex are
necessary to consummate the Merger or any of the other transactions contemplated
by this Agreement.
(c) Except as set forth in Schedule 5.1(c) to this
Agreement, the execution, delivery and performance of this Agreement and the
Related Agreements by the Shareholders and each of MIS, Simco and Autoflex will
not, with respect to MIS, Simco or Autoflex (l) constitute a breach or violation
of (A) such corporation's Articles of Incorporation or Bylaws, (B) any Law, or
(C) any material agreement, right, license, franchise, lease, indenture, deed of
trust, mortgage, loan agreement or other material instrument to which such
corporation is a party or by which such corporation is bound; (2) constitute a
violation of any order, judgment or decree to which such corporation is a party
or by which such corporation's assets or properties are bound or affected; (3)
result in the acceleration of any material debt owed by such corporation; (4)
result in the creation of any lien, charge or encumbrance upon the Shares or any
of such corporation's
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properties or assets; or (5) require any consent, approval, authorization or
permit of or from, or filing with or notification to, any court, government,
governmental authority or other regulatory or administrative agency or
commission, domestic or foreign (each, a "Governmental Entity"), except filing
the Certificate of Merger pursuant to the laws of the State of Michigan and
except obtaining approval under the HSR Act.
(d) Schedule 5.1(d) to this Agreement is a true and
complete list of each jurisdiction in which each of MIS, Simco and Autoflex is
qualified or licensed to do business.
5.2 Title. Each of MIS, Simco and Autoflex has good and
marketable title to, and the right to use, all of each such corporation's assets
reflected in the most recent Financial Statement, as defined in Section 5.10, or
acquired since the date of such Financial Statement, free and clear of all
security interests, mortgages, liens, pledges, charges or encumbrances of any
nature ("Liens"), except as set forth in Schedule 5.2 to this Agreement. There
are no special assessments against any of each such corporation's assets.
5.3 Properties and Improvements. Schedule 5.3 to this
Agreement truly and completely lists all of the real property owned or leased by
any of MIS, Simco or Autoflex (the "Properties"). Schedule 5.3 to this Agreement
lists all options or any other right that any of MIS, Simco or Autoflex has to
acquire any real property.
5.4 Other Assets of MIS, Simco and Autoflex.
(a) All of the furniture, fixtures and equipment owned or
leased by MIS, Simco or Autoflex is in good operating condition, subject only to
ordinary wear and tear, and are fit for their intended purpose.
(b) All of the assets of each of MIS, Simco and Autoflex
are owned by each such corporation and, except as set forth on Schedule 5.4 to
this Agreement, none of MIS, Simco and Autoflex is leasing or holding on
consignment, any equipment, furniture, fixtures or other personal property.
5.5 Claims; Litigation; Compliance with Laws; Approvals.
(a) There are no persons holding any claims of any nature
against any of MIS, Simco or Autoflex, including claims arising out of or in
connection with the operation of the business or of any of the properties of any
of MIS, Simco or Autoflex except (1) for such claims arising from goods sold or
services rendered by any of MIS, Simco or Autoflex in the ordinary course of its
business which do not exceed in the aggregate $25,000 or (2) as set forth on
Schedule 5.5 to this Agreement.
(b) Except as disclosed in Schedule 5.5 to this
Agreement, (1) none of MIS, Simco or Autoflex is: (A) a party to any litigation,
proceeding or administrative investigation, and none is pending or, to the best
knowledge of the Shareholders, MIS, Simco and Autoflex, threatened in writing
against or by any of MIS, Simco or Autoflex or (B) subject to any outstanding
order, writ, injunction or decree of any court, government or governmental
authority or arbitration against or affecting it; and (2) to the best knowledge
of the Shareholders, MIS,
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Simco and Autoflex, there is not any reasonable basis for any litigation,
proceeding or investigation of the nature described in clause (1)(A) above.
(c) None of MIS, Simco and Autoflex is in violation of,
or were in violation of during the past five years, and each such corporation's
actions in the consummation of the Transactions do not violate or infringe, any
Law, including any Law relating to each such corporation's employment or
employment practices or environmental or occupational safety or health, or any
right or concession, copyright, trademark, trade name, patent, trade secret,
know-how or other proprietary right of others, except where noncompliance or
violation would not have a material adverse effect on MIS or Simco. The business
and activities of MIS, Simco and Autoflex (a) are presently being conducted in
material compliance with all requirements of Law, including the filing with any
Governmental Entity or other third party any statement, report, information or
form required by Law, and all requirements of any Governmental Entities having
jurisdiction over the business or activities of any such corporation and (b)
were not conducted in violation of any of such laws or such requirements within
the past five (5) years. Except as set forth in Schedule 5.8, none of MIS, Simco
or Autoflex has, within the past five (5) years, received a notice of violation
of, been threatened in writing with a charge of violating, or, to the best
knowledge of the Shareholders, MIS, Simco and Autoflex, been under investigation
with respect to a possible violation of, any provision of any requirement, law,
regulation, order or decree of any Governmental Entity which has not been
complied with, rescinded or resolved.
(d) Each of MIS, Simco and Autoflex has maintained all
licenses and permits and has filed all registrations, reports and other
documents required by local, state and federal authorities and regulating bodies
in connection with its business, except where the failure to maintain or file
such licenses, permits, registrations or reports would not have a material
adverse effect on MIS or Simco. All such licenses and permits will remain in
full force and effect (without imposition of any material adverse condition,
restriction, limitation, cost or penalty) notwithstanding the Merger. Each of
MIS, Simco and Autoflex is in material compliance with all such licenses,
permits and approvals, and there are no proceedings pending or, to the best
knowledge of the Shareholders, MIS, Simco and Autoflex, threatened in writing to
MIS, Simco or Autoflex, respectively, which may result in the material
limitation, termination, cancellation or suspension, or any adverse modification
of, any such license, permit or approval. Schedule 5.5 to this Agreement
contains a full and complete list of all such licenses, permits and approvals.
5.6 Agreements; Contracts; Warranties.
(a) Except as set forth on Schedule 5.6 to this
Agreement, (1) none of MIS, Simco or Autoflex is obligated under any contract or
agreement (written or otherwise) which may not be terminated without cost or
penalty to such corporation or its shareholders upon 30 days' notice of a desire
to terminate; and (2) none of MIS, Simco or Autoflex is a party to any agreement
or commitment of any nature pursuant to which it will be required to spend more
than $25,000 in any 12 month period or $50,000 in the aggregate.
(b) With respect to the agreements and understandings
identified on Schedule 5.6 to this Agreement:
(l) none of MIS, Simco or Autoflex (as
appropriate), nor, to the best
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knowledge of the Shareholders, MIS, Simco and Autoflex, the
third parties to such agreements, are in material default nor
has such default been asserted by any party, and there has not
occurred any event which, with or without the passage of time
or giving of notice (or both), would constitute such a
default;
(2) except as set forth on Schedule 5.6 to this
Agreement, each such agreement will remain in full force and
effect (without imposition of any material restriction,
limitation, cost or penalty to any of MIS, Simco, Autoflex or
Compuware) notwithstanding the Mergers;
(3) each of MIS, Simco and Autoflex (as
appropriate) has performed in all material respects all of its
obligations to the extent that such obligations can be
determined as of the date of this Agreement and each of MIS,
Simco and Autoflex (as appropriate) will perform in all
material respects all remaining obligations prior to the
Effective Time;
(4) none of MIS, Simco or Autoflex (as
appropriate) nor, to the best knowledge of the Shareholders,
MIS, Simco and Autoflex, the third parties to such agreements,
has repudiated any provision of any such agreement;
(5) except as set forth in Schedule 5.6 to the
Agreement, failure to renew, cancellation, expiration or
termination of any of the agreements identified on Schedule
5.6 to this Agreement in accordance with its terms would not
materially adversely affect the business, properties,
operations, assets, liabilities or condition (financial or
otherwise) of MIS, Simco or Autoflex; and
(6) each outstanding bid and proposal to provide
goods and to perform services and each agreement identified on
Schedule 5.6 to this Agreement in force as of the Effective
Date of the Mergers was bid and entered into in contemplation
of profitability in accordance with the ordinary course of
business of MIS and Simco.
(c) Other than the agreements identified on Schedule 5.6
to this Agreement, there are no agreements necessary for the operation of the
business of any of MIS, Simco or Autoflex as presently conducted and in
accordance with applicable Law and sound business practice.
(d) MIS, Simco and Autoflex have delivered to Compuware a
true and complete copy of each written instrument or document (including all
amendments thereto), and a true and complete written summary of each unwritten
understanding, which is identified on Schedule 5.6 to this Agreement. Schedule
5.6 includes true and correct copies of all forms of customer agreements which
are representative of those used by MIS, Simco and Autoflex (as appropriate).
5.7 Proprietary Rights. All of the Proprietary Rights are
listed or described on Schedule 5.7 to this Agreement and, except as disclosed
in Schedule 5.7 to this Agreement:
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(a) All of the Proprietary Rights are valid and in full
force and effect.
(b) MIS, Simco or Autoflex is the sole owner of, or
licensee under a valid license for, free from any liens, all of the Proprietary
Rights. Schedule 5.7 to this Agreement lists any Proprietary Rights licensed by
any of MIS, Simco or Autoflex from any third parties. MIS, Simco or Autoflex
owns or has the right to use all proprietary rights that are necessary for the
operation of its business as presently conducted or as proposed to be conducted,
except where the failure to own or have the right to use such Proprietary Rights
does not have a material adverse effect on MIS or Simco.
(c) Schedule 5.7 to this Agreement contains a true and
complete list or description of all contracts, oral or written, pursuant to
which any of MIS, Simco or Autoflex has authorized any person or entity to use,
or pursuant to which any person or entity has the right to use, any of the
Proprietary Rights, including, without limitation, on a temporary or trial
basis.
(d) Schedule 5.7 to this Agreement contains a true and
complete list and description of all royalty or contingent compensation
arrangements or other contracts, oral or written, regarding or pertaining to any
Proprietary Rights.
(e) To the best knowledge of the Shareholders, MIS, Simco
and Autoflex, no Proprietary Right presently being used, licensed or sold, or
contemplated to be used, licensed or sold, by any of MIS, Simco or Autoflex
violates or infringes on any rights owned or held by any other person or entity,
enforceable in the United States, United Kingdom or Japan, and, to the best
knowledge of the Shareholders, MIS, Simco and Autoflex, none of MIS, Simco,
Autoflex or the Shareholders have any knowledge of any claim of any of the
foregoing.
(f) There is no pending or, to the best knowledge of the
Shareholders, MIS, Simco and Autoflex, threatened (in writing) claim or
litigation against MIS, Simco, Autoflex or any other person or entity contesting
or, if decided adversely, affecting the right of any of MIS, Simco or Autoflex
to use, license or sell any Proprietary Right.
(g) To the best knowledge of the Shareholders, MIS, Simco
and Autoflex, no patent, trademark, service mark, trade name, copyright,
license, trade secret, invention, intellectual property right, know-how or other
right presently being licensed, sold or employed, by any person or entity
violates or infringes on, or may violate or infringe on, any Proprietary Rights,
nor, to the best knowledge of the Shareholders, MIS, Simco and Autoflex, is
there any pending or proposed statute, law, rule, regulation, standard or code
that may materially adversely affect any Proprietary Right presently being used,
licensed or sold, or proposed to be used, licensed or sold by any of MIS, Simco
and Autoflex.
(h) MIS, Simco and Autoflex use and have used their
reasonable efforts to secure and maintain their rights in the Proprietary
Rights. Without limiting the generality of the foregoing, each of MIS's, Simco's
and Autoflex's employees and independent contractors have executed, as
appropriate, agreements protecting the confidentiality of the Proprietary Rights
in substantially the forms provided to Compuware by MIS, Simco and Autoflex.
Each such agreement is valid and enforceable and in full force and effect,
subject to judicial discretion regarding specific performance or other equitable
remedies, and except as may be limited by bankruptcy, reorganization,
insolvency, moratorium or other laws relating to or affecting the enforcement of
creditors' rights and remedies generally, and, to the best knowledge of the
Shareholders, MIS, Simco and Autoflex, none has been violated by any signatory
employee or
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independent contractor. True and complete copies of each such agreement,
including, without limitation, all amendments or modifications thereof have been
delivered to Compuware prior to the date of this Agreement.
(i) Neither MIS, Simco nor Autoflex has granted to any
person or entity any license to use any software products. The software products
currently licensed by MIS, Simco or Autoflex to customers, are in substantial
conformance with the current documentation, whether electronically embedded,
written or otherwise, shipped with such software products, except for errors and
bugs of the time, type, scope and nature generally acceptable in the software
industry for similar types of software products.
5.8 Employees; Employee Benefits.
(a) Attached as Schedule 5.8 to this Agreement is a list,
as of the date of this Agreement, of all employees of each of MIS, Simco and
Autoflex, and their dates of hire, positions, base salary and commission
schedule (if applicable). Except as set forth on Schedule 5.8 to this Agreement
and except as provided in the next sentence, none of such employees has any
employment agreement with any of MIS, Simco or Autoflex. None of MIS, Simco or
Autoflex has any collective bargaining or union contracts or agreements. There
have not been any unfair labor practice complaints, material labor difficulties
or work stoppages, or threats thereof, affecting any of the employees or
activities of MIS, Simco or Autoflex. To the best knowledge of the Shareholders,
MIS, Simco and Autoflex, there is no union campaign presently being conducted to
solicit employees to authorize a union to request a national labor relations
board certification election with respect to the employees of MIS, Simco or
Autoflex. Except as set forth in Schedule 5.8, any employees of MIS, Simco or
Autoflex may be terminated at will, with or without cause, without any material
severance obligation.
(b) Each of MIS, Simco and Autoflex, as appropriate, has
deducted and remitted to the relevant Governmental Entities all income taxes,
unemployment insurance contributions and other taxes and amounts which it is
required to deduct and remit to such governmental entity, and each of MIS, Simco
and Autoflex has made all required filings in respect thereof, except to the
extent that any failure to deduct or remit is not reasonably expected to result
in any material liability.
(c) Except as set forth on Schedule 5.8 to this
Agreement, the consummation of the transactions contemplated by this Agreement
will not in and of themselves (i) entitle any current or former employee of any
of MIS, Simco or Autoflex to severance pay, unemployment compensation or any
other similar payment, or (ii) accelerate the time of payment or vesting or
increase the amount of compensation due to any such employee or former employee.
(d) Schedule 5.8 lists all "employee benefit plans" (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")), and all other bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase, stock
option, stock bonus, phantom stock, retirement, vacation, severance, disability,
death benefit, welfare, holiday bonus, hospitalization, medical or other plan or
arrangement, providing benefits to any current or former employee, officer or
director of MIS and/or Simco, or maintained or contributed to by MIS, Simco
and/or Autoflex or by any member
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of their controlled group(s) as defined in Code Sections 414(b), (c), (m), or
(o) for the benefit of any employee, officer or director of MIS, Simco and
Autoflex (collectively, "Benefit Plans").
(e) Except as set forth on Schedule 5.8, each Benefit
Plan set forth in Schedule 5.8 which is intended by MIS, Simco or Autoflex to be
tax qualified under Section 401(a) of the Code has received a determination
letter to that effect from the Internal Revenue Service and a copy of the most
recent determination letter for each such Benefit Plan has been delivered to
Compuware.
(f) On or prior to the date of this Agreement MIS, Simco
and Autoflex has delivered to Compuware true and complete copies of (i) each
Benefit Plan or, in the case of any unwritten Benefit Plans, descriptions
thereof, (ii) the most recent annual report filed with the appropriate
Governmental Entity with respect to each Benefit Plan, if any such report was
required, (iii) the most recent summary plan description for each Benefit Plan
for which such summary plan description is required, (iv) each trust agreement,
group annuity contract or insurance contract relating to any Benefit Plan, and
(v) the most recent actuarial report, if any, relating to any Benefit Plan.
(g) To the best knowledge of the Shareholders, MIS, Simco
and Autoflex, none of MIS, Simco or Autoflex, any officer of MIS, Simco or
Autoflex or any of the Benefit Plans, or any trusts created thereunder, or any
trustee or administrator thereof, has engaged in a "prohibited transaction" (as
defined in Code Section 4975 or ERISA Section 406) or any other breach of
fiduciary responsibility that would subject MIS, Simco and/or Autoflex or any
officer of MIS, Simco and/or Autoflex to a material tax or penalty on prohibited
transactions or to any liability under ERISA.
(h) Except as disclosed on Schedule 5.8, no such Benefit
Plan that is an employee welfare benefit plan (as defined in ERISA Section 3(1)
provides benefits to current or future retirees or current or future former
employees and their dependents, except as required by the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended, or applicable state continuation
coverage law.
(i) Each Benefit Plan and all related trust or other
agreements conform in form and operation to, and comply with, all applicable
laws and regulations, including, without limitation, ERISA and the Code, and all
reports or information relating to each such Benefit Plan required to be filed
with any Governmental Entity or disclosed to participants has been timely filed
and disclosed.
(j) Except as disclosed in Schedule 5.8, MIS, Simco
and/or Autoflex has not announced a plan to create, nor does it have any legally
binding commitment to create, any new arrangement which would, when established,
constitute an employee benefit plan, as defined in Section 3(3) of ERISA.
(k) All insurance premiums or contributions required,
with respect to any Benefit Plan, have been paid in full and there exist no
funding deficiencies within the meaning of Code Section 412 with respect to any
Benefit Plan. Except as disclosed on Schedule 5.8, there are no known material
retrospective adjustments provided for under any insurance contracts
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maintained pursuant to any Benefit Plan with regard to policy years or other
periods ending on or before the Effective Time of the Merger.
(l) Except as disclosed on Schedule 5.8, no Benefit Plan,
or the deduction of any contributions thereto by MIS, Simco and/orAutoflex, is
the subject of a current or pending audit by any Governmental Entity, and no
litigation or asserted claims exist against MIS, Simco and/or Autoflex or any
Benefit Plan or fiduciary with respect thereto, other than such benefit claims
as are made in the normal operation of a Benefit Plan. There are no known facts
which are reasonably expected to give rise to any action, suit, grievance,
arbitration or other claim in connection with any Benefit Plan.
5.9 Insurance. Schedule 5.9 to this Agreement contains a
true and complete list of all policies of fire, liability, workers' compensation
and other forms of insurance owned or held by each of MIS, Simco and Autoflex
(including coverages), and each of MIS, Simco and Autoflex has made available
for inspection by Compuware true and complete copies of all such policies. All
such policies are in full force and effect, all premiums with respect thereto
covering all periods up to and including the Closing Date have been paid, and no
notice of cancellation or termination has been received by the Principals, MIS,
Simco or Autoflex with respect to any such policy. Such policies (a) are
sufficient for material compliance with all requirements of Law and all
agreements to which each of MIS, Simco and Autoflex is a party; (b) are valid,
outstanding and enforceable policies; (c) will remain in full force and effect
through the Closing Date without the payment of additional premiums; and (d)
will not in any way be affected by, or terminate or lapse by reason of, the
transactions contemplated by this Agreement. Schedule 5.9 to this Agreement
identifies all risks which each of MIS, Simco and Autoflex has designated as
being self-insured.
