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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
COMMISSION FILE NUMBER 0-12114
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VERITAS SOFTWARE CORPORATION
(EXACT NAME OF REGISTRANT SPECIFIED IN ITS CHARTER)
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CALIFORNIA 94-2823068
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1600 PLYMOUTH STREET
MOUNTAIN VIEW, CALIFORNIA 94043
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (415) 335-8000
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
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<S> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
Common Stock (no par value) ON WHICH REGISTERED
</TABLE>
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. [X]
As of February 28, 1997, 13,699,830 shares of Common Stock were
outstanding. The aggregate market value of the shares held by non-affiliates of
the registrant (based upon the closing average bid and ask prices of the
Registrant's Common Stock on February 28, 1997 of $31.75 per share) was
approximately $418,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement to be filed pursuant to Regulation
14A of the Securities and Exchange Commission under the Securities Exchange Act
of 1934, which is anticipated to be filed within 120 days after the end of the
registrant's fiscal year ended December 31, 1996, are incorporated by reference
in Part III hereof.
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PART I
ITEM 1. BUSINESS
The following discussion contains forward-looking statements. There are
certain important factors that could cause results to differ materially from
those in the forward-looking statements contained in the following discussion.
Among such important factors are (i) the Company's timely development and market
acceptance of new non-OEM products, (ii) the timely creation of versions of the
Company's products for the Microsoft Windows NT operating system, (iii) the
impact of Microsoft Windows NT and other operating systems on the UNIX market
upon which the Company's current products are dependent, (iv) the reliance on
OEMs to continue porting and shipping the Company's products, (v) the ability of
the Company to successfully expand the distribution of its products through new
and unproven channels, including resellers, integrators, distributors and direct
sales, (vi) the risk associated with the Company's engineering effort needed to
port its products to Microsoft Windows NT, (vii) the impact of competitive
products and pricing, (viii) the uncertainty of the labor market and local
regulations in India, (ix) the Company's ability to hire and retain research and
development personnel with appropriate skills in a highly competitive labor
market, and (x) such risks and uncertainties as are detailed from time to time
in the Company's SEC reports and filings, including this Form 10-K for the 1996
fiscal year and the Registration Statement on Form S-4 to be filed by the
Company in connection with the merger with OpenVision Technologies, Inc.
OVERVIEW
VERITAS Software Corporation (the "Company" or "VERITAS") was incorporated
in California on May 4, 1982. The principal executive offices of the Company are
located at 1600 Plymouth Street, Mountain View, California 94043. The telephone
number at that location is (415) 335-8000.
VERITAS develops, markets and supports advanced storage management and high
availability products for open system environments. The Company's products
provide performance improvement and reliability enhancement features that are
critical for many commercial applications. Some of the key features of storage
management products include protection against data loss and file corruption,
rapid recovery after disk or system failure, the ability to process large files
efficiently and the ability to manage the storage systems without interrupting
users. The high availability products provide an automated failover between
computer systems organized in clusters sharing disk resources.
The Company initially introduced its storage management products in 1990
for the UNIX operating system. The Company currently markets these products
primarily through original equipment manufacturers and operating system vendors
(collectively "OEMs") that either bundle the products with every operating
system licensed by such OEMs or offer them as an option. The Company generally
receives a one-time source license fee upon entering into a license agreement
with an OEM, as well as a user license fee each time the OEM licenses a copy of
an operating system to a customer incorporating one or more of the Company's
products. As of December 31, 1996, the Company had received user fees for its
storage management products from approximately 25 OEMs that had commenced
shipments of operating systems incorporating one or more of the Company's
products and had contracted with an additional 25 OEMs that have not yet
commenced shipments of operating systems incorporating such products. The
Company continues to pursue license agreements with additional UNIX based OEMs
for licensing VERITAS products and to pursue agreements to port (i.e., adapt)
its products to other popular operating systems. The Company is currently
adapting its Volume Manager product to run on the Microsoft Windows NT operating
system.
A substantial portion of the Company's net revenues is derived from user
license fees received from OEMs that incorporate the Company's products into
their operating systems. VERITAS' license agreements generally do not impose
minimum sale obligations on the OEMs and, accordingly, the OEMs have no
obligation to ship the Company's products. In addition, the Company has no
control over the shipping dates or volumes of systems shipped by its OEM
customers, and therefore there can be no assurance that any OEM will ship
operating systems that incorporate the Company's products in the future. Failure
of the Company's OEMs to achieve significant sales of systems incorporating the
Company's storage management products and
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fluctuations in the timing and volume of such sales could have a material
adverse effect on the Company's operating results and financial condition.
A key element of the Company's strategy is to mitigate the risks of
reliance on OEM customers by expanding distribution of its products through
non-OEM channels such as distributors, integrators, resellers and direct sales.
During 1994, the Company began to expand the distribution of its products that
operate on Sun Microsystems' Solaris version of the UNIX operating system
through non-OEM channels. As of December 31, 1996, the Company had over 100
resellers worldwide, accounting for approximately 25% of the Company's sales in
1996. The Company has no control over the amount of products that are sold
through these channels and there is no assurance that such channels' customers
will continue to purchase the Company's products. The Company will no longer be
distributing the VERITAS FirstWatch product through an exclusive distributor,
therefore, the Company will need to substantially expand its development, sales
and marketing efforts with respect to the VERITAS FirstWatch product to
establish alternative distribution channels and to provide support to existing
and new customers of this product which will require the expenditure of
substantial resources and the hiring of additional personnel.
The introduction and marketing of non-OEM versions of the Company's
products has required it to utilize additional types of distribution channels.
The establishment and expansion of these distribution channels has required the
expenditure of substantial resources and the need for additional personnel. The
Company has also added marketing personnel for these distribution channels.
There can be no assurance that the Company will have the necessary resources to
establish and expand these new distribution channels successfully. See "--
Certain Factors Which May Affect Future Operating Results -- New Distributing
Channels."
Any substantial decrease in the Company's revenues will materially and
adversely affect its operating results since most of the Company's manpower and
other expenses are fixed and cannot be adjusted rapidly to compensate for a
substantial decrease in revenues.
The Company's ViSTA software quality tools product line, which enabled
application and system software developers to improve the accuracy, completeness
and efficiency of their software testing process, was sold to CenterLine
Software, Inc. on March 31, 1995.
On April 1, 1996, the Company acquired all of the outstanding capital stock
of Advanced Computing Systems Company ("ACSC"), a company which had developed
technology for the operation and management of removable media volumes, devices
and repositories, for a total cost of approximately $3.5 million. Of the total
charge, $2.2 million was allocated to in-process research and development which
was expensed in the second quarter of 1996 and approximately $1.3 million was
allocated to acquired intangibles which will be amortized over a three to five
year period. Total cash outflows in 1996 related to this purchase were $3.5
million. The Company has agreed to pay the sole shareholder of ACSC, together
with certain other persons, a royalty on certain future product revenue derived
from the assets acquired. The royalty will be based on product shipments
beginning in the third quarter of 1997 and will be payable over a five year
period up to a maximum of $2.5 million.
On January 13, 1997, VERITAS entered into an Agreement and Plan of
Reorganization (the "Agreement") with OpenVision Technologies, Inc., a Delaware
corporation ("OpenVision"), a publicly-held company that provides system
management applications and services for client/server computing environments,
and VERITAS Software Corporation, a Delaware corporation ("the Combined
Company"), pursuant to which VERITAS and OpenVision will become wholly-owned
subsidiaries of the Combined Company (the "Merger"). The Merger is intended to
be a tax-free reorganization, accounted for as a pooling of interests whereby
each share of the outstanding common stock of VERITAS will be converted into one
share of common stock of the Combined Company and each outstanding share of
OpenVision Common Stock and Class B Common Stock will be exchanged for
approximately .346 of a share of Common Stock of the Combined Company. Subject
to regulatory and shareholder approval and customary closing conditions, the
transaction is expected to be completed on or about April 30, 1997. The Combined
Company expects to incur charges to operations, currently estimated to be
between $8.0 million and $10.0 million, in the quarter ended June 30, 1997, the
quarter in which the Merger is expected to be consummated, to reflect direct
transaction
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costs, primarily for financial advisory and legal fees and costs associated with
combining the operations of the two companies, primarily related to redundant
assets and facilities. This range is a preliminary estimate only and is,
therefore, subject to change. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Certain Factors Which May
Affect Future Operating Results -- Pending Acquisition of OpenVision."
PRODUCTS
The Company's products primarily operate with certain versions of the UNIX
operating system. The Company's future success will depend, in significant part,
on its ability to develop new features and functionality for existing products
and port its products to and distribute products for other operating systems,
such as Microsoft Windows NT. There can be no assurance that the Company's
current and future porting efforts will be successful. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Certain Factors Which May Affect Future Operating
Results -- Uncertainty in Porting Products to New Operating Systems and
Expansion into Windows NT Market."
Products
The Company currently offers the following core products for various
versions of the UNIX operating system: VERITAS Volume Manager, VERITAS File
System, VERITAS Visual Administrator, VERITAS Cluster Volume Manager, VERITAS
FirstWatch, VERITAS VxReliant, VERITAS Media Librarian, Accelerator for NFS,
VERITAS SmartSync, VERITAS Quick I/O Database Accelerator and suites of these
products (ServerSuites) tailored to specific system server markets. These
products offer many features that are critical for commercial UNIX applications.
VERITAS Volume Manager (VxVM). VxVM provides protection against data loss
due to disk failure, permits the acceleration of system performance by allowing
files to be spread across multiple disks and allows the system administrator to
reconfigure data locations without interrupting users. The technology
incorporated into VxVM provides a virtual software layer on top of the
underlying physical disks connected to the system. Among the features that VxVM
provides are spanning (allowing segments of user data to span multiple physical
disks and thereby overcome physical disk size limitations), mirroring (allowing
duplication of data on separate disks for uninterrupted operations after disk
failure), striping (interleaving data storage across multiple disks to increase
performance by providing multiple input/output ("I/O") data access points) and
Raid-5 (striping with addition of redundant data, for uninterrupted operations
after disk failure).
VERITAS File System (VxFS). VxFS enables fast (generally within seconds)
system recovery from operating system failure or disruption. It also allows
on-line performance tuning, file system defragmentation, file system
reconfiguration and file system back-up to be conducted without interrupting
users' access to files. Through the application of advanced journaling
technology, VxFS is designed to ensure that metadata (information describing the
location, size and attributes of files) is maintained in a consistent and
correct state in the event of system failure or disruption. In addition, VxFS
incorporates advanced extent-based file space allocation algorithms that can
accelerate file access rates, thereby providing enhanced system performance.
Extent-based algorithms are particularly critical in applications that require
access to large, clustered or sequentially accessed files.
VERITAS Visual Administrator (VxVA). VERITAS Visual Administrator is a
graphical interface tool which manages the VERITAS Volume Manager and general
file systems (including VxFS). VxVA is based on the OSF/Motif graphical
interface and allows an administrator to display and manipulate VERITAS Volume
Manager and file system objects. By implementing the use of color, monitoring
capabilities and user-definable default settings, VxVA provides an effective
environment for day-to-day disk administration.
VERITAS Cluster Volume Manager (VxCVM). Added as an extension to VERITAS
Volume Manager for parallel applications such as the Oracle Parallel Server,
VxCVM offers the same functionality as VxVM in a cluster of systems that can all
read and update the same data concurrently. VxCVM ensures atomic (all or none)
configuration updates and error event notification to all participating servers.
This guarantees consistent data and configuration updates, even in the event of
a system failure. For example, in the event of an Oracle
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Parallel Server mirrored disk failure, all participating servers must atomically
"see" the failure. Without VxCVM, there is a chance that the error would only be
seen by one server, resulting in the Oracle Parallel Server delivering incorrect
data.
VERITAS FirstWatch. VERITAS FirstWatch adds high availability capabilities
to open system servers, making it possible to provide highly reliable network
services to users of client/server applications, including Sun Microsystems' NFS
file service and databases. VERITAS FirstWatch automates the failover of
services to designated backup systems when systems and subsystems fail or become
unavailable.
VERITAS VxReliant. VERITAS VxReliant software allows computer systems to be
organized in clusters with multiple computers sharing disk resources. These
clustered configurations allow for parallel processing, which increases the
amount of computing power which is applied to a shared disk resource. In
addition, the software continuously monitors the "health" of the multiple
computers in the cluster. In the event one computer node fails, VERITAS
VxReliant reconfigures the cluster workload to ensure critical applications
continue to run.
VERITAS Media Librarian. VERITAS Media Librarian operates and manages all
types of removable media volumes, devices and repositories. It provides a secure
way to share robotic libraries and media among multiple simultaneous
applications. VERITAS Media Librarian provides a simple interface to access and
monitor removable media in a heterogeneous network of servers and clients that
eliminates the need to deal with media types, device drivers and location
information. VERITAS Media Librarian provides protection against data loss,
enhances data accessibility and availability and reduces storage management
costs, in a scalable and cost effective manner.
Accelerator for NFS. The Accelerator for NFS is an extension to the VxFS
and enhances performance of Sun Microsystems' NFS. The Accelerator takes
information that would have been logged in the VxFS intent logs and uses a
single log on a separate device. Multiple file system logs can be consolidated
and accessed sequentially on one or many of these accelerator volumes, removing
the head movement latency costs associated with writing file system intent logs.
VERITAS SmartSync. VERITAS SmartSync was jointly developed with Oracle and
is licensed as a product option of the VERITAS Volume Manager. This product
allows Oracle redo logs to drive resynchronization of VERITAS Volume Manager
mirrors to cut down mirror resynchronization time to less than a minute as
opposed to hours. Resynchronization takes as long as the redo log replay. This
functionality works with Oracle 7.3.2 and later.
VERITAS Quick I/O Database Accelerator. VERITAS Quick I/O Database
Accelerator allows databases to run on a VERITAS file system at the same speed
as on a raw device. The database views the file system as a raw device and the
system administrator sees it as a file system. Therefore, an administrator can
get the speed of raw device with the manageability of a file system.
VERITAS ServerSuite. VERITAS ServerSuite is an integrated suite of
products, optimized to provide customers with complete data storage management
solutions optimized for specific server environments including Sun Microsystems'
NFS, Web servers and database servers. VERITAS ServerSuite NFS Edition provides
increased NFS performance and availability on commodity servers. At this time,
three editions of ServerSuite are available to support NFS servers, Web servers
and Oracle database servers.
To date, the Company's products have been licensed primarily to OEMs that
sell either UNIX or NT operating systems incorporating the Company's products.
The Company also licenses its products through non-OEM channels, made up
primarily of resellers. No customer accounted for more than 10% of total net
revenues in 1996. In 1995, Novell and Digital Equipment Corporation accounted
for 13% and 11% of total net revenues, respectively. Tandem Computers accounted
for 13% of total net revenues in 1994. The Company relies on a significant
percentage of certain key OEM accounts for its revenue. Failure of the OEMs to
achieve significant sales of systems incorporating the Company's products and
fluctuations in the timing and volume of such sales could have a material
adverse effect on the Company's operating results and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Certain Factors Which May Affect Future Operating Results -- New
Distribution Channels."
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SALES, MARKETING AND CUSTOMER SUPPORT
The Company markets its products through OEMs and other distribution
channels. OEMs incorporate the products into their operating systems on a
bundled basis or license them to third parties as an option product. In most
cases, the Company receives a user license fee for each copy sublicensed by the
OEM to third parties. In some cases, as with Microsoft, the Company has licensed
a limited version of its products without receiving such royalties, in exchange
for establishing an installed base platform to which the Company can offer its
full feature products.
During 1996, the Company continued to build its sales, marketing and
customer support organization with a focus on delivery of its products to
resellers, integrators and end-users. In addition, the Company established a
sales subsidiary in Japan during 1996. As of December 31, 1996, the Company had
41 sales and marketing employees including four employees of the Company's sales
subsidiary in Japan, and had 14 customer support employees. The Company expects
to increase the number of its sales, marketing and customer support employees in
the future in order to expand its direct sales efforts to resellers and
end-users. There can be no assurance that the Company will have the necessary
resources, or that it will be able to establish and expand these new
distribution channels successfully. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Certain Factors Which May
Affect Future Operating Results -- New Distribution Channels."
The Company supports and services all of its products under annual
maintenance agreements with its customers. Customers of the Company's products
typically enter into fixed fee, renewable annual maintenance agreements with the
Company that provide for technical and emergency support as well as minor
product upgrades free of charge. The Company also supports its direct end-user
customers through annual maintenance agreements that provide for technical
support and minor product upgrades.
COMPETITION
The markets in which the Company competes are intensely competitive, highly
fragmented and rapidly changing and, in order to compete, the Company must
enhance current products, enhance the operability of its products with one
another and develop new products in a timely fashion. The Company's principal
competition in the market for storage management products is from internal
development groups of current and prospective OEMs, including operating system
vendors and computer manufacturers, many of which have substantial internal
programming resources and are capable of developing specific operating system
level products for their own needs. In addition, certain operating systems
vendors have already incorporated storage management capabilities into their
operating system, such as IBM for its AIX system, which reduces such vendors'
need for the Company's products. Among the OEMs who have included storage
management capabilities in their operating systems are Sun Microsystems for its
Solaris system, Digital Equipment Corporation for its ULTRIX system,
Hewlett-Packard for its HP-UX system and Microsoft for its Windows NT system.
The Company also directly competes with other third party software vendors such
as OpenVision Technologies, Inc. and Qualix Group, Inc. with respect to its high
availability products and indirectly competes with hardware companies offering
disk arrays and host adapters. Each of these competitors offer products that
incorporate certain of the features provided by the Company's products. From
time to time, the Company encounters competition from system OEMs who attempt to
market their technology to their customers as a means of recovering their
development costs. Furthermore, the Company is facing or could face competition
from disk controller and disk subsystem manufacturers who have included or may
include features which are similar to those offered by the Company's products.
The Company believes that its ability to compete successfully depends on a
number of factors, including product performance and functionality, the cost of
internal product development versus the cost of obtaining licensed products from
outside vendors, time-to-market and the cost of on-going maintenance. The
Company's future success will depend significantly on its ability to develop
additional advanced products more rapidly and less expensively than its existing
and potential customers, to persuade such customers to license the Company's
products rather than to develop their own storage management products, and to
adapt its
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products to run on the Microsoft Windows NT operating system. There can be no
assurance that the Company will be able to accomplish this successfully.
Many of the Company's existing and potential competitors have substantially
greater financial, technical, marketing, sales and distribution resources than
the Company. There can be no assurance that the Company will be able to compete
successfully or that competition will not have a material adverse effect on the
Company's operating results and financial condition.
RESEARCH AND DEVELOPMENT
The Company's current research and development activities are primarily
directed toward porting its current products to other operating systems, such as
Microsoft Windows NT, developing enhancements of its current products and
developing new products. These development activities include:
Enhancing VERITAS Visual Administrator. The Company is creating a new
generation of VERITAS Visual Administrator that allows for visual
management of very large numbers of disk and data storage devices and
management of storage devices attached to multiple computer systems. The
new product will use Java and Web browser technology to be easily portable
and usable in networked environments, and will work with multiple
applications, including VERITAS FirstWatch.
Enhancing VERITAS Volume Manager, VERITAS File System and VERITAS
FirstWatch. The Company is developing product extensions to the VERITAS
Volume Manager, VERITAS File System and VERITAS FirstWatch products to
further enhance data access performance and automate reconfiguration of
data in order to simplify system administration. The Company continues to
adapt these products to new platforms.
Adapting VERITAS' products and technologies to Microsoft's Windows NT
Operating System. The Company is adapting the VERITAS Volume Manager
product to run on Microsoft Windows NT and has begun a study to adapt the
VERITAS File System, Cluster File System and Cluster Volume Manager
technology to Microsoft Windows NT.
Developing the Archimedes Tool. The Company is developing the Archimedes
performance utility tool which will work in conjunction with VERITAS Volume
Manager. The benefit of this product is that it will provide suggestions on
how to optimize the storage layout to obtain the highest level of system
performance based on the current system usage. This product will identify
the busiest and least busy disks and volumes. It will provide an analysis
as to which disks and volumes are causing problems and how to alleviate
these problems. The Archimedes graphical user interface will be Java and
browser-based.
Developing VERITAS ServerSuites. The Company is developing new, enhanced
releases of its existing server suite edition and new versions of its
products to support the Sybase and Informix databases.
In August 1996, the Company entered into an agreement with Microsoft
pursuant to which the Company has agreed to develop a functional subset of the
VERITAS Volume Manager product to be ported to and embedded in Microsoft Windows
NT. The agreement also requires the Company to develop a disk management
graphical user interface designed specifically for Microsoft Windows NT.
Microsoft has agreed to fund a significant portion of the development expenses
for this product payable in quarterly increments. In order to perform under the
agreement, the Company has hired additional personnel with expertise in the
Microsoft Windows NT operating system environment and will be required to devote
substantial capital investment and resources to successfully complete this
project. There can be no assurance that the Company will have the resources
necessary to perform its obligations under the Microsoft agreement in a timely
and efficient manner or that its development efforts will be successful.
At December 31, 1996, the Company's research and development staff
consisted of 80 employees located at the Company's Mountain View, California
headquarters. In addition, in April 1996, the Company formed a subsidiary in
Pune, India and hired certain research and development employees who were
previously employed by a company which was an independent development contractor
for the Company. At December 31, 1996, 21 research and development staff were
employed by this subsidiary. This foreign development group subjects the Company
to a number of risks inherent in international operations, including the
possible
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imposition of governmental controls, difficulties in managing international
operations and lower levels of intellectual property protection.
In 1996, 1995 and 1994, research and development expenses were
approximately $10.5 million, $6.4 million and $4.6 million, respectively. The
Company believes that technical leadership is essential to its success and
expects that it will continue to spend substantial funds on research and
development. The Company continues to make substantial investments in
undisclosed new products, which may or may not be successful. There can be no
assurance that any research and development efforts will be successfully
completed or that future products will be available on a timely basis or achieve
market acceptance. The Company must hire additional research and development
personnel for timely completion of new products, including the adaptation of its
products to Microsoft Windows NT. The market for such personnel is very
competitive and there can be no assurance that they can be hired on a timely
basis. The Company will often consider acquiring and purchasing technology to
achieve certain of its objectives. However, there can be no assurance that this
can be accomplished successfully. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Certain Factors Which May
Affect Future Operating Results -- Rapid Technological Change and Requirement
for Frequent Product Transitions."
PROPRIETARY RIGHTS
The Company regards certain features of its internal operations, software
and documentation as proprietary and relies on contract, copyright, trademark
and trade secret laws, confidentiality procedures and other measures to protect
its proprietary information. The Company currently holds no patents applicable
to its current business, although it has filed several applications for patents
and existing copyright and trade secret laws afford only limited protection.
As part of the confidentiality procedures, the Company generally enters
into non-disclosure agreements with its employees, distributors and corporate
partners, and license agreements with respect to its software, documentation and
other proprietary information.
Such licenses are generally non-transferable and have a perpetual term. The
Company may sometimes make source code available for certain of the Company's
products. The provision of source code may increase the likelihood of
misappropriation or other misuse of the Company's intellectual property. The
Company also licenses some of its products pursuant to shrink wrap licenses that
are not signed by licensees and therefore may be unenforceable under the laws of
certain jurisdictions. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights to the same extent as do the laws of
the United States. There can be no assurance that the Company's protection of
its proprietary rights will be adequate or that the Company's competitors will
not independently develop similar technology.
The Company is not aware that its products, trademarks or other proprietary
rights infringe the proprietary rights of third parties. However, from time to
time, the Company receives notices from third parties asserting that the Company
has infringed their patents or other intellectual property rights. The Company
may find it necessary or desirable in the future to obtain licenses from third
parties relating to one or more of its products or relating to current or future
technologies. There can be no assurance that third parties will not assert
infringement claims against the Company in the future with respect to current or
future products or that any such assertion will not require the Company to enter
into royalty arrangements or result in costly litigation. As the number of
software products in the industry increases and the functionality of these
products further overlap, the Company believes that software developers may
become increasingly subject to infringement claims. Any such claims, with or
without merit, can be time consuming and expensive to defend. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Certain Factors Which May Affect Future Operating
Results -- Dependence on Proprietary Technology; Risks of Infringement."
EMPLOYEES
As of December 31, 1996, the Company had 175 full-time employees, including
101 in research and development, 41 in sales and marketing, 14 in customer
support and 19 in general and administrative services.
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The Company and its employees are not parties to any collective bargaining
agreement, and the Company believes that its relations with its employees are
good. The Company believes that its future success will depend in part on its
continued ability to hire and retain qualified personnel. There can be no
assurance that the Company will be successful in attracting and retaining
sufficient numbers of qualified personnel to conduct its business in the future.
ITEM 2. PROPERTIES
During 1995, the Company leased approximately 59,000 square feet of office
space in a multi-tenant building in Mountain View, California under a lease
which expires on January 31, 2002. The Company's Indian subsidiary also leases
approximately 4,000 square feet of office space in Pune, India under a month-to-
month lease. See Note 4 of Notes to Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
Except as described below, the Company is not a party to any material legal
proceedings.
A reseller of the Company, Qualix Group, Inc., filed a complaint against
the Company in the Superior Court of the State of California, County of Santa
Clara on October 25, 1996, alleging breach by the Company of the terms of a
reseller agreement with respect to the FirstWatch product. The complaint seeks
compensatory damages in excess of $25,000 and an unspecified amount of punitive
damages. The Company believes these allegations are without merit and intends to
vigorously defend against same. Nevertheless, the costs of defense, regardless
of outcome, could have an adverse affect on the results of operations and
financial condition of the Company. In addition, the Company has filed a
cross-complaint against such reseller alleging breach by the reseller of the
reseller agreement seeking general and punitive damages, as well as injunctive
relief. This matter has been submitted for arbitration.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders during the quarter
ended December 31, 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Common Stock of the Company has traded on the National Market under the
Nasdaq symbol "VRTS" since the Company completed its initial public offering on
December 8, 1993. The following table sets forth the high and low closing prices
of the Company's Common Stock from January 1, 1995 through December 31, 1996.
All prices have been adjusted to reflect a 2-for-1 stock split effected in May
1995 and a 3-for-2 stock split effected in September 1996. Such prices represent
prices between dealers, do not include retail mark-ups, mark-downs or
commissions and may not represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
FISCAL 1995
First Quarter.......................................... $15.00 $ 8.13
Second Quarter......................................... $22.50 $14.00
Third Quarter.......................................... $29.75 $23.50
Fourth Quarter......................................... $38.50 $22.00
FISCAL 1996
First Quarter.......................................... $26.83 $19.00
Second Quarter......................................... $32.83 $21.58
Third Quarter.......................................... $47.17 $18.83
Fourth Quarter......................................... $55.25 $42.75
</TABLE>
8
<PAGE> 10
As of February 28, 1997, there were approximately 325 holders of record of
the Company's Common Stock. The Company believes that a significant number of
beneficial owners of its Common Stock hold their shares in street name.
The Company has never declared or paid a cash dividend on its capital
stock. The Company currently anticipates that it will retain future earnings, if
any, to fund development and growth of its business and does not anticipate
paying any cash dividends in the foreseeable future.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data is qualified in its
entirety and should be read in conjunction with the more detailed consolidated
financial statements and related notes elsewhere herein.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total net revenues............................... $36,090 $24,087 $15,051 $11,397 $ 6,003
Gain on the sale of ViSTA operations(1).......... -- 1,726 -- -- --
Income (loss) before income taxes(2)............. 11,603 10,641 3,052 1,206 (1,229)
Net income (loss)................................ 9,768 9,874 2,838 1,112 (1,229)
Net income (loss) per share(3)................... $ 0.68 $ 0.72 $ 0.22 $ 0.13 $ (0.60)
Number of shares used in computing per share
amounts(3)..................................... 14,405 13,764 12,849 8,802 2,037
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital............................. $ 37,309 $ 27,812 $ 17,416 $ 15,981 $ 239
Total assets................................ 47,791 35,008 23,185 20,461 2,871
Long-term obligations....................... 1,005 594 134 1,118 1,514
Accumulated deficit......................... (27,130) (36,898) (46,801) (49,639) (50,751)
Shareholders' equity (net capital
deficiency)............................... 41,754 30,078 18,849 16,050 (246)
</TABLE>
- ---------------
(1) In March 1995, the Company sold substantially all of the operating assets of
its ViSTA testing tools operation for cash and notes totaling approximately
$3.0 million resulting in a gain to the Company of approximately $1.7
million in 1995. In addition, CenterLine is required to pay the Company
royalties through March 31, 1998 from the distribution of ViSTA software
products or their derivatives. Such royalties are recorded when received and
have not been significant to date.
(2) On April 1, 1996, the Company acquired all of the outstanding capital stock
of ACSC, a company which had developed technology for the operation and
management of removable media volumes, devices and repositories, for a total
purchase price of approximately $3.5 million, of which $2.2 million was
allocated to in-process research and development and expensed at that date.
(3) Share and per share data has been restated to give retroactive effect to a
3-for-2 stock split in the form of a stock dividend effected in September
1996.
(4) The Company has never declared or paid a cash dividend on its capital stock.
The Company currently anticipates that it will retain future earnings, if
any, to fund development and growth of its business and does not anticipate
paying any cash dividends in the foreseeable future.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains forward-looking statements. There are
certain important factors that could cause results to differ materially from
those in the forward-looking statements contained in the following discussion.
Among such important factors are (i) the Company's timely development and market
acceptance
9
<PAGE> 11
of new non-OEM products, (ii) the timely creation of versions of the Company's
products for the Microsoft Windows NT operating system, (iii) the impact of
Microsoft Windows NT and other operating systems on the UNIX market upon which
the Company's current products are dependent, (iv) the reliance on OEMs to
continue porting and shipping the Company's products, (v) the ability of the
Company to successfully expand the distribution of its products through new and
unproven channels, including resellers, integrators, distributors and direct
sales, (vi) the risk associated with the Company's engineering effort needed to
port its products to Microsoft Windows NT, (vii) the impact of competitive
products and pricing, (viii) the uncertainty of the labor market and local
regulations in India, (ix) the Company's ability to hire and retain research and
development personnel with appropriate skills in a highly competitive labor
market, and (x) such risks and uncertainties as are detailed from time to time
in the Company's SEC reports and filings, including this Form 10-K for the 1996
fiscal year and the Registration Statement on Form S-4 to be filed by the
Company in connection with the merger with OpenVision Technologies, Inc.
OVERVIEW
VERITAS Software Corporation (the "Company") develops, markets and supports
advanced storage management and high availability products for open system
environments. The Company's products provide performance improvement and
reliability enhancement features that are critical for many commercial
applications. Some of the key features of storage management products include
protection against data loss and file corruption, rapid recovery after disk or
system failure, the ability to process large files efficiently and the ability
to manage and back-up systems without interrupting users. The high availability
products provide an automated failover between computer systems organized in
clusters sharing disk resources. The Company has developed storage management
products, including VERITAS high availability products, for UNIX and the
Microsoft Windows NT operating systems and has licensed these products to a
number of OEMs, including Hewlett-Packard, Hitachi, Digital Equipment
Corporation and Sun Microsystems. Currently, the Company's customers are
primarily located in the U.S., Europe, and the Pacific Rim.
In March 1995, the Company sold substantially all of the operating assets
of its ViSTA testing tools operation to CenterLine Software, Inc.
("CenterLine"). VERITAS received approximately $2.2 million in cash and a
two-year subordinated promissory note in the principal amount of $750,000, with
principal and interest payable quarterly over two years, which resulted in a
gain to the Company of approximately $1.7 million in 1995. In addition,
CenterLine is required to pay the Company royalties through March 31, 1998 from
the distribution of ViSTA software products or their derivatives. Such royalties
are recorded when received by the Company and have not been significant to date.
In April 1995, VERITAS acquired all of the outstanding shares of Tidalwave
Technologies, Inc. ("Tidalwave") in exchange for 352,122 shares of the Company's
common stock. In addition, the Company assumed a warrant which entitled the
holder to acquire an additional 81,030 shares of the Company's common stock. The
Company accounted for the acquisition of Tidalwave as a pooling of interests.
The results of operations and total assets of Tidalwave were not material to the
Company's consolidated financial statements and, therefore, prior year accounts
have not been restated.
In April 1996, the Company formed a subsidiary in Pune, India and hired
certain research and development employees who were previously employed by a
company which was an independent development contractor for the Company. At
December 31, 1996, 21 research and development staff were employed by this
subsidiary. In addition, the Company entered into an agreement in 1996 with an
Indian developer with respect to the purchase of premises currently under
construction at this location. The operations of the Company's Indian subsidiary
will be moved to this building upon completion. The total building cost is
$800,000 of which $400,000 has been paid to date. The Company has also
established a wholly-owned sales subsidiary in Japan whose four employees are
primarily focused on expanding OEM opportunities in the Pacific Rim. Due to the
immaterial nature of the Company's operations and the immaterial amount of
assets in these two countries, the Company does not believe that it is exposed
to significant foreign currency transaction gains and losses. See "-- Certain
Factors Which May Affect Future Operating Results -- Risks Associated with
International Operations."
10
<PAGE> 12
On April 1, 1996, the Company acquired for a total cost of approximately
$3.5 million all of the outstanding capital stock of Advanced Computing Systems
Company ("ACSC"), a company which had developed technology for the operation and
management of removable media volumes, devices and repositories. Of the total
charge, $2.2 million was allocated to inprocess research and development which
was expensed in the second quarter of 1996 and approximately $1.3 million was
allocated to acquired intangibles which will be amortized over a three to five
year period. Total cash outflows in 1996 related to this purchase were
approximately $3.5 million. The Company has agreed to pay the sole shareholder
of ACSC, together with certain other persons, a royalty on certain future
product revenue derived from the assets acquired. The royalty will be based on
product shipments beginning in the third quarter of 1997 and will be payable
over a five year period up to a maximum of $2.5 million. The transaction was
accounted for as a purchase. Accordingly, the accompanying Consolidated
Statements of Income include the results of operations of ACSC subsequent to the
acquisition date. ACSC's results of operations are not significant for the
current or prior periods.
The Company derives its net revenues from user license fees, source license
fees, service fees and porting fees. The Company initially introduced its
storage management products in 1990 for the UNIX operating system. The Company
currently markets these products primarily through OEMs that either bundle them
with every operating system licensed by such OEMs or offer them as an option.
The Company generally receives a one-time source license fee upon entering into
a license agreement with an OEM, as well as a user license fee each time the OEM
licenses a copy of an operating system to a customer that incorporates one or
more of the Company's products. As of December 31, 1996, the Company had
received user fees for its storage management products from approximately 25
OEMs that had commenced shipments of operating systems incorporating one of more
of the Company's products and has contracted with an additional 25 OEMs that
have not yet commenced shipments of operating systems incorporating such
products. The Company's license agreements with its OEM customers generally
contain no minimum sales requirements and there can be no assurance that any OEM
will either commence or continue shipping operating systems incorporating the
Company's products in the future. Approximately 75% of the Company's net
revenues were generated from OEM business during 1996.
The Company continues to pursue license agreements with additional UNIX and
Microsoft Windows NT based OEMs for licensing its products and to pursue
agreements to port (i.e., adapt) its products to other popular operating
systems, including Microsoft Windows NT. The Company has no control over the
shipping dates or volumes of systems shipped by its OEM customers, and therefore
there can be no assurance that any OEM will ship operating systems that
incorporate the Company's products in the future. The time between entering into
an OEM license agreement and initial receipt of user license fees from that OEM
has historically ranged from 9 to 24 months, reflecting in part the time
required to port the Company's storage management products and for the OEM to
market these products to end-users. The Company typically receives user license
fees in the quarter following shipment by the OEM of operating systems
incorporating the Company's products. In the past, the Company has experienced
delays in the introduction of new products and product enhancements that have
adversely affected the Company's results of operations. Such delays have
historically been the result of development efforts being more extensive than
originally anticipated or the testing process taking longer than originally
estimated and have resulted in the postponement of the commencement of revenues.
Any substantial decrease in the Company's revenues will materially and adversely
affect the Company's operating results since most of the Company's manpower and
other expenses are fixed and can not be adjusted adequately to compensate for a
substantial decrease in revenues.
A key element of the Company's strategy is to mitigate the risks of
reliance on OEM customers by expanding distribution of its products through
non-OEM channels such as distributors, integrators, resellers and direct sales.
During 1994, the Company began to expand the distribution of its products that
operate on Sun Microsystems' Solaris version of the UNIX operating system and
also to market shrink-wrap packages of two of its storage management products
through non-OEM channels. As of December 31, 1996, the Company had over 100
resellers worldwide, accounting for approximately 25% of the Company's net
revenues in 1996. The Company has no control over the amount of products these
channels will sell and there is no assurance that such channels' customers will
continue to purchase the Company's products. The Company will no longer
11
<PAGE> 13
be distributing the VERITAS FirstWatch product through an exclusive distributor,
therefore, the Company will need to substantially expand its development, sales
and marketing efforts with respect to the VERITAS FirstWatch product to
establish alternative distribution channels and to provide support to existing
and new customers of this product which will require the expenditure of
substantial resources and the hiring of additional personnel. See "-- Certain
Factors Which May Affect Future Operating Results -- New Distribution Channels."
The Company's service revenues consist of fees derived from annual
maintenance agreements and training offered to customers of the Company. The OEM
maintenance agreements covering the Company's products provide technical and
emergency support and minor product upgrades for a fixed annual fee. The
maintenance agreements covering the products that are licensed through non-OEM
channels provide technical support and minor product upgrades for an annual
service fee based on the number of user licenses purchased. In addition, the
Company generates training fees by offering training classes in the use of its
products.
Porting fees consist of fees derived from porting and other non-recurring
engineering efforts when the Company ports (i.e., adapts) the Company's storage
management products to OEM's operating systems and when VERITAS develops certain
new product features or extensions of existing product features at the request
of a customer. In most cases, the Company retains the rights to technology
derived from porting and non-recurring engineering work for licensing to other
customers and, therefore, generally does such work on a low margin basis.
The Company has made, and intends to continue to make, a substantial
investment in porting its products to new operating systems, including Microsoft
Windows NT. The success of the Microsoft Windows NT product development may be
dependent on receipt of development funding from third parties, including
Microsoft, and failure to receive such funding could hamper the Company's
efforts to timely expand its products into the Microsoft Windows NT market. The
porting and development process requires substantial capital investment and the
devotion of substantial employee resources to such effort and the added focus on
Microsoft Windows NT development will require the Company to hire additional
personnel. Under an agreement with Microsoft, the Company has committed to
develop a functional subset of the VERITAS Volume Manager product which will be
ported to and embedded in Microsoft Windows NT 5.0. Microsoft has agreed to
provide the Company with significant funding towards such development effort,
payable in quarterly increments. The Company is recognizing revenue under the
agreement with Microsoft on a percentage of completion basis which may result in
revenue being recognized in advance of actual receipt of payment due to the fact
that the payment terms in the agreement with Microsoft do not directly correlate
to the timing of development efforts. Moreover, if the Company fails to deliver
the contract deliverables on a timely basis, Microsoft can discontinue funding
the development of the product which could result in revenues being recognized
by the Company which it ultimately may not receive. This could have a material
adverse effect on the Company's business, operating results and financial
condition. Furthermore, the Microsoft relationship will require the Company to
expand its marketing and sales operations to deal with higher volume markets in
which the Company has limited experience. During 1996, the Company recognized
revenue of approximately $518,000 and received payments from Microsoft of
$200,000 related to this agreement. See "-- Certain Factors Which May Affect
Future Operating Results -- Uncertainty in Porting Products to New Operating
Systems and Expansion into Windows NT Market."
On January 13, 1997, VERITAS entered into the Agreement with OpenVision, a
publicly-held company that provides system management applications and services
for client/server computing environments, and the Combined Company, pursuant to
which VERITAS and OpenVision will become wholly-owned subsidiaries of the
Combined Company. The Merger is intended to be a tax-free reorganization,
accounted for as a pooling of interests whereby each share of the outstanding
common stock of VERITAS will be converted into one share of Common Stock of the
Combined Company and each outstanding share of OpenVision Common Stock and Class
B Common Stock will be exchanged for approximately .346 of a share of common
stock of the Combined Company. Subject to regulatory and shareholder approval
and customary closing conditions, the transaction is expected to be completed on
or about April 30, 1997. The Combined Company expects to incur charges to
operations, currently estimated to be between $8.0 million and $10.0 million, in
the quarter ended
12
<PAGE> 14
June 30, 1997, the quarter in which the Merger is expected to be consummated, to
reflect direct transaction costs, primarily for financial advisory and legal
fees and costs associated with combining the operations of the two companies,
primarily related to redundant assets and facilities. This range is a
preliminary estimate only and is, therefore, subject to change. See "-- Certain
Factors Which May Affect Future Operating Results -- Uncertainty in Porting
Products to New Operating Systems and Expansion into Windows NT Market."