5.10 Financial Statements. MIS has delivered to Compuware
(1) complete copies of its audited consolidated financial statements for the
year ended May 31, 1998, (2) complete copies of its audited consolidated balance
sheet as of May 31, 1997, (3) complete copies of its consolidated reviewed
financial statements for the year ended May 31, 1997, (4) complete copies of its
reviewed consolidated financial statement for the year ended May 31, 1996,
respectively, with, as to (1), (2), (3) and (4) above the corresponding
accountants reports, including balance sheets and accompanying statements of
profit and loss and related schedules of cost and expense for the covered
periods, as applicable, and (5) unaudited financial statements for the months
ended after May 31, 1998 through December 31, 1998. Simco has delivered to
Compuware (1) complete copies of its compiled financial statements for the three
years ended August 31, 1998, August 31, 1997 and August 31, 1996, respectively,
with the corresponding accountants reports, including balance sheets and
accompanying statements of profit and loss and related schedules of cost and
expense for the covered periods, and (2) unaudited financial statements for the
months ended after August 31, 1998 through December 31, 1998. Autoflex has
delivered to Compuware (1) complete copies of its reviewed financial statements
for the three years ended May 31, 1998, May 31, 1997 and May 31, 1996,
respectively, with the corresponding accountants reports, including balance
sheets and accompanying statements of profit and loss and related schedules of
cost and expense for the covered periods, and (2) unaudited financial statements
for the months ended after May 31, 1998 through December 31, 1998. All of the
foregoing, are referred to as the "Financial Statements." Each of the Financial
Statements presents fairly and accurately the financial condition, assets and
liabilities, results of
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operations and related costs and expenses of each of MIS, Simco and Autoflex as
of such dates and for the period then ended, and all of such statements were
prepared in accordance with GAAP (except, that certain Financial Statements
reference an incorrect number of issued and outstanding shares of MIS and except
with respect to interim financial statements, for normal, non-material year-end
adjustments and lack of footnotes). None of MIS, Simco or Autoflex has received
any "management letter" in connection with any audit.
5.11 Undisclosed Liabilities. Except for trade payables
incurred by MIS, Simco and/or Autoflex in the ordinary course of business since
the date of the most recent Financial Statements, and except as set forth in
Schedule 5.11 to this Agreement, none of MIS, Simco and Autoflex has any
liability or obligation of any kind (contingent or otherwise) not reflected on
the most recent Financial Statements. There is no reasonable basis for the
assertion of any claim or liability against any of MIS, Simco or Autoflex which
is not fully reserved against, as required by GAAP, in the Financial Statements.
5.12 Taxes
(a) Each of the Companies has timely filed (or has
caused, or will cause, to be timely filed on its behalf either separately or as
a member of a consolidated group of companies) all Tax Returns required to be
filed by it with any Tax Authority with respect to Taxes for any period ending
on or before the Effective Date, taking into account any valid and proper
extension of time to file granted to or obtained on behalf of the Company, and
all such Tax Returns are or, if not yet filed, will be, to the best knowledge of
the Shareholders, MIS, Simco and Autoflex true, correct and complete in all
material respects at the time of filing. All Taxes (whether or not shown on such
Tax Returns) owed by any of the Companies have been timely paid in full. No
deficiency for any amount of Taxes has been asserted or assessed or, to the best
knowledge of the Shareholders, MIS, Simco and Autoflex, has been threatened or
is likely to be assessed by a Tax Authority against any of the Companies. No
claim has ever been made by a Tax Authority in a jurisdiction where any of the
Companies do not file Tax Returns that any of the Companies is or may be subject
to taxation by that jurisdiction. None of the Companies has any liability for
the Taxes of any person under Treasury Regulation ss.1.1502-6 (or any similar
provision of state, local, or foreign law) as a transferee or successor, by
contract, or otherwise. Except as set forth on Schedule 5.12(i), there are no
excess loss accounts, gains or losses from Deferred Intercompany Transactions or
Intercompany Transactions pertaining to any of the Companies (whether or not
they are taken into account as a result of the Mergers). None of the Companies
currently is the beneficiary of any extension of time within which to file any
Tax Return. To the best knowledge of the Shareholders, MIS, Simco and Autoflex,
there are no Liens or security interests on any of the assets of the Companies
that arose in connection with any failure (or alleged failure) to pay Taxes.
(b) The Companies have accrued, adequately reserved and
shown on their Financial Statements as a liability, all Taxes for any taxable
period (or portions thereof) which ends on or before the Effective Date. If any
of the Companies is a partner in a partnership whose taxable year does not end
on the Effective Date, all Taxes of such Companies attributable to the portion
of such partnership's taxable year which ends on the Effective Date have been
accrued in the Financial Statements. Any Tax Return for any taxable period
ending on or before the Effective Date shall be prepared in a manner consistent
with the accrual of Taxes in the Financial
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Statements previously delivered to Compuware.
(c) Each of the Companies has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts paid or owing
to any employee, independent contractor, creditor, shareholder, or other third
party, and has otherwise complied with applicable laws relating thereto.
(d) To the best knowledge of the Shareholders, MIS, Simco
and Autoflex, there is no audit dispute, claim or other proceeding concerning
any Taxes or Tax Return of any of the Companies either (i) claimed or raised by
any Tax Authority or (ii) as to which any director, officer or employee
responsible for Tax matters of any of the Companies has knowledge. Schedule
5.12(c) lists all federal, state, local, and foreign income Tax Returns filed by
the Companies for taxable periods ended on or after December 31, 1993 that have
been audited by a Tax Authority, and indicates those Tax Returns that currently
are the subject of audit by a Tax Authority. Each of the Companies has delivered
or made available to Compuware true, correct and complete copies of all Tax
Returns, examination reports, and statements of deficiencies assessed against or
agreed to by the Shareholders (with respect to the Companies) and/or any of the
Companies since December 31, 1993.
(e) None of the Companies has waived any statute of
limitations in respect of Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency.
(f) Except as set forth on Schedule 5.12(f), each of the
Companies has disclosed on their respective Tax Returns all positions taken
therein, the nondisclosure of which could give rise to a substantial
understatement penalty within the meaning of Code ss.6662 or any similar
provision of state, local or foreign law.
(g) None of the Companies: (i) has filed a consent under
Code ss.341(f) concerning collapsible corporations; (ii) has made any payment,
is obligated to make any payment, or is a party to any agreement that under
certain circumstances could obligate it to make any payment that will not be
deductible under Code ss.280G; (iii) has been a United States real property
holding corporation within the meaning of Code ss.897(c)(2) during the
applicable period specified in Code ss.897(c)(1)(A)(ii); (iv) is a party to any
Tax allocation or sharing agreement; (v) has been a member of an Affiliated
Group filing a consolidated federal income Tax Return; (vi) has any liability
for the Taxes of any person under Treasury Regulation ss.1.1502-6 (or any
similar provision of state, local, or foreign law) as a transferee or successor,
by contract, or otherwise; (vii) has granted a power of attorney with respect to
any matter relating to Taxes of the Shareholders (with respect to the Companies)
or any of the Companies; (viii) has participated in an international boycott
under Code ss.999; (ix) is a party to any safe harbor lease within the meaning
of Code ss.168(f)(8) as in effect prior to amendment by the Tax Equity and
Responsibility Act of 1982; (x) has had any permanent establishments in any
foreign country as defined in any applicable treaty or convention between the
United States and such foreign countries; (xi) is a party to any joint venture,
partnership or other arrangement or contract that could be treated as a
partnership for federal income tax purposes; (xii) has made or is bound by any
election under Code ss.197; (xiii) has any debt the interest on which is tax
exempt under existing or prior law; (xiv) has any property that is tax exempt
use property within the meaning of Code ss.168(h); (xv) is bound by any closing
agreement within the meaning of Code ss. 7121;
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and (xvi) has agreed to or is required to make any adjustments under Code
ss.481(a) or any similar provision of state, local or foreign law.
(h) The transaction contemplated by this Agreement is not
subject to the tax withholding provisions of Code ss.3406 or any similar
provision of law.
(i) There are no Rulings from, or requests for Rulings
with, any Tax Authority addressed to the Shareholders (with respect to the
Companies) or any of the Companies that are, or if issued would be, binding on
any of the Companies.
(j) Schedule 5.12(i) sets forth the following information
with respect to each of the Companies as of the most recent practicable date as
well as on an estimated pro forma basis as of the Effective Date giving effect
to the consummation of the transaction contemplated by this Agreement: (i) the
basis of each of the Companies in its assets; (ii) the amount of any net
operating loss, net capital loss, unused investment or other credit, unused
foreign tax credit, or excess charitable contribution allocable to each of such
Companies; (iii) excess loss accounts in the Affiliated Group or Groups of which
any of the Companies is a member; (iv) the amount of any deferred gain or loss
allocable to any of the Companies arising out of any Deferred Intercompany
Transaction; (v) the amount of any gain or loss allocable to any of the
Companies arising out of any Deferred Intercompany Transaction or Intercompany
Transaction; and (vi) all material federal income tax elections for each of the
Companies. None of the Companies has a net operating loss or other tax
attributes presently subject to limitation under Code ss.ss.382, 383, or 384 or
the underlying Treasury Regulations.
5.13 Absence of Changes or Events. Except as disclosed on
Schedule 5.13 to this Agreement or as disclosed in the Financial Statements,
each of MIS, Simco and Autoflex has operated its business only in the ordinary
course and, since November 30, 1998:
(a) None of MIS, Simco or Autoflex has made any change in
its Articles of Incorporation or Bylaws; adjusted, split, combined or
reclassified any capital stock or securities of any of MIS, Simco or Autoflex;
entered into any arrangement or contract with respect to the issuing of any
shares of the capital stock or securities of any of MIS, Simco or Autoflex in a
public offering; or made any other changes in the capital structure of any of
MIS, Simco or Autoflex.
(b) None of MIS, Simco or Autoflex has borrowed any
amount or incurred, assumed, become subject to or guaranteed any liability,
whether absolute or contingent, other than trade payables incurred in the
ordinary course of business.
(c) None of MIS, Simco or Autoflex has made any material
changes in its practices or methods of accounting.
(d) None of MIS, Simco or Autoflex has made any material
change in or introduced any pension, retirement, profit sharing or bonus
arrangement or other employee welfare or benefit arrangement or other benefit
plan.
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(e) None of MIS, Simco or Autoflex has suffered any
material adverse change in its business, prospects, operations, operating
results, properties, assets, liabilities or condition (financial or otherwise).
(f) None of MIS, Simco or Autoflex has suffered any event
or condition of any character which, either individually or in the aggregate, is
reasonably likely to materially adversely affect its business, prospects,
operations, operating results, properties, assets, liabilities or condition
(financial or otherwise).
(g) None of MIS, Simco or Autoflex has suffered any
damage, destruction or loss, whether covered by insurance or not, which is
reasonably likely to materially adversely affect its business, prospects,
operations, operating results, properties, assets, liabilities or condition
(financial or otherwise).
(h) None of MIS, Simco or Autoflex has declared, set
aside, made or paid any dividend, distribution or payment, whether in cash,
stock, property or any combination thereof with respect to any of its securities
or MIS Shares, Simco Shares or Autoflex Shares, nor has it reclassified any of
such securities.
(i) None of MIS, Simco or Autoflex has instituted any
change with respect to the supervisory personnel of any of MIS, Simco or
Autoflex. Each of MIS, Simco and Autoflex has used its reasonable efforts to
preserve intact all of its business organizations and to retain the services of
its officers and key employees.
(j) None of MIS, Simco or Autoflex has increased any
salary, wages, compensation or fringe or other benefits payable or to become
payable to its officers, directors or employees, except for any such increases
that are required by applicable minimum wage laws.
(k) Each of MIS, Simco and Autoflex has exercised its
commercially reasonable efforts to maintain the good will of suppliers,
customers and employees of, and others having material business relationships
with, MIS, Simco and Autoflex.
(l) The Boards of Directors of each of MIS and Simco have
not adopted any resolution giving to any holder of MIS Shares or Simco Shares
appraisal, dissenters' or similar rights.
(m) None of MIS, Simco or Autoflex has made any tax
election nor has it settled or compromised any income or other tax liability or
refund.
(n) None of MIS, Simco or Autoflex has paid, discharged
or satisfied any claim, liability or obligation, whether absolute, accrued,
asserted or unasserted, contingent or otherwise, other than the payment,
discharge or satisfaction, in the ordinary course of business consistent with
past practices or in accordance with their terms, of liabilities reflected or
reserved against in the Financial Statements and trade payables incurred since
the date of the most recent
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Financial Statement.
(o) None of MIS, Simco or Autoflex has entered into,
amended, modified or terminated any material agreement, commitment or
transaction.
(p) None of MIS, Simco or Autoflex has made any provision
for material price discounts or other special considerations in respect of its
goods or services not in the ordinary course of business consistent with past
practices.
(q) None of MIS, Simco or Autoflex has sold, transferred,
leased, mortgaged, pledged, subjected to any lien or otherwise disposed of any
of its properties or assets, real, personal or mixed, tangible or intangible,
except in the ordinary course of business consistent with past practices.
(r) None of MIS, Simco or Autoflex has entered into any
agreement or understanding to do any of the foregoing.
5.14 Environmental and Occupational Matters.
(a) Except as disclosed on Schedule 5.14 to this Agreement, to
the best knowledge of the Shareholders, MIS, Simco and Autoflex, there are no
Hazardous Materials or Underground Storage Tanks present at any Property other
than those quantities of such Hazardous Materials as occur naturally in the
native and uncontaminated natural soils and waters at such Property. To the best
knowledge of the Shareholders, MIS, Simco and Autoflex, there exists no
condition at any Property that would require investigations, studies, sampling,
testing, removal, response, remediation or clean-up with respect to any
Hazardous Materials pursuant to any Environmental Laws. None of MIS, Simco or
Autoflex has generated, used, stored, treated, transferred, transported,
processed, manufactured, refined, handled, produced or disposed of Hazardous
Materials at, or affecting such Property in any manner which violates any
Environmental Law. None of MIS, Simco or Autoflex has: (1) caused or permitted
any Property to be used to generate, manufacture, refine, transport, treat,
dispose of, transfer, produce or process Hazardous Materials in violation of any
Environmental Laws or in a manner which gives rise to an investigatory, remedial
or other duty under any Environmental Laws, or (2) caused or permitted any
Release or threatened Release of Hazardous Materials at, from or affecting any
Property, whether by any of MIS, Simco, Autoflex, any of their tenants,
sub-tenants or occupants of any Property or any other person or entity or their
respective contractors, agents, employees or invitees, in violation of
Environmental Laws or which gives rise to any investigatory, remedial or other
duty under Environmental Laws.
(b) None of MIS, Simco or Autoflex has ever received any
notice, claim or allegation of any violation of, or of any duty to investigate
or remediate any condition under, any Environmental Law at any Property.
5.15 Subsidiaries Except for the fact that MIS owns all of
the issued and outstanding capital stock of Autoflex, none of MIS, Simco or
Autoflex has or has had any equity interest, or right to acquire any equity
interest, whether direct or indirect, in any corporation, joint
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venture, partnership, limited liability company, firm or other entity.
5.16 Capitalization.
(a) The MIS Shares, Simco Shares and Autoflex Shares (1)
constitute all of the issued and outstanding capital stock of each such
corporation and (2) are validly authorized and issued, fully paid, nonassessable
and free of preemptive rights.
(b) Schedule 5.16 to this Agreement is a correct and
complete description of the capitalization of each of MIS, Simco and Autoflex.
(c) One or more of the Shareholders own all of the
Shares, in each case free and clear of any lien, claim, security interest,
pledge, charge, encumbrance or restriction of any kind.
(d) There are no (1) options, warrants or other rights,
agreements, arrangements or commitments of any character to which any of MIS,
Simco or Autoflex is a party relating to the issued or unissued capital stock of
MIS, Simco or Autoflex or obligating MIS, Simco or Autoflex to grant, issue or
sell any shares of stock or other equity interest in MIS, Simco or Autoflex; (2)
agreements, arrangements or commitments of any character (contingent or
otherwise) pursuant to which any person is or may be entitled to receive any
payment based on revenues or earnings of MIS, Simco or Autoflex; (3) voting
trusts, proxies or other agreements or understandings to which MIS, Simco or
Autoflex is a party or by which MIS, Simco or Autoflex is bound with respect to
the voting of shares of MIS, Simco or Autoflex; or (4) preemptive rights or any
agreements granting any Shareholders any other anti-dilution protection.
5.17 Bank Accounts. Schedule 5.17 to this Agreement is a
full and complete list of all of bank accounts and the names of the persons
authorized to draw thereon of each of MIS, Simco and Autoflex.
5.18 Guarantees. Except as disclosed on Schedule 5.18 to
this Agreement, none of MIS, Simco and Autoflex has guaranteed any debt or
obligation of any third party and none of the debts or obligations of MIS, Simco
or Autoflex is guaranteed by any third parties.
5.19 Related Parties. Schedule 5.19 to this Agreement is a
true and complete list and brief description of all contracts and agreements or
other transactions entered into or agreed to within the past three years
(including, without limitation, all oral contracts and outstanding bids or
offers for the foregoing) involving amounts in excess of $25,000, and all
currently effective contracts and other transactions to which any of MIS, Simco
or Autoflex is or was a party, with respect to which any officer, director,
shareholder, Shareholder or, to the best knowledge of the Shareholders, MIS,
Simco and Autoflex, any employee of any of MIS, Simco or Autoflex, or any person
related to any of the foregoing by blood or marriage, is a party. True and
complete copies of all such contracts and all documentation relating to such
transactions, including, without limitation, all amendments thereto and
modifications thereof, have been delivered to Compuware prior to the date of
this Agreement. No Shareholders, directors, officers and/or employees of MIS,
Simco and/or Autoflex is indebted to MIS, Simco and/or Autoflex in excess of
$25,000 for any one person or, in excess of $100,000 in the aggregate for all
persons.
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5.20 Accounts Receivable. The accounts receivable which are
shown on Schedule 5.20 to this Agreement arose in the ordinary course of
business, are valid and collectible in the ordinary course (which, unless
otherwise set forth with respect to a particular account on Schedule 5.20, is no
more than 30 days from invoice date), subject to no counterclaims or setoffs, at
the aggregate recorded amount thereof as shown on the records of MIS, Simco and
Autoflex, as appropriate.
5.21 Brokers. Except as set forth on Schedule 5.21 to this
Agreement:
(a) None of MIS, Simco and Autoflex, nor any Shareholder (1)
has dealt with any broker or finder in connection with this transaction; (2) has
caused or created any liability to any broker or finder in connection with this
transaction; or (3) is aware of any claim from any third party that it is
entitled to brokerage, finders or other similar fees in connection with this
transaction.
(b) None of MIS, Simco and Autoflex nor any Shareholder is
aware of any broker or finder which was instrumental or had any part in bringing
about this transaction.
5.22 Year 2000 Compliance. Except as disclosed in Schedule
5.22 to this Agreement, the software products currently offered for license by
any of MIS, Simco and Autoflex or previously licensed by any of MIS, Simco and
Autoflex to customers are Year 2000 Compliant. For purposes of this Agreement,
"Year 2000 Compliant" will mean that neither the performance nor the
functionality of such products is affected by dates prior to, during and after
the Year 2000. Year 2000 Compliant will include, but will not be limited to, the
following requirements: (a) no value for a current date will cause any material
interruption in operation of any such product; (b) date-based functionality must
perform consistently for dates prior to, during and after Year 2000; and (c) the
century in any date must be specified either explicitly or by unambiguous
algorithms or interfacing rules in all interfaces and data storage.