CERTAIN FACTORS WHICH MAY AFFECT FUTURE OPERATING RESULTS
Pending Acquisition of OpenVision. The Company agreed to acquire
OpenVision with the expectation that the Merger will result in beneficial
synergistic effects for the Combined Company. Achieving the anticipated benefits
of the Merger will depend in part upon whether the integration of the two
companies' businesses is achieved in a timely, efficient and effective manner,
and there can be no assurance that this will occur. The combination of the two
companies will require, among other things, integration of the companies'
respective product offerings and coordination of their research and development
efforts. There can be no assurance that such integration and coordination will
be accomplished smoothly or successfully. The integration of the two
organizations will require the dedication of management resources which will
temporarily distract them from attention to the day-to-day business of the
Combined Company. The difficulties of integration may be increased by a variety
of other factors, which could include: the conflicts that may arise with respect
to the direct sales distribution model of OpenVision compared to the VERITAS
distribution model which is dependent on the efforts of third parties such as
OEMs and resellers; the necessity of coordinating geographically separated
organizations; differences between the corporate cultures of VERITAS and
OpenVision; locating additional facilities proximate to VERITAS' current
facilities at a reasonable cost to accommodate the Combined Company; and
integrating personnel with disparate business backgrounds. The process of
combining the companies may cause an interruption of, or a loss of momentum in,
the activities of either or both of the companies' businesses and may adversely
affect the revenues and results of operations of the Combined Company, at least
in the near term. Furthermore, the process of combining the companies could have
a material adverse effect on employee morale and on the ability of the Combined
Company to retain the key management, technical and sales and marketing
personnel who are critical to the Combined Company's future operations. There
can be no assurance that employees of OpenVision will continue to work for the
Combined Company, particularly in light of the planned consolidation of the
Combined Company's Northern California facilities. In addition, the announcement
and consummation of the Merger could cause customers or potential customers to
delay or cancel orders for products as a result of uncertainty over the
integration and continued support of the Combined Company's products. Failure to
effectively accomplish the integration of the two companies' operations would
have a material adverse effect on the Combined Company's business, operating
results and financial condition.
Fluctuating Operating Results. VERITAS' operating results have fluctuated
in the past, and may fluctuate significantly in the future depending on a number
of factors. Factors that have resulted in fluctuations in operating results
include: (i) the timing and level of sales by VERITAS' OEM licensees of computer
systems incorporating VERITAS' storage management products, (ii) increased
dependence upon non-OEM channels, which tend to be more unpredictable than OEM
channels; (iii) timing of lump sum payments for source code license fees; (iv)
achievement of porting milestones; and (v) financial expenses for investment in
new products and distribution channels, including the hiring of additional sales
and marketing personnel and outlay of promotional expenses.
In addition to the factors described above, factors that may contribute to
future fluctuations in quarterly operating results include, but are not limited
to: (i) development and introduction of new operating systems that require
additional development efforts; (ii) introduction or enhancement of products by
the Company or its competitors; (iii) the ability of the Company to integrate
and assimilate the business, operations and technology of OpenVision; (iv)
changes in pricing policies of the Company or its competitors; (v) increased
competition; (vi) technological changes in computer systems and environments;
(vii) the ability of the Company to timely develop, introduce and market new
products; (viii) quality control of products sold; (ix) market readiness to
deploy systems management products for distributed computing environments; (x)
market acceptance of new products and product enhancements; (xi) customer order
deferrals in
13
<PAGE> 15
anticipation of new products and product enhancements; (xii) the Company's
success in expanding its sales and marketing programs; (xiii) personnel changes;
(xiv) foreign currency exchange rates; (xv) mix of products sold; (xvi)
acquisition costs; and (xvii) general economic conditions.
The Company's future revenue will also be difficult to predict, and VERITAS
has, in the past, failed to achieve its revenue expectations for certain
periods. The Company's expense levels will be based, in part, on its
expectations as to future revenue and to a large extent will be fixed in the
short term. The Company will not be able to adjust expenses in the short term to
compensate for any unexpected revenue shortfall. Accordingly, any significant
shortfall of revenue in relation to the Company's expectations or any material
delay of customer orders would have an immediate adverse effect on its business,
operating results and financial condition. As a result of all of the foregoing
factors, VERITAS believes that period-to-period comparisons of VERITAS' results
of operations are not and will not necessarily be meaningful and should not be
relied upon as any indication of future performance.
Management of Growth; Dependence on Key Personnel. VERITAS has recently
experienced a period of significant growth that has placed strain upon its
management control systems and resources. In the future, the Company will be
required to continue to improve its financial and management controls, reporting
systems and procedures on a timely basis and to expand, train and manage its
employee work force. There can be no assurance that the Company will be able to
effectively manage such growth. Its failure to do so would have a material
adverse effect on its business, operating results and financial condition.
Competition for qualified sales, technical and other qualified personnel is
intense, and there can be no assurance that the Company will be able to attract,
assimilate or retain additional highly qualified employees in the future. If the
Company is unable to hire and retain such personnel, particularly those in key
positions, its business, operating results and financial condition would be
materially adversely affected. The Company's future success also depends in
significant part upon the continued service of its key technical, sales and
senior management personnel. The loss of the services of one or more of these
key employees could have a material adverse effect on its business, operating
results and financial condition. Additions of new and departures of existing
personnel, particularly in key positions, can be disruptive and can result in
departures of existing personnel, which could have a material adverse effect on
the Company's business, operating results and financial condition.
New Distribution Channels. A substantial portion of VERITAS' net revenues
has historically been and continues to be derived from user license fees
received from computer OEMs that incorporate VERITAS' storage management
software products into their operating systems. VERITAS has no control over the
shipping dates or volumes of systems shipped by its OEM customers, and there can
be no assurance that any OEMs will ship operating systems incorporating VERITAS'
products in the future. Furthermore, VERITAS' license agreements with its OEM
customers generally do not require the OEMs to recommend or offer VERITAS'
products exclusively, have no minimum sales requirements, and may be terminated
by the OEMs without cause.
VERITAS recently has made significant investments in the establishment of
other distribution channels. Efforts by VERITAS in this area include: (i) the
introduction of shrink-wrap packages of two of its storage management software
products in 1992; (ii) the distribution of end user products for the Sun
Microsystems Solaris operating system in 1994; and (iii) the acquisition of
Tidalwave in April 1995, as a result of which VERITAS began distributing the
FirstWatch end user products. Additionally, the recent expiration of an
exclusive distributor agreement with respect to its FirstWatch product will
require VERITAS to develop product extensions, to accelerate its direct sales
efforts and to provide support to existing and future customers of the
FirstWatch product.
VERITAS has entered into a Development, License and Distribution Agreement
with Sun Microsystems which will also provide a new distribution channel for
Company's products. VERITAS has agreed to develop a specialized, integrated
version of the VERITAS Volume Manager product which will be bundled with certain
Sun Microsystems' products. While the Company believes that this arrangement
with Sun Microsystems will be beneficial, there can be no assurance that VERITAS
will be able to deliver its products to Sun Microsystems in a timely manner
despite the dedication of significant engineering and other resources to the
development of such products. Any such failure would result in VERITAS having
expended significant
14
<PAGE> 16
resources with little or no return on its investment, which could have a
material adverse effect on the Company's business, operating results and
financial condition.
These additional investments and responsibilities will require the
expenditure by the Company of substantial resources, including the diversion of
employees from other projects to provide the support services and development
efforts required to provide products and services that it has limited experience
in providing. In addition, after consummation of the acquisition of OpenVision,
it is anticipated that the Company's direct sales force will also market and
sell the Company's products in competition with indirect sellers of its
products, such as OEMs and resellers, which could adversely affect the Company's
relations with such indirect sellers and result in such sellers being less
willing to aggressively market the Company's products. There can be no assurance
that such sales and marketing efforts by the Company's direct sales force will
not result in a decline in indirect sales as a result of actual or potential
competition between the Company's direct sales force and such indirect sellers,
or that such efforts will not have a material adverse effect on the Company's
business, operating results and financial condition. In addition, any such
decline in indirect sales may require the Company to accelerate investments for
expansion into alternative distribution channels, and no assurance can be given
that the Company will have sufficient resources to devote to such other
channels. See "Business -- Sales, Marketing and Customer Support."
Risk of Successfully Integrating Current and Future Products and
Technologies. After the consummation of the acquisition of OpenVision, the
Company's product strategy will initially be to integrate selected products and
technologies to enhance storage management functionality and to integrate
certain products throughout its entire product line through the availability of
a common set of services. Such product and technology integration activities
will not begin until after completion of the OpenVision acquisition and no
current schedule exists. The success of this strategy is dependent in
significant part on the Company's ability to integrate its products as planned
and the resultant products achieving market acceptance by end users, resellers
and OEMs. No assurance can be given that the Company will successfully integrate
its products as planned. If the Company is unable to develop and introduce new
integrated products and technologies, or enhancements to existing products, in a
timely manner, its business, operating results and financial condition would be
materially and adversely affected.
Uncertainty in Porting Products to New Operating Systems and Expansion into
Windows NT Market. VERITAS' products operate primarily on certain versions of
the UNIX operating system. VERITAS' current product development activities are
primarily directed towards developing new products for the UNIX operating
systems, developing enhancements to its current products and porting new
products and enhancements to other versions of the UNIX operating systems.
VERITAS has made and intends to continue to make substantial investments in
porting its products to new operating systems, including Windows NT and the
Company's future success will depend on its ability to successfully accomplish
such ports. In addition, the Company's Windows NT product development efforts
may be dependent on product development funding received from third parties. If
such funding is delayed or not ultimately received, the Company's Windows NT
development efforts could be delayed, which could adversely affect the Company's
business, operating results and financial condition.
The process of porting existing products and product enhancements to, and
developing new products for, new operating systems requires a substantial
capital investment, the devotion of substantial employee resources and the
cooperation of the owners of the operating systems to which the products are
being ported or developed. For example, the added focus on porting and
development work for the Windows NT market has required, and will require the
Company, to hire additional personnel with expertise in the Windows NT
environment as well as devote its engineering resources to these projects. The
diversion of engineering personnel to this area may cause the Company to be
delayed in its other product development efforts. Furthermore, operating system
owners have no obligation to assist in these porting or development efforts, and
may instead choose to enter into agreements with other third party software
developers or internally develop their own products. In particular, the failure
to receive a source license to certain portions of the operating system, either
from the operating system owner or a licensee thereof, would prevent the Company
from porting its products to or developing products for such operating system.
There can be no assurance that the Company's current or future porting efforts
will be successful or, even if successful, that the operating system
15
<PAGE> 17
to which the Company elects to port to or develop products will achieve or
maintain market acceptance. The failure of the Company to port its products to
new operating systems or to select those operating systems that achieve and
maintain market acceptance could have a material adverse effect on the Company's
business, operating results and financial condition.
In 1996 VERITAS entered into a Development and License Agreement with
Microsoft pursuant to which VERITAS is to develop a functional subset of the
VERITAS VxVM product to be ported to and embedded in Windows NT. The agreement
also requires VERITAS to develop a disk management graphical user interface
designed specifically for Windows NT. Microsoft is also obligated to fund a
significant portion of the development expenses for this product. VERITAS is
currently recognizing revenue under the development contract with Microsoft on a
percentage of completion basis consistent with its policy for revenue
recognition for other similar agreements. The payment terms in the Microsoft
agreement do not directly correlate to the timing of development efforts and
therefore revenue could be recognized in advance of payment. Further, if VERITAS
is unable to deliver the contracted milestones on time, Microsoft can
discontinue funding the development of this product which could cause adverse
effects on the Company's business, operating results and financial condition.
The failure of the Company to complete the product in sufficient time for
inclusion in the next release of Windows NT (version 5.0) may result in a
significant delay of the product being embedded in Windows NT, and could
ultimately result in Microsoft electing to altogether omit the VERITAS product
from Windows NT, which could have a material adverse effect on the Company's
business, operating results and financial condition. Moreover, Windows NT 5.0
release could also be materially delayed which could postpone potential revenues
to the Company. In addition, the Microsoft relationship will require the
Company's marketing and sales departments to deal in higher volume markets and
will require the Company to successfully service the growing needs of the
Windows NT channel and customer base. VERITAS' experience in these higher volume
markets is quite limited. See "-- New Distribution Channels."
Risks Associated With International Operations. International revenue
(from sales outside the United States and Canada) accounted for 16% of VERITAS'
total revenues for each of 1995 and 1996 and for 26% of total revenues for 1994.
VERITAS believes that international revenue accounted for a significant portion
of OpenVision's total revenues for recent periods. The Company believes that its
success depends upon continued expansion of its international operations.
VERITAS currently has a sales office in Japan and a product development group in
India and OpenVision has sales and service offices in Canada, the United
Kingdom, Germany and France. VERITAS has resellers in North America, Europe and
Asia Pacific and OpenVision has resellers in those territories as well as in
South America and the Middle East. International expansion may require the
Company to establish additional foreign offices, hire additional personnel and
recruit additional international resellers. This may require significant
management attention and financial resources and could adversely affect the
Company's operating margins. To the extent the Company is unable to effect these
additions efficiently and in a timely manner, its growth, if any, in
international sales will be limited, and its business, operating results and
financial condition could be materially and adversely affected. There can be no
assurance that the Company will be able to maintain or increase international
market demand for its products.
As of December 31, 1996, VERITAS had 21 engineers employed by its Indian
subsidiary located in Pune, India who perform certain product development work.
These international operations subject VERITAS to a number of risks inherent in
developing products outside of the United States, including the potential loss
of developed technology, imposition of governmental controls, export license
requirements, restrictions on the export of critical technology, political and
economic instability, trade restrictions, difficulties in managing international
operations and lower levels of intellectual property protection. Furthermore,
product development is significantly less expensive in India. If VERITAS were
required to discontinue its product development efforts in India, it would incur
significantly higher operating expenses as a result of having to perform such
development work in the United States. See "Business -- Research and
Development."
The Company's international business will also involve a number of
additional risks, including lack of acceptance of localized products, cultural
differences in the conduct of business, longer accounts receivable payment
cycles, greater difficulty in accounts receivable collection, seasonality due to
the slow-down in European business activity during the Company's third fiscal
quarter, unexpected changes in regulatory
16
<PAGE> 18
requirements and royalty and withholding taxes that restrict the repatriation of
earnings, tariffs and other trade barriers, and the burden of complying with a
wide variety of foreign laws. The Company's international sales will be
generated primarily through its international sales subsidiaries and are
expected to be denominated in local currency, creating a risk of foreign
currency translation gains and losses. To the extent profit is generated or
losses are incurred in foreign countries, the Company's effective income tax
rate may be materially and adversely affected. In some markets, localization of
the Company's products is essential to achieve market penetration. The Company
may incur substantial costs and experience delays in localizing its products,
and there can be no assurance that any localized product will ever generate
significant revenue. There can be no assurance that any of the factors described
herein will not have a material adverse effect on the Company's future
international sales and operations and, consequently, its business, operating
results and financial condition.
Increasing Product Concentration; Dependence on Growth of Storage
Management Software Market. A substantial majority of VERITAS' has been, and in
future periods will be, derived from its storage management products. VERITAS'
storage products accounted for 91%, 95% and 100% of VERITAS' license revenue in
the years ended December 31, 1996, 1995 and 1994, respectively. The Company
expects that storage management products will continue to account for a
substantial majority of the Company's revenues in future periods as a result of
its strategic decision to devote greater financial and other resources to
selling, servicing and supporting its storage management products. The
allocation of greater levels of sales, service and support resources to such
products could adversely affect the Company's ability to continue enhancing and
supporting its other product lines. Any failure by the Company to enhance and
support its other product lines could result in adverse customer reactions and
the loss of an existing revenue base, and could have a material adverse effect
on the Company's business, operating results and financial condition.
The Company's future financial performance will depend in large part on the
continued growth in the number of companies adopting storage management
solutions for their client/server computing environments. There can be no
assurance that the market for storage management software and services will
continue to grow. If the storage management software and services market fails
to grow or grows more slowly than the Company currently anticipates, or in the
event of a decline in unit price or demand for the Company's storage management
products, as a result of competition, technological change or other factors, the
Company's business, operating results and financial condition would be
materially and adversely affected. During recent years, segments of the computer
industry have experienced significant economic downturns characterized by
decreased product demand, production over capacity, price erosion, work
slowdowns and layoffs. The Company's financial performance may, in the future,
experience substantial fluctuations as a consequence of such industry patterns,
general economic conditions affecting the timing of orders, and other factors
affecting capital spending. There can be no assurance that such factors will not
have a material adverse effect on the Company's business, operating results and
financial condition.
Rapid Technological Change and Requirement for Frequent Product
Transitions. The market for the Company's products is characterized by rapid
technological developments, evolving industry standards and rapid changes in
customer requirements. The introduction of products embodying new technologies,
the emergence of new industry standards or changes in customer requirements
could render the Company's existing products obsolete and unmarketable. As a
result, the Company's success depends upon its ability to continue to enhance
existing products, respond to changing customer requirements and develop and
introduce in a timely manner, new products that keep pace with technological
developments and emerging industry standards. Customer requirements include, but
are not limited to, product operability and support across distributed and
changing heterogeneous hardware platforms, operating systems, relational
databases and networks. For example, as certain of the Company's customers start
to utilize Windows NT or other emerging operating platforms, it will be
necessary for the Company to enhance and port its products or develop new
products to operate on such platforms in order to meet these customers'
requirements. There can be no assurance that the Company's products will achieve
market acceptance or will adequately address the changing needs of the
marketplace or that the Company will be successful in developing and marketing
enhancements to its existing products or new products incorporating new
technology on a timely basis. VERITAS has in the past experienced delays in
product development, and there can be no assurance that the
17
<PAGE> 19
Company will not experience further delays in connection with its current
product development or future development activities. If the Company is unable
to develop and introduce new products, or enhancements to existing products, in
a timely manner in response to changing market conditions or customer
requirements, the Company's business, operating results and financial condition
will be materially and adversely affected. Because the Company has limited
resources, the Company must restrict its product development efforts and its
porting efforts to a relatively small number of products and operating systems.
There can be no assurance that these efforts will be successful or, even if
successful, that any resulting products or operating systems will achieve market
acceptance.
Dependence on Proprietary Technology; Risks of Infringement. The Company's
success depends upon its proprietary technology. The Company will rely on a
combination of copyright, trademark and trade secret laws, confidentiality
procedures and licensing arrangements to establish and protect its proprietary
rights. The Company does not have any patents material to its business although
it has filed several patent applications. As part of its confidentiality
procedures, the Company will generally enter into non-disclosure agreements with
its employees, distributors and corporate partners, and license agreements with
respect to its software, documentation and other proprietary information.
Despite these precautions, it may be possible for a third party to copy or
otherwise obtain and use the Company's products or technology without
authorization, or to develop similar technology independently. Policing
unauthorized use of the Company's products is difficult and although the Company
is unable to determine the extent to which piracy of its software products
exists, software piracy can be expected to be a persistent problem. The Company
will make source code available for certain of its products and the provision of
such source code may increase the likelihood of misappropriation or other
misuses of the Company's intellectual property. In selling its products, the
Company will also rely in part on "shrink wrap" licenses that are not signed by
licensees and, therefore, may be unenforceable under the laws of certain
jurisdictions. In addition, effective protection of intellectual property rights
is unavailable or limited in certain foreign countries. There can be no
assurance that the Company's protection of its proprietary rights, including any
patent that may be issued, will be adequate or that the Company's competitors
will not independently develop similar technology, duplicate the Company's
products or design around any patents issued to the Company or other
intellectual property rights.
VERITAS is not aware that any of its products infringes the proprietary
rights of third parties. There can be no assurance, however, that third parties
will not claim such infringement by the Company with respect to current or
future products. The Company expects that software product developers will
increasingly be subject to such claims as the number of products and competitors
in the Company's industry segment grows and the functionality of products in the
industry segment overlaps. Any such claims, with or without merit, could result
in costly litigation that could absorb significant management time, which could
have a material adverse effect on the Company's business, operating results and
financial condition. Such claims might require the Company to enter into royalty
or license agreements. Such royalty or license agreements, if required, may not
be available on terms acceptable to the Combined Company or at all, which could
have a material adverse effect upon the Company's business, operating results
and financial condition. See "Business -- Proprietary Rights."
RESULTS OF OPERATIONS
NET REVENUES
Net revenues increased to $36.1 million in 1996 from $24.1 million in 1995
and $15.1 million in 1994, increases of 50% and 60%, respectively.
User and Source License Fees: User license fees increased to $31.7 million
in 1996 from $20.1 million in 1995 and $11.3 million in 1994, increases of 57%
and 78%, respectively. These increases were primarily attributable to increases
in the sales volumes of the Company's OEMs shipping user copies of one or more
of the Company's storage management products, an increase in the number of OEMs
shipping user copies of the Company's storage management products and an
increase in the sales of the Company's shrink wrap versions of products which
are distributed through non-OEM channels, including FirstWatch high availability
products acquired from Tidalwave in 1995. The ViSTA operations which were sold
to CenterLine on March 31, 1995,
18
<PAGE> 20
contributed no revenues in 1996 compared to $677,000 in 1995 and $2.4 million in
1994. Source license fees were $1.1 million in 1996 an increase from $922,000 in
1995, and a decrease from $1.5 million in 1994. The increase in source license
fees in 1996 compared to 1995 was primarily a result of additional source fees
received for new products released during 1996 on non-SVR4 UNIX platforms. The
decrease in source license fees in 1995 compared to 1994 was primarily a result
of the Company focusing on non-SVR4 versions of UNIX and the longer lead times
associated with selling to this new market segment, as well as a shift in
marketing effort to the shrink wrap version of the Company's products, resulting
in a decrease in source license fees in 1995 compared to 1994.
Services. Services revenue increased to $2.1 million in 1996 from $1.7
million in 1995 and $1.3 million in 1994, increases of 23% and 27%,
respectively. Services revenue includes fees derived from annual maintenance
agreements and training. These increases reflect the increasing size of the
Company's installed base of customers and products.
Porting. Porting revenue was relatively flat at $1.3 million in 1996 and
1995, when it increased from $857,000 in 1994, an increase of 55%. The Company
does not aggressively seek porting or any other custom work, but the Company
does enter into agreements which it believes will result in useful extensions to
current products and result in the growth of user license fees.
COST OF REVENUES
Cost of revenues includes costs associated with user and source license
fees, the costs of porting and other nonrecurring engineering services and the
costs of providing support services to the Company's customers. Cost of revenues
increased to $3.2 million in 1996 from $2.7 million in 1995 and $2.5 million in
1994, increases of 17% and 11%. These increases were primarily due to an
increase in the costs of license fee revenue, which consists primarily of
product development and design costs and royalties payable to third parties.
RESEARCH AND DEVELOPMENT
Research and development expenses increased to $10.5 million in 1996 from
$6.4 million in 1995 and $4.6 million in 1994, increases of 64% and 37%. These
increases were primarily due to increased staffing related to new research and
development activities. Research and development personnel increased to 101
employees including 21 employees employed by the Company's newly established
subsidiary in India at December 31, 1996 up from 58 employees at December 31,
1995 and 40 employees at December 31, 1994. Research and development expenses as
a percentage of total net revenues increased to 29% in 1996 from 27% in 1995,
when it decreased from 31% in 1994. The increase in 1996 compared to 1995 was
primarily a result of increased personnel costs. The decrease in 1995 compared
to 1994 was primarily a result of increased revenues from user license fees,
which did not require a corresponding increase in research and development
expenses.
SALES AND MARKETING
Sales and marketing expenses increased to $7.6 million in 1996 from $4.8
million in 1995 and $3.8 million in 1994, increases of 57% and 25%,
respectively. These increases were primarily a result of an increase in the
number of sales representatives, sales engineers and marketing personnel as the
Company continues to invest in the development of non-OEM sales channels. Sales
and marketing expenses as a percentage of total net revenues increased to 21% in
1996 from 20% in 1995 when it decreased from 25% in 1994. Since a large portion
of the Company's sales and marketing efforts for its storage management products
is incurred by OEMs, increased revenues from user license fees in 1995 were not
accompanied by proportionate increases in sales and marketing expenses. The
Company expects to increase the number of its sales and marketing employees in
the future in order to expand its direct sales efforts to resellers and
end-users. See "-- Certain Factors Which May Affect Future Operating
Results -- New Distribution Channels."
19
<PAGE> 21
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased to $2.9 million in 1996 from
$2.7 million in 1995 and $1.6 million in 1994, increases of 5% and 66%,
respectively. General and administrative expenses as a percentage of total net
revenues decreased to 8% in 1996 from 11% in 1995 and 1994. This decrease was
primarily a result of increased revenues from user license fees, which did not
require a corresponding increase in general and administrative expenses.
IN-PROCESS RESEARCH AND DEVELOPMENT
On April 1, 1996, the Company acquired all of the outstanding stock of ACSC
for a total cost of approximately $3.5 million. Of the total charge, $2.2
million was allocated to in-process research and development which was expensed
in the second quarter of 1996 and approximately $1.3 million was allocated to
acquired intangibles which will be amortized over a three to five year period.
Total cash outflows in 1996 related to this purchase were $3.5 million. The
Company has agreed to pay the sole shareholder of ACSC, together with certain
other persons, a royalty on certain future product revenue derived from the
assets acquired. The royalty will be based on product shipments beginning in the
third quarter of 1997 and will be payable over a five year period up to a
maximum of $2.5 million.
GAIN ON SALE OF VISTA OPERATIONS
On March 31, 1995, the Company sold its ViSTA testing tools operation to
CenterLine Software, Inc. In 1995, the Company recognized a gain on the sale of
the operating assets of ViSTA of approximately $1.7 million. The Company
received approximately $2.2 million in cash, a subordinated promissory note in
the principal amount of $750,000, payable over a two year period, and the rights
to receive royalties on ViSTA related products for a period of three years. The
ViSTA operations contributed revenues of $677,000 and expenses of $1.2 million
in 1995, compared to revenues of $2.4 million and expenses of $4.0 million for
1994.
PROVISION FOR INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." The provision for
income taxes consists of federal and state minimum taxes and foreign withholding
taxes. As of December 31, 1996, the Company had an $11.2 million deferred tax
asset, primarily reflecting potential future tax savings attributable to its
federal operating loss and tax credit carryforwards. This asset was reduced by
an $11.2 million valuation allowance, reflecting uncertainty as to its
realization. The federal tax laws impose limitations on loss and credit
carryforwards in the event that changes in a company's stock ownership over a
three year period exceed a specified threshold (a "Change in Ownership"). Based
on its analysis of prior stock ownership changes, the Company believes that is
has not incurred a Change of Ownership. However, changes in stock ownership in
amounts which are below that which would otherwise result in a Change of
Ownership, may, together with prior and subsequent ownership changes, cause a
Change of Ownership to occur. In addition, the Company's analysis of its stock
ownership changes, which is based on numerous assumptions, is subject to review
by the Internal Revenue Service (the "IRS"). If the IRS were to maintain that
the Company incurred a Change of Ownership, the Company would be subject to an
annual limitation on the utilization of its net operating loss and certain tax
credit carryforwards. However, given the Company's current fair market value,
such limitation, if any, is not expected to have a significant effect on the
Company's utilization of its net operating loss and tax credit carryforwards.
See Note 7 to Notes to Consolidated Financial Statements.
As of December 31, 1996, the Company had federal tax loss carryforwards of
approximately $23 million, and federal tax credit carryforwards of approximately
$1.4 million. The federal tax loss carryforwards expire in 1997 through 2007.
The Company projects its tax rate to increase by approximately 5% in 1997 if it
completes its merger with OpenVision. The availability of the Company's net
operating loss and credit carryforwards may be subject to a substantial annual
limitation if it should be determined that there has been a Change of Ownership.
20
<PAGE> 22
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity during the three years ended
December 31, 1996 has been cash generated from operating activities. At December
31, 1996, the Company had $36.9 million in cash, cash equivalents and short-term
investments, compared to $29.8 million at December 31, 1995. At December 31,
1996, the Company had working capital of $37.3 million compared with $27.8
million at December 31, 1995. The ratio of current assets to current liabilities
at December 31, 1996 was 8.41 to one compared to 7.41 to one at December 31,
1995.
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by operating activities was $12.1 million in 1996, $10.4
million during 1995 and $2.6 million during 1994. The increases in each year
over the prior year primarily reflect increased revenues and profitable
operations during these periods.
CASH FLOWS FROM INVESTING ACTIVITIES
Cash used for investing activities included $4.3 million, $17.6 million and $9.8
million in 1996, 1995 and 1994, respectively, used for the purchase of
short-term investments, net of the proceeds from sales of short-term
investments. Purchases of capital equipment were $3.5 million, $2.1 million and
$943,000 in 1996, 1995 and 1994, respectively. Cash used for the purchase of
ACSC was $3.5 million in 1996 and cash provided by the proceeds from the sale of
ViSTA assets was $2.2 million in 1995. Cash provided by investing activities
included $282,000 and $187,000 received on the note receivable from CenterLine
in 1996 and 1995, respectively. The increases in purchases of capital equipment
were associated with increased headcount and the Company's relocation to new
facilities.
The Company entered into an agreement in 1996 with an Indian developer with
respect to the purchase of premises currently under construction at this
location. The operations of the Company's Indian subsidiary will be moved to
this building upon completion. The total building cost is $800,000 of which
$400,000 has been paid to date.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash provided by financing activities included net proceeds from sale of
common stock of $1.7 million and $723,000 in 1996 and 1995, respectively,
primarily from the exercise of stock options and issuance of common stock under
the employee stock purchase plan. Cash used for the payment of lease obligations
was $116,000, $296,000 and $392,000 in 1996, 1995 and 1994, respectively. Cash
provided by financing activities also included $224,000 and $180,000 from the
repayment of shareholder notes receivable in 1996 and 1995, respectively.
The Company anticipates that its current cash, cash equivalents and
short-term investments will be sufficient to fund operating expenses through
fiscal 1997, including anticipated capital expenditures and potential future
acquisitions. The Company's long-term liquidity will be affected by numerous
factors, including its ability to generate cash from operations, its capital
requirements, future acquisitions and or dispositions, and the Company's
research and development activities. The Company expects to continue to fund
these future activities from revenues received from license fees and services,
and from future financing as required. In the event the Company seeks to obtain
funds through equity or debt financing to satisfy future liquidity and capital
resource needs, there can be no assurance that capital will be available when
needed or, if available, that the terms for obtaining such financing will be
favorable to the Company. In addition, if additional funds are raised through
the issuance of equity or convertible debt securities, the percentage ownership
of the shareholders of the Company will be reduced, shareholders may experience
additional dilution and such securities may have rights, preferences or
privileges senior to those of the Company's Common Stock.
21
<PAGE> 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ANNUAL FINANCIAL STATEMENTS
The financial statements listed in Item 14(a)(1) are included in this
report beginning on Page 9.
SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER
------- ------ ------- -------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS,
UNAUDITED):
<S> <C> <C> <C> <C>
FISCAL 1996
Total net revenues................................... $10,808 $9,498 $ 8,320 $ 7,464
Gross profit......................................... 9,750 8,597 7,673 6,866
Income before income taxes........................... 4,042 3,613 943 3,005
Net income........................................... 3,495 3,134 525 2,614
Net income per share................................. $ 0.24 $ 0.22 $ 0.04 $ 0.19
Number of shares used in computing per share
amounts............................................ 14,807 14,389 14,294 14,129
FISCAL 1995
Total net revenues................................... $ 6,561 $6,510 $ 5,368 $ 5,648
Gross profit......................................... 6,002 5,647 4,866 4,845
Income before income taxes........................... 2,616 2,411 2,062 3,552
Net income........................................... 2,412 2,242 1,917 3,303
Net income per share................................. $ 0.17 $ 0.16 $ 0.14 $ 0.25
Number of shares used in computing per share
amounts............................................ 14,075 13,947 13,749 13,179
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference to the
Company's Proxy Statement to be filed pursuant to Regulation 14A of the
Securities and Exchange Commission under the Securities Exchange Act of 1934
(the "Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference to the
Company's Proxy Statement.
22
<PAGE> 24
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) FINANCIAL STATEMENTS
The following financial statements are filed as part of this Annual Report
on Form 10-K:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheets at December 31, 1996 and December 31,
1995................................................................ 24
Consolidated Statements of Income for the years ended December 31,
1996, 1995 and 1994................................................. 25
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1996, 1995 and 1994.................................... 26
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994................................................. 27
Notes to Consolidated Financial Statements............................ 28
Report of Ernst & Young LLP, Independent Auditors..................... 37
</TABLE>
(2) FINANCIAL STATEMENT SCHEDULES
The following financial statement schedule for the years ended December 31,
1996, 1995 and 1994 should be read in conjunction with the consolidated
financial statements of VERITAS Software Corporation filed as part of this
Annual Report on Form 10-K:
<TABLE>
<S> <C>
Schedule II -- Valuation and Qualifying Accounts and Reserves........................... 38
</TABLE>
Schedules other than that listed above have been omitted since they are
either not required, not applicable, or because the information required is
included in the consolidated financial statements or the notes thereto.
(3) EXHIBITS
The exhibits filed as a part of, or incorporated by reference into, this
Annual Report on Form 10-K are listed in the accompanying Index to Exhibits on
pages 37 through 38.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1996.
23
<PAGE> 25
VERITAS SOFTWARE CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................................. $ 5,267 $ 2,345
Short-term investments................................................. 31,662 27,409
Accounts and notes receivable, net of allowance for doubtful accounts
of $200 and $125 at December 31, 1996 and 1995, respectively(1)..... 4,396 2,003
Prepaid expenses....................................................... 1,016 391
-------- --------
Total current assets........................................... 42,341 32,148
Property and equipment, net............................................ 4,284 2,163
Notes and other assets................................................. 1,166 697
-------- --------
$ 47,791 $ 35,008
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................................... $ 831 $ 653
Accrued compensation and benefits...................................... 1,630 1,413
Accrued royalties...................................................... -- 290
Other accrued liabilities.............................................. 1,787 525
Deferred revenue....................................................... 784 1,339
Current obligations under capital leases............................... -- 116
-------- --------
Total current liabilities...................................... 5,032 4,336
Deferred rent............................................................ 1,005 594
Shareholders' equity:
Preferred stock:
20,000,000 shares authorized: none issued and outstanding........... -- --
Common stock:
25,000,000 shares authorized; 13,539,926 and 13,192,569 shares
issued and outstanding at December 31, 1996 and 1995,
respectively....................................................... 68,884 67,200
Notes receivable from shareholders..................................... -- (224)
Accumulated deficit.................................................... (27,130) (36,898)
-------- --------
Total shareholders' equity..................................... 41,754 30,078
-------- --------
$ 47,791 $ 35,008
======== ========
</TABLE>
- ---------------
(1) See Note 10 for related party disclosures.
See accompanying notes to consolidated financial statements.
24
<PAGE> 26
VERITAS SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Net revenues:(1)
User license fees........................................... $31,651 $20,130 $11,336
Source license fees......................................... 1,098 922 1,516
Services.................................................... 2,091 1,704 1,342
Porting..................................................... 1,250 1,331 857
------- ------- -------
Total net revenues....................................... 36,090 24,087 15,051
Cost of revenues:
Cost of license fees........................................ 1,105 645 102
Cost of services............................................ 2,099 2,082 2,363
------- ------- -------
Total cost of revenues................................... 3,204 2,727 2,465
------- ------- -------
Gross profit.................................................. 32,886 21,360 12,586
------- ------- -------
Operating expenses:
Research and development.................................... 10,462 6,384 4,645
Sales and marketing......................................... 7,576 4,814 3,846
General and administrative.................................. 2,857 2,733 1,644
In-process research and development......................... 2,200 -- --
------- ------- -------
Total operating expenses................................. 23,095 13,931 10,135
------- ------- -------
Operating income.............................................. 9,791 7,429 2,451
Interest and other income, net................................ 1,812.. 1,486 601
Gain on sale of ViSTA operations.............................. -- 1,726 --
------- ------- -------
Income before income taxes.................................... 11,603 10,641 3,052
Provision for income taxes.................................... 1,835 767 214
------- ------- -------
Net income.................................................... $ 9,768 $ 9,874 $ 2,838
======= ======= =======
Net income per share.......................................... $ 0.68 $ 0.72 $ 0.22
======= ======= =======
Weighted average number of shares and equivalents
outstanding................................................. 14,405 13,764 12,849
======= ======= =======
</TABLE>
- ---------------
(1) See Note 10 for related party disclosures.
See accompanying notes to consolidated financial statements.
25
<PAGE> 27
VERITAS SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share amounts)
<TABLE>
<CAPTION>
NOTES
COMMON STOCK RECEIVABLE TOTAL
-------------------- FROM ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHAREHOLDERS DEFICIT EQUITY
---------- ------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993........... 12,217,335 $65,689 $ -- $ (49,639) $16,050
Issuance costs related to 1993 common
stock offering.................... -- (70) -- -- (70)
Exercise of stock options............ 83,820 31 -- -- 31
Net income........................... -- -- -- 2,838 2,838
---------- ------ ----- -------- -------
Balance at December 31, 1994........... 12,301,155 65,650 -- (46,801) 18,849
Exercise of stock options............ 332,113 695 (404) -- 291
Effect of compensation related to
accelerated vesting of stock
options........................... -- 453 -- -- 453
Payments on notes receivable from
shareholders...................... -- -- 180 -- 180
Issuance of common stock under
employee stock purchase plan...... 138,189 402 -- -- 402
Issuance of common stock related to
merger with Tidalwave............. 352,122 -- -- 29 29
Exercise of warrants issued in merger
with Tidalwave.................... 68,990 -- -- -- --
Net income........................... -- -- -- 9,874 9,874
---------- ------ ----- -------- -------
Balance at December 31, 1995........... 13,192,569 67,200 (224) (36,898) 30,078
Exercise of stock options............ 194,381 1,021 -- -- 1,021
Payments on notes receivable from
shareholders...................... -- -- 224 -- 224
Issuance of common stock under
employee stock purchase plan...... 152,976 663 -- -- 663
Net income............................. -- -- -- 9,768 9,768
---------- ------ ----- -------- -------
Balance at December 31, 1996........... 13,539,926 $68,884 $ -- $ (27,130) $41,754
========== ====== ===== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE> 28
VERITAS SOFTWARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (decrease) in cash and cash equivalents
(In thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................................... $ 9,768 $ 9,874 $ 2,838
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization............................ 1,698 1,183 668
Deferred rent............................................ 411 594 --
Gain on sale of ViSTA operations......................... -- (1,726) --
In-process research and development...................... 2,200 -- --
Changes in operating assets and liabilities:
Accounts receivable................................... (2,262) 1,213 (931)
Prepaid expenses and other assets..................... (539) (763) (307)
Accounts payable and accrued liabilities.............. 1,367 (55) 1,388
Deferred revenue...................................... (555) 125 (1,071)
-------- -------- --------
Net cash provided by operating activities........... 12,088 10,445 2,585
INVESTING ACTIVITIES:
Purchases of available for sale securities............... (51,278) (33,909) (28,900)
Sales of available for sale securities................... 47,025 16,300 19,100
Proceeds from the sale of ViSTA assets, net.............. -- 2,172 --
Payment received on CenterLine note...................... 282 187 --
Purchase of equipment.................................... (3,537) (2,143) (943)
Purchase of ACSC......................................... (3,450) -- --
-------- -------- --------
Net cash used for investing activities.............. (10,958) (17,393) (10,743)
FINANCING ACTIVITIES:
Principal payments under capital lease obligations....... (116) (296) (392)
Repayment of shareholder notes receivable................ 224 180 --
Net proceeds from sale of common stock and other......... 1,684 723 (39)
-------- -------- --------
Net cash provided by (used for) financing
activities....................................... 1,792 607 (431)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents....... 2,922 (6,341) (8,589)
Cash and cash equivalents at beginning of year............. 2,345 8,686 17,275
-------- -------- --------
Cash and cash equivalents at end of year................... $ 5,267 $ 2,345 $ 8,686
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest................................................. $ 4 $ 23 $ 120
Income taxes............................................. $ 1,341 $ 446 $ 149
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES
Common stock issued in exchange for shareholder notes
receivable............................................... $ -- $ 404 $ --
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE> 29
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. THE COMPANY
VERITAS Software Corporation (the "Company") develops, markets and supports
advanced storage management and high availability products for open system
environments.