5.23 Disclosure. No statement, representation or warranty made
by any Shareholder or MIS, Simco or Autoflex in this Agreement or any Related
Agreement, and none of the schedules, attachments or exhibits to this Agreement
or any Related Agreement, contains any untrue statement of any material fact or
omits a material fact necessary to make the statements contained in this
Agreement, the Related Agreements or such schedules, attachments or exhibits, in
light of the circumstances in which they were made, not misleading. Except for
the effects of general economic conditions and general industry conditions, to
the best knowledge of the Shareholders, MIS, Simco and Autoflex, there is no
fact or circumstance which will materially adversely affect the business,
prospects, operations, operating results, properties, assets, liabilities, or
financial condition of any MIS, Simco and Autoflex, which fact or circumstance
has not been set forth in this Agreement or the Schedules hereto. To the best
knowledge of the Shareholders, MIS, Simco and Autoflex, MIS, Simco and Autoflex
have disclosed to Compuware. all transactions, events, facts and circumstances
relevant to the Mergers qualifying for the accounting and tax treatment set
forth in Sections 8.11 and 8.9 below.
6. Additional Representations and Warranties of Shareholders. In
addition to the
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representations and warranties set forth in Section 5 above, each Shareholder
represents and warrants to Compuware as follows, as of the date of this
Agreement and as of the Closing Date:
(a) Upon the execution and delivery of this Agreement and each
Related Agreement to which such Shareholder is a party, this Agreement and each
such Related Agreement will constitute the legal, valid and binding obligation
of such Shareholder, enforceable against such Shareholder in accordance with
their respective terms, subject to judicial discretion regarding specific
performance or other equitable remedies, and except as may be limited by
bankruptcy, reorganization, insolvency, moratorium or other laws relating to or
affecting the enforcement of creditors' rights and remedies generally.
(b) Such Shareholder's execution, delivery and performance of
this Agreement and the Related Agreements to which such Shareholder is a party
will not (1) constitute a breach or violation of (A) any Law or (B) any material
agreement, indenture, deed of trust, mortgage loan agreement or other material
instrument to which such Shareholder is a party or is bound or affected; (2)
constitute a violation of any order, judgment or decree to which such
Shareholder is a party or by which such Shareholder is bound; or (3) result in
the acceleration of any material debt owed by such Shareholder.
(c) Such Shareholder understands and agrees that the shares of
Compuware Stock to be received by such Shareholder upon conversion of such
Shareholder's shares of MIS Shares or Simco Shares in the Mergers have not been
registered under the Securities Act and other than pursuant to its obligations
under the Registration Rights Agreement, Compuware is not nor will it be under
any obligation to register such shares of Compuware Stock under the Securities
Act. Such Shareholder further understands and agrees that such shares of
Compuware Stock will constitute "restricted securities" within the meaning of
Rule 144 promulgated under the Securities Act and that, as such, such shares of
Compuware Stock must be held indefinitely unless they are subsequently
registered under the Securities Act or unless an exemption from the registration
requirements thereof is available. Such Shareholder is acquiring the shares of
Compuware Stock to be received by such Shareholder upon conversion of such
Shareholder's shares of stock in the Merger for such Shareholder's own account
for investment and not for, with a view to or in connection with any resale or
distribution thereof that would be in violation of the registration requirements
of the securities laws of the United States of America or any state thereof.
(d) Except as set forth in this Agreement or in the schedules
attached hereto, there are no obligations of MIS, Simco or Autoflex to any of
the Shareholders, and by approval of the Mergers, each Shareholder releases MIS,
Simco, Autoflex, the Surviving Corporations and Compuware from any such claim,
obligation or liability.
(e) The MIS Shares, Simco Shares and Autoflex Shares (1)
constitute all of the issued and outstanding capital stock of each such
corporation and (2) are validly authorized and issued, fully paid, nonassessable
and free of preemptive rights.
(f) Schedule 5.16 to this Agreement is a correct and complete
description of the capitalization of each of MIS, Simco, Autoflex.
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(g) One or more of the Shareholders own all of the Shares free
and clear of any lien, claim, security interest, pledge, charge, encumbrance or
restriction of any kind.
7. Compuware's Representations and Warranties. Compuware represents and
warrants to each of MIS, Simco and the Shareholders as follows, as of the date
of this Agreement and as of the Closing Date:
7.1 Organization; Power and Authority. Compuware is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Michigan, and has the corporate power and authority to
enter into this Agreement and the Related Agreements and to consummate the
transactions contemplated by this Agreement and the Related Agreements.
7.2 Authorization; Due Execution; No Conflicts.
(a) This Agreement and each Related Agreement has been duly
authorized by all necessary corporate action on the part of Compuware. Upon the
execution and delivery by Compuware of this Agreement and the Related
Agreements, this Agreement and the Related Agreements will each constitute the
legal, valid and binding obligation of Compuware, enforceable against Compuware
in accordance with their respective terms.
(b) Compuware's execution, delivery and performance of this
Agreement and the Related Agreements will not (1) constitute a breach or
violation of (A) Compuware's Articles of Incorporation or Bylaws, (B) any Law or
(C) any material agreement, indenture, deed of trust, mortgage, loan agreement
or other material instrument to which Compuware is a party or by which Compuware
is bound; or (2) constitute a violation of any order, judgment or decree to
which Compuware is a party or by which any of Compuware's assets are bound or
affected.
7.3 SEC Statements, Reports and Documents. Other than the
proxy statement relating to Compuware's meeting of stockholders held August 25,
1998, Compuware has timely filed all required forms, reports, statements and
documents with the Securities and Exchange Commission ("SEC") since the date
Compuware became a reporting company under the Securities Exchange Act of 1934,
as amended ("Exchange Act"). Compuware heretofore has delivered or made
available to counsel for the Shareholders: (a) its Annual Reports on Form 10-K
for the fiscal years ended March 31, 1996, 1997 and 1998, respectively; (b) its
Quarterly Reports on Form 10-Q for the fiscal quarters ended, June 30, 1998,
September 30, 1998 and December 31, 1998; (c) all proxy statements relating to
Compuware's meetings of stockholders (whether annual or special) held since
March 31, 1996, (d) all other forms, reports, statements and documents filed or
required to be filed by it with the SEC since March 31, 1998, and (e) all
amendments and supplements to all such reports and registration statements filed
by Compuware with the SEC (the documents referred to in clauses (a), (b), (c),
(d) and (e) being hereinafter referred to as the "Compuware Reports"). As of
their respective dates, other than the proxy statement relating to Compuware's
meeting of stockholders held August 25, 1998, the Compuware Reports complied in
all material respects with all applicable requirements of the Exchange Act and
the rules and regulations promulgated thereunder, and did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were
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made, not misleading. The financial statements (including any related notes) of
Compuware included in the Compuware Reports were prepared in accordance with
GAAP (except as otherwise stated in the financial statements), and present
fairly the consolidated financial position, results of operations and changes in
financial position of Compuware and its consolidated subsidiaries as of the
dates and for the periods indicated, subject, in the case of unaudited interim
consolidated financial statements, to (i) the absence of certain notes thereto
and (ii) normal year-end audit adjustments which are not in the aggregate
material. The consolidated balance sheet of Compuware and its subsidiaries as at
December 31, 1998, including the notes thereto, is hereinafter referred to as
the "Compuware Balance Sheet." Compuware has heretofore furnished or made
available to MIS a correct and complete copy of any amendments or modifications,
which have not yet been filed with the SEC but which are required to be filed,
to agreements, documents or other instruments which previously had been filed by
Compuware with the SEC pursuant to the Securities Act or the Exchange Act.
7.4 Brokers. Except as set forth on Schedule 7.4 to this
Agreement:
(a) Compuware (1) has not dealt with any broker or finder in
connection with this transaction; (2) has not caused or created any liability to
any broker or finder in connection with this transaction; and (3) is not aware
of any claim from any third party that it is entitled to brokerage, finders or
other similar fees in connection with this transaction.
(b) Compuware is not aware of any broker or finder which was
instrumental or had any part in bringing about this transaction.
7.5 No Material Adverse Changes. Since December 31, 1998,
Compuware has not suffered any material adverse change in its business,
prospects, operations, operating results, properties, assets, liabilities or
condition (financial or otherwise).
7.6 Shares of Compuware Stock. The issuance of shares of
Compuware Stock as provided for in Sections 3.1 and 3.2 has been duly authorized
and, upon receipt of the consideration therefor as provided herein, will be
validly issued, fully paid and non-assessable.
8. Covenants Pending the Closing.
8.1 Conduct Through the Closing Date. From and after the date
of this Agreement and prior to the Closing Date, each of MIS, Simco, Autoflex
and the Shareholders will (except as otherwise consented to in writing by
Compuware which consent shall not be unreasonably withheld, conditioned or
delayed):
(a) Operate their respective businesses in the ordinary course
as historically conducted.
(b) Not enter into any transaction, take any action, or fail
to take any action, which would result in, or could reasonably be expected to
result in, any of the representations, warranties, disclosures or agreements of
any of the Shareholders, MIS, Simco or Autoflex in this Agreement or the Related
Agreements or the exhibits or schedules to this Agreement and the
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Related Agreements or in connection with the consummation of the transactions
contemplated by this Agreement or the Related Agreements, to not be true and
complete immediately after the occurrence of such transaction. Without limiting
the obligations of MIS, Simco, Autoflex and the Shareholders under this Section
8.1(b), each of MIS, Simco and Autoflex will: (1) maintain such corporation's
assets and properties in good operating condition, subject to ordinary wear and
tear; (2) maintain such corporation's present insurance in force; and (3) comply
in all material respects with the provisions of all agreements, leases, laws and
regulations applicable to such corporation or its assets.
(c) Not allow such corporation to enter into any agreements,
contracts, purchases or sales other than in the ordinary course of its business
without the written consent of Compuware, including any agreements that would
dispose of or encumber any of any such corporation's assets other than in the
ordinary course of business.
(d) Use commercially reasonable efforts to preserve its
present business organization and goodwill intact, including the present
business relationships and goodwill with customers, suppliers and others having
material business dealings with each such corporation.
(e) Cause each such corporation to pay all costs, expenses,
liabilities and obligations of such corporation in the ordinary course when due,
regardless of whether any such items are to be reimbursed by Compuware under
this Agreement.
(f) Not make any material Tax election, file any material Tax
Return, settle or compromise any material Tax liability or agree to an extension
of a statute of limitation with respect to any material amount of Tax (other
than extensions for filing Tax Returns) except to the extent that the amount of
any such Tax, settlement or compromise has been reserved for in the Financial
Statements for periods prior to the date of this Agreement.
(g) Except as provided by Section 8.1(f) above, prepare and
file on or before the due date therefor all Tax Returns required to be filed by
the Companies (except for any Tax Return for which an extension has been
properly and timely granted) on or before the Effective Date, and pay all Taxes
(including estimated Taxes) due on such Tax Returns (or due with respect to Tax
Returns for which an extension has been properly and timely granted) or which
are otherwise required to be paid at any time prior to or during such period.
(h) To the extent the Shareholders or the Companies receive
notice of the commencement or scheduling of any Tax audit, the assessment of any
Tax, the issuance of any notice of Tax due or any bill for collection of any Tax
due for Taxes, or the commencement or scheduling of any other administrative or
judicial proceeding with respect to the determination, assessment or collection
of any Tax for any of the Companies, provide prompt written notice to Compuware
of such matter, setting forth information (to the extent known) describing any
asserted Tax liability in reasonable detail and including copies of any notice
or other documentation received from the applicable Tax Authority with respect
to such matter.
8.2 Approvals and Consents. Each of MIS, Simco, Autoflex and
Compuware will use commercially reasonable efforts to obtain, in writing, all
necessary governmental and third party approvals and consents required in order
to authorize and approve this Agreement and
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the Related Agreements and to consummate the Mergers pursuant to this Agreement.
8.3 Advice of Changes. Between the date of this Agreement and
the Closing Date, each of MIS, Simco and Autoflex will promptly notify Compuware
in writing of any fact which, if existing or known at the date of this
Agreement, would have been required to be set forth in this Agreement or
disclosed pursuant to this Agreement or a Related Agreement or which would
affect or change any of the information set forth in the exhibits or schedules
of this Agreement or any Related Agreement.
8.4 Notice of Litigation Compuware, on the one hand, and each
of MIS, Simco, Autoflex and the Shareholders, on the other hand, will promptly
notify the other in writing if it (or they) receives any notice, or otherwise
becomes aware, of any action or proceeding instituted or threatened before any
court or governmental agency by any third party to restrain or prohibit, or
obtain substantial damages in respect of, this Agreement or any Related
Agreement or the consummation of the transactions contemplated by this Agreement
or the Related Agreements.
8.5 Access to Properties and Records; Inspection. From the
date of this Agreement through the Closing Date, Compuware and its counsel,
accountants and other representatives will be given full access during normal
business hours to all of the properties, personnel, financial and operating
data, books, tax returns, contracts, commitments and records of each of MIS,
Simco and Autoflex, including such access as is needed to conduct a physical
inspection of the properties of each of MIS, Simco and Autoflex satisfactory to
Compuware.
8.6 Supplemental Information and Documents. From time to time
prior to the Effective Time of the Merger, MIS, Simco, Autoflex and the
Shareholders will deliver to Compuware supplemental or other information and
documents, including, without limitation, concerning events, facts or
circumstances subsequent to the date of this Agreement which could render any
statement, representation, warranty, covenant or other agreement in any of the
Agreement or any information contained in any exhibit or schedule inaccurate or
incomplete or which documents would have been required to have been delivered if
existing prior to the date of this Agreement. The obligations of MIS, Simco and
Autoflex pursuant to this Section 8.6 will not limit or affect any right or
remedy Compuware might otherwise have under the Agreement or otherwise with
respect to any such supplemental or other information or documents. MIS will
cooperate, and will cause its employees to cooperate, in all reasonable
respects, with Compuware and all of its representatives with respect to making
available all information reasonably requested by Compuware and its
representatives.
8.7 Affiliate Agreements. Set forth on Schedule 8.7 to this
Agreement is a list of those persons who are, in Compuware's or MIS's reasonable
judgment, as the case may be, Affiliates of Compuware or MIS, as the case may
be. Each of Compuware and MIS will provide the other such information and
documents as the other reasonably requests for purposes of reviewing such list.
MIS and Simco will cause to be delivered to Compuware prior to the Closing from
each of the Affiliates of MIS and Simco, respectively, an executed MIS Affiliate
Agreement and Simco Affiliate Agreement in the form attached hereto as Exhibit J
(each an "MIS Affiliate Agreement" or Simco Affiliate Agreement, collectively,
the "MIS/Simco Affiliate Agreements"). Compuware will cause to be delivered to
MIS prior to the Closing from each of
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the Affiliates of Compuware, an executed Affiliate Agreement in the form
attached hereto as Exhibit G (each a "Compuware Affiliate Agreement",
collectively, the "Compuware Affiliate Agreements"). Compuware will be entitled
to place appropriate legends on the certificates evidencing any shares of
Compuware Stock to be received by such Affiliates of MIS pursuant to the terms
of this Agreement, and to issue appropriate stop transfer instructions to the
transfer agent for Compuware Stock, consistent with the terms of the MIS/Simco
Affiliate Agreements.
8.8 Blue Sky Laws. Compuware will take such steps as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the issuance of shares of Compuware Stock pursuant
hereto and the Transactions.
8.9 Tax-Free Reorganization. Compuware and MIS will each use
all reasonable efforts to cause the Mergers to be treated as tax-free
reorganizations within the meaning of Section 368 of the Code. Compuware does
not have any present plan or intent to (a) sell or otherwise dispose of the
stock of the Surviving Corporations except for (i) transfers of stock to
corporations controlled (within the meaning of Section 368(c) of the Code) by
Compuware or (ii) other transfers which would not disqualify the Mergers as
reorganizations within the meaning of Section 368(a) of the Code, (b) reacquire
any of its stock issued in connection with the Mergers, (c) cause the Surviving
Corporations to issue shares of stock of the Surviving Corporations that would
result in Compuware losing control (within the meaning of Section 368(c) of the
Code) of the Surviving Corporations, or (d) discontinue both (i) the historic
businesses of the Companies and (ii) use in a business of a significant portion
of the historic business assets of the Companies. Notwithstanding the foregoing,
Compuware shall not be responsible for any adverse Tax effect (on the Mergers'
qualification as a tax free reorganization or otherwise) from the payment of
expenses under Section 8.19 below whether such adverse effect results from such
payment alone or from such payment together with any other act of any party to
this Agreement before, on or after the Closing.
8.10 Tax Matters.
(a) The Shareholders shall be responsible for causing the
Companies to prepare and file any Tax Returns of the Companies that are due on
or before the Effective Date. Compuware shall have a reasonable opportunity to
review and comment on all such Tax Returns and amendments thereto prior to
filing and the Shareholders shall make such revisions to such Tax Returns as are
reasonably requested by Compuware. Compuware will be responsible for the
preparation and filing of all Tax Returns of any of MIS, Simco and Autoflex that
are due after the Effective Date.
(b) The parties will cooperate in all reasonable respects with
each other in a timely manner in the preparation and filing of any Tax Returns,
payment of any Taxes in accordance with this Agreement, and the conduct of any
audit or other proceeding. Each party will execute and deliver such powers of
attorney and make available such other documents as are necessary to carry out
the intent of this Section 8.10(b). Each party agrees to notify the other party
of any audit adjustments that do not result in tax liability but can reasonably
be expected to affect Tax Returns of the other party.
(c) The parties shall (i) retain records, documents,
accounting data and other information (including computer data) necessary for
the preparation and filing of all Tax Returns or the completion of the audit of
such returns for the applicable period of limitations on
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assessment of Taxes covered by such returns and (ii) give to the other
reasonable access during normal business hours to such records, documents,
accounting data and other information (including computer data), for the purpose
of the review or audit of such returns to the extent relevant to an obligation
or liability of a party under this Agreement. Compuware, on the one hand, and
the Shareholders, on the other hand shall not destroy or otherwise dispose of
any such records without first providing the other party with a reasonable
opportunity to review and copy the same.
(d) All tax sharing agreements or similar arrangements with
respect to or involving the Companies shall be terminated with respect to the
Companies prior to the Effective Date and, after the Effective Date, the
Companies shall not be bound thereby or have any liability thereunder for
amounts due in respect of periods prior to, on or after the Effective Date.
(e) The Shareholders and the Companies shall, upon request,
furnish Compuware and its affiliates with an affidavit, stating, under penalty
of perjury, the transferor's United States taxpayer identification number and
that the transferor is not a foreign person pursuant to Code ss.1445(b)(2).
(f) Upon request, each of the parties will use their
reasonable efforts to obtain any certificate or other document from any Tax
Authority or any other person as may be necessary to mitigate, reduce or
eliminate any Tax that could be imposed (including, but not limited to, with
respect to the matters contemplated by this Agreement or the transaction
contemplated by this Agreement).
(g) Upon request, each of the parties will provide the other
with all information that either party may be required to report pursuant to
Code ss.6043 and the underlying Treasury Regulations.
8.11 Pooling Accounting. Compuware and each of MIS and Simco
will each use its reasonable efforts to cause the business combination to be
effected by the Mergers to be accounted for as a pooling of interests under
GAAP. Each of Compuware, MIS and Simco will use its reasonable efforts to cause
its Affiliates not to take any action that would adversely affect the ability of
Compuware to account for the business combination to be effected by the Mergers
as a pooling of interests under GAAP.
8.12 Filings. The parties will prepare and give or make any
necessary notices or filings under any other federal, state, local, foreign or
other laws, rules and regulations which may be required in connection with this
Agreement and all of the Transactions.
8.13 Benefit Plans. It is the intention of the parties that
benefits then currently available to other Compuware employees will be made
available to the former employees of MIS, Simco and Autoflex when reasonable and
practicable.