In March 1995, the Company sold substantially all of the operating assets
of its ViSTA testing tools operation to CenterLine Software, Inc.
("CenterLine"). VERITAS received approximately $2.2 million in cash and a
two-year subordinated promissory note in the principal amount of $750,000, with
principal and interest payable quarterly over two years, which resulted in a
gain to the Company of approximately $1.7 million in 1995. In addition,
CenterLine is required to pay the Company royalties through March 31, 1998 from
the distribution of ViSTA software products or their derivatives. Such royalties
are recorded when received by the Company and have not been significant to date.
In April 1995, VERITAS acquired all of the outstanding shares of Tidalwave
Technologies, Inc. ("Tidalwave") in exchange for 352,122 shares of the Company's
common stock. In addition, the Company assumed a warrant which entitled the
holder to acquire an additional 81,030 shares of the Company's common stock. The
Company accounted for the acquisition of Tidalwave as a pooling of interests.
The results of operations and total assets of Tidalwave were not material to the
Company's consolidated financial statements and, therefore, prior year accounts
have not been restated.
In April 1996, the Company formed a subsidiary in Pune, India and hired
certain research and development employees who were previously employed by a
company which was an independent development contractor for the Company. At
December 31, 1996, 21 research and development staff were employed by this
subsidiary. In addition, the Company entered into an agreement in 1996 with an
Indian developer with respect to the purchase of premises currently under
construction at this location. The operations of the Company's Indian subsidiary
will be moved to this building upon completion. The total building cost is
$800,000 of which $400,000 has been paid to date. The Company has also
established a wholly-owned sales subsidiary in Japan whose four employees are
primarily focused on expanding OEM opportunities in the Pacific Rim. Due to the
immaterial nature of the Company's operations and the immaterial amount of
assets in these two countries, the Company does not believe that it is exposed
to significant foreign currency transaction gains and losses.
On April 1, 1996, the Company acquired all of the outstanding stock of
Advanced Computing Systems Company ("ACSC"), a company which had developed
technology for the operation and management of removable media volumes, devices
and repositories, for a total cost of approximately $3.5 million. Of the total
charge, $2.2 million was allocated to in-process research and development which
was expensed in the second quarter of 1996 and approximately $1.3 million was
allocated to acquired intangibles which will be amortized over a three to five
year period. Total cash outflows in 1996 related to this purchase were $3.5
million. The Company has agreed to pay the sole shareholder of ACSC, together
with certain other persons, a royalty on certain future product revenue derived
from the assets acquired. The royalty will be based on product shipments
beginning in the third quarter of 1997 and will be payable over a five year
period up to a maximum of $2.5 million. The transaction was accounted for as a
purchase. Accordingly, the accompanying Consolidated Statements of Income
include the results of operations of ACSC subsequent to the acquisition date.
ACSC's results of operations were not significant for the current or the prior
periods.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation.
28
<PAGE> 30
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Net income per share
Net income per share has been computed using the weighted average number of
common shares outstanding during each year, after giving effect to dilutive
common stock equivalents. Common stock equivalents consist of the dilutive
shares issuable upon the exercise of stock options and warrants (using the
treasury stock method).
Cash, cash equivalents and short-term investments
Cash equivalents reflect highly liquid investments with maturities at the
date of purchase of three months or less. The Company's short-term investments
are classified as available-for-sale and are stated at approximate fair value.
The cost of securities sold is based on the specific identification method.
Realized gains or losses, interest and dividends are included in interest
income. Cash, cash equivalents and short-term investments consisted of the
following (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS FAIR MARKET GROSS GROSS FAIR MARKET
COST AT UNREALIZED UNREALIZED VALUE AT COST AT UNREALIZED UNREALIZED VALUE AT
12/31/96 GAINS LOSSES 12/31/96 12/31/95 GAINS LOSSES 12/31/95
-------- ---------- ---------- ----------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents:
Cash.................. $ 909 $ -- $ -- $ 909 $ 885 $ -- $ -- $ 885
Money market funds.... 4,358 -- -- 4,358 1,460 4 -- 1,464
------- --- ---- ------- ------- ---- --- -------
Cash and cash
equivalents........... $ 5,267 $ -- $ -- $ 5,267 $ 2,345 $ 4 $ -- $ 2,349
------- --- ---- ------- ------- ---- --- -------
Short-term investments:
Commercial paper...... $ 1,990 $ 8 $ -- $ 1,998 $ 1,000 $ 15 $ -- $ 1,015
Market auction
preferreds.......... 8,000 -- -- 8,000 18,800 45 -- 18,845
Government agency
notes............... 3,520 -- (19) 3,501 1,004 20 -- 1,024
Short-term notes...... 18,152 -- (58) 18,094 6,605 57 -- 6,662
------- --- ---- ------- ------- ---- --- -------
Short-term
investments........... $31,662 $ 8 $(77) $31,593 $27,409 $137 $ -- $27,546
------- --- ---- ------- ------- ---- --- -------
Cash, cash equivalents
and short-term
investments........... $36,929 $ 8 $(77) $36,860 $29,754 $141 $ -- $29,895
======= === ==== ======= ======= ==== === =======
</TABLE>
Property and equipment
Furniture and equipment are depreciated using the straight-line method over
the estimated useful lives, generally three five years or, in the case of
leasehold improvements, the term of the related lease, if shorter. Depreciation
and amortization of property and equipment charged to costs and expenses was
$1.4 million, $953,000 and $668,000 for the years ended December 31, 1996, 1995
and 1994, respectively. Property and equipment is stated at cost and consisted
of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Furniture and equipment........................... $ 1,301 $ 993
Computer equipment................................ 6,483 3,230
Leasehold improvements............................ 327 279
------- -------
8,111 4,502
Less -- accumulated depreciation and
amortization.................................... (3,827) (2,339)
------- -------
Property and equipment, net....................... $ 4,284 $ 2,163
======= =======
</TABLE>
29
<PAGE> 31
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Long-lived assets
In 1995, the Financial Accounting Standards Board released the Statement of
Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of".
SFAS 121 requires recognition of impairment of long-lived assets in the event
the net book value of such assets exceeds the future undiscounted cash flows
attributable to such assets. Adoption of SFAS 121 did not have any impact on the
Company's financial position or results of operations.
Accounting for Stock-Based Compensation
The Company accounts for its stock option plans and its employee stock
purchase plan in accordance with the provisions of the Accounting Principles
Board's Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees". In
1995, the Financial Accounting Standards Board released the Statement of
Financial Accounting Standards No. 123 (SFAS 123), "Accounting for Stock Based
Compensation". SFAS 123 provides an alternative to APB 25 and is effective for
fiscal years beginning after December 15, 1995. As permitted by SFAS 123, the
Company has continued to account for its employee stock plans in accordance with
provisions of APB 25. Accordingly, the Company has included pro forma
disclosures of net income and earnings per share (see Note 6).
Revenue recognition
Revenues for the Company's storage management products are stated net of
customer discounts and revenue sharing obligations.
Storage management products are primarily marketed to computer OEMs that
pay a source license fee upon delivery of the source code and a user license fee
each time operating systems incorporating the Company's storage management
products are shipped by the OEM to end-users. Source license fees are recognized
upon delivery of source code provided that no significant vendor obligations
remain and the collectability of the resulting receivable is probable. User
license fees are recognized in the period that the OEM licensee notifies the
Company of shipments to third party end-users. Porting and other non-recurring
engineering revenues are generally recognized using the "percent of completion"
accounting method. Other services include consulting, training and maintenance.
Consulting and training revenues are generally billed and recognized as the
services are performed. Maintenance is billed separately in annual installments,
and the related revenue is recognized over the term of the contract.
Advertising Costs
Advertising costs are recorded as an expense as incurred. Advertising costs
were approximately $6,000, $126,000 and $137,000 for the years ended December
31, 1996, 1995, and 1994, respectively, including advertising costs of
approximately $71,000 and $111,000 for the years ended December 31, 1995 and
1994, respectively, related to the Company's ViSTA testing tools operation. The
Company does not incur any direct response advertising costs.
Translation of Foreign Currencies
The Company translates the accounts of its foreign subsidiaries using the
local currency as the functional currency. Consequently, assets and liabilities
of operations outside the United States are translated into U.S. dollars using
period-end exchange rates, and revenues and expenses are translated at the
weighted average monthly exchange rates. Gains and losses from this translation
process are credited or charged to shareholders' equity. Foreign currency
transaction gains and losses have not been significant.
30
<PAGE> 32
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Reclassifications
Certain prior year amounts were reclassified to conform to the current year
presentation.
NOTE 3. OBLIGATIONS UNDER CAPITAL LEASES
The Company leases certain furniture and equipment under long-term leases
that have been accounted for as capitalized leases. Accordingly, capitalized
costs of approximately $760,000 are included in furniture and equipment at
December 31, 1995, and related amortization is included in depreciation expense.
The related accumulated depreciation totaled $685,000 at December 31, 1995.
There are no capital lease obligations at December 31, 1996.
NOTE 4. COMMITMENTS
The Company currently has operating leases for its facilities through
January 31, 2002. Rental expense under operating leases was approximately
$914,000, $873,000, and $544,000 for the years ended December 31, 1996, 1995,
and 1994, respectively. In addition to the basic rent, the Company is
responsible for all taxes, insurance and utilities related to the facilities.
The approximate minimum lease payments as of December 31, 1996 are as follows
(in thousands):
<TABLE>
<S> <C>
1997........................................ $1,229
1998........................................ 1,306
1999........................................ 1,341
2000........................................ 1,377
2001........................................ 1,405
Thereafter.................................. 117
------
Minimum lease payments...................... $6,775
======
</TABLE>
In the ordinary course of business, various lawsuits and claims have been
filed against the Company. While the outcome of these matters is currently not
determinable, management believes that the ultimate resolution of these matters
will not have a material adverse effect on the Company's consolidated financial
position, results of operations or cash flows.
NOTE 5. SHAREHOLDERS' EQUITY
Share and per share amounts applicable to prior periods in the consolidated
financial statements have been restated to reflect a 3-for-2 stock split in the
form of a stock dividend executed by the Company in September 1996.
The Company is authorized to issue up to 20,000,000 shares of undesignated
preferred stock. No such preferred shares have been issued to date.
Total common shares reserved for issuance at December 31, 1996 under all
stock compensation plans are 2,867,658 shares (see Note 6)
401(k) Plan
The Company adopted a 401(k) savings and retirement plan in 1987. The plan
covers all employees. Eligibility to participate begins the first day of the
quarter following date of hire. The Company made matching contributions of
$120,000 for the year ended December 31, 1996 and none in the years ended
December 31, 1995 and 1994.
31
<PAGE> 33
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. STOCK COMPENSATION PLANS
At December 31, 1996, the Company has three stock-based compensation plans,
which are described below. 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 consistent with Statement of Financial Accounting Standards No.
123 (SFAS 123), the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C> <C>
Net Income As Reported............ $9,768 $9,874
Pro Forma.............. $7,222 $9,193
Primary earnings per share As Reported............ $ 0.68 $ 0.72
Pro Forma.............. $ 0.51 $ 0.69
Fully diluted earnings per share As Reported............ $ 0.67 $ 0.71
Pro Forma.............. $ 0.49 $ 0.66
</TABLE>
Because the method of accounting prescribed by SFAS 123 has not been
applied to options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years.
Fixed Stock Option Plans
The Company has two fixed option plans. The Company's 1993 Equity Incentive
Plan (the "1993 Plan") provides for the issuance of either incentive or
nonstatutory stock options to employees and consultants of the Company. The
options generally are granted at the fair market value of the Company's common
stock at the date of grant, expire ten years from the date of grant, are
exercisable immediately, and vest over a four-year period. The Company has
reserved 2,042,658 shares of common stock for issuance under the 1993 Plan. The
Company has also reserved 150,000 shares for issuance under the Company's 1993
Director's Stock Option Plan (the "Director's Plan"). Generally options expire
ten years from date of grant, are exercisable immediately, and vest over the
term of each directors board membership.
The Company's 1991 Executive Stock Option Plan and 1985 Employee Stock
Option Plan were terminated, and no further options may be granted under these
plans. Options previously granted under the 1991 and 1985 plans will continue to
be administered under such plans, and any options that expire or become
unexercisable for any reason without having been exercised in full shall be
available for issuance under the 1993 Plan.
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 used for grants in 1996 and 1995: risk-free interest rates ranging
from 5.25% to 6.74% and from 5.39% to 7.56% for 1996 and 1995, respectively; a
dividend yield of 0.0% for both years; a weighted-average expected life of 5
years for both years; and a volatility factor of the expected market price of
the Company's common stock of .65 for both years.
32
<PAGE> 34
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of the status of the Company's fixed stock option plans as of
December 31, 1996 and 1995 and changes during the years ended on those dates is
presented below (number of shares in thousands):
<TABLE>
<CAPTION>
1996 1995
---------------------- ----------------------
WEIGHTED- WEIGHTED-
NUMBER AVERAGE NUMBER AVERAGE
OF EXERCISE OF EXERCISE
SHARES PRICE SHARES PRICE
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Fixed Options
Outstanding at beginning of year........... 1,367 $ 7.60 1,345 $ 2.71
Granted.................................... 848 $25.61 555 $14.95
Exercised.................................. (197) $ 5.16 (336) $ 2.09
Forfeited.................................. (189) $14.43 (197) $ 4.29
----- -----
Outstanding at end of year................. 1,829 $15.51 1,367 $ 7.60
===== =====
Options exercisable at year end............ 656 546
Weighted-average fair value of options
granted during the year.................. $15.81 $8.99
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1996 (number of shares in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------- OPTIONS EXERCISABLE
WEIGHTED- ---------------------------
AVERAGE WEIGHTED- WEIGHTED-
NUMBER REMAINING AVERAGE NUMBER AVERAGE
RANGE OF OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 12/31/96 LIFE PRICE AT 12/31/96 PRICE
----------------------- ------------ ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
$ 0.14 - $ 3.00........ 462 6.69 $ 2.05 352 $ 1.75
$ 3.20 - $16.83........ 535 8.10 $11.54 224 $ 9.66
$17.00 - $20.33........ 326 9.53 $20.24 19 $19.85
$20.67 - $55.25........ 506 9.39 $28.93 61 $23.68
----- ---
$ 0.14 - $55.25........ 1,829 8.36 $15.51 656 $ 7.01
===== ===
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
Under the Company's 1993 Employee Stock Purchase Plan (the "Purchase
Plan"), the Company is authorized to issue up to 675,000 shares of common stock
to its full-time employees, nearly all of whom are eligible to participate.
Under the terms of the Purchase Plan, employees can choose to have up to 10% of
their wages withheld to purchase the Company's common stock. The purchase price
of the stock is 85% of the lower of the subscription date fair market value and
the purchase date fair market value. Approximately all of the eligible employees
have participated in the Purchase Plan in 1996 and 1995. Under the Purchase
Plan, the Company issued 138,189 and 152,976 shares to employees in 1996 and
1995, respectively.
In accordance with APB 25, the Company does not recognize compensation cost
related to employee purchase rights under the Plan. To comply with the pro forma
reporting requirements of SFAS 123, compensation cost is estimated for the fair
value of the employees' purchase rights using the Black-Scholes model with the
following assumptions for these rights granted in 1996 and 1995: a dividend
yield of 0.0% for both years; an expected life ranging up to 2 years for both
years; an expected volatility factor of .65 for both years; and risk-free
interest rates ranging form 4.81% to 6.01% and from 5.47% to 7.00% for 1996 and
1995, respectively. The weighted average fair value of the purchase rights
granted in August 1996, February 1996, August 1995 and February 1995 was $9.26,
$8.66, $6.79 and $3.43, respectively.
33
<PAGE> 35
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7. INCOME TAXES
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." The provision for
income taxes consists of federal and state minimum taxes and foreign withholding
taxes. As of December 31, 1996, the Company had an $11.2 million deferred tax
asset, primarily reflecting potential future tax savings attributable to its
federal operating loss and tax credit carryforwards. This asset was reduced by
an $11.2 million valuation allowance, reflecting uncertainty as to its
realization. The federal tax laws impose limitations on loss and credit
carryforwards in the event that changes in a company's stock ownership over a
three year period exceed a specified threshold (a "Change in Ownership"). Based
on its analysis of prior stock ownership changes, the Company believes that is
has not incurred a Change of Ownership. However, changes in stock ownership in
amounts which are below that which would otherwise result in a Change of
Ownership, may, together with prior and subsequent ownership changes, cause a
Change of Ownership to occur. In addition, the Company's analysis of its stock
ownership changes, which is based on numerous assumptions, is subject to review
by the Internal Revenue Service (the "IRS"). If the IRS were to maintain that
the Company incurred a Change of Ownership, the Company would be subject to an
annual limitation on the utilization of its net operating loss and certain tax
credit carryforwards. However, given the Company's current fair market value,
such limitation, if any, is not expected to have a significant effect on the
Company's utilization of its net operating loss and tax credit carryforwards.
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ---- ----
<S> <C> <C> <C>
Federal -- current.................................. $ 350 $253 $ 80
State -- current.................................... 1,085 259 28
Foreign -- current.................................. 400 255 106
------ ---- ----
Total..................................... $1,835 $767 $214
====== ==== ====
</TABLE>
Significant components of the Company's deferred tax assets for federal and
state income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net operating loss......................... $ 8,166 $ 11,861 $ 15,776
Credits carryforwards...................... 1,385 1,638 958
Temporary differences...................... 1,678 1,217 822
-------- -------- --------
11,229 14,716 17,556
Valuation allowance........................ (11,229) (14,716) (17,556)
-------- -------- --------
Net deferred tax assets.................... $ -- $ -- $ --
======== ======== ========
</TABLE>
Approximately $975,000 of the valuation allowance reflected above relates
to the tax benefits of stock option deductions which will be credited to equity
when realized.
34
<PAGE> 36
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The provision for income taxes differed from the amount computed by
applying the statutory rate as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Federal statutory rate.............................. 34.0% 34.0% 34.0%
Benefit of loss carryforwards....................... (32.5) (34.0) (34.0)
Alternative minimum tax............................. 3.0 4.8 3.5
Foreign withholding taxes........................... 1.2 2.4 3.5
In-process research and development charge.......... 6.5 -- --
Other............................................... 3.6 -- --
----- ----- -----
Total..................................... 15.8% 7.2% 7.0%
===== ===== =====
</TABLE>
As of December 31, 1996, the Company had federal tax loss carryforwards of
approximately $23 million, and federal tax credit carryforwards of approximately
$1.4 million. The federal tax loss carryforwards expire in 1997 through 2007.
The availability of the Company's net operating loss and credit carryforwards
may be subject to a substantial annual limitation if it should be determined
that there has been a Change of Ownership.
NOTE 8. COLABELING AGREEMENT
In January 1995, the Company amended an existing Colabeling Agreement it
had with Novell which specifies revenue sharing terms for all storage management
products except for certain file server products. In December of 1995, Novell
transferred its UNIX business to Santa Cruz Operations ("SCO") and Hewlett-
Packard and the agreement with Novell was assigned to SCO. Under the agreement,
SCO is entitled to receive 6% of all source and user license fees received by
the Company from customer agreements in existence prior to December 31, 1995
which authorize the license of SVR4/Unixware versions of the Company's volume
manager, file system and visual administrator products. The Company's obligation
to Novell in 1995 was $940,000 which was satisfied by the Company incurring
nonrecurring engineering expenses on behalf of Novell in the amount of $785,000
and the remaining $155,000 was refunded to Novell. The Company's obligation to
SCO for 1996 was $1.3 million which was satisfied by the Company incurring
nonrecurring engineering expenses on behalf of SCO in the same amount. There
were no outstanding expense obligations related to this agreement at December
31, 1996.
NOTE 9. INDUSTRY, GEOGRAPHIC AND CUSTOMER INFORMATION
The Company develops, licenses, and supports advanced storage management
products primarily to computer system manufacturers and software developers.