8.14 Restrictions on Resale. Except as provided in the
MIS/Simco Affiliate Agreements, each Affiliate, identified in Schedule 8.7 to
this Agreement, will not sell, transfer, pledge or otherwise dispose of any
shares of Compuware Stock prior to the date on which financial results covering
at least thirty (30) days of post-Closing combined operations of Compuware and
MIS and Simco have been published by Compuware. Compuware shall publish
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financial results covering at least thirty (30) days of post-Closing combined
operations of Compuware and MIS and Simco as soon as practicable, but, in any
event, not later than within the time period required for the timely publication
of such financial results as required under the Exchange Act.
8.15 Non-Disclosure Agreement. MIS and Compuware agree that
each party's non-disclosure obligations contained in any non-disclosure
agreement signed by MIS and Compuware will remain in full force and effect in
accordance with the terms of the same.
8.16. Registration Agreement. At the Closing, Compuware and
the Shareholders will enter into a Registration Rights Agreement in the form of
Exhibit F.
8.17 Escrow Agreement. At the Effective Time, Compuware, the
Shareholders and the Representative shall enter into the Escrow Agreement with
the Escrow Agent.
8.18 Other Actions. Compuware, on the one hand, and MIS,
Simco, Autoflex and the Shareholders, on the other hand, will take all such
other and further actions, consistent with this Agreement and the Related
Agreements, as the other may reasonably request.
8.19 Expenses. Notwithstanding anything to the contrary
contained in Section 12.11 or any Schedule, the Surviving Corporation shall pay,
or cause to be paid: (a) up to (but not in excess of) $200,000 in the aggregate
of the fees and expenses of Jaffe, Raitt, Heuer & Weiss, P.C., Grant Thorton
LLP, brokers, financial advisors, attorneys and accountants incurred by MIS and
Simco in connection with the transactions contemplated by this Agreement, and
the negotiation and documentation thereof, and (b) those fees and expenses of R.
Bradley Lambert, P.C., McDonough, Holland & Allen and Standpipe Studios, LLC, as
disclosed in Schedules 5.6, 5.11, 5.13 and 5.19, respectively. Any other fees
and expenses of any brokers, financial advisors, attorneys and accountants
incurred by MIS and Simco in connection with the transactions contemplated by
this Agreement and the negotiation and documentation thereof shall be paid, or
caused to be paid, by the Shareholders.
9. Conditions Precedent to the Parties' Obligations to Close.
9.1 Conditions Precedent of Compuware. Compuware's obligations
under this Agreement are subject to the satisfaction at or before the Closing
Date of each of the following conditions (the fulfillment of any of which may be
waived in writing by Compuware):
(a) All terms, covenants and conditions of this Agreement and
the Related Agreements to be complied with or performed by MIS, Simco, Autoflex
or the Shareholders prior to or on the Closing Date will have been fully
complied with and performed by MIS, Simco, Autoflex or the Shareholders (as
applicable), including MIS's, Simco's Autoflex's and the Shareholders' timely
taking of all actions and delivery of all documents required to be taken and
delivered by them under this Agreement and the Related Agreements.
(b) All representations, warranties, disclosures and
statements of each of MIS, Simco, Autoflex and the Shareholders contained in
this Agreement and the Related Agreements will be true and complete in all
material respects as of the date of this Agreement and the Closing Date. Any
amendments to the exhibits and schedules to this Agreement and the Related
Agreements which are proposed to be delivered after the date of this Agreement
must be
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satisfactory to Compuware, in its sole discretion.
(c) There will not have been any material adverse change in
the financial condition, business or future business prospects of MIS, Simco or
Autoflex.
(d) Compuware will have received from Jaffe, Raitt, Heuer &
Weiss, an opinion substantially in the form of Exhibit I.
(e) Compuware will have received a favorable confirmation from
Deloitte & Touche, accountants to Compuware, of the accounting treatment of the
Merger as contemplated in Section 8.11.
(f) MIS, Simco and Autoflex will have received a favorable
confirmation from Grant Thornton, LLP, accountants to MIS, Simco and Autoflex,
that no event or transaction has occurred with respect to MIS, Simco and
Autoflex, and there are no facts or circumstances with respect to MIS, Simco and
Autoflex, which would prevent the Merger from meeting the accounting standards
for a pooling of interests.
(g) All courts of law, Governmental Entities and other third
parties, the consent, authorization or approval of which is necessary under any
applicable law, rule, order or regulation or under any contract, commitment or
other agreement of MIS, Simco or Autoflex, for the consummation of the
Transactions, will have consented to, authorized, permitted or approved such
Transactions, including the expiration or early termination of any applicable
waiting period under the HSR Act, except where the failure to obtain such
consent, authorization or approval will not have a material adverse effect on
MIS or Simco.
(i) MIS, Simco and Autoflex shall each have furnished
Compuware with a certificate of its officers in the form of Exhibit H.
9.2 Conditions Precedent of MIS, Simco, Autoflex and the
Shareholders. The obligations of MIS, Simco, Autoflex and the Shareholders under
this Agreement are subject to the satisfaction at, or prior to, the Closing Date
of the following conditions precedent (the fulfillment of any of which may be
waived in writing by MIS):
(a) All terms, covenants and conditions of this Agreement and
the Related Agreements to be complied with or performed by Compuware prior to or
on the Closing Date will have been fully complied with and performed by
Compuware, including Compuware's timely taking of all actions and delivery of
all documents required to be taken and delivered by it under this Agreement and
the Related Agreements.
(b) The representations, warranties, disclosures and
statements of Compuware contained in this Agreement and the Related Agreements
will be true and complete as of the date of this Agreement and on the Closing
Date.
(c) MIS and Simco will have received from the General Counsel
of Compuware, an opinion in the form of Exhibit E attached hereto.
(d) Compuware will have furnished MIS and Simco with a
certificate of its
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officers in the form attached hereto as Exhibit D.
9.3 Mutual Condition Precedent. Unless waived in writing by
each party, it will be a further condition to the consummation of this
transaction that no litigation will have been commenced or threatened to
challenge the right of any party to consummate the transactions contemplated
under this Agreement and the Related Agreements.
10. Default; Termination of Agreement.
10.1 Default. Compuware's, on the one hand, and MIS's,
Simco's, Autoflex's and the Shareholders', on the other hand, obligations under
this Agreement are of a special and unique character and Compuware's, on the one
hand, or MIS's, Simco's, Autoflex's or the Shareholder's, on the other hand,
failure to perform its obligations will cause irreparable injury to the other
party, the amount of which would be extremely difficult, if not impossible, to
estimate or determine and which may not be adequately compensable by monetary
damages alone. Therefore, the injured party will be entitled, as a matter of
course, to an injunction, restraining order, writ of mandamus or other equitable
relief from any court of competent jurisdiction, including specific performance,
restraining any violation or threatened violation of any term of this Agreement
or any Related Agreement, or requiring compliance with or performance of any
obligation under this Agreement or such Related Agreement, by the violating
party or parties, or such other persons as the court may order. The parties'
rights under this Section 10.1 are cumulative and are in addition to the rights
and remedies otherwise available to them under Section 10.2 below, any other
provision of this Agreement and any other agreement or applicable law.
10.2 Termination. This Agreement may be terminated at any time
before the Closing as follows:
(a) At the election of Compuware, by notice to the
Shareholders, at any time if any of Compuware's conditions precedent to Closing,
as specified in Section 9.1 or 9.3 above, has not been satisfied, other than as
a result of Compuware's breach of this Agreement, as of the Closing Date or has
at any time become incapable of being satisfied by the Closing Date.
(b) At the election of MIS and Simco, by notice to Compuware,
if any of conditions precedent to Closing, as specified in Section 9.2 or 9.3
above, has not been satisfied, other than as a result of MIS's, Simco's,
Autoflex's or the Shareholders' breach of this Agreement, as of the Closing Date
or has at any time become incapable of being satisfied, by the Closing Date.
(c) If this Agreement terminates in accordance with this
Section 10.2, it will be null and void and have no further force or effect. Any
termination will not affect the terminating party's rights arising from any
breach or misrepresentation of any non-terminating parties. The parties' rights
under this Section 10.2 are cumulative and are in addition to the other rights
and remedies available to the parties under Section 10.1 above, any other
provision of this Agreement, any other agreement or applicable law.
11. Indemnification.
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11.1 Indemnification by the Shareholders.
(a) The Shareholders will jointly and severally indemnify and
hold Compuware and the Surviving Corporation harmless against any Loss which may
be incurred by Compuware and the Surviving Corporation as a result of:
(1) any breach by MIS, Simco, Autoflex or the Shareholders of
any of their representations and warranties under Section 5 above, or
MIS's, Simco's, Autoflex's, or the Shareholders' breach of any
agreements made in this Agreement or any Related Agreement or the
exhibits or schedules to this Agreement or any Related Agreement; or
(2) any action, suit, proceeding, investigation, assessment or
judgment relating to any of the matters indemnified against in this
Section 11.1(a), including Fees and Costs (whether prior to or at trial
or in appellate proceedings).
(b) Each Shareholder, on a several basis, will also indemnify
and hold Compuware and the Surviving Corporation harmless against any Loss which
may be incurred by Compuware and the Surviving Corporation as a result of:
(1) any breach by such Shareholder of any of such
Shareholder's representations or warranties under Section 6 above or
any of such Shareholder's agreements made in this Agreement or any
Related Agreement or the exhibits or schedules to this Agreement or any
Related Agreement;
(2) any action, suit, proceeding, investigation, assessment or
judgment relating to any of the matters indemnified against in this
Section 11.1(b), including Fees and Costs (whether prior to or at trial
or in appellate proceedings).
11.2 Indemnification by Compuware. Compuware will indemnify
and hold MIS, Simco and the Shareholders harmless against any Loss which may be
incurred by the Shareholders as a result of:
(a) any breach by Compuware of any of Compuware's
representations, warranties, covenants or agreements made in this Agreement or
any Related Agreement or the exhibits or schedules to this Agreement or any
Related Agreement; or
(b) any action, suit, proceeding, assessment or judgment
relating to any of the matters indemnified against in this Section 11.2,
including Fees and Costs (whether prior to or at trial or in appellate
proceedings).
11.3 Claims for Indemnification.
(a) Whenever any claim is made for indemnification under this
Article 11, the person claiming such indemnification (the "Claimant") will give
notice to the party against whom indemnification is sought (the "Indemnifying
Party") promptly after the Claimant has actual knowledge of any event which
might give rise to a claim for indemnification under this
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Agreement; provided that if the Claimant receives a complaint, petition or any
other pleading in connection with a claim which requires the filing of an answer
or other responsive pleading, it will furnish the Indemnifying Party with a copy
of such pleading as soon as possible after receipt.
(b) The failure by the Claimant to give notice of a claim as
required in Section 11.3(a) above or a delay in giving such notice will not
affect the validity or amount of such claim and the indemnification obligations
of the Indemnifying Party will remain in effect as to such claim, except to the
extent that the Indemnifying Party can demonstrate that it has been materially
prejudiced or materially and adversely affected thereby.
(c) If, after the amount of the claim of loss is specified by
Claimant, and Claimant gives notice with respect thereto to the Indemnifying
Party (the "Claim Notice"), the Indemnifying Party objects to any such claim or
amount set forth in the Claim Notice, it may give notice to Claimant advising
Claimant of its objection within twenty (20) days of the Indemnifying Party's
receipt of the Claim Notice. If no such notice is timely given by the
Indemnifying Party to Claimant, Claimant will be entitled to payment from the
Indemnifying Party pursuant to this Agreement and the Escrow Agreement in the
amount of the Loss arising out of the claim as adjusted pursuant to the terms of
the Escrow Agreement. If the Indemnifying Party advises Claimant within such
period that it objects to the claim, Claimant and the Indemnifying Party will
promptly meet and use their reasonable best efforts to settle the dispute in
writing. If Claimant and the Indemnifying Party are unable to reach agreement
within thirty (30) days after the Indemnifying Party objects to the claim, then
either party may bring an action to determine the disputed portion of such claim
of Loss, with the undisputed portion to be recovered pursuant to the Escrow
Agreement, if applicable, or this Agreement.
(d) The giving of the notice by Compuware to the
Representative in accordance with Section 11.3 within the period of survival of
any representations or warranties shall toll said survival period (but only with
respect to such claim) until any liability under said notice is finally resolved
and determined.
11.4 Third Party Claims. If the facts giving rise to the right
of indemnification under Sections 11.1 or 11.2 above involve any actual or
threatened claim or demand by any third party against the Claimant or any
possible claim by the Claimant against any third party ("Third-Party Claim"),
and if, within 20 days after receipt of notice of the claim, the Indemnifying
Party gives the Claimant an agreement in writing, in form and substance
reasonably satisfactory to the Claimant, agreeing to indemnify and hold harmless
Claimant from all costs and liability arising from such Third Party Claim (and
including, if required by the Claimant, assurances reasonably satisfactory to
Claimant, of the Indemnifying Party's ability to meet its obligations under this
Section 11), the Indemnifying Party may at its own expense undertake full
responsibility for the defense or prosecution of such Third-Party Claim. So long
as the Indemnifying Party has assumed and is conducting the defense of the Third
Party Claim in accordance with this Section the Indemnifying Party will not
consent to the entry of any judgment or enter into any settlement with respect
to the Third Party Claim without the prior written consent of Claimant (which
consent shall not be unreasonably withheld, conditioned or delayed) unless the
judgment or proposed settlement involves only the payment of money damages by
the Indemnifying Party and does not impose an injunction or other equitable
relief upon Claimant. If the Indemnifying Party fails to deliver such an
agreement of indemnity to the Claimant, (1) the Claimant will be entitled
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to defend or prosecute such Third Party Claim with counsel of its own choice
(the Fees and Costs of such defense or prosecution being indemnified under this
Section 11), (2) the Indemnifying Party at its own expense may nevertheless
participate with the Claimant in the defense or prosecution of such Third-Party
Claim and any settlement negotiations with respect thereto, and (3) except as
provided herein, the Claimant may settle the Third Party Claim on such terms as
it may choose, although it will not reach such a settlement until it has
consulted in good faith with the Indemnifying Party. An Indemnifying Party's
defense or prosecution of, or participation in, a Third Party Claim will not in
any manner relieve the Indemnifying Party of its obligations to indemnify the
Claimant under this Section 11. The Indemnifying Party and the Claimant shall
cooperate in good faith with each other in connection with the defense or
settlement or any Third Party Claim and shall make available to each other all
information necessary or useful to the defense or settlement of such matter.
11.5Limits on Indemnification.
The representations and warranties of MIS, Simco, Autoflex and/or the
Shareholders set forth in this Agreement shall survive only for a period of one
calendar year from the Effective Date, and any claim for indemnification under
Section 11.1 must be asserted by notice to the Representative within one
calendar year of the Effective Date, or the same will be null and void,
provided, however, that the representations, warranties and covenants made by
the Shareholders under Sections 5.12, 8.9, 8.10, 11.7 or 12.14 of this Agreement
(which specifically relate to Taxes) shall survive until thirty days after the
expiration of the applicable statutes of limitations (including any waivers or
extensions) on assessment and collection of the Tax to which such
representation, warranty or covenant relates. If any claims for indemnification
have been made pursuant to Section 11.1 and the same are still pending or
unresolved at the expiration of the survival period, such claims shall continue
to be subject to the indemnification provisions of this Agreement. This Section
11.5 shall not limit any covenant or agreement by the parties hereto which by
its terms contemplates performance after the Effective Time, which in each case
shall survive the Effective Time. Notwithstanding anything herein to the
contrary, (i) the Shareholders shall not be obligated to indemnify Compuware
and/or the Surviving Corporations under this Article 11 unless and until the
aggregate of Losses for which indemnity is provided under this Article 11
reaches Two Hundred Thousand Dollars ($200,000), in which event the Shareholders
shall be obligated to indemnify Compuware and/or the Surviving Corporations for
all applicable Losses in excess of the first One Hundred Thousand Dollars
($100,000) of all aggregate Losses; and (ii) all Losses (other than Tax Losses)
payable to Compuware and/or the Surviving Corporations under this Agreement
shall be paid with, and shall not exceed, the Escrow Shares under the Escrow
Agreement, except for claims of fraud; (iii) the aggregate amount of Tax Losses
payable to Compuware and/or the Surviving Corporations under this Agreement
shall not exceed Seven Million Dollars ($7,000,000) less the amount of other
Losses paid to Compuware and/or the Surviving Corporations under this Agreement
and the Escrow Agreement, except for claims of fraud; and (iv) the aggregate
amount of Losses (whether Tax Losses or other Losses) payable to Compuware
and/or the Surviving Corporations under this Agreement shall never exceed Seven
Million Dollars ($7,000,000), except for claims of fraud. Each party hereby
acknowledges and agrees that, from and after the Effective Time, its sole and
exclusive remedy with respect to any and all claims relating to the subject
matter of this Agreement shall be pursuant to the indemnification provisions set
forth in this Article 11, except for claims of fraud. In furtherance of the
foregoing, each party hereby waives, from and after the Effective Time, to
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the fullest extent permitted under applicable law, any and all claims, rights
and causes of action (other than claims of fraud and claims arising under this
Article 11 and except for claims pursuant to that certain Indemnification
Agreement among the Michael M. Bahn Revocable Trust Dated January 23, 1995, and
Michael M. Bahn and Compuware) it may have relating to the subject matter of
this Agreement arising under or based upon any federal, state, local or foreign
statute, law, ordinance, rule or regulation or otherwise. Subject to the
foregoing, Compuware or the Surviving Corporations may recover Tax Losses
directly from the Shareholders or under the Escrow Agreement. In determining the
Shareholders' obligation to indemnify Compuware or the Surviving Corporations
pursuant to this Article 11, all references in the Agreement or in any
certificates delivered in connection with this Agreement to the terms
"material", "materiality" or variants thereof shall be disregarded for the
purpose of determining whether there has been any misrepresentation or breach of
warranty, except for the representations and warranties contained in Section
5.23.
11.6 Representative. Michael M. Bahn shall, by virtue of the
Merger and the resolutions to be adopted by the Shareholders, be irrevocably
appointed attorney-in-fact and authorized and empowered to act, for and on
behalf of any or all of the Shareholders (with full power of substitution in the
premises) in connection with the indemnity provisions of Article 11 as they
relate to the Shareholders generally, the Escrow Agreement, the notice provision
of this Agreement, and such other matters as are reasonably necessary for the
consummation of the Transactions including, without limitation, to act as the
representative of such Shareholders to review and authorize all set-offs, claims
and other payments authorized or directed by the Escrow Agreement and dispute or
question the accuracy thereof, to compromise on their behalf with Compuware any
claims asserted thereunder and to authorize payments to be made with respect
thereto and to take such further actions as are authorized in this Agreement
(the above named representative, as well as any subsequent representative of
such Shareholders appointed by him or, after his death or incapacity, elected by
vote of holders of a majority of the shares Compuware Stock received by such
Shareholders pursuant to the Merger, being referred to herein as the
"Representative"). The Representative shall not be liable, in his capacity as
representative of such Shareholders, to any Shareholders and their respective
affiliates or any other person with respect to any action taken or omitted to be
taken by the Representative under or in connection with this Agreement or the
Escrow Agreement in his capacity as representative of such Shareholders unless
such action or omission results from or arises out of fraud, gross negligence,
willful misconduct or bad faith on the part of the Representative. Compuware and
the Surviving Corporations and each of their respective affiliates shall be
entitled to rely on such appointment and treat such Representative as the duly
appointed attorney-in-fact of each Shareholder. Each Shareholder who votes in
favor of the Merger pursuant to the terms hereof, by such vote, without any
further action, and each Shareholder who receives any shares of Compuware Stock
in connection with the Merger, by acceptance thereof and without any further
action, confirms such appointment and authority and acknowledges and agrees that
such appointment is irrevocable and coupled with an interest, it being
understood that the willingness of Compuware to enter into this Agreement is
based, in part, on the appointment of a representative to act on behalf of the
Shareholders.