Credit is extended based on an evaluation of the customer's financial condition,
and generally, collateral is not required. No customer accounted for more than
10% of the Company's total net revenues in 1996. In 1995, Novell and Digital
Equipment Corporation accounted for 13% and 11% of total net revenues,
respectively. Tandem Computers Incorporated ("Tandem"), who is a related party,
accounted for 13% of total net revenues in 1994 (see Note 10). Trade accounts
receivable are stated net of allowances for doubtful accounts of $200,000 and
$125,000 at December 31, 1996 and 1995, respectively. United States export
sales, as a percentage of revenue, were approximately 16%, 16% and 26% for the
years ended December 31, 1996, 1995 and 1994, respectively.
35
<PAGE> 37
VERITAS SOFTWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. RELATED PARTY TRANSACTIONS
On December 31, 1991, the Company entered into a Distribution License
Agreement (the "Agreement") with Tandem, a company with whom a director of the
Company became affiliated in September 1993. The Agreement is a standard OEM
agreement allowing Tandem to incorporate certain portions of the Company's
technology into Tandem products in return for a royalty paid to the Company on
the sales of such products. Revenues derived from Tandem were approximately $3.2
million, $2.1 million and $2.2 million for 1996, 1995 and 1994, respectively.
The Company had no outstanding receivable balances related to Tandem at December
31, 1996 and 1995, respectively. The Company has engaged a director as a
consultant in connection with the merger transaction described in Note 11 for
which the director will be paid a maximum fee of $400,000 if the merger is
consummated.
NOTE 11. SUBSEQUENT EVENTS
On January 13, 1997, VERITAS entered into an Agreement and Plan of
Reorganization (the "Agreement") with OpenVision Technologies, Inc., a Delaware
corporation ("OpenVision"), a publicly-held company that provides system
management applications and services for client/server computing environments,
and VERITAS Software Corporation, a Delaware corporation ("the Combined
Company"), pursuant to which VERITAS and OpenVision will become wholly-owned
subsidiaries of the Combined Company (the "Merger"). The Merger is intended to
be a tax-free reorganization, accounted for as a pooling of interests whereby
each share of the outstanding common stock of VERITAS will be converted into one
share of common stock of the Combined Company and each outstanding share of
OpenVision Common Stock and Class B Common Stock will be exchanged for
approximately .346 of a share of Common Stock of the Combined Company. Subject
to regulatory and shareholder approval and customary closing conditions, the
transaction is expected to be completed on or about April 30, 1997. The Combined
Company expects to incur charges to operations, currently estimated to be
between $8.0 million and $10.0 million, in the quarter ended June 30, 1997, the
quarter in which the Merger is expected to be consummated, to reflect direct
transaction costs, primarily for financial advisory and legal fees and costs
associated with combining the operations of the two companies, primarily related
to redundant assets and facilities. This range is a preliminary estimate only
and is, therefore, subject to change.
36
<PAGE> 38
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Shareholders and Board of Directors
VERITAS Software Corporation
We have audited the accompanying consolidated balance sheets of VERITAS
Software Corporation as of December 31, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996. Our audits also
included the financial statement schedule listed in the index at Item 14(a).
These consolidated financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
VERITAS Software Corporation at December 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
ERNST & YOUNG LLP
San Jose, California
January 31, 1997
37
<PAGE> 39
VERITAS SOFTWARE CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE AT
BEGINNING CHARGED END
OF YEAR TO INCOME DEDUCTIONS OF YEAR
---------- --------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts and customer
returns:
Year ended December 31, 1994................... $ 50 $15 $ -- $ 65
Year ended December 31, 1995................... $ 65 $60 $ -- $125
Year ended December 31, 1996................... $125 $75 $ -- $200
</TABLE>
38
<PAGE> 40
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Mountain View, State of California, on the 17th day of March 1997.
VERITAS SOFTWARE CORPORATION
Registrant
/s/ MARK LESLIE
--------------------------------------
Mark Leslie
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ----------------------------- ---------------
<S> <C> <C>
CHIEF EXECUTIVE OFFICER:
/s/ MARK LESLIE President, Chief Executive March 17, 1997
- --------------------------------------------- Officer and Director
Mark Leslie
CONTROLLER:
/s/ CINDY VINDASIUS Controller March 17, 1997
- ---------------------------------------------
Cindy Vindasius
ADDITIONAL DIRECTORS:
/s/ ROEL PIEPER Director March 17, 1997
- ---------------------------------------------
Roel Pieper
/s/ JOSEPH RIZZI Director March 17, 1997
- ---------------------------------------------
Joseph Rizzi
Director
- ---------------------------------------------
Steven Brooks
/s/ FRED VAN DEN BOSCH Director March 17, 1997
- ---------------------------------------------
Fred van den Bosch
</TABLE>
39
<PAGE> 41
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE PAGE
- ------- ------------------------------------------------------------------------------------
<C> <S> <C>
2.01 Technology Acquisition Agreement dated March 31, 1995 between the
Registrant and CenterLine Software, Inc. (incorporated herein by
reference to Exhibit 2.01 of the Registrant's Report on Form 8-K/A
filed with the Securities and Exchange Commission (the "SEC") on
September 26, 1995)....................................................
2.02 Agreement and Plan of Reorganization between the Registrant and
Tidalwave Technologies, Inc. dated April 10, 1995 (incorporated herein
by reference to Exhibit 2.02 to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1995)........................
2.03 Agreement and Plan of Reorganization dated as of January 13, 1997, by
and among the Registrant, VERITAS Software Corporation, a Delaware
Corporation and OpenVision Technologies, Inc...........................
3.01 Registrant's Amended and Restated Articles of Incorporation
(incorporated herein by reference to Exhibit 3.01 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993 (the
"1993 Form 10-K")).....................................................
3.02 Registrant's Amended Bylaws (incorporated herein by reference to
Exhibit 3.03 of the Registrant's Registration Statement on Form S-1
(File No. 33-70726) filed with the SEC on October 22, 1993, as amended
(the "Form S-1"))......................................................
4.01 Form of Specimen Certificate for Registrant's Common Stock
(incorporated herein by reference to Exhibit 4.01 to the Form S-1).....
4.02 Registration Rights Agreement dated April 6, 1995 between Registrant
and certain Investors as defined therein (incorporated by reference to
Exhibit 4.02 of the Registrant's Registration Statement on Form S-3
(file No. 33-95558) filed with the SEC on August 9, 1995, as
amended)...............................................................
10.01 Registrant's 1985 Stock Option Plan, as amended, and related documents
(incorporated herein by reference to Exhibit 10.01 to the Form S-1)....
10.02 Registrant's 1991 Executive Stock Option Plan, as amended, and related
documents (incorporated herein by reference to Exhibit 10.02 to the
Form S-1)*.............................................................
10.03 Registrant's 1993 Equity Incentive Plan, as amended, and related
documents (incorporated herein by reference to Exhibit 10.03 of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1995 filed with the SEC on August 10, 1995)*.......................
10.04 Registrant's 1993 Directors Stock Option Plan, as amended, and related
documents..............................................................
10.05 Registrant's 1993 Employee Stock Purchase Plan, as amended
(incorporated herein by reference to Exhibit 4.01 of the Registrant's
Registration Statement on Form S-8 (File No. 333-07795) filed with the
SEC on July 9, 1996)*..................................................
10.06 Registrant's 401(k) Plan (incorporated herein by reference to Exhibit
10.06 to the Form S-1)*................................................
10.07 Form of Indemnification Agreement (incorporated herein by reference to
Exhibit 10.07 to the Form S-1).........................................
</TABLE>
40
<PAGE> 42
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE PAGE
- ------- ------------------------------------------------------------------------------------
<C> <S> <C>
10.08 Office Building Lease, dated September 2, 1994, as amended, by and
between the Registrant and John Arriliaga and Richard T. Peery
regarding property located in Mountain View, California (incorporated
herein by reference to Exhibit 10.09 of the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994 filed with the SEC on
March 29, 1995)........................................................
10.09 Form of Source Distribution License Agreement (incorporated herein by
reference to Exhibit 10.18 to the Form S-1)............................
10.10 Registrant's 1996 Chief Executive Officer Compensation*................
10.11 Registrant's 1996 Executive Officer Compensation Plan*.................
10.12 Agreement dated November 7, 1996 between VERITAS Software India
Pvt.Ltd. and Talwalkar & Talwalkar.....................................
11.01 Statement re computation of per share earnings.........................
21.01 Subsidiaries of the Registrant.........................................
23.01 Consent of Ernst & Young LLP, Independent Auditors.....................
27.01 Financial Data Schedule (EDGAR only)...................................
</TABLE>
- ---------------
* Management contract or compensatory plan or arrangements.
** Confidential treatment has been requested with respect to certain portions of
this document.
41
<PAGE> 1
APPENDIX A-1
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is entered
into as of January 13, 1997, by and among VERITAS Software Corporation, a
California corporation ("VERITAS"), VERITAS Software Corporation, a Delaware
corporation ("Newco"), and OpenVision Technologies, Inc., a Delaware corporation
("OpenVision").
RECITALS
A. The parties intend that, subject to the terms and conditions of this
Agreement, VERITAS and OpenVision will each become a subsidiary of a new
Delaware corporation referred to herein as Newco which has been formed by
VERITAS solely for the purpose of the transactions contemplated hereunder (the
"Merger"). To effect the Merger, (i) Newco will form two new Delaware
corporations ("VERITAS Sub" and "OpenVision Sub", respectively) as wholly-owned
subsidiaries of Newco, (ii) VERITAS Sub will merge with and into VERITAS, with
VERITAS to be the surviving corporation of such merger (the "VERITAS Merger"),
and (iii) OpenVision Sub will merge with and into OpenVision, with OpenVision to
be the surviving corporation of such merger (the "OpenVision Merger"), all
pursuant to the terms and conditions of this Agreement, the Agreements of Merger
substantially in the forms of Exhibit A and Exhibit B hereto (the "Agreements of
Merger") and the applicable provisions of the Delaware General Corporation Law
(the "Delaware Law") and the California General Corporation Law (the "CGCL").
Upon the effectiveness of the Merger, all of the outstanding capital stock of
VERITAS and all of the outstanding capital stock of OpenVision will be converted
into Common Stock of Newco (the "Newco Common Stock"). Newco will assume all
outstanding options, warrants and rights to purchase shares of Common Stock of
both VERITAS and OpenVision, as provided in this Agreement and the Agreements of
Merger. The Newco Common Stock issued in the Merger will be registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a Newco
registration statement.
B. The Merger is intended to be treated as (i) a tax-free reorganization
pursuant to the provisions of Section 368 of the Internal Revenue Code of 1986,
as amended (the "Code"), and (ii) a "pooling of interests" for accounting
purposes.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. PLAN OF REORGANIZATION
1.1 THE ORGANIZATION OF NEWCO, VERITAS SUB AND OPENVISION SUB. VERITAS has
formed Newco under the laws of the State of Delaware for the purposes of the
transactions contemplated by the Merger. Newco currently has no outstanding
securities and will not issue any securities prior to the Effective Time (as
defined below), will conduct no business or operations, will have no assets and
will enter into no agreements or obligations except as required or contemplated
by this Agreement or necessary to perform its obligations hereunder. As soon as
practicable after the date of this Agreement, Newco shall form a wholly-owned
subsidiary named VERITAS Sub, Inc. and a wholly-owned subsidiary named
OpenVision Sub, Inc. under the laws of Delaware.
1.2 THE VERITAS MERGER. Subject to the terms and conditions of this
Agreement, Newco will cause VERITAS Sub to execute and deliver an Agreement of
Merger substantially in the form of Exhibit A hereto (the "VERITAS Agreement of
Merger") providing for the merger of VERITAS Sub with and into VERITAS (the
"VERITAS Merger"), with VERITAS being the surviving corporation upon the
effectiveness of the VERITAS Merger and thereby becoming a wholly-owned
subsidiary of Newco, pursuant to this Agreement, the VERITAS Agreement of Merger
and in accordance with applicable provisions of the Delaware Law and the CGCL as
follows:
A-1-1
<PAGE> 2
(a) Conversion of VERITAS Shares. Each share of the Common Stock of
VERITAS ("VERITAS Common Stock"), that is issued and outstanding immediately
prior to the Effective Time (as defined below) will by virtue of the VERITAS
Merger and at the Effective Time, and without any further action on the part of
VERITAS, Newco or any holder of VERITAS Common Stock, be converted into one
share (the "VERITAS Applicable Ratio") of validly issued, fully paid and
nonassessable Common Stock, $0.001 par value of Newco ("Newco Common Stock").
1.3 THE OPENVISION MERGER. Subject to the terms and conditions of this
Agreement, and simultaneously with the VERITAS Merger, Newco will cause
OpenVision Sub to execute and deliver an Agreement of Merger substantially in
the form of Exhibit B hereto (the "OpenVision Agreement of Merger") providing
for the merger of OpenVision Sub with and into OpenVision (the "OpenVision
Merger"), with OpenVision being the surviving corporation upon the effectiveness
of the OpenVision Merger and thereby becoming a wholly-owned subsidiary of
Newco, pursuant to this Agreement, the OpenVision Agreement of Merger and in
accordance with applicable provisions of the Delaware law as follows:
(a) Conversion of OpenVision Shares. Each share of Common Stock of
OpenVision, $0.001 par value, and each share of Class B Common Stock of
OpenVision, $0.001 par value, (collectively "OpenVision Common Stock"), that is
issued and outstanding immediately prior to the Effective Time (as defined
below) will by virtue of the OpenVision Merger and at the Effective Time, and
without any further action on the part of OpenVision, Newco or any holder of
OpenVision Common Stock, be converted into a fraction of a share of validly
issued, fully paid and nonassessable Newco Common Stock, equal to a fraction,
the numerator of which is 7,500,000 and the denominator of which is 73,000, plus
the total number of shares of OpenVision Common Stock outstanding, plus the
total number of shares of OpenVision Common Stock issuable upon exercise of the
OpenVision Options and OpenVision Warrants (as both terms are defined in Section
1.9 hereof), in each case as of the Effective Time (the "OpenVision Applicable
Ratio" and collectively with the VERITAS Applicable Ratio, the "Applicable
Ratios"). The "Effective Time" shall mean the effective time and date that both
Agreements of Merger have been filed with the Secretary of State of the State of
Delaware in accordance with the relevant provisions of Delaware law and the
VERITAS Agreement of Merger has been filed with the Secretary of State of the
State of California in accordance with the relevant provisions of the CGCL.
1.4 CANCELLATION OF VERITAS-OWNED AND OPENVISION-OWNED STOCK. Each share
of OpenVision Common Stock held in the treasury of OpenVision and each share of
VERITAS Common Stock held in the treasury of VERITAS or any of which are owned
by Newco, VERITAS, OpenVision or any direct or indirect wholly-owned subsidiary
of Newco, VERITAS or OpenVision immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof.
1.5 ADJUSTMENTS FOR CAPITAL CHANGES. If, prior to the Effective Time,
either VERITAS or OpenVision recapitalizes through a subdivision of its
outstanding shares into a greater number of shares, or a combination of its
outstanding shares into a lesser number of shares, or reorganizes, reclassifies
or otherwise changes its outstanding shares into the same or a different number
of shares of other classes, or declares a dividend on its outstanding shares
payable in shares of its capital stock or securities convertible into shares of
its capital stock, then the Applicable Ratios will be adjusted appropriately so
as to maintain the relative proportionate interests of the holders of VERITAS
Common Stock and the holders of the OpenVision Common Stock in Newco securities.
1.6 DISSENTING SHARES. Holders of shares of OpenVision Common Stock who
dissent from the OpenVision Merger are not entitled to rights of appraisal under
Section 262 of the Delaware Law. Holders of shares of VERITAS Common Stock who
dissent from the VERITAS Merger are not entitled to dissenters' rights under
Chapter 13 of the CGCL provided, however, that (i) if demands for payment under
Chapter 13 of the CGCL are filed with respect to 5% or more of the outstanding
shares of VERITAS Common Stock by the holders of shares which voted against the
VERITAS Merger, then such holders of VERITAS Common Stock shall be entitled to
exercise dissenters' rights to the extent available under Chapter 13 of the CGCL
with respect to the shares for which such demand has been filed in accordance
with Chapter 13 of the CGCL; and (ii) any shares of VERITAS Common Stock whose
transfer is restricted by law or regulation or by
A-1-2
<PAGE> 3
VERITAS and that are voted against the VERITAS Merger shall be entitled to
exercise dissenters' rights to the extent available under Chapter 13 of the
CGCL.
1.7 FRACTIONAL SHARES. No fractional shares of Newco Common Stock will be
issued in connection with the Merger, but in lieu thereof each holder of VERITAS
Common Stock and of OpenVision Common Stock who would otherwise be entitled to
receive a fraction of a share of Newco Common Stock will receive from the
Exchange Agent (as hereinafter defined), at such time as such holder shall
receive a certificate representing shares of Newco Common Stock as contemplated
by Section 6.2, an amount of cash (rounded up to the nearest whole cent) equal
to the per share market value of VERITAS Common Stock (based on the average of
the Closing sale prices of VERITAS Common Stock as quoted on the Nasdaq Stock
Market during the ten day trading period ending on the Closing Date (as defined
in Section 6.1) as reported in the Wall Street Journal) (the "Average Price")
multiplied by the fraction of a share of Newco Common Stock to which such holder
would otherwise be entitled. The fractional interests of each VERITAS
shareholder and of each OpenVision stockholder will be aggregated such that no
VERITAS shareholder or OpenVision stockholder will receive cash in an amount
equal to or greater than the value of one full share of Newco Common Stock.
Newco shall provide sufficient funds to the Exchange Agent to make the payments
contemplated by this Section 1.7.
1.8 VERITAS OPTIONS AND WARRANTS.
(a) Conversion. At the Effective Time, each of the then outstanding
options to purchase shares of VERITAS Common Stock (collectively, the "VERITAS
Options") (consisting of all outstanding options granted under VERITAS' 1985
Stock Option Plan, 1991 Executive Stock Option Plan, 1993 Equity Incentive Plan
and 1993 Director Stock Option Plan (collectively, and with the VERITAS Stock
Purchase Plan referred to in Section 1.8(b) below, the "VERITAS Plans"), and any
individual non-Plan options) and each of the then outstanding warrants to
purchase shares of VERITAS Common Stock (the "VERITAS Warrants") will by virtue
of the Merger, and without any further action on the part of any holder thereof,
be assumed and converted into an option (or warrant, as the case may be) to
purchase an equivalent number of shares of Newco Common Stock at an exercise
price per share equal to the per share exercise price of the VERITAS Option (or
VERITAS Warrant, as the case may be) in effect at the Effective Time. The term,
exercisability, vesting schedule, status as an "incentive stock option" under
Section 422 of the Code, if applicable, and all other terms and conditions of
the VERITAS Options and VERITAS Warrants will be unchanged and all references in
any option or warrant agreement governing such option or warrant to VERITAS
shall be deemed to refer to Newco, where appropriate. Continuous service as an
employee or consultant with VERITAS or any of the VERITAS Subsidiaries (as
hereinafter defined) will be credited to an optionee of VERITAS for purposes of
determining the number of shares of Newco Common Stock subject to exercise under
a converted VERITAS Option after the Effective Time.
(b) At the Effective Time, each of the then outstanding options to
purchase shares of VERITAS Common Stock (collectively, the "VERITAS Stock
Purchase Plan Options"), consisting of all outstanding options to purchase
shares under VERITAS' 1993 Employee Stock Purchase Plan (the "VERITAS Stock
Purchase Plan"), will by virtue of the Merger, and without any further action on
the part of any holder thereof, be assumed and converted into an option to
purchase the same number of shares of Newco Common Stock on the next Purchase
Date (as such term is defined in the VERITAS Stock Purchase Plan) following the
Effective Time at a purchase price per share determined in accordance with the
VERITAS Stock Purchase Plan.