11.7 Tax Indemnification Procedure. Notwithstanding anything else in
this Agreement to the contrary:
(a) Compuware will, as to any Taxes in respect of which the
Shareholders
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have agreed to indemnify Compuware, its affiliates and/or the Companies,
promptly inform the Representative of, and permit the participation of the
Representative in, any investigation, audit and other proceeding by or with a
Tax Authority empowered to administer or enforce such Tax and will not consent
to the settlement or final determination in such proceeding without the prior
written consent of the Representative, which shall not be unreasonably withheld,
conditioned or delayed.
(b) (i) Compuware, on the one hand, and the Representative, on
the other hand, will (A) use reasonable efforts to keep the other advised as to
the status of Tax audits and litigation involving any Taxes that could give rise
to a liability of the Shareholders to Compuware, its affiliates and/or any of
the Companies under this Agreement (a "Tax Liability Issue"), (B) promptly
furnish to the others copies of any inquiries or requests for information from
any Tax Authority concerning any Tax Liability Issue, (C) timely notify the
others regarding any proposed written communication (i.e., communications not
relating to inquiries or requests for information) to any such Tax Authority
with respect to such Tax Liability Issue, (D) promptly furnish to the other upon
receipt copies of any information or document requests, notices of proposed
adjustment, revenue agent's reports or similar reports or notices of
deficiencies together with all relevant documents, Tax Returns and memos related
to the foregoing documents, notices or reports, relating to any Tax Liability
Issue, (E) give the other and its or their accountants and counsel the
reasonable opportunity to review and comment in advance on all written
submissions, filings and any other information relevant to any Tax Liability
Issue, and (F) consider in good faith any suggestions made by the other and its
or their accountants and counsel to submit documentation or attend those
portions of any meetings and proceedings that relate to such proposed
adjustment; provided, however, that the failure of one party to so notify the
other party of any such audit or Tax controversy shall not affect the other
party's obligations under this Agreement. Notwithstanding the foregoing,
Compuware, on the one hand, and the Representative, on the other hand, may make
appropriate redactions in the submissions, filings and any other information
provided to the other to preserve the confidentiality of such information as to
issues that are not Tax Liability Issues.
(ii) Subject to the cooperation provisions of subsection
(b)(i) above, Compuware will have full responsibility for and discretion in
handling any Tax controversy, including, without limitation, an audit, a protest
to the Appeals Division of the IRS, and litigation in Tax Court or any other
court of competent jurisdiction involving the Companies (a "Proceeding"), unless
the Representative elects to assume the defense of such Proceeding by (i) giving
Compuware written notice of such election within five (5) business days after
the Representative's receipt of notice of such claim as set forth in Section
11.7(c) and (ii) providing Compuware with financial assurances reasonably
satisfactory to Compuware that the Shareholders will meet their obligation to
indemnify Compuware for the Taxes in controversy. If the Representative assumes
the defense of such Proceeding, Representative shall do so at its sole cost and
expense, through legal counsel reasonably acceptable to Compuware, and Compuware
shall nonetheless have the right to participate in the defense or settlement of
such Proceeding, at its sole cost and expense, through its own legal counsel. In
the event that the Representative assumes the defense or prosecution of a
Proceeding, it shall not settle or compromise such claim or consent to the entry
of any judgment without the prior written consent of Compuware, which consent
shall not be unreasonably withheld, conditioned or delayed. If, in Compuware's
reasonable judgment, the Representative fails to diligently defend or prosecute
such Proceeding,
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Compuware may assume sole control of the defense or prosecution of such
Proceeding. Any of the foregoing to the contrary notwithstanding, Representative
shall not have the right, and Compuware shall not be required, to contest any
Tax Liability Issue unless the Representative provides to Compuware, at
Compuware's written request, an opinion in form and content reasonably
acceptable to Compuware from counsel reasonably acceptable to Compuware that
there is substantial authority for the position that has or will be claimed with
respect to such action, and Compuware need not take such action until such
opinion is delivered to Compuware. In the event that Compuware, its affiliates
or any of the Companies are required to pay any Tax, file any bond or deposit
any amount in order to undertake (or for the Representative to assume the
defense or prosecution of) a Proceeding, the Shareholders will loan to Compuware
no later than three business days before such payment is required to be made,
without interest and until a final determination with respect to such Tax has
occurred, one hundred percent of the amount required to be paid. Within three
business days of the receipt by Compuware, its affiliate and/or the Companies of
a refund of any amount loaned to it by the Shareholders (including any interest
received by Compuware, affiliate and/or the Companies, as the case may be),
Compuware, affiliate and/or the Companies will pay such refunded amount to the
Shareholders net of any Tax cost incurred by them as a result of such refund.
(c) Whenever any claim is made for indemnification of any Tax
under this Agreement, the Claimant shall notify the Indemnifying Party promptly
after the Claimant has actual knowledge of any event which might give rise to a
claim for indemnification under this Agreement. The failure by the Claimant to
give notice of a claim as required in this Section 11.7(c) or a delay in giving
such notice shall not affect the validity or amount of such claim and the
indemnification obligations of the Indemnifying Party shall remain in effect as
to such claim, except to the extent that the Indemnifying Party can demonstrate
that it has been materially prejudiced or materially and adversely affected
thereby.
(d) Within 60 days of any Final Determination of Tax in a
Proceeding, the Claimant shall provide a written notice to the Indemnifying
Party explaining the calculation of the amount of such Tax for which
indemnification is claimed. The Indemnifying Party shall pay such amount of Tax
to the Claimant within five (5) business days after receipt of such notice,
unless the Indemnifying Party disagrees with such calculation and invokes the
verification procedure set forth in Section 11.7(e) below, in which case the
Indemnifying Party shall pay to Claimant, within five (5) business days of
verification of the amount of such Tax owed to Claimant, the amount so verified
by the Independent Public Accountants pursuant to Section 11.7(e) below.
(e) If the Indemnifying Party shall disagree with the
Claimant's calculation of the Tax owed to Claimant and within ten (10) days
after receipt of such calculation requests in writing verification of such
amount, such amount shall be verified by a firm of Independent Public
Accountants. Within 15 days after the Indemnifying Party's request, the
Independent Public Accountants shall either (i) confirm the accuracy of the
Claimant's computation or (ii) notify the Claimant that such computation is
inaccurate. In the case of (ii) above, the Independent Public Accountants shall
recompute the amount of Tax owed to Claimant in such manner as the Independent
Public Accountants determine and verify to be accurate. The costs of such
verification shall be borne by the Indemnifying Party unless such verification
shall result in an adjustment in the Indemnifying Party's favor of the Tax owed
to Claimant as computed by the
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Claimant, in which case such costs shall be borne by the Claimant. The Claimant
agrees to cooperate with such Independent Public Accountants and, subject to a
confidentiality agreement reasonably satisfactory to the Claimant, to supply
them with all information reasonably necessary to permit them to accomplish such
review and determination. Such information shall be for the confidential use of
the Independent Public Accountants and shall not be disclosed to the
Indemnifying Party or to any other person. The Indemnifying Party and Claimant
agree that the sole responsibility of the Independent Public Accountants shall
be to determine and verify the amount of the amount of Tax owed to Claimant
pursuant to this Section 11.7(e) and the matters of interpretation of this
Agreement are not within the scope of the Independent Public Accountant's
responsibility.
(f) If any party for any reason fails or refuses to perform
fully its obligations or indemnifications under this Section 11.7, the Claimant
shall have the right of offset with respect to any payments which are due or
shall become due under this Agreement or any Related Agreement. The foregoing
provisions of this Section 11.7(f) are permissive, and a failure by a Claimant
to exercise its rights under this Section 11.7 shall not affect its right to
indemnification under this Agreement.
(g) Except as otherwise specifically provided in this
Agreement, each party shall bear its own Fees and Costs incurred in connection
with a Tax Liability Issue for which such party and its affiliates are liable
under this Agreement.
11.8 Consideration. Any indemnification payments made by the
Shareholders pursuant to this Article shall be deemed adjustments to the
consideration for the Merger.
12. Miscellaneous.
12.1 Notices. Any notice required or permitted to be given
under this Agreement must be in writing and sent by recognized overnight courier
(such as Airborne or Federal Express) or by certified or registered mail,
postage prepaid, or delivered by hand, addressed as follows:
(a) To Compuware: Compuware Corporation
31440 Northwestern Highway
Farmington Hills, Michigan 48334-2564
Attention: President
with a copy to Compuware Corporation
31440 Northwestern Highway
Farmington Hills, Michigan 48334-2564
Attention: General Counsel
(b) To MIS, Simco, Mr. Michael M. Bahn
Autoflex, the 22450 Park Street
Representative, Dearborn, Michigan 48124
or any Shareholder:
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With a copy to: Mr. William E. Sider
Jaffe, Raitt, Heuer & Weiss, P.C.
One Woodward Avenue, Suite 2400
Detroit, Michigan 48226
Addresses for notices may be changed by notice given pursuant to this Section
12.1. Notice shall be deemed given on the date delivered if delivered by hand.
Notice sent by recognized overnight courier shall be deemed given on the
business day following delivery to such recognized overnight courier. Notice
mailed as provided herein shall be deemed given on the third (3rd) business day
following the date so mailed.
12.2 No Waiver. No waiver of any breach of any provision of
this Agreement will be deemed a waiver of any preceding or succeeding breach or
of any other provision of this Agreement. No extension of time for performance
of any obligations or acts will be deemed an extension of the time for
performance of any other obligations or acts.
12.3 Successors and Assigns. This Agreement will bind and
inure to the benefit of the parties and their successors and assigns; provided
that (a) none of MIS, Simco nor any Shareholder will assign this Agreement, any
Related Agreement or any rights under this Agreement or any Related Agreement to
any other person without the prior written consent of Compuware and (b) CPWRT1
and CPWRT2 will have the right to assign this Agreement and the Related
Agreements to any direct or indirect wholly-owned subsidiary of Compuware.
12.4 Severability. The provisions of this Agreement will be
deemed severable, and if any provision or part of this Agreement is held
illegal, void or invalid under applicable Laws, such provision or part may be
changed to the extent reasonably necessary to make the provision or part, as so
changed, legal, valid and binding. If any provision of this Agreement is held
illegal, void or invalid in its entirety, the remaining provisions of this
Agreement will not in any way be affected or impaired but will remain binding in
accordance with their terms.
12.5 Entire Agreement; Amendment.
(a) This Agreement, the Related Agreements and the schedules
and the exhibits attached to this Agreement and the Related Agreements contain
the entire agreement of the parties with respect to the Mergers and the other
transactions contemplated by this Agreement and the Related Agreements, and no
representations made by any party may be relied on unless set forth in this
Agreement, the Related Agreements or in the exhibits and schedules to this
Agreement and the Related Agreements.
(b) Subject to applicable law, at any time prior to the
consummation of the Merger, whether before or after approval of the Transactions
by the Shareholders, MIS, Simco and Compuware may, by action authorized by their
respective Boards of Directors, (a) mutually amend this Agreement, (b) extend
the time for the performance of any of the obligations or other acts of any
other person or entity, (c) waive any inaccuracies in the representations or
warranties contained in the Agreement, or (d) waive compliance with any of the
agreements or conditions contained herein. Notwithstanding the foregoing, after
any approval of the Merger by the Shareholders, there will not be, without
further approval of such Shareholders, any amendment,
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extension or waiver of this Agreement which reduces the amount or changes the
form of Compuware Stock to be delivered to the Shareholders. This Agreement may
not be amended except by a writing signed by all of the parties by persons
authorized to execute such writing. Any agreement of a party to any extension or
waiver will be valid only if set forth in a writing signed on behalf of such
party by a person authorized to execute such writing, but any waiver or failure
to insist on strict compliance with any obligation, covenant, agreement or
condition will not operate as a waiver of or estoppel with respect to, any
subsequent or other failure.
12.6 Cost of Litigation. If any party breaches this Agreement
or any Related Agreement and if counsel is employed to enforce this Agreement or
a Related Agreement, the successful party will be entitled to Fees and Costs
associated with such enforcement.
12.7 Interpretation.
(a) This Agreement and the Related Agreements are being
entered into among competent and experienced business persons, represented by
counsel, and have been reviewed by the parties and their counsel. Therefore, any
ambiguous language in this Agreement or any Related Agreement will not
necessarily be construed against any particular party as the drafter of such
language. The headings contained in this Agreement are solely for the purposes
of reference, are not part of the agreement of the parties and will not in any
way affect the meaning or interpretation of this Merger Agreement.
(b) Any statement under this Agreement made "to the best
knowledge" of a party will be deemed to have been made to the actual knowledge
of such party after such party has made reasonable investigation and inquiry of
the circumstances relating to such statement. A statement under this Agreement
made to the best knowledge of the Shareholders, MIS, Simco and Autoflex means to
the actual knowledge of Michael M. Bahn, Mary C. Bahn or Gregory Messer after
such person has made reasonable investigation and inquiry of the circumstances
relating to such statement.
12.8 Legend. In addition to any legends pursuant to Section
8.7, each certificate for the shares of Compuware Stock to be delivered to the
Shareholders pursuant to the Mergers will be imprinted with a legend in
substantially the following form, together with any legend permitted pursuant to
this Agreement:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933. THESE SECURITIES
MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER
SUCH ACT AND AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO
THE COMPANY TO SUCH EFFECT.
12.9 Counterparts. This Agreement may be executed in
counterparts each of which, when taken together, will be deemed an original of
this Agreement.
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12.10 Applicable Law. This Agreement and any dispute arising
hereunder or related hereto will be construed in accordance with and governed by
the laws of the State of Michigan, without giving effect to the choice of law
provisions thereof.
12.11 Expenses. Except as provided in Section 8.19 above, each
party will bear its own expenses in connection with the transactions
contemplated by this Agreement, including costs of their respective brokers,
financial advisors, attorneys and accountants, regardless of whether any of the
Transactions are consummated.
12.12 Press Releases. On or before the Effective Time of the
Merger, no party will issue or authorize to be issued any press release or
similar announcement concerning the Agreement or any of the Transactions without
the prior approval of the other party; provided, however, that Compuware will be
permitted to make such disclosures as necessary to comply with any applicable
securities laws or stock exchange or NASDAQ/National Market policies.
12.13 Further Assurances. At any time and from time to time
after the Effective Time, the parties agree to cooperate in all reasonable
respects with each other, to execute and deliver such other documents,
instruments of assignment, books and records, and so all such further acts and
things as may be reasonably required to carry out the transactions contemplated
hereby.
12.14 Transfer Taxes. All transfer, documentary, stamp and
other such taxes and fees (including any penalties and interest) incurred in
connection with this Agreement and/or the Mergers (including any taxes imposed
by any state or subdivision) will be paid by the Shareholders when due, and the
Shareholders will, at their own expense, file all necessary Tax Returns and
other documentation with respect to all such transfer, documentary, stamp and
other such taxes and fees and, if Compuware or its affiliates are required by
applicable law to execute such Tax Returns, Compuware will, and will cause its
affiliates to, join upon the Shareholders' written request, in the execution of
any such Tax Returns.
12.15. Benefit Matters.
(a) From and after the Effective Time, Global Electronics
Limited ("Global") shall cease to have any liability whatsoever (and
MIS shall retain, bear and discharge all liabilities) under or with
respect to the employment agreements covering employees of MIS, Simco
and/or Autoflex. The parties hereto shall take such actions as are
reasonably necessary (including, without limitation, the preparation
and execution of any amendment to any such employment agreement) to
remove Global as a party to any such employment agreements.
(b) Effective as of or prior to the Effective Time, MIS shall
take such actions as are reasonably necessary (including, without
limitation, the preparation and execution of any Board of Directors
resolutions or plan amendments) to transfer the sponsorship of M.I.S.
International, Inc. Savings and Profit Sharing Plan (the "Profit
Sharing Plan") and M.I.S. International, Inc. Employee Savings and
Retirement Plan (the "401(k) Plan") (collectively, the "Plans") to
Global, such that, from and after the effective date of such transfer
(the "Plan Transfer Date"), Global shall be the sponsor for purposes of
such Plans
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and each of MIS, Simco and Autoflex shall cease to be a participating
employer in such Plans. Effective as of the Plan Transfer Date, those
employees of MIS, Simco, and Autoflex (collectively, the "MIS
Employees") who immediately prior to the Plan Transfer Date were
participants in one or more of such Plans shall cease to be active
participants in such Plans and shall cease to make contributions to
such Plans, and no further employer contributions shall be made to such
Plans on behalf of such MIS Employees with respect to any period
commencing after the Plan Transfer Date. The account balances in the
Plans of each MIS Employee shall be fully vested effective as of the
Plan Transfer Date. Each MIS Employee who has one or more loans
outstanding from the Plans shall be permitted to continue repayment of
such loans in accordance with the loan terms until the earliest of the
date such MIS Employee fails to make any loan repayment properly and
timely, the date such MIS Employee's employment with MIS, Simco or
Autoflex (or any successor thereto) terminates, the date as of which
there is otherwise a default with respect to such loan or the date as
of which the applicable Plan terminates. From and after the Plan
Transfer Date, no new loans (or modifications of existing loans) shall
be granted to any MIS Employee. Compuware shall facilitate such loan
repayments by establishing a payroll deduction system for deducting
such loan repayments from MIS Employees' pay and by remitting such
withheld amounts on a timely basis to the plan administrator of the
applicable Plan. Compuware shall cause all records pertinent to the
maintenance, administration and funding of the Plans to be transferred
to Global within a reasonable period (but in no event more than 15
days) after the Effective Time.
(c) Compuware shall retain, bear and discharge all liabilities
with respect to the provision of notices and benefits required to be
provided pursuant to Code Section 4980B and/or Part 6 of Subtitle B of
Title I of ERISA ("COBRA") with respect to all individuals who, as of
the Effective Time under the Benefit Plans that are subject to COBRA,
are COBRA recipients or who are entitled to receive COBRA notices
and/or COBRA benefits, including, without limitation, (i) such COBRA
recipients and other individuals entitled to COBRA notices and/or
benefits who are former employees (or their eligible spouses and
dependents) of Global and/or Millennium Strategic Services 2000, Inc.
and (ii) each employee identified on Schedule 12.15(c) (and his/her
eligible spouse and dependents).
(d) Effective as of the Effective Time, Compuware shall cause
its tax-qualified ESOP and/or 401(k) plans to cover the MIS Employees
in accordance with the terms of such plans; provided, however, that
each such MIS Employee shall receive credit for service performed for
MIS, Simco and Autoflex prior to the Effective Time for purposes of
eligibility to participate, vesting and eligibility to receive benefits
but not for purposes or benefit accrual.
(e) Effective as of or prior to the Effective Time, MIS shall
take such actions as are reasonably necessary (including, without
limitation, the preparation and execution of any Board of Directors
resolutions or plan amendments) to terminate participation in those
Benefit Plans that are "employee welfare benefit plans" (within the
meaning of Section 3(i) of ERISA) (the "MIS Welfare Plans") of all
participating employers other than MIS, Simco, and Autoflex such that,
as of the Effective Time, the sole participating employers in the MIS
Welfare Plans shall be MIS, Simco and Autoflex; provided,
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however, that the incurred-but-not-reported eligible claims of the
employees (and their eligible spouses and dependents) of such employers
who cease to be participating employers that are reported after the
Effective Time shall continue to be paid pursuant to the MIS Welfare
Plans in accordance with the terms of such plans. From and after the
Effective Time, Compuware, shall continue to cover the MIS Employees
under the MIS Welfare Plans that covered such MIS Employees immediately
prior to the Effective Time in accordance with the terms of such MIS
Welfare Plans (as such MIS Welfare Plans may be amended from time to
time) or under new or existing employee welfare benefit plans of
Compuware (the "Compuware Welfare Plans"); provided, however, that,
with respect to coverage under the Compuware Welfare Plans, each such
MIS Employee shall receive credit for service performed for MIS, Simco
and Autoflex prior to the Effective Time for purposes of eligibility to
participate, eligibility to receive benefits and all waiting,
eliminating and pre-existing condition limitation periods, and further
provided that each such MIS Employee shall receive credit for his/her
year-to-date deductibles, co-payments and other out-of-pocket
expenditures paid pursuant to the MIS Welfare Plans toward meeting the
deductible, co-payment and maximum out-of-pocket expenditure
requirements under the Compuware Welfare Plans.
(f) Global shall assume, bear and discharge all liability with
respect to delinquent Forms 5500 for those MIS Welfare Plans for which
Form 5500 was for any year required to be filed but was not filed.
Global shall use its best efforts to cause such delinquent Forms 5500
to be filed pursuant to the U.S. Department of Labor's Delinquent Filer
Voluntary Compliance Program. Compuware shall cause any and all records
in its possession that are pertinent to the filing of such Forms 5500
to be made available, with reasonable notice, at such times as Global
(or their agents, representatives or other designated
service-providers) may reasonably request.
[Signatures appear on the next three pages]
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In Witness Whereof, the parties have executed this Agreement on the
date set forth in the introductory paragraph of this Agreement.
COMPUWARE CORPORATION,
a Michigan corporation
By:/s/ Eliot R. Stark
-----------------------
Name: Eliot R. Stark
Title: Executive Vice President
CPWRT1, INC.,
a Michigan corporation
By: /s/ Eliot R. Stark
-----------------------
Name: Eliot R. Stark
Title: President
CPWRT2, INC.,
a Michigan corporation
By: /s/ Eliot R. Stark
------------------------
Name: Eliot R. Stark
Title: President
M.I.S. INTERNATIONAL, INC.,
a Michigan corporation
By: /s/ Michael M. Bahn
-----------------------
Name: Michael M. Bahn
Title: President
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<PAGE> 54
SIMCO INTERNATIONAL, INC.,
a Michigan corporation
By: /s/ Michael M. Bahn
------------------------
Name: Michael M. Bahn
Title: President
AUTOFLEX, INC.,
a Michigan corporation
By: /s/ Michael M. Bahn
-------------------------
Name: Michael M. Bahn
Title: President
/s/ Michael M. Bahn
-------------------------
MICHAEL M. BAHN
/s/ Michael J. Bahn
-------------------------
MICHAEL J. BAHN
/s/ Marisa R. Bahn
-------------------------
MARISA R. BAHN
MICHAEL M. BAHN REVOCABLE TRUST
DATED JANUARY 23, 1995
By: /s/ Michael M. Bahn
-------------------------
Michael M. Bahn, Trustee
MARY C. BAHN REVOCABLE TRUST
DATED JANUARY 23, 1995
By: /s/ Mary C. Bahn
-------------------------
Mary C. Bahn, Trustee
54
<PAGE> 55
RENEE C. PHILLIPS 1999
QUALIFIED ANNUITY TRUST
By: /s/ Mark Phillips
----------------------
Mark Phillips, Trustee
MARY C. BAHN 1999
QUALIFIED ANNUITY TRUST
By: /s/ Michael M. Bahn
------------------------
Michael M. Bahn, Trustee
55
<PAGE> 1
EXHIBIT 4.8
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of February 23, 1999, by and among Compuware Corporation, a
Michigan corporation (the "Company"), Michael J. Bahn, Marisa R. Bahn, Renee C.
Phillips 1999 Qualified Annuity Trust, Michael M. Bahn Revocable Trust dated
January 23, 1995, Mary C. Bahn 1999 Qualified Annuity Trust and Mary C. Bahn
Revocable Trust dated January 23, 1995 (each, individually, a "Shareholder", and
collectively, the "Shareholders").
RECITALS
A. Pursuant to the Agreement and Plan of Merger dated February 23,
1999 by and among the Company, CPWRT1, Inc., a Michigan corporation, CPWRT2,
Inc., a Michigan corporation, M.I.S. International, Inc., a Michigan
corporation, Simco International, Inc., a Michigan corporation, Autoflex, Inc.,
a Michigan corporation and the Shareholders (the "Merger Agreement"), the
Shareholders received 510,932 shares of Company common stock, par value $0.01
per share (the "Shares").
B. The Shareholders desire to have liquidity with respect to the Shares
they received in connection with the Mergers (as defined in the Merger
Agreement).
C. To facilitate such sales of the Shares, subject to the terms of the
Merger Agreement, the Company has agreed to afford the Shareholders certain
registration rights with respect to the Shares.
THEREFORE, in consideration of the promises and the mutual covenants
and agreements that the Merger Agreement contains and other good and valuable
consideration, receipt of which the parties hereby acknowledge, the parties
agree as follows:
1. Definitions. For purposes of this Agreement, the following term
shall have the following meanings:
"Common Stock" means the Company's common stock, par value $0.01
per share.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Person" means an individual, partnership, corporation, limited
liability company, trust or other entity, or a government or agency or
political subdivision thereof.
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<PAGE> 2
"Prospectus" means the prospectus included in any Registration
Statement at the time the same becomes effective, as amended or
supplemented by any prospectus supplement, including post-effective
amendments and all material incorporated by reference in the
prospectus.
"Registrable Securities" means (a) the Shares, and (b) the
Common Stock issued with respect to the Shares by way of stock
dividend, stock split or in connection with a combination of stock,
recapitalization, merger, consolidation or other reorganization;
provided, however, that a Share shall be a Registrable Security only
for so long as the Share continues to be a Restricted Security. For
purposes of this Agreement, each Share shall be a Restricted Security
at the date of this Agreement. A Share shall cease to be a Restricted
Security on the earliest of the following dates: (i) the date the
Company has effectively registered the Share under the Securities Act
and the Shareholder who owns it has disposed of the Share in accordance
with the Registration Statement covering the Share, or (ii) the date
the Shareholder who owns it shall be eligible to sell the Share to the
public pursuant to Rule 144 (or any similar provisions then in force)
under the Securities Act or (iii) the date the Shareholder has
otherwise transferred the Share (except for transfers complying with
the provisions of Paragraph 7(i)).
"Registration Statement" means any registration statement of
the Company which covers any of the Registrable Securities pursuant to
the provisions of this Agreement, including all pre-effective
amendments and post-effective amendments thereto, the Prospectus and
supplements thereto, all exhibits and all material incorporated by
reference in the registration statement.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
2. Registration. Within 45 days after the date hereof, the
Company shall prepare and file a Registration Statement providing for the sale
of the Registrable Securities by the Shareholders pursuant to Rule 415 of the
Securities Act and/or any similar rule that may be adopted by the SEC; provided,
however, that none of the Shareholders shall sell, transfer, pledge or otherwise
dispose of any Registrable Securities (a) prior to the date on which financial
results covering at least thirty (30) days of post-Effective Date combined
operations of the Company, M.I.S. International, Inc. and Simco International,
Inc. have been published by the Company, except as otherwise permitted by the
Merger Agreement; or (b) if such sale, transfer, pledge or disposition would
prevent the Mergers from being accounted for as a pooling-of-interests.
Notwithstanding the foregoing, for not more than a total of ninety (90) days
during any twelve month period, the Company shall not be obligated to prepare
and file, or be prevented from delaying or abandoning, the Registration
Statement required hereunder: (a) if the Company shall furnish to the
Shareholders a certificate signed by an officer of the Company stating that, in
the
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<PAGE> 3
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company for such registration to be effected at
such time, in which event the Company shall have the right to defer the filing
of the Registration Statement for a period which is not longer than the period
its officers and directors are restricted by Company policy or directives from
trading in Company common stock, provided, however, in no event shall the
Shareholders be prevented from making sales of Registrable Securities pursuant
to the Registration Statement for more than 90 days in any twelve month period;
or (b) if the Company shall furnish to the Shareholders a certificate signed by
an officer of the Company stating that, in the good faith judgment of the Board
of Directors of the Company, it would be seriously detrimental to the Company
for such registration to be continued at any time after the filing of the
Registration Statement, in which event the Company shall have the right to
suspend the registration for a period which is not longer than the period its
officers and directors are restricted by Company policy or directives from
trading in Common Stock, provided, however, in no event shall the Shareholders
be prevented from making sales of Registrable Securities pursuant to the
Registration Statement for more than 90 days in any twelve month period.
3. Registration Procedures. In connection with the Company's
registration obligations pursuant to Section 2 of this Agreement, the Company
shall use its reasonable efforts to effect the registration and sale of the
Registrable Securities in accordance with the method of distribution described
on the attached Schedule 1 and, pursuant thereto, the Company shall as
expeditiously as possible:
(a) prepare and file with the SEC a Registration Statement and
use its reasonable efforts to cause such Registration Statement to
become effective;
(b) prepare and file with the SEC such amendments and
supplements to such Registration Statement and the Prospectus used in
connection therewith as may be necessary to keep such Registration
Statement continuously effective for a period expiring on the earlier
of (i) the date on which all of the Registrable Securities covered by
the Registration Statement have been sold pursuant thereto or (ii) the
date on which all Registrable Securities are eligible for sale pursuant
to Rule 144 under the Securities Act;
(c) furnish to the participating Shareholders, without charge,
at least one signed copy of the Registration Statement and any
post-effective amendment thereto, including financial statements and
schedules, all documents incorporated by reference therein and all
exhibits (including those incorporated by reference);
(d) deliver to the participating Shareholders, without charge,
as many copies of the Prospectus (including each preliminary
prospectus) and any amendment or supplement thereto as they may
reasonably request, but only while the Company is required to cause the
Registration Statement to remain effective;
(e) use its reasonable efforts to register or qualify such
Registrable Securities
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<PAGE> 4
for offer and sale under the securities or blue sky laws of such U. S.
States or possessions as any participating Shareholder may reasonably
request (the "Blue Sky Laws") and do any and all other acts or things
necessary or advisable to enable such participating Shareholders to
consummate the disposition in such jurisdictions of Registrable
Securities owned by such participating Shareholders; provided, however,
that in no event shall the Company be obligated to qualify generally to
do business in any jurisdiction where it is not now qualified or to
take any action which would subject it to the service of process in
suits other than those arising out of the offer or sale of the
securities covered by such Registration Statement in any jurisdictions
where it is not now so subject;
(f) cooperate with the participating Shareholders to
facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold, free of any and all
restrictive legends, which certificates shall be in such denominations
and registered in such names as the Shareholders may request;
(g) use its reasonable efforts to cause all Registrable
Securities covered by the Registration Statement to be listed on The
Nasdaq Stock Market National Market System (or any other market on
which the Common Stock is then listed);
(h) notify each seller of such Registrable Securities at any
time when a Prospectus relating thereto is required to be delivered
under the Securities Act, of the happening of any event as a result of
which the Prospectus included in such Registration Statement contains
an untrue statement of a material fact or omits any fact necessary to
make the statements therein not misleading, and, at the request of any
such seller, the Company shall prepare a supplement or amendment to
such Prospectus so that, as thereafter delivered to the purchasers of
such Registrable Securities, such Prospectus shall not contain any
untrue statement of a material fact or omit to state any fact necessary
to make the statements therein not misleading.
(i) advise each seller of such Registrable Securities,
promptly after it shall receive notice or obtain knowledge thereof, of
the issuance of any stop order by the SEC suspending the effectiveness
of such Registration Statement or the initiation or threatening of any
proceeding for such purpose and promptly use all reasonable efforts to
prevent the issuance of any stop order or to obtain its withdrawal if
such stop order should be issued; and
(j) make available for inspection by the participating
Shareholders and any attorney or accountant retained by the
participating Shareholders all financial and other records, pertinent
corporate documents and properties of the Company; provided that such
Persons shall keep confidential any records, information or documents
of the Company unless a court or administrative agency requires the
disclosure of the records, information or documents or such records,
information or documents (A) become generally available to the public
other than as result of a disclosure by any such Persons,
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<PAGE> 5
(B) were available to such Persons on a non-confidential basis prior to
the disclosure of such records, information or documents pursuant to
this Agreement, or (C) become available to such Persons on a
non-confidential basis from a source other than the Company or its
agents, advisors or representatives.
The Company may require the participating Shareholders to furnish to
the Company information regarding the participating Shareholders and the
distribution of the Registrable Securities as the Company may from time to time
reasonably request in writing and as necessary for the registration of the
Shares.
The Shareholders agree that, upon receipt of any notice from the
Company of the happening of any of the following: (i) the SEC's issuance of any
stop order denying or suspending the effectiveness of the Registration Statement
or the initiation or threatening of any proceeding for that purpose, (ii) the
Company's receipt of any stop order denying registration or suspending the
qualification of the Registrable Securities for sale or the initiation or
threatening of any proceeding for such purpose, (iii) the happening of any event
which makes any statement made in the Registration Statement, the Prospectus or
any document incorporated by reference therein untrue or which requires any
change in the Registration Statement, the Prospectus or any document
incorporated by reference therein to make the statements not include an untrue
statement of material fact or not omit any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing, the Shareholders shall discontinue the
disposition of Registrable Securities until the participating Shareholders
receive a supplemented or amended Prospectus from the Company or until the
Company advises the participating Shareholders in writing that the participating
Shareholders may resume the use of the Prospectus, and have received copies of
any additional or supplemental filings which are incorporated by reference in
the Prospectus. If the Company so directs, the Shareholders will deliver to the
Company (at the Company's expense) all copies, other than permanent file copies
then in the Shareholders' possession, of the Prospectus covering the Registrable
Securities at the time the Shareholders received the notice.
4. Registration Expenses. Regardless of when the Registration Statement
becomes effective, the Company shall bear all costs and expenses incident to the
Company's performance of, or compliance with, this Agreement, including without
limitation all registration and filing fees, fees and expenses of compliance
with the Blue Sky Laws, printing expenses, messenger, telephone and delivery
expenses, Nasdaq qualification and listing fees, and fees and disbursements of
counsel for the Company, all independent certified public accountants of the
Company and fees and expenses of other Persons retained by the Company relating
to the distribution of the Registrable Securities (all such expenses being
herein called "Registration Expenses"). The participating Shareholders shall pay
all discounts and commissions attributable to the Registrable Securities, all
transfer taxes relating to the sale or disposition of the Registrable Securities
and any fees of any attorney or accountant retained by the Shareholders except
as otherwise provided in the Merger Agreement.
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<PAGE> 6
5. Disclosure. With a view to making available registration on Form S-3
and the benefits of Rule 144 under the Securities Act, the Company agrees, for a
period two years following the date of this Agreement, to:
(a) Make and keep current public information available within
the meaning of Rule 144(c) of the Securities Act.
(b) File with the SEC in a timely manner all reports and other
documents and information required of the Company under the Exchange
Act, and take such other actions as may be necessary to assure the
availability of Form S-3 for use in connection with the registration
rights provided in this Agreement.
(c) Furnish to a Shareholder forthwith upon request a written
statement as to the Company's compliance with the reporting
requirements of Rule 144 and the Exchange Act, a copy of the Company's
most recent annual and quarterly reports, and such other reports,
documents and other information in the possession of or reasonably
obtainable by the Company as the Shareholder may reasonably request in
availing itself of Rule 144.
6. Indemnification.
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless, to the full extent permitted by law, the
Shareholders against all losses, claims, damages, liabilities and
expenses (including, without limitation, reasonable attorneys' fees and
expenses) to which the Shareholders may become subject under federal or
state securities laws or otherwise which arise out of, or are caused
by, the Company's violation of any federal or state securities laws,
including, but not limited to, any untrue or alleged untrue statement
of a material fact contained in any Registration Statement, Prospectus
or preliminary prospectus or in any application or other request that
the Company files, including any application or request filed under the
Blue Sky Laws or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same are
caused by or contained in any written information furnished to the
Company by any of the Shareholders expressly for use therein or by any
Shareholder's failure to deliver a copy of the Registration Statement
or Prospectus after the Company has furnished the participating
Shareholders with a sufficient number of copies of the same.
(b) Indemnification by Shareholders. In connection with any
Registration Statement in which any Shareholder's Registrable
Securities are registered and sold, the participating Shareholders
shall furnish to the Company such information and affidavits as the
Company reasonably requests for use in connection with any Registration
Statement or Prospectus and agree to indemnify and hold harmless, to
the full extent permitted by law, the Company, its officers, directors
and each Person who controls the
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<PAGE> 7
Company (within the meaning of the Securities Act) against any losses,
claims, damages, liabilities and expenses (including, without
limitation, reasonable attorneys' fees and expenses) resulting from any
untrue or alleged untrue statement of a material fact or any omission
or alleged omission of a material fact required to be stated in the
Registration Statement, Prospectus, preliminary Prospectus or any
application filed under the Blue Sky Laws or necessary to make the
statements therein not misleading, but only to the extent that the
untrue statement or omission is contained in any written information or
affidavit so furnished by the Shareholder to the Company expressly for
inclusion in the Registration Statement, Prospectus or application
filed under the Blue Sky Laws; provided, however, that the obligation
to indemnify under this Section 6(b) shall be several, not joint and
several, among such holders of Registrable Securities and shall be
limited to the net amount of proceeds received by such holder from the
sale of Registrable Securities pursuant to such Registration Statement.
The Company shall be entitled to receive indemnities from underwriters,
selling brokers, dealer managers and similar securities industry
professionals participating in the distribution, to the same extent as
provided above with respect to information so furnished by the Persons
specifically for inclusion in any Prospectus or Registration Statement.
(c) Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder shall (i) promptly notify the
indemnifying party of any claim with respect to which it seeks
indemnification and (ii) permit such indemnifying party to assume the
defense of such claim with counsel reasonably satisfactory to the
indemnified party. Any Person entitled to indemnification hereunder
shall have the right to employ separate counsel and to participate in
the defense of the claim, but the fees and expenses of the counsel
shall be at the expense of the Person unless (A) the indemnifying party
has agreed to pay the fees or expenses, (B) the indemnifying party
shall have failed to assume the defense of the claim and employ counsel
reasonably satisfactory to the Person, or (C) in the reasonable
judgment of the Person, based upon advice of its counsel, a conflict of
interest may exist between the Person and the indemnifying party with
respect to the claims (in which case, if the Person notifies the
indemnifying party in writing that the Person elects to employ separate
counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of the claim on
behalf of the Person). If the indemnifying party assumes the defense,
the indemnifying party will not be subject to any liability for any
settlement made without its consent. The indemnifying party, however,
may not unreasonably withhold its consent. No indemnifying party will
be required to consent to the entry of any judgment or to enter into
any settlement which does not include as an unconditional term the
claimant's or plaintiff's release of the indemnified party from all
liability in respect to the claim or litigation. An indemnifying party
who is not entitled to, or elects not to, assume the defense of a claim
shall not be obligated to pay the fees and expenses of more than one
counsel in any jurisdiction for all parties indemnified by the
indemnifying party with respect to the claim, unless in the reasonable
judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified
7
<PAGE> 8
parties with respect to the claim, in which event the indemnifying
party shall be obligated to pay the fees and expenses of such
additional counsel or counsels.