1.9 OPENVISION OPTIONS AND WARRANTS.
(a) Conversion. At the Effective Time, each of the then outstanding
options to purchase OpenVision Common Stock (collectively, the "OpenVision
Options") (consisting of all outstanding options granted under OpenVision's 1992
Stock Plan and 1996 Director Option Plan (collectively the "OpenVision Plans"),
and any individual non-Plan options) and each of the then outstanding warrants
to purchase OpenVision Common Stock (the "OpenVision Warrants") will by virtue
of the Merger, and without any further action on the part of any holder thereof,
be assumed and converted into an option (or warrant, as the case may be) to
purchase that number of shares of Newco Common Stock determined by multiplying
the number of shares of
A-1-3
<PAGE> 4
OpenVision Common Stock subject to such OpenVision Option or OpenVision Warrant
at the Effective Time by the OpenVision Applicable Ratio, at an exercise price
per share of Newco Common Stock equal to the exercise price per share of such
OpenVision Option or OpenVision Warrant immediately prior to the Effective Time
divided by the Applicable Ratio rounded up to the nearest cent. If the foregoing
calculation results in an assumed OpenVision Option or OpenVision Warrant being
exercisable for a fraction of a share of Newco Common Stock, then the number of
shares of Newco Common Stock subject to such option (or warrant, as the case may
be) will be rounded down to the nearest whole number of shares, with no cash
being payable for such fractional share. The term, exercisability, vesting
schedule, status as an "incentive stock option" under Section 422 of the Code,
if applicable, and all other terms and conditions of the OpenVision Options and
OpenVision Warrants will otherwise be unchanged. Continuous service as an
employee or consultant with OpenVision or any of the OpenVision Subsidiaries (as
hereinafter defined) will be credited to an optionee of OpenVision for purposes
of determining the number of shares of Newco Common Stock subject to exercise
under a converted OpenVision Option after the Effective Time.
(b) At the Effective Time, the OpenVision 1996 Employee Stock Purchase
Plan (the "OpenVision Stock Purchase Plan") will be assumed by Newco solely with
respect to outstanding options, and the securities reserved thereunder shall
become shares of Newco Common Stock, determined by multiplying (i) the number of
shares reserved thereunder and not issued thereunder prior to the Effective Time
by (ii) the OpenVision Applicable Ratio. Except for an increase to the reserve
by 100,000 shares necessary to honor existing OpenVision Stock Purchase Plan
Options, which increase is to be approved by the OpenVision Stockholders at the
OpenVision Stockholders Meeting, no additional shares shall be reserved under
the OpenVision Stock Purchase Plan before or after its assumption by Newco. At
the Effective Time, each then outstanding "option" to purchase OpenVision Common
Stock under the OpenVision Stock Purchase Plan for the open offering period that
runs from October 31, 1996 until October 30, 1998 (the "OpenVision Stock
Purchase Plan Options") will by virtue of the Merger, and without any further
action on the part of any holder thereof, be assumed and converted into a right
to purchase shares of Newco Common Stock on the same terms and conditions as set
forth in the OpenVision Stock Purchase Plan except that (i) each OpenVision
Stock Purchase Plan Option shall thereafter be exercisable for Newco Common
Stock, and (ii) the exercise price per share for the number of whole shares of
Newco Common Stock issuable upon exercise of each the OpenVision Stock Purchase
Option shall be determined in accordance with the formula set forth in the
OpenVision Stock Purchase Plan, except that the "fair market value" of the Newco
Common Stock subject to purchase pursuant to the OpenVision Stock Purchase Plan
Options (A) on the first day of an "Offering Period" under the OpenVision Stock
Purchase Plan shall be the quotient resulting from the division of the last sale
price of OpenVision Common Stock as reported on the Nasdaq Stock Market on the
trading day immediately prior to such date by the OpenVision Applicable Ratio
rounded up to the nearest cent; and (B) on the last day of any "Purchase Period"
under the OpenVision Stock Purchase Plan shall be the last sale price of Newco
Common Stock as reported on the Nasdaq Stock Market on the trading day
immediately prior to such date. No new "Offering Periods" (as defined in the
OpenVision Stock Purchase Plan) will be commenced. OpenVision shall take all
action that may be necessary (under the OpenVision Stock Purchase Plan and
otherwise) to effectuate the provisions of this Section 1.9(b) and to ensure
that, from and after the Effective Time, holders of OpenVision Stock Purchase
Plan Options and employees of OpenVision participating in the OpenVision Stock
Purchase Plan after the Effective Time have no rights with respect to the
OpenVision Stock Purchase Plan that are inconsistent with this Section 1.9(b).
1.10 NEWCO PLANS. Newco shall assume, effective as of the Effective Time,
the OpenVision Stock Purchase Plan, the VERITAS 1993 Equity Incentive Plan, its
1993 Director Stock Option Plan and its 1993 Employee Stock Purchase Plan and
shall have reserved 107,810, 4,100,000, 250,000 and 1,000,000 shares,
respectively, for issuance thereunder (collectively, the "Newco Plans"). Newco
shall also reserve a sufficient number of shares of Newco Common Stock for
issuance pursuant to the assumption of the Stock Rights (as defined below)
provided for in Sections 1.8 and 1.9 above. Upon the Effective Time, and subject
to assumption of such Stock Rights, the OpenVision Plans shall be terminated in
accordance with their respective terms.
A-1-4
<PAGE> 5
1.11 REGISTRATION. VERITAS will cause Newco to cause the Newco Common
Stock issuable upon exercise of the assumed OpenVision Stock Purchase Plan
Options, VERITAS Options, VERITAS Stock Purchase Plan Options, and OpenVision
Options (collectively, the "Stock Rights") and the shares reserved for issuance
pursuant to future awards under the Newco Plans to be registered on Form S-8
(the "Form S-8") promulgated by the Securities and Exchange Commission (the
"SEC") within 5 days after the Effective Time and will use its reasonable best
efforts to maintain the effectiveness of such registration statement or
registration statements for so long as any such assumed Stock Rights shall
remain outstanding. With respect to those individuals who subsequent to the
Merger will be subject to the reporting requirements under Section 16(a) of the
Exchange Act (as hereinafter defined), Newco shall administer the Stock Rights
assumed pursuant to Sections 1.8 and 1.9 (including the provisions of the
VERITAS Plans, and the OpenVision Plans incorporated in the Stock Rights) in a
manner that complies with Rule 16b-3 promulgated by the SEC under the Exchange
Act.
1.12 EFFECTS OF THE MERGER. At the Effective Time: (a) the separate
existence of VERITAS Sub will cease and VERITAS Sub will be merged with and into
VERITAS, with VERITAS being the surviving corporation of the VERITAS Merger (the
"VERITAS Surviving Corporation"), pursuant to the terms of this Agreement and
the VERITAS Agreement of Merger; (b) the separate existence of OpenVision Sub
will cease and OpenVision Sub will be merged with and into OpenVision, with
OpenVision being the surviving corporation of the OpenVision Merger (the
"OpenVision Surviving Corporation"), pursuant to the terms of this Agreement and
the OpenVision Agreement of Merger, (c) the Articles of Incorporation of the
VERITAS Surviving Corporation shall be in the form attached as Exhibit A to the
VERITAS Agreement of Merger, and the Certificate of Incorporation of the
OpenVision Surviving Corporation shall be in the form attached as Exhibit A to
the OpenVision Agreement of Merger; (d) the Bylaws of VERITAS immediately prior
to the Effective Time will be the Bylaws of the VERITAS Surviving Corporation
and the Bylaws of OpenVision Sub immediately prior to the Effective Time will be
the Bylaws of the OpenVision Surviving Corporation; (e) the directors and
officers of VERITAS immediately prior to the Effective Time will be the
directors and officers of the VERITAS Surviving Corporation; (f) the director of
the OpenVision Surviving Corporation shall be Mark Leslie and the officers of
the OpenVision Surviving Corporation shall be Mark Leslie as President,
Treasurer, Secretary and Chief Financial Officer, (g) each share of the Common
Stock of VERITAS Sub outstanding immediately prior to the Effective Time will be
converted into one share of Common Stock of the VERITAS Surviving Corporation;
(h) each share of the Common Stock of OpenVision Sub outstanding immediately
prior to the Effective Time will be converted into one share of Common Stock of
the OpenVision Surviving Corporation; (i) each share of VERITAS Common Stock,
OpenVision Common Stock, and each Stock Right outstanding immediately prior to
the Effective Time will be converted as provided in Sections 1.2, 1.3, 1.8 and
1.9; (j) the OpenVision Stock Purchase Plan and the VERITAS Plans shall be
assumed by Newco; and (k) the Merger will, from and after the Effective Time,
have all of the effects provided by applicable law, including, without
limitation, the CGCL and the Delaware Law.
1.13 REGISTRATION ON FORM S-4. The Newco Common Stock to be issued in the
Merger shall be registered under the Securities Act on the Form S-4 (as
hereinafter defined). As promptly as practicable after the date of this
Agreement, VERITAS, Newco and OpenVision shall prepare and file with the SEC a
Form S-4 registration statement (the "Form S-4"), together with the
prospectus/joint proxy statement to be included therein (the "Prospectus/Proxy
Statement") and any other documents required by the Securities Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), in connection
with the Merger. Each of VERITAS, Newco and OpenVision shall use its reasonable
best efforts to respond promptly to any comments of the SEC and to have the Form
S-4 declared effective under the Securities Act as promptly as practicable after
such filing. VERITAS and Newco shall also take any action required to be taken
under any applicable state securities or "blue sky" laws and regulations of the
Nasdaq Stock Market in connection with the issuance of the Newco Common Stock
pursuant to the Merger. OpenVision shall promptly furnish to VERITAS all
information concerning OpenVision and the OpenVision stockholders as may be
reasonably required in connection with any action contemplated by this Section
1.13. Each of VERITAS, Newco and OpenVision will notify the other promptly of
the receipt of any comments from the SEC or its staff and of any request by the
SEC or its staff for amendments or supplements to the Form S-4 or
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<PAGE> 6
the Prospectus/Proxy Statement or for additional information and will supply the
other with copies of all correspondence with the SEC or its staff with respect
to the Form S-4 or the Prospectus/Proxy Statement. Whenever any event occurs
which should be set forth in an amendment or supplement to the Form S-4 or the
Prospectus/Proxy Statement, VERITAS and Newco or OpenVision, as the case may be,
shall promptly inform the other of such occurrence and cooperate in filing with
the SEC or its staff, and/or mailing to stockholders of VERITAS and OpenVision,
such amendment or supplement.
1.14 TAX FREE REORGANIZATION. The parties intend to adopt this Agreement
and the Merger as a tax-free plan of reorganization under Section 368(a)(1)(A)
of the Code by virtue of the provisions of Section 368(a)(2)(E) of the Code. The
Newco Common Stock issued in the Merger will be issued solely in exchange for
the VERITAS Common Stock and the OpenVision Common Stock, and no other
transaction other than the Merger represents, provides for or is intended to be
an adjustment to the consideration paid for either the VERITAS Common Stock or
the OpenVision Common Stock. Except for cash paid in lieu of fractional shares
of any VERITAS Common Stock or OpenVision Common Stock, no consideration that
could constitute "other property" within the meaning of Section 356(b) of the
Code is being transferred by Newco for either the VERITAS Common Stock or the
OpenVision Common Stock in the Merger. The parties shall not take a position on
any tax return inconsistent with this Section 1.14. In addition, Newco hereby
represents, and will represent as of the Closing Date, that it intends to
continue both VERITAS' and OpenVision's historic businesses or use a significant
portion of VERITAS' and OpenVision's business assets in a trade or business.
1.15 POOLING OF INTERESTS. The parties intend that the Merger be treated
as a "pooling of interests" for accounting purposes. The parties shall use their
reasonable best efforts to cause their respective affiliates to execute and
deliver Affiliates Agreements, as contemplated by Sections 4.5 and 5.5 below, to
ensure compliance by such affiliates with the restrictions required to allow
such accounting treatment to be utilized. In addition, Newco hereby represents
and warrants that it shall not after the Closing Date take any action that will
cause the Merger not to qualify as a "pooling of interests" for accounting
purposes.
1.16 HART-SCOTT-RODINO FILINGS. VERITAS and Newco will, and OpenVision
shall use its reasonable best efforts to cause Warburg, Pincus Investors, L.P.
("Warburg") to, promptly prepare and file the applicable notices (if any)
required to be filed by them under the Hart-Scott-Rodino Antitrust Improvements
Act (the "HSR Act"), and comply promptly with any requests to any of them from
the Federal Trade Commission or United States Department of Justice for
additional information.
1.17 BOARD OF DIRECTORS AND OFFICERS OF NEWCO. At the Effective Time, the
directors of Newco shall be Mark Leslie, Roel Pieper, Joseph Rizzi, Steven
Brooks, Fred van den Bosch, Geoffrey Squire and William Janeway. At the
Effective Time, the following individuals shall be elected to the following
offices of Newco:
<TABLE>
<CAPTION>
NAME OFFICE
- ----------------------- -----------------------------------------------
<S> <C>
Mark Leslie President, CEO and Co-Chairman of Board
Geoffrey Squire Co-Chairman of Board and Executive Vice
President
Fred van den Bosch Senior Vice President, Engineering
Peter Levine Vice President, Marketing
Fred Crary Vice President, International and OEM Sales
Paul Sallaberry Vice President, North American Sales
Kenneth Lonchar Chief Financial Officer and Vice President,
Finance
Jay Jones Vice President, General Counsel and Secretary
</TABLE>
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<PAGE> 7
2. REPRESENTATIONS AND WARRANTIES OF OPENVISION
Except as set forth in a letter dated the date of this Agreement, delivered
by OpenVision to VERITAS concurrently herewith, and certified by an officer of
OpenVision, on behalf of OpenVision, to be true, accurate and complete to the
best of his knowledge (the "OpenVision Disclosure Letter"), OpenVision hereby
represents and warrants to VERITAS that:
2.1 ORGANIZATION; GOOD STANDING; QUALIFICATION AND POWER. OpenVision, and
each of its subsidiaries set forth in Section 2.1 of the OpenVision Disclosure
Letter (the "OpenVision Subsidiaries") (the OpenVision Subsidiaries being the
only subsidiaries of OpenVision), is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted, and
is duly qualified and in good standing to do business in each jurisdiction in
which the nature of its business or the ownership or leasing of its properties
makes such qualification necessary, other than in such jurisdictions where the
failure so to qualify would not have a Material Adverse Effect on OpenVision (as
defined below). The OpenVision Disclosure Letter sets forth a correct and
complete list of the OpenVision Subsidiaries, the holders of record of each
OpenVision Subsidiary's outstanding equity, and a correct and complete list of
each jurisdiction in which each of OpenVision and the OpenVision Subsidiaries is
duly qualified and in good standing to do business. OpenVision has delivered to
VERITAS or its counsel complete and correct copies of the Certificate of
Incorporation and Bylaws of OpenVision and will deliver to VERITAS or its
counsel prior to the Closing Date the equivalent charter documents for each of
the OpenVision Subsidiaries, in each case as amended to the date of this
Agreement. Other than the OpenVision Subsidiaries, OpenVision does not own,
directly or indirectly, any capital stock or other equity interest of any
corporation or have any direct or indirect equity or ownership interest in any
other business, whether organized as a corporation, partnership, joint venture
or otherwise.
In this Agreement, any reference to the term "Material Adverse Effect on
OpenVision" means any event, change or effect which would have a material
adverse effect on the business, assets (including intangible assets), financial
condition, results of operations, or prospects of OpenVision and the OpenVision
Subsidiaries, taken as a whole. In addition, any reference to the terms "to
OpenVision's knowledge" or "known to OpenVision" refers to the current actual
knowledge of any officer of OpenVision.
2.2 CAPITAL STRUCTURE.
(a) Stock and Options. The authorized capital stock of OpenVision
consists of 50,000,000 shares of OpenVision Common Stock, $0.001 par value,
3,400,000 of which are designated Class B Common Stock, and 5,000,000 shares of
Preferred Stock, $0.01 par value (the "OpenVision Preferred Stock"). At the
close of business on January 10, 1997, 15,475,774 shares of OpenVision Common
Stock were issued and outstanding, 3,247,142 shares of OpenVision Class B Common
Stock were issued and outstanding, no shares of OpenVision Common Stock were
held by OpenVision in its treasury, 2,186,673 shares of OpenVision Common Stock
were reserved for issuance upon the exercise of outstanding OpenVision Options,
910,082 shares of OpenVision Common Stock were available for the grant of
additional awards under the OpenVision Plans, 12,500 shares of OpenVision Common
Stock were reserved for issuance upon exercise of outstanding OpenVision
Warrants, and 200,808 shares of OpenVision Common Stock were reserved for
issuance pursuant to the OpenVision Stock Purchase Plan. No shares of OpenVision
Preferred Stock are issued or outstanding. All outstanding shares of OpenVision
Common Stock are validly issued, fully paid and nonassessable and not subject to
preemptive rights by statute, the Certificate of Incorporation or Bylaws of
OpenVision, or any agreement or document to which OpenVision is a party or by
which it is bound. All outstanding shares of the capital stock of each of the
OpenVision Subsidiaries are validly issued, fully paid and nonassessable and are
owned by OpenVision or one of the OpenVision Subsidiaries free and clear of any
liens, security interests, pledges, agreements, claims, charges or encumbrances.
OpenVision has delivered to VERITAS a correct and complete list of each
OpenVision Option and OpenVision Warrant outstanding as of the date hereof,
including the name of the holder of such OpenVision Option or OpenVision
Warrant, the OpenVision Plan pursuant to which such OpenVision Option was
issued, the number of shares covered by such OpenVision Option or OpenVision
Warrant, the per share exercise price of such OpenVision Option or OpenVision
Warrant and the vesting
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<PAGE> 8
commencement date and vesting schedule applicable to each such
OpenVision Option, including the number of shares vested as of the date of this
Agreement. OpenVision has further delivered to VERITAS a correct and complete
list of the employees currently enrolled in the current Offering Period of the
OpenVision Stock Purchase Plan, the amount of the periodic payroll deduction
from each such employee's compensation with respect to such plan, the aggregate
amount of payroll deductions with respect to the current Purchase Period of such
plan for each such employee to date, and the fair market value (as determined in
accordance with the OpenVision Stock Purchase Plan) of the OpenVision Common
Stock on the date of commencement of the current Offering Period. OpenVision has
also delivered to VERITAS a correct and complete list of OpenVision Common Stock
outstanding as of the date hereof purchased pursuant to Restricted Stock Awards
under OpenVision's 1992 Stock Plan which are subject to a right of OpenVision to
repurchase such shares, including the name of the holder of such stock, the
purchase price of such stock and the vesting commencement date and vesting
schedule relating to such stock providing for the lapse of OpenVision's
repurchase rights, including the number of shares vested as of the date of this
Agreement.
(b) No Other Commitments. Except for the OpenVision Options, OpenVision
Warrants and OpenVision Stock Purchase Plan Options disclosed in Section 2.2(a)
above, a list of which has been provided to VERITAS, there are no options,
warrants, calls, rights, commitments, conversion rights or agreements of any
character to which OpenVision or any of the OpenVision Subsidiaries is a party
or by which OpenVision or any of the OpenVision Subsidiaries is bound obligating
OpenVision or any of the OpenVision Subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, any shares of capital stock of OpenVision
or any of the OpenVision Subsidiaries or securities convertible into or
exchangeable for shares of capital stock of OpenVision or any of the OpenVision
Subsidiaries, or obligating OpenVision or any of the OpenVision Subsidiaries to
grant, extend or enter into any such option, warrant, call, right, commitment,
conversion right or agreement. There are no voting trusts or other agreements or
understandings to which OpenVision is a party with respect to the voting of the
capital stock of OpenVision or any of the OpenVision Subsidiaries.
(c) Registration Rights. OpenVision is not under any obligation to
register under the Securities Act any of its presently outstanding securities or
any securities that may be subsequently issued, except as disclosed in the
OpenVision Disclosure Letter.
2.3 AUTHORITY.
(a) Corporate Action. Subject to approval of this Agreement and the
Merger by the stockholders of OpenVision, OpenVision has all requisite corporate
power and authority to enter into this Agreement and the OpenVision Agreement of
Merger, to perform its obligations hereunder and to consummate the Merger and
the other transactions contemplated by this Agreement. The execution and
delivery of this Agreement and the OpenVision Agreement of Merger by OpenVision
and, subject to approval of this Agreement and the Merger by the stockholders of
OpenVision, the filing and recordation of the OpenVision Agreement of Merger
pursuant to Delaware Law and the consummation by OpenVision of the Merger and
the other transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of OpenVision. This Agreement has been,
and upon the Closing Date the OpenVision Agreement of Merger will have been,
duly executed and delivered by OpenVision and this Agreement is, and the
OpenVision Agreement of Merger as of the Effective Time will be, valid and
binding obligations of OpenVision, enforceable in accordance with their terms,
except as enforceability may be limited by bankruptcy and other similar laws and
general principles of equity.