(d) Contribution. If for any reason the indemnification
provided for in the preceding clauses (a) and (b) is unavailable to an
indemnified party or insufficient to hold it harmless as contemplated
by the preceding clauses (a) and (b), then the indemnifying party shall
contribute to the amount paid or payable by the indemnified party as a
result of the loss, claim, damage, liability or expense in the
proportion as is appropriate to reflect (i) the relative fault of the
indemnified party and the indemnifying party, and (ii) any other
relevant equitable considerations. Notwithstanding the foregoing, no
Shareholder shall be required to contribute any amount in excess of the
net amount of proceeds received by such holder from the sale of
Registrable Securities giving rise to the loss, claim, damage,
liability or expense.
(e) Survival. The indemnities provided in this Section 6 shall
survive the Shareholders' transfer of any Registrable Securities.
7. Miscellaneous.
(a) No Inconsistent Agreements. The Company shall not on or
after the date of this Agreement enter into any agreement with respect
to its securities which is inconsistent with the rights granted to the
Shareholders in this Agreement or otherwise conflicts with the
provisions of this Agreement. The rights granted to the Shareholders
under this Agreement do not in any way conflict with and are not
inconsistent with any rights granted under any other agreement
concerning the Company's securities.
(b) Amendments and Waivers. No amendment, modification,
supplement or waiver of any provision of this Agreement is binding on
any party unless the party consents in writing thereto. The provisions
of this Agreement may not be amended or modified without the prior
written consent of the Company and holders of a majority of the then
outstanding shares of Registrable Securities.
(c) Remedies. Any Person having rights under any provision of
this Agreement will be entitled to enforce such rights specifically to
recover damages caused by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law. The parties
hereto agree and acknowledge that money damages may not be an adequate
remedy for any breach of the provisions of this Agreement and that any
party may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or other security) for
specific performance and for other injunctive relief in order to
enforce or prevent violation of the provisions of this Agreement.
(d) Notices. All notices and other communications that this
Agreement
8
<PAGE> 9
provides for or permits shall be made in writing by hand
delivery or registered or certified first-class mail:
(i) to the Shareholders, at the most current
address given by the Shareholders to the
Company.
(ii) To the Company at:
Compuware Company
31440 Northwestern Highway
Farmington Hills, Michigan 48334-2564
Attention: President
All notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; or
five (5) business days after being deposited in the mail, postage
prepaid, if mailed.
(e) Governing Law. This Agreement shall be governed by the
laws of the State of Michigan (regardless of the laws that might
otherwise govern under applicable Michigan principles of conflicts of
law) as to all matters, including, but not limited to, matters of
validity, construction, effect, performance and remedies.
(f) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
(g) Interpretation. The Section headings contained in this
Agreement are for the purposes of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.
(h) Severability. If any provision of this Agreement is
determined to be illegal or invalid, such illegality or invalidity
shall have no effect on the other provisions of this Agreement, and all
other provisions of this Agreement shall remain valid, operative and
enforceable.
(i) Assignment. The rights granted to the Shareholders
pursuant to this Agreement shall be assignable only with the prior
written consent of the Company, which consent with respect to
assignments for estate planning purposes shall not be unreasonably
withheld, conditioned or delayed.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COMPUWARE CORPORATION
By: /s/ Eliot R. Stark
--------------------------------
Its: Executive Vice President
MARY C. BAHN 1999 QUALIFIED ANNUITY
TRUST
By: /s/ Michael M. Bahn
--------------------------------
Michael M. Bahn, Trustee
/s/ Michael J. Bahn
--------------------------------
MICHAEL J. BAHN
/s/ Marisa R. Bahn
--------------------------------
MARISA R. BAHN
RENEE C. PHILLIPS 1999 QUALIFIED
ANNUITY TRUST
By: /s/ Mark Phillips
--------------------------------
Mark Phillips, Trustee
10
<PAGE> 11
MICHAEL M. BAHN REVOCABLE TRUST
DATED JANUARY 23, 1995
By: /s/ Michael M. Bahn
-------------------------------
Michael M. Bahn, Trustee
MARY C. BAHN REVOCABLE TRUST
DATED JANUARY 23, 1995
/s/ Mary C. Bahn
-------------------------------
Mary C. Bahn, Trustee
11
<PAGE> 12
SCHEDULE 1 TO
REGISTRATION RIGHTS AGREEMENT
The shares offered hereby may be sold from time to time by the Selling
Shareholders, or by pledgees, donees, transferees or other successors in
interest of the Selling Shareholders. Such sales may be made on the Nasdaq
National Market, or otherwise, at prices and on terms then prevailing or at
prices related to the then-current market prices, or in negotiated transactions
at negotiated prices. The shares may be sold by one or in a combination of the
following: (a) a block trade in which the broker or dealer so engaged will
attempt to sell the shares as agent, but may position and resell a portion of
the block as principal to facilitate the transaction; (b) purchases by a broker
or dealer as principal and resale by such broker or dealer for its account
pursuant to this Prospectus; and (c) ordinary brokerage transaction and
transactions in which the broker solicits purchasers. In effecting sales,
brokers or dealers engaged by the Selling Shareholders may arrange for other
brokers or dealers to participate.
12
<PAGE> 1
EXHIBIT 5.1
April 12, 1999
Compuware Corporation
31440 Northwestern Highway
Farmington Hills, Michigan 48334
Gentlemen:
We have represented Compuware Corporation, a Michigan corporation (the
"Company"), in connection with the preparation and filing of a Registration
Statement on Form S-1 (the "Registration Statement"), for the registration under
the Securities Act of 1933, as amended, of 1,021,864 shares of the common stock,
par value $.01 (the "Common Stock"), of the Company issued to the Selling
Shareholders pursuant to the Agreement and Plan of Merger, dated February 23,
1999, by and among the Company, M.I.S. International, Inc., Simco International,
Inc., and certain others (the "Agreement"). We have examined the proceedings
taken by the Company in connection with the Agreement and the sale and issuance
of the Common Stock pursuant thereto and such other records, documents and
matters as we have deemed necessary or advisable in order to enable us to render
this opinion.
Based upon the above and taking into account such legal considerations as
we have deemed relevant, we are of the opinion that the shares of Common Stock
covered by the Registration Statement to be sold by the Selling Shareholders
have been duly authorized and legally and validly issued by the Company and are
fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ HONIGMAN MILLER SCHWARTZ AND
COHN
<PAGE> 1
EXHIBIT 10.81
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement made this 1st day of April, 1995, ("Agreement")
between Compuware Corporation, its subsidiaries and affiliates, ("Company") and
Phyllis Recca ("Executive").
Company and Executive hereby agree:
1. EMPLOYMENT AND DUTIES.
1.1 EMPLOYMENT BY COMPANY. Company agrees to employ Executive for the
Employment Term as defined in Section 2, to render exclusive and full-time
services to it in such capacity or capacities as the Company shall determine
from time to time, and to perform faithfully and diligently such duties as the
Company shall reasonably assign to Executive from time to time.
1.2 OUTSIDE ACTIVITIES. Executive shall not engage in business
activities other than those contemplated by Executive's duties for the Company
unless approved in advanced by Company and listed on Exhibit B.
2. TERM OF EMPLOYMENT. The term of Executive's employment under this
Agreement shall commence on the date hereof and shall end on the date listed on
Exhibit A ("Employment Term") and, unless terminated by mutual agreement of the
parties or as otherwise provided in this Agreement at any time before or after
such date, shall be extended for two (2) years automatically from year to year
on such date, provided Executive is not disabled.
3. COMPENSATION.
3.1 COMPENSATION. As compensation for all services to be rendered
pursuant to this Agreement, Company shall pay Executive, during the Employment
Term, a salary at the rate specified in Exhibit A hereto ("Annual Salary"),
payable in accordance with the payroll policies of Company as from time to time
in effect, less such deductions as are required to be withheld by applicable
law, regulation or as is customary for Company employees.
3.2 PARTICIPATION IN EMPLOYEE BENEFITS PLANS. Executive shall be
permitted during the Employment Term, if and to the extent eligible, to
participate in any group life, hospitalization or disability insurance plan,
health program, pension, profit sharing or similar benefit plan of Company which
is from time to time available to the senior executives of Company substantially
on the same terms as apply to such other senior executives of Company. During
the Employment Term,
<PAGE> 2
Executive shall also be afforded reasonable paid vacation time pursuant to
vacation policies fixed by Company, or as otherwise provided in Exhibit A
hereto.
3.3 EXPENSES. Company shall pay or reimburse Executive for all reasonable
business expenses actually incurred or paid by Executive during the Employment
Term in accordance with its current expense reimbursement policy.
3.4 ADDITIONAL COMPENSATION. In addition to the Annual Salary, Executive
shall be entitled to receive such other benefits, stock options, and
discretionary cash or stock bonuses, as the Board of Directors may from time to
time, in its sole discretion, approve or which are otherwise specifically set
forth in Exhibit A hereto.
4. TERMINATION.
4.1 TERMINATION UPON DEATH. If Executive dies during the Employment Term,
the Employment Term and this Agreement shall automatically terminate, except
that Executive's legal representatives and/or beneficiaries shall be entitled to
receive compensation hereunder at the rate of Executive's Annual Salary as in
effect on the date of his death, for a period ending as provided in Exhibit A
hereto.
4.2 TERMINATION UPON DISABILITY. If during the Employment Term, Executive
shall, by reason of injury or illness, become physically or mentally disabled,
whether totally or partially, so that he or she is unable substantially to
perform his or her services hereunder for a period of twelve consecutive months,
Company may at any time after the last day of the twelfth consecutive month of
disability, by notice to Executive, terminate the Employment Term. The
determination of a disability and the commencement date thereof shall be by the
Board of Directors of Company or, at the election of Executive or the Board, by
two(2) qualified physicians agreed upon by Executive and the Board.
Notwithstanding termination because of disability, Company shall continue to pay
Executive compensation hereunder at the rate of his or her Annual Salary as in
effect on the date of such termination, for a period ending as provided in
Exhibit A hereto. If Executive returns to employment, and within six(6) months,
again becomes disabled, the subsequent disability shall be considered a
continuation of the original disability for determining the twelve month period
of disability. During any period of disability of Executive, the Company's
salary continuation obligation shall be reduced by the amount of any proceeds of
disability insurance received by Executive which is payable pursuant
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<PAGE> 3
to any policy of disability insurance for which the Company has paid or pays the
premium in whole or in part.
4.3 TERMINATION OF EMPLOYMENT TERM FOR CONVENIENCE. Notwithstanding any
provision of this Agreement to the contrary other than the provisions of Section
4.2 relating to disability of Executive, Company reserves the right to terminate
the Employment Term for its convenience. If the Employment Term is terminated
for the convenience of Company, Company shall continue to pay Executive
compensation hereunder at the rate of his Annual Salary as in effect on the date
of termination, for a period ending as provided in Exhibit A hereto.
4.4 TERMINATION OF EMPLOYMENT TERM FOR CAUSE. If Executive (i) materially
breaches affirmative or negative covenants or undertakings contained in this
Agreement, or (ii) materially neglects his duties hereunder; then, in any such
case, Company may at any time by notice pursuant to Section 6.1 to Executive
immediately terminate the Employment Term and Executive shall have no right to
receive any compensation or benefit hereunder after the last day of the month in
which falls the effective date of such notice. For purpose hereof, the phrase
"materially neglects his duties" shall be interpreted by reference to the
standard applicable to executives holding similar positions in businesses
owned by public investors.
4.5 SALARY CONTINUATION. Company's salary continuation obligation under
paragraphs 4.2 and 4.3 shall be reduced by the amount of compensation received
by Executive from any and all employment during the period of Company's salary
obligation.
5. CERTAIN COVENANTS OF EXECUTIVE.
5.1 COVENANTS AGAINST COMPETITION. Executive acknowledges that (i) the
principal business of Company is the development, perfection, commercial
exploitation, marketing, licensing and maintenance of computer software and
provision of technical services in software development and maintenance on a
contract basis; (ii) such business is national and international in scope; and
(iii) Executive's work with Company will bring Executive into close contact with
many confidential affairs of Company not readily available to the public. In
order to induce Company to enter into this Agreement, Executive covenants and
agrees that:
5.1.1 NON-COMPETE. During Executive's Employment Term, and for a period of
one(1) year after the termination of the Employment Term( the "Restricted
Period"), Executive shall not in
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<PAGE> 4
the United States of America or in any foreign country, directly or indirectly,
as an owner, stockholder, partner, associate, agent, employee, consultant,
co-venturer, controlling creditor, owner, or representative, engage in or take
any action in or participate with any person engaged in any business
competitive with that then engaged in by Company; provided, that the
restrictions contained in this Section 5.1.1 shall not apply to any business
activity abandoned or disposed of by Company, or to any activity authorized or
sanctioned in writing by Company; and provided, further, that Executive may
own, directly or indirectly, solely as an investment, securities of any person
which are traded on any national securities exchange or over the counter if
Executive (i) is not a controlling person of, or a member of a group which
controls, such person or (ii) does not, directly or indirectly, own 1% or more
of any class of securities of such person except as described on Exhibit B.
5.1.2 NEW DEVELOPMENTS. During the Employment Term, Executive will
promptly disclose to Company any and all improvements, inventions, discoveries,
innovations, systems, techniques, ideas, processes, programs, enhancements and
other items which were made or conceived by Executive, alone or with others,
("New Developments") which are part of Company's business. Executive further
agrees that all New Developments shall be and remain the exclusive property of
Company and that Executive will, at Company's request, and without additional
compensation, do all lawful things necessary to insure Company's ownership of
such New Developments, including without limitation the assigning and
transferring to Company and its assigns all of Executive's rights, title and
interest in and to such New Developments. All work done for Company by
Executive shall be "work for hire". This includes work performed during normal
business hours and after business hours, whether performed on Company's
premises or elsewhere.
5.1.3 CONFIDENTIAL INFORMATION. During the Employment Term and at all
times thereafter, Executive shall keep secret and retain in strictest
confidence, and shall not use for the benefit of Executive or other persons
except in connection with the business and affairs of Company, all Confidential
Information and Materials of Company. For this purpose, the phrase
"Confidential Information and Materials" refers to all information belonging to
or used by Company, or Company's customers, relating to internal operations,
procedures and policies, business strategies, pricing, billing information,
financial information, personnel information, customer contacts, clients, sales
lists, employee lists, technology, software source codes, programs, costs,
employee compensation, marketing plans, developmental plans, computer programs,
computer systems, inventions,
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<PAGE> 5
developments, and trade secrets of every kind and character. Confidential
Information and Materials shall not include that which is: now in or
subsequently comes into the public domain without breach of this Agreement;
known to Executive prior to the receipt of such information and materials
disclosed by Company, independently developed by Executive; disclosed by
Executive with the prior written approval of Company; disclosed by Company to a
third party without restrictions; or becomes known to Executive without breach
of this Agreement from a third party. Executive shall not disclose such
Confidential Information and Materials to anyone inside or outside of Company,
except as required in the course of performing duties hereunder or with
Company's prior express written consent.
5.1.4 PROPERTY OF COMPANY. All memoranda, notes, lists, records, files
and other documents (and all copies thereof) made or compiled by Executive or
made available to Executive during Executive's employment by Company concerning
the business of Company is and shall be Company's property, the use of which is
available to Executive solely pursuant to a limited non-exclusive license
granted by this Agreement, and shall be delivered to Company promptly upon the
termination of Executive's employment with Company or at any other time upon
request by Company.
5.1.5 EMPLOYEES OF COMPANY. During the Employment Term and the
Restricted Period; Executive shall not, directly or indirectly, knowingly
hire, solicit or encourage to leave the employment of Company any employee of
Company, or hire any person who has left the employment of Company, within one
year of the termination of the Restricted Period except for employees terminated
or laid off by Company.
5.2 RIGHTS AND REMEDIES UPON BREACH. If Executive breaches, or threatens to
commit a breach of, any of the provisions of Section 5.1 ("Restricted
Covenants"), Company shall have the following rights and remedies, each of
which rights and remedies shall be independent of the other and severally
enforceable, and all of which rights and remedies shall be in addition to, and
not in lieu of, any other rights and remedies available to Company under law or
in equity:
5.2.1 SPECIFIC PERFORMANCE. The right and remedy to have Restrictive
Covenants specifically enforced by any court having equity jurisdiction, it
being acknowledged and agreed that any such breach or threatened breach will
cause irreparable injury to Company and that money damages will not provide an
adequate remedy to Company. To facilitate this Section 5.2.1, Executive
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<PAGE> 6
consents to the entry of a temporary restraining order by any court of competent
jurisdiction immediately upon commencement of an action therein without prior
notice to Executive.
5.2.2 ACCOUNTING. The Company shall have the right and remedy to
require Executive to account for and pay over to Company all compensation,
profits, monies, accruals, increments or other benefits (collectively
"Benefits") derived or received by Executive as the result of any transactions
constituting a breach of any of the Restrictive Covenants, and Executive shall
account for and pay over such Benefits to Company.
5.2.3 LIQUIDATED DAMAGES. Executive agrees that it is difficult to
determine a precise dollar amount for the solicitation and hiring of any Company
employee or soliciting any Company customer or account contrary to this
Agreement. As a result, Executive agrees to pay the sum of two Hundred Fifty
Thousand ($250,000.00) Dollars as liquidated damages for each and every employee
of Company solicited and/or hired. Also, Executive agrees to pay the sum of One
Million ($1,000,000.00) Dollars for each and every customer or account solicited
and/or contracted with contrary to this Agreement. Executive agrees that the sum
of $250,000.00 represents Company's cost for recruiting, training, educating and
replacing such employee. Executive further agrees that the sum of $1,000,000.00
represents Company's marketing costs and the cost of developing customer
relations as well as lost revenue. Executive agrees that such liquidated damage
provisions are in addition to Company's remedy of specific performance with
respect to threatened or prospective breaches of Sections 5.1.1 and 5.1.5.
5.3 SEVERABILITY OF COVENANTS. If a court determines that any of the
Restrictive Covenants, or any part thereof, is invalid or unenforceable, the
remainder of the Restrictive Covenants shall not thereby be affected and shall
be given full effect, without regard to the invalid portions.
5.4 BLUE-PENCILLING. If a court of competent jurisdiction construes any
provision of the Restrictive Covenants to be unenforceable because of the
duration of such provision or the area covered thereby, such court shall have
the power to reduce the duration or area of such provision and, in its reduced
terms, such provision shall then be enforceable and shall be enforced.
5.5 ENFORCEABILITY IN JURISIDICTIONS. The parties intend to and hereby
confer jurisdiction to enforce the Restrictive Covenants upon the courts of any
jurisdiction within the geographical scope of the Restrictive Covenants. If the
court of any one or more of such jurisdictions hold the Restrictive Covenants
wholly unenforceable by reason of the breadth of such scope or otherwise, it
- 6 -
<PAGE> 7
is the intention of the parties that such determination not bar or in any way
affect Company's right to the relief provided above in the courts of any other
jurisdiction within the geographical scope of the Restrictive Covenants, as to
breaches of the Restrictive Covenants in such other respective jurisdictions,
the Restrictive Covenants as they relate to each jurisdiction being, for this
purpose, severable into diverse and independent covenants.
6. OTHER PROVISIONS.
6.1 NOTICES. Any notice or other communication required or which may be
given hereunder shall be in writing and shall be delivered personally, by
facsimile, or sent by express overnight courier, and shall be deemed given when
so delivered personally, sent by facsimile, or sent, as follows (or to such
other address as either party shall designate by notice in writing to the other
in accordance herewith):
(i) if to Company:
Compuware Corporation
31440 Northwestern Highway
Farmington Hills, MI 48334
Attention: President
Facsimile Number:(810) 737-1822
(ii) if to Executive:
Phyllis Recca
-----------------------
-----------------------
6.2 ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
prior agreements, written or oral, with respect thereto.
6.3 WAIVERS AND AMENDMENTS. This Agreement may be amended, modified,
superseded, canceled or renewed, only by a written agreement between the
parties. Failure or delay by either party to enforce compliance with any term or
condition of this Agreement shall not constitute a waiver of such term or
condition.
- 7 -
<PAGE> 8
6.4 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Michigan applicable to agreements made
and to be performed entirely within such State. The parties to this Agreement
submit to the personal jurisdiction of the state and federal courts of the
State of Michigan.
6.5 ASSIGNMENT. This Agreement, and Executive's rights and obligations
hereunder, may not be assigned by Executive. Company may assign this Agreement
and its rights, together with its obligations hereunder, in connection with any
sale, transfer or other disposition of all or substantially all of its assets
or business, whether by merger, consolidation or otherwise, provided that the
assignee assumes all obligations of Company hereunder. If assignee does not
assume all the obligations of this Agreement, Company shall fulfill the
obligations of this Agreement.
6.6 TAKE-OVER. This Agreement shall be binding upon any party that
acquires the Company's stock through any take-over action or tender offer.
6.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
6.8 HEADINGS. The headings in this Agreement are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.
6.9 SURVIVAL. The terms of Sections 4 and 5 shall survive the
termination of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPUWARE CORPORATION
By: John M. Abraham
---- ---------------------
Its: Executive Vice President
-------------------------
Phyllis Recca
-----------------------------
Phyllis Recca, Executive
-8-
<PAGE> 9
EXHIBIT A
---------
TO EMPLOYMENT AGREEMENT DATED AS OF APRIL 1, 1995
-------------------------------------------------
Executive: Phyllis Recca
Annual Salary: $160,000
Vacation: Standard
Termination Date: March 31, 1997
Salary Continuation:
(a) After Termination for Convenience pursuant to Section 4.3: Payment
of Salary until March 31, 1997.
(b) After Expiration of Employment Term: Salary as of March 31, 1997
to be paid over one (1) year in twelve monthly installments.
Other Additional Compensation:
(a) All stock options granted Executive during his or her employment
shall continue to vest until the expiration of the Employment
Term.
COMPUWARE CORPORATION
By: JOHN M. ABRAHAM
----------------------------------
Its: Executive Vice President
----------------------------------
PHYLLIS RECCA
--------------------------------------
Phyllis Recca, Executive
This Exhibit A is effective April 1, 1995. It may be amended from time to time
by an Exhibit A in similar form bearing a later effective date and the
signatures of Company and Executive.
- 9 -
<PAGE> 10
EXHIBIT B
TO EMPLOYMENT AGREEMENT DATED AS OF APRIL 1, 1995
Executive: Phyllis Recca
Approved Outside Activities and Stock Ownership:
COMPUWARE CORPORATION
By: John M. Abraham
------------------------
Its: Executive Vice President
------------------------
Phyllis Recca
-----------------------------
Phyllis Recca, Executive
This Exhibit B is effective April 1, 1995. It may be amended from time to time
by an Exhibit B in similar form bearing a later effective date and the
signatures of Company and Executive.
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<PAGE> 11
EXHIBIT A
TO EMPLOYMENT AGREEMENT DATED AS OF APRIL 1, 1995
Executive: Phyllis Recca
Annual Salary: $180,000
Vacation: Standard
Termination Date: March 31, 1998
Salary Continuation:
(a) After Termination for Convenience pursuant to Section 4.3: Payment
of Salary until March 31, 1998.
(b) After Expiration of Employment Term: Salary as of March 31, 1998,
to be paid over one (1) year in twelve monthly installments.
Other Additional Compensation:
(a) All stock options granted Executive during his or her employment
shall continue to vest until the expiration of the Employment Term.
COMPUWARE CORPORATION
By: Peter Karmanos
------------------------
Its: Chairman & CEO
------------------------
Phyllis Recca
----------------------------
Phyllis Recca, Executive
This Exhibit A is effective April 1, 1996. It may be amended from time to time
by an Exhibit A in similar form bearing a later effective date and the
signatures of Company and Executive.
<PAGE> 1
EXHIBIT 10.82
COMPUWARE CORPORATION
FISCAL 1999 STOCK OPTION PLAN
1. DEFINITIONS: As used herein, the following definitions shall apply:
(a) "Plan" shall mean this Compuware Corporation Fiscal 1999 Stock
Option Plan.
(b) "Corporation" shall mean Compuware Corporation, a Michigan
corporation, or any successor thereof.
(c) "Committee" shall mean a committee meeting the standards of Rule
16b-3 of the Rules and Regulations under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or any similar successor rule, appointed by the
Board of Directors of the Corporation to administer the Plan or, if no such
committee is appointed, the Board of Directors as a whole.
(d) "Participant" shall mean any individual designated by the Committee
under Paragraph 6, for participation in the Plan.
(e) "Nonqualified Option" shall mean an option to purchase Common Stock
of the Corporation which meets the requirements set forth in the Plan but does
not meet the definition of an incentive stock option set forth in Section 422A
of the Internal Revenue Code of 1986, as amended.
2. PURPOSE OF PLAN: The purpose of the Plan is (a) to provide
employees, including officers of the Corporation and its subsidiaries, with an
increased incentive to make significant and extraordinary contributions to the
long-term performance and growth of the Corporation and its subsidiaries, (b) to
join the interests of the employees with the interests of the shareholders of
the Corporation and (c) to facilitate attracting and retaining employees of
exceptional ability. For purposes of the Plan, a "subsidiary" is any corporation
in which the Corporation owns, directly or indirectly, stock possessing more
than fifty percent (50%) of the combined voting power of all classes of stock.
3. ADMINISTRATION: The Plan shall be administered by the Committee.
Subject to the provisions of the Plan, the Committee shall determine, from those
eligible to be Participants under the Plan, the persons to be granted stock
options, the number of shares of stock subject to options granted to each such
person, and the terms and conditions of any stock options. Subject to the
provisions of the Plan, the Committee is authorized to interpret the Plan, to
promulgate, amend and rescind rules and regulations relating to the Plan and to
make all other determinations necessary or advisable for its administration.
Interpretation and construction of any provision of the Plan by the Committee
shall be final and conclusive. Acts approved by a majority of the members
present at any meeting at which a quorum is present, or acts unanimously
approved in writing by the Committee, shall be the acts of the Committee.
4. INDEMNIFICATION OF COMMITTEE MEMBERS: In addition to such other
rights of indemnification as they may have, the members of the Committee shall
be indemnified by the Corporation against the reasonable expenses, including
attorneys' fees, actually and necessarily incurred in connection with the
defense of any action, suit or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any option
granted hereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by the Board of
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Directors of the Corporation) or paid by them in satisfaction of a judgment in
any such action, suit or proceeding, except in relation to matters as to which
it shall be adjudged in such action, suit or proceeding that such Committee
member has acted in bad faith; provided, however, that within sixty (60) days
after receipt of notice of institution of any such action, suit or proceeding a
Committee member shall offer the Corporation in writing the opportunity, at its
own cost, to handle and defend the same.
5. MAXIMUM NUMBER OF SHARES SUBJECT TO PLAN: The maximum number of
shares with respect to which stock options may be granted under the Plan shall
be 4,000,000 shares in the aggregate of Common Stock of the Corporation, which
may consist in whole or in part of the authorized and unissued or reacquired
Common Stock of the Corporation. If a stock option terminates for any reason
without having been fully exercised, the number of shares with respect to which
the stock option was not exercised at the time of its expiration or termination
shall again become available for the grant of stock options under the Plan,
unless the Plan shall have been terminated.
The number of shares subject to each outstanding stock option, the
option price with respect to outstanding stock options, and the aggregate number
of shares remaining available under the Plan shall be subject to such adjustment
as the Committee, in its discretion, deems appropriate to reflect such events as
stock dividends, stock splits, recapitalizations, mergers, consolidations or
reorganizations of or by the Corporation; provided, however, that no fractional
shares shall be issued pursuant to the Plan, no rights may be granted under the
Plan with respect to fractional shares and any fractional shares resulting from
such adjustments shall be eliminated from any outstanding stock option.
6. PARTICIPANTS. The Committee shall determine and designate from time
to time, in its sole discretion, those employees, including officers of the
Corporation or any subsidiary, to whom stock options are to be granted or
awarded and who thereby become Participants under the Plan.
7. WRITTEN AGREEMENT: Each stock option shall be evidenced by a written
agreement between the Corporation and the Participant and shall contain such
provisions as may be approved by the Committee. Such agreements shall constitute
binding contracts between the Corporation and the Participant, and every
Participant, upon acceptance of such agreement, shall be bound by the terms and
restrictions of the Plan and of such agreement. The terms of each such agreement
shall be in accordance with the Plan, but the agreements may include such
additional provisions and restrictions as are determined by the Committee,
provided that such additional provisions and restrictions are not inconsistent
with the terms of the Plan.
8. ALLOTMENT OF SHARES. The Committee shall determine and fix the
number of shares of stock with respect to which each Participant may be granted
stock options; provided, that no optionee shall be granted options to purchase
more than 1,000,000 shares under the Plan during any year.
9. STOCK OPTIONS: Each option granted under the Plan shall be a
Nonqualified Option.
10. STOCK OPTION PRICE: Subject to the rules set forth in this
Paragraph 10, at the time any stock option is granted, the Committee shall
establish the price per share for which the shares covered by the option may be
purchased; provided, that the option price shall not be less than 100% of the
fair market value of the stock on the date such option is granted. Fair market
value of a share shall be determined by the Committee and may be determined by
taking the closing selling price of the Corporation's stock on any exchange or
other market on which the shares of Common Stock of the Corporation shall be
traded on such date. The option price will be subject to adjustment in
accordance with the provisions of Paragraph 5 of the Plan.
11. PAYMENT OF STOCK OPTION PRICE: At the time of the exercise in whole
or in part of any stock option granted hereunder, payment of the option price in
full in cash or, with the consent of the Committee, in Common Stock of the
Corporation or by a promissory note payable to the order of the Corporation
which is
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acceptable to the Committee, shall be made by the Participant for all shares so
purchased. Such payment may, with the consent of the Committee, also consist of
a cash down payment and delivery of such a promissory note in the amount of the
unpaid exercise price. No Participant shall have the rights of a shareholder of
the Corporation under any stock option until the actual issuance of shares to
said Participant, and prior to such issuance no adjustment shall be made for
dividends, distributions or other rights in respect of such shares, except as
provided in Paragraph 5.
12. GRANTING AND EXERCISE OF STOCK OPTIONS: Each stock option granted
hereunder shall be exercisable at any such time or times or in any such
installments as may be determined by the Committee at the time of the grant.
A Participant may exercise a stock option, if then exercisable, in
whole or in part by delivery to the Corporation of written notice of the
exercise, in such form as the Committee may prescribe, accompanied by full
payment for the shares with respect to which the stock option is exercised.
Except as provided in Paragraph 16, stock options may be exercised only while
the Participant is an employee of the Corporation or a subsidiary.
Successive stock options may be granted to the same Participant,
whether or not the stock option(s) previously granted to such Participant remain
unexercised. A Participant may exercise a stock option, if then exercisable,
notwithstanding that stock options previously granted to such Participant remain
unexercised.
13. TRANSFERABILITY OF STOCK OPTIONS: Except as otherwise provided in
this Paragraph 13 or to the extent determined by the Committee in its sole
discretion (either by resolution or by a provision in, or amendment to, the
option), (a) no option granted under the Plan to a Participant shall be
transferable by such Participant otherwise than (1) by will, or (2) by the laws
of descent and distribution or, (3) pursuant to a qualified domestic relations
order as defined in the Code or Title I of the Employee Retirement Income
Security Act, or the rules thereunder, and (b) such option shall be exercisable,
during the lifetime of the Participant, only by the Participant.
The Committee may, in its sole discretion, authorize all or a portion
of the options granted to an optionee to be transferred by such optionee to, and
to be exercised by, (i) the spouse, children or grandchildren of the optionee
("Immediate Family Members"), (ii) a trust or trusts for the exclusive benefit
of such Immediate Family Members, (iii) a partnership in which such Immediate
Family Members are the only partners, or (iv) such other persons or entities as
determined by the Committee, in its sole discretion, on such terms and
conditions as the Committee, in its sole discretion, may determine; provided
that (y) the stock option agreement pursuant to which such options are granted
must be approved by the Committee and must expressly provide for transferability
in a manner consistent with this Paragraph 13, and (z) subsequent transfers of
transferred options shall be prohibited except for transfers the original
optionee would be permitted to make (if he or she were still the owner of the
option) in accordance with this Paragraph 13.
Following transfer, any such options shall continue to be subject to
the same terms and conditions as were applicable immediately before transfer,
provided that for purposes of Paragraphs 11, 12, 17, 18 and 22 the term
"Participant" shall be deemed to refer to the transferee. The events of
termination of employment of Paragraph 16 shall continue to be applied with
respect to the original optionee, following which the options shall be
exercisable by the transferee only to the extent, and for the periods, specified
in Paragraph 16. The original optionee shall remain subject to withholding taxes
and related requirements upon exercise provided in Paragraph 20. The Company
shall have no obligation to provide any notice to any transferee, including,
without limitation, notice of any termination of the option as a result of
termination of the original optionee's employment with, or other service to, the
Company.
14. TERM OF STOCK OPTIONS: If not sooner terminated, each stock option
granted hereunder shall expire not more than 10 years from the date of the
granting thereof.
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15. CONTINUATION OF EMPLOYMENT: The Committee may require, in its
discretion, that any Participant under the Plan to whom a stock option shall be
granted shall agree in writing as a condition of the granting of such stock
option to remain in the employ of the Corporation or a subsidiary for a
designated minimum period from the date of the granting of such stock option as
shall be fixed by the Committee.
16. TERMINATION OF EMPLOYMENT. If the employment of a Participant by
the Corporation or a subsidiary shall be terminated, the Committee may, in its
discretion, permit the exercise of stock options granted to such Participant for
a period not to extend beyond the expiration date with respect to such
Nonqualified Options. In no event, however, shall a stock option be exercisable
subsequent to its expiration date. Furthermore, except for (i) the Participant's
death or disability, or (ii) special circumstances approved by the Committee, a
stock option may only be exercised after termination of a Participant's
employment to the extent exercisable on the date of termination of employment.
17. ACCELERATED VESTING: In the event that the Corporation is acquired
by a third party, regardless of the form of the acquisition (the "Acquisition"),
the options granted under this Plan shall automatically vest to any Participant
under the Plan who is employed by the Corporation or a subsidiary on the
effective date of the Acquisition. The "effective date" shall be deemed to be
the closing date of the Corporation's Acquisition. The value per share of each
such stock option to the Participant shall be the fair market value of the
Corporation's Common Stock on the effective date of the Acquisition (less the
exercise price).
18. INVESTMENT PURPOSE: If the Committee in its discretion determines
that as a matter of law such procedure is or may be desirable, it may require a
Participant upon any acquisition of stock hereunder by reason of the exercise of
stock options and as a condition to the Corporation's obligation to deliver
certificates representing such shares, to execute and deliver to the Corporation
a written statement, in a form satisfactory to the Committee, representing and
warranting that the Participant's acquisition of shares of stock shall be for
such person's own account, for investment and not with a view to the resale or
distribution thereof and that any subsequent offer for sale or sale of any such
shares shall be made either pursuant to (a) a Registration Statement on an
appropriate form under the Securities Act of 1933, as amended (the "Securities
Act"), which Registration Statement has become effective and is current with
respect to the shares being offered and sold, or (b) a specific exemption from
the registration requirements of the Securities Act, but in claiming such
exemption the Participant shall, prior to any offer for sale or sale of such
shares, obtain a favorable written opinion from counsel for or approved by the
Corporation as to the availability of such exemption. The Corporation may
endorse an appropriate legend referring to the foregoing restriction upon the
certificate or certificates representing any shares issued or transferred to the
Participant under this Plan.
19. RIGHTS TO CONTINUED EMPLOYMENT. Nothing contained in the Plan or in
any stock option granted or awarded pursuant to the Plan, nor any action taken
by the Committee hereunder, shall confer upon any Participant any right with
respect to continuation of employment by the Corporation or a subsidiary as an
employee nor interfere in any way with the right of the Corporation or a
subsidiary to terminate such person's employment as an employee at any time with
or without cause.
20. WITHHOLDING PAYMENTS: If upon the exercise of a Nonqualified Option
there shall be payable by the Corporation or a subsidiary any amount for income
tax withholding, in the Committee's sole discretion, either the Corporation
shall appropriately reduce the amount of stock or cash to be paid to the
Participant or the Participant shall pay such amount to the Corporation or
subsidiary to reimburse it for such income tax withholding. The Committee may in
its sole discretion, permit Participants to satisfy such withholding obligations
in whole or in part, by electing to have the amount of Common Stock delivered or
deliverable by the Corporation upon exercise of a stock option appropriately
reduced, or by electing to tender Common Stock back to the Corporation
subsequent to exercise of a stock option, to reimburse the Corporation for such
income tax withholding, subject to such rules and regulations as the Committee
may adopt. The Committee may make such other arrangements with respect to income
tax withholding as it shall determine.
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21. EFFECTIVENESS OF PLAN: The Plan shall be effective as of August 26,
1997; provided that the shareholders of the Corporation approve the Plan within
12 months of that date. Stock options may be granted or awarded prior to
shareholder approval of the Plan, but each such stock option grant or award
shall be subject to shareholder approval of the Plan. No stock option may be
exercised prior to shareholder approval.
22. TERMINATION, DURATION AND AMENDMENTS OF PLAN: The Plan may be
abandoned or terminated at any time by the Board of Directors of the
Corporation. Unless sooner terminated, the Plan shall terminate on the date ten
years after its adoption by the Board of Directors and no stock options may be
granted or awarded thereafter. The termination of the Plan shall not affect the
validity of any stock option outstanding on the date of termination.
For the purpose of conforming to any changes in applicable law or
governmental regulations, or for any other lawful purpose, the Board of
Directors shall have the right, with or without approval of the shareholders of
the Corporation, to amend or revise the terms of the Plan at any time; provided,
however, that no such amendment or revision shall (i) increase the maximum
number of shares in the aggregate which are subject to the Plan (subject,
however, to the provisions of Paragraph 5), change the class of persons eligible
to be Participants under the Plan or materially increase the benefits accruing
to Participants under the Plan, without approval or ratification of the
shareholders of the Corporation; or (ii) change the stock option price (except
as contemplated by Paragraph 5) or alter or impair any stock option which shall
have been previously granted or awarded under the Plan, without the consent of
the holder thereof.
As adopted by the Shareholders on August 25, 1998, effective as of
August 25, 1998.
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EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
We consent to the use in this Registration Statement of Compuware Corporation on
Form S-1 of our report dated May 4, 1998 (March 1, 1999 as to the effects of the
stock split described in Note 15), appearing in the Prospectus, which is a part
of this Registration Statement, and to the reference to us under the heading
"Experts" in such Prospectus.
Our audits of the financial statements referred to in our aforementioned report
also included the financial statement schedule of Compuware Corporation, listed
in Item 16 (b). This financial statement schedule is the responsibility of the
Corporation's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
DELOITTE & TOUCHE LLP
Detroit, Michigan
April 8, 1999