(b) No Conflict. Neither the execution, delivery and performance of this
Agreement or the OpenVision Agreement of Merger, nor the consummation of the
transactions contemplated hereby or thereby nor compliance with the provisions
hereof or thereof will: (i) conflict with, or result in any violations of, or
cause a default (with or without notice or lapse of time, or both) under, or
give rise to a right of termination, amendment, cancellation or acceleration of
any obligation contained in, or the loss of any material benefit under, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the material properties or assets of OpenVision or any of the
OpenVision Subsidiaries under, any term, condition or provision of (x) the
Certificate of Incorporation or Bylaws of OpenVision or the equivalent
organizational documents of any of the OpenVision Subsidiaries or (y) any loan
or credit agreement, note, bond, mortgage,
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<PAGE> 9
indenture, lease or other material agreement, judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to OpenVision or any of the
OpenVision Subsidiaries or their respective properties or assets, other than any
such conflicts, violations, defaults, rights, losses, liens, security interests,
charges or encumbrances which, individually or in the aggregate, would not have
a Material Adverse Effect on OpenVision; or (ii) require the affirmative vote of
the holders of greater than a majority of the issued and outstanding shares of
OpenVision Common Stock.
(c) Governmental Consents. No consent, approval, order or authorization
of, or registration, declaration or filing with, any court, administrative
agency or commission or other governmental authority or instrumentality,
domestic or foreign (each a "Governmental Entity"), is required to be obtained
by OpenVision or any of the OpenVision Subsidiaries in connection with the
execution and delivery of this Agreement or the OpenVision Agreement of Merger,
or the consummation of the transactions contemplated hereby or thereby, except
for: (i) the filing with the SEC, and the effectiveness, of the Form S-4, and
the filing of the Prospectus/Proxy Statement relating to the meeting of the
stockholders of OpenVision (the "OpenVision Stockholders Meeting") to be held
with respect to the approval by OpenVision's stockholders of this Agreement and
the Merger, and the filing of such reports and information under the Exchange
Act, and the rules and regulations promulgated by the SEC thereunder, as may be
required in connection with this Agreement and the transactions contemplated
hereby; (ii) the filing of the OpenVision Agreement of Merger with the Secretary
of State of the State of Delaware and appropriate documents with the relevant
authorities of other states in which OpenVision is qualified to do business;
(iii) such filings, authorizations, orders and approvals as may be required
under state "control share acquisition," "anti-takeover," "blue sky" or other
similar statutes and regulations (collectively, "State Takeover Laws"); (iv)
such filings and notifications as may be necessary under the HSR Act; and (v)
such other filings, authorizations, orders and approvals which, if not obtained
or made, would not have a Material Adverse Effect on OpenVision or VERITAS or
have a material adverse effect on the ability of the parties to consummate the
Merger.
2.4 SEC DOCUMENTS.
(a) SEC Reports. OpenVision has delivered to VERITAS or its counsel
correct and complete copies of each report, schedule, registration statement and
definitive proxy statement filed by OpenVision with the SEC on or after May 7,
1996 (the "OpenVision SEC Documents"), which are all the documents (other than
preliminary material) that OpenVision was required to file with the SEC on or
after May 7, 1996. As of their respective dates or, in the case of registration
statements, their effective dates, none of the OpenVision SEC Documents
(including all exhibits and schedules thereto and documents incorporated by
reference therein) contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and there is no requirement under the Securities Act or
the Exchange Act, as the case may be, to have amended any such filing. The
OpenVision SEC Documents complied, when filed, in all material respects with the
then applicable requirements of the Securities Act or the Exchange Act, as the
case may be, and the rules and regulations promulgated by the SEC thereunder.
OpenVision has filed all documents and agreements which were required to be
filed as exhibits to the OpenVision SEC Documents.
(b) Financial Statements. The financial statements of OpenVision
included in the OpenVision SEC Documents complied as to form in all material
respects with the then applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto, were prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis during the periods involved (except as may have been indicated
in the notes thereto) and fairly present (subject, in the case of the unaudited
statements, to normal year-end audit adjustments) the consolidated financial
position of OpenVision and its consolidated OpenVision Subsidiaries as at the
respective dates thereof and the consolidated results of their operations and
cash flows for the respective periods then ended.
2.5 INFORMATION SUPPLIED. None of the information supplied or to be
supplied by OpenVision for inclusion or incorporation by reference in the Form
S-4 and Prospectus/Proxy Statement will, at the time the Form S-4 is declared
effective, at the date the Prospectus/Proxy Statement is mailed to the
stockholders of OpenVision and at the time of the OpenVision Stockholders
Meeting contain, after giving effect to any
A-1-9
<PAGE> 10
supplement or amendment thereto, any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they are made,
not misleading. The Prospectus/Proxy Statement will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations promulgated by the SEC thereunder. Notwithstanding the foregoing,
OpenVision makes no representation or warranty with respect to any information
supplied by VERITAS or Newco which is contained in any of the foregoing
documents.
2.6 COMPLIANCE WITH APPLICABLE LAWS. Except as disclosed in the OpenVision
SEC Documents filed prior to the date of this Agreement, the businesses of
OpenVision and the OpenVision Subsidiaries are not being conducted in violation
of any law, ordinance, regulation, rule or order of any Governmental Entity
where such violation would have a Material Adverse Effect on OpenVision. Except
as disclosed in the OpenVision SEC Documents filed prior to the date of this
Agreement, OpenVision has not been notified in writing by any Governmental
Entity that any investigation or review with respect to OpenVision or any of the
OpenVision Subsidiaries is pending or threatened, nor has any Governmental
Entity notified OpenVision in writing of its intention to conduct the same,
which investigation or review could reasonably be expected to have a Material
Adverse Effect on OpenVision. OpenVision and the OpenVision Subsidiaries have
all permits, licenses and franchises from Governmental Entities required to
conduct their businesses as now being conducted, except for those whose absence
would not have a Material Adverse Effect on OpenVision.
2.7 LITIGATION. Except as disclosed in the OpenVision SEC Documents filed
prior to the date of this Agreement, or as would not reasonably be expected to
have a Material Adverse Effect on OpenVision, there is no suit, action,
arbitration, demand, claim or proceeding pending or, to the knowledge of
OpenVision, threatened against OpenVision or any of the OpenVision Subsidiaries;
nor is there any judgment, decree, injunction, ruling or order of any
Governmental Entity or arbitrator or settlement agreement outstanding against
OpenVision or any of the OpenVision Subsidiaries. OpenVision has delivered or
made available to VERITAS or its counsel correct and complete copies of all
correspondence prepared by its counsel for OpenVision's auditors in connection
with the last two completed audits of OpenVision's financial statements and any
such correspondence since the date of the last such audit. Neither OpenVision
nor any of the OpenVision Subsidiaries is a party to any decree, order or
arbitration award (or agreement entered into in any administrative, judicial or
arbitration proceeding with any governmental authority) with respect to its
properties, assets, personnel or business activities which could reasonably be
expected to have a Material Adverse Effect on OpenVision. OpenVision is not in
violation of, or delinquent in respect of, any decree, order or arbitration
award naming OpenVision or a OpenVision Subsidiary as a party or otherwise known
to it, or law, ordinance, statute, or governmental authority to which its
properties, assets, personnel or business activities are subject or to which
OpenVision or a OpenVision Subsidiary is subject, including, without limitation,
laws, rules and regulations relating to occupational health and safety, equal
employment opportunities, fair employment practices, and sex, race, religious
and age discrimination, except for such violations as would not have a Material
Adverse Effect on OpenVision.
2.8 ERISA AND OTHER COMPLIANCE.
(a) The OpenVision Disclosure Letter lists all the employees of
OpenVision and of any OpenVision Subsidiary and their salaries or base wage as
of December 31, 1996. The OpenVision Disclosure Letter also identifies each
"employee benefit plan," as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), currently or previously
maintained, contributed to or entered into by OpenVision or any of the
OpenVision Subsidiaries under which OpenVision or any of the OpenVision
Subsidiaries or any ERISA Affiliate (as defined below) thereof has any present
or future obligation or liability (collectively, the "OpenVision Employee
Plans"). For purposes of this Section 2.8, "ERISA Affiliate" shall mean any
entity which is a member of (A) a "controlled group of corporations," as defined
in Section 414(b) of the Code, (B) a group of entities under "common control,"
as defined in Section 414(c) of the Code, or (C) an "affiliated service group,"
as defined in Section 414(m) of the Code, or treasury regulations promulgated
under Section 414(o) of the Code, any of which includes OpenVision or any of the
OpenVision Subsidiaries. Copies of all OpenVision Employee Plans (and, if
applicable, related trust agreements) and all amendments thereto and written
interpretations thereof (including summary plan descriptions) have been
delivered to VERITAS or its counsel, together with the three most recent annual
reports (Form 5500,
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<PAGE> 11
including, if applicable, the auditor's reports and any Schedule B thereto)
prepared in connection with any such OpenVision Employee Plan. All OpenVision
Employee Plans which individually or collectively would constitute an "employee
pension benefit plan," as defined in Section 3(2) of ERISA (collectively, the
"OpenVision Pension Plans"), are identified as such in the OpenVision Disclosure
Letter. All OpenVision Employee Plans which individually or collectively would
constitute an "employee welfare benefit plan," as defined in Section 3(1) of
ERISA are identified as such in the OpenVision Disclosure Letter. All
contributions or premiums due from OpenVision or any of the OpenVision
Subsidiaries with respect to any of the OpenVision Employee Plans have been made
as required under ERISA or have been accrued on OpenVision's or any such
OpenVision Subsidiary's financial statements as of September 30, 1996, or will
be made prior to the Closing. Each OpenVision Employee Plan has been maintained
in compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations, including, without limitation, ERISA
and the Code, which are applicable to such OpenVision Employee Plans, except as
would not have a Material Adverse Effect on OpenVision.
(b) No OpenVision Pension Plan constitutes, or has since the enactment
of ERISA constituted, a "multiemployer plan," as defined in Section 3(37) of
ERISA. No OpenVision Pension Plans are subject to Title IV of ERISA. No
"prohibited transaction," as defined in Section 406 of ERISA or Section 4975 of
the Code, has occurred with respect to any OpenVision Employee Plan which is
covered by Title I of ERISA which would result in a material liability to
OpenVision or any of the OpenVision Subsidiaries taken individually, excluding
transactions effected pursuant to a statutory or administrative exemption.
Nothing done or omitted to be done and no transaction or holding of any asset
under or in connection with any OpenVision Employee Plan has or will make
OpenVision or any employee, officer or director of OpenVision subject to any
material liability under Title I of ERISA or liable for any material Tax (as
defined in Section 2.14) or penalty pursuant to Sections 4972, 4975, 4976, 4977
or 4979 of the Code or Section 502 of ERISA.
(c) With respect to each OpenVision Pension Plan that is intended to be
qualified under Section 401(a) of the Code (a "OpenVision 401(a) Plan"), either
(i) a favorable determination letter has been received from the Internal Revenue
Service ("IRS") as to the qualification of the OpenVision 401(a) Plan under the
Code as in effect immediately after the Tax Reform Act of 1986, or (ii) the
OpenVision 401(a) Plan has been established under a standardized prototype plan
for which an Internal Revenue Service opinion letter has been obtained and upon
which the OpenVision 401(a) Plan may rely. OpenVision has delivered to VERITAS
or its counsel a complete and correct copy of the most recent Internal Revenue
Service determination letter with respect to each OpenVision 401(a) Plan.
(d) No OpenVision Employee Plan provides or ever has provided death,
medical or health benefits (whether or not insured) with respect to current or
former employees after any such employee's retirement or other termination of
service (other than benefit coverage mandated by applicable law, including,
without limitation, coverage provided pursuant to Section 4980B of the Code).
(e) The OpenVision Disclosure Letter lists each employment, severance,
compensation or other similar contract, arrangement or policy and each plan or
arrangement (written or oral) providing for insurance coverage (including any
self-insured arrangements), workers' benefits, vacation benefits, severance
benefits, disability benefits, death benefits, hospitalization benefits,
retirement benefits, deferred compensation, profit-sharing, bonuses, stock
options, stock purchase, phantom stock, stock appreciation or other forms of
incentive compensation or post-retirement insurance, compensation or benefits
for employees, consultants or directors (other than workers compensation,
unemployment compensation and other government mandated programs) which (A) is
not a OpenVision Employee Plan, (B) is entered into, maintained or contributed
to, as the case may be, by OpenVision or any of the OpenVision Subsidiaries, and
(C) covers any employee or former employee of OpenVision or any of the
OpenVision Subsidiaries. Such contracts, plans and arrangements as are described
in this Section 2.8(e) are herein referred to collectively as the "OpenVision
Benefit Arrangements." Each OpenVision Benefit Arrangement has been maintained
in substantial compliance with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations which are applicable to such
OpenVision Benefit Arrangement. OpenVision has delivered to VERITAS or its
counsel a complete and
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correct copy of each OpenVision Benefit Arrangement document or, if such
OpenVision Benefit Arrangement is unwritten, a description thereof.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by OpenVision or any of the OpenVision
Subsidiaries relating to any OpenVision Employee Plan or OpenVision Benefit
Arrangement that would increase materially the expense of maintaining such
OpenVision Employee Plan or OpenVision Benefit Arrangement above the level of
the expense incurred in respect thereof for the year ended June 30, 1996.
(g) OpenVision has timely provided, or will have provided prior to the
Closing (as defined in Section 6.1), to individuals entitled thereto all
required notices and coverage pursuant to Section 4980B of the Code and the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"),
with respect to any "qualifying event" (as defined in Section 4980B(f)(3) of the
Code). OpenVision will timely provide to individuals entitled thereto all
required notices and coverage pursuant to Code Section 4980B and COBRA with
respect to any "qualifying event" (as defined in Section 4980B(f)(3) of the
Code) occurring prior to and including the Closing Date. No material Tax payable
on account of Section 4980B of the Code has been incurred with respect to any
current or former employees (or their beneficiaries) of OpenVision or any of the
OpenVision Subsidiaries.
(h) No benefit payable or which may become payable by OpenVision or any
of the OpenVision Subsidiaries pursuant to any OpenVision Employee Plan or any
OpenVision Benefit Arrangement or as a result of or arising under this Agreement
shall constitute an "excess parachute payment" (as defined in Section 280G(b)(1)
of the Code) which is subject to the imposition of an excise Tax under Section
4999 of the Code or which would not be deductible by reason of Section 280G of
the Code.
(i) OpenVision and each OpenVision Subsidiary is in compliance in all
material respects with all applicable laws, agreements and contracts relating to
employment, employment practices, wages, hours, and terms and conditions of
employment, including, but not limited to, employee compensation matters, but
not including ERISA.
(j) OpenVision and each OpenVision Subsidiary has good labor relations
and has no knowledge of any facts indicating that the consummation of the
transactions contemplated hereby will have a material adverse effect on labor
relations, and has no knowledge that any of its key employees intends to leave
its or their employ.
2.9 ABSENCE OF UNDISCLOSED LIABILITIES. Neither OpenVision nor any of the
OpenVision Subsidiaries has any liabilities or obligations of any nature
(matured or unmatured, fixed or contingent) which are, individually or in the
aggregate, of a nature required to be disclosed on the face of a balance sheet
prepared in accordance with GAAP and are material to the business of OpenVision
and the OpenVision Subsidiaries, taken as a whole, except for such liabilities
or obligations as (i) were accrued or fully reserved against in the consolidated
balance sheet of OpenVision at September 30, 1996 (the "OpenVision Balance
Sheet") or (ii) are of a normally recurring nature and were incurred after
September 30, 1996 (the "OpenVision Balance Sheet Date") in the ordinary course
of business consistent with past practice. As of the OpenVision Balance Sheet
Date, there were no material loss contingencies (as such term is used in
Statement of Financial Accounting Standards No. 5 issued by the Financial
Accounting Standards Board in March 1975) which are not adequately provided for
in the OpenVision Balance Sheet as required by said Statement No. 5.
2.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed herein or
in the OpenVision SEC Documents filed prior to the date of this Agreement, since
the OpenVision Balance Sheet Date there has not occurred:
(a) any change not identified below that could reasonably be expected to
have a Material Adverse Effect on OpenVision;
(b) any amendments or changes in the Certificate of Incorporation or
Bylaws of OpenVision;
(c) any damage, destruction or loss, whether covered by insurance or
not, materially and adversely affecting any of the material properties or the
business of OpenVision;
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(d) any redemption, repurchase or other acquisition of shares of
OpenVision Common Stock by OpenVision (other than pursuant to arrangements with
terminated employees or consultants), or any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to OpenVision Common Stock;
(e) any increase in or modification of the compensation or benefits
payable or to become payable by OpenVision to any of its directors or employees,
except in the ordinary course of business, consistent with past practice;
(f) other than as required by applicable statute or regulation, any
increase in or modification of any bonus, pension, insurance or OpenVision
Employee Plan or OpenVision Benefit Arrangement (including, but not limited to,
the granting of stock options, restricted stock awards or stock appreciation
rights) made to, for or with any of its employees, other than (a) in the
ordinary course of business, consistent with past practice, and (b) after the
date of this Agreement, which is authorized, if required, pursuant to Section
4.3 below;
(g) any acquisition or sale of a material amount of property or assets
of OpenVision, other than in the ordinary course of business, consistent with
past practice;
(h) any alteration in any term of any outstanding security of OpenVision
including, but not limited to, acceleration of the vesting or any change in the
terms of any outstanding stock options;
(i) other than in the ordinary course of business, consistent with past
practice, the total amount of which is not material, any (A) incurrence,
assumption or guarantee by OpenVision of any debt for borrowed money; (B)
issuance or sale of any securities convertible into or exchangeable for debt
securities of OpenVision; or (C) issuance or sale of options or other rights to
acquire from OpenVision, directly or indirectly, debt securities of OpenVision
or any securities convertible into or exchangeable for any such debt securities;
(j) any creation or assumption by OpenVision of any mortgage, pledge,
security interest, lien or other encumbrance on any asset, other than in the
ordinary course of business, consistent with past practice, not in excess of
$100,000 in the aggregate;
(k) any making of any loan, advance or capital contribution to or
investment in any person other than (i) loans, advances or capital contributions
made in the ordinary course of business of OpenVision and (ii) other loans and
advances, where the aggregate amount of all such items outstanding at any time
does not exceed $50,000;
(l) any entering into, amendment of, relinquishment, termination or
non-renewal by OpenVision of any material contract, lease transaction,
commitment or other right or obligation other than in the ordinary course of
business;
(m) any transfer or grant of a right under the OpenVision IP Rights (as
defined in Section 2.15 below), other than those transferred or granted in the
ordinary course of business, consistent with past practices, except for any
grant of a right to OpenVision source code or the grant of any exclusive rights
to any OpenVision IP Rights, each of which shall be set forth in the OpenVision
Disclosure Letter;
(n) any labor dispute or charge of unfair labor practice (other than
routine individual grievances), any activity or proceeding by a labor union or
representative thereof to organize any employees of OpenVision or, to
OpenVision's knowledge, any campaign being conducted to solicit authorization
from employees to be represented by such labor union; or
(o) any agreement by OpenVision or, to OpenVision's knowledge, any
officer or employee thereof, to take any of the actions described in the
preceding clauses (a) through (n) (other than negotiations with VERITAS and its
representatives regarding the transactions contemplated by this Agreement).
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2.11 AGREEMENTS. The OpenVision Disclosure Letter sets forth a list of any
of the following currently effective contracts, agreements and other instruments
to which OpenVision or any OpenVision Subsidiary is a party, copies of each of
which have been delivered to VERITAS or its counsel:
(a) contract with or commitment to any labor union;
(b) continuing contract for the future purchase, sale or manufacture of
products, material, supplies, equipment or services requiring payment to or from
OpenVision or any OpenVision Subsidiary of an amount in excess of $100,000 per
annum which is not terminable on 120 days' or less notice without cost or other
liability at, or at any time after, the Effective Time or in which OpenVision or
such OpenVision Subsidiary has granted or received manufacturing rights, most
favored nations pricing provisions or exclusive marketing rights relating to any
product, group of products or territory, provided, however, that only purchase
orders for the top ten (10) vendors of OpenVision (as measured by calendar year
1996 OpenVision purchases) are listed in the OpenVision Disclosure Letter;
(c) contract providing for the development of technology for OpenVision
which technology is used or incorporated in any products currently distributed
by OpenVision or is anticipated to be used or incorporated in any planned
products of OpenVision or which requires OpenVision to perform specified
development work for a third party;
(d) joint venture contract or agreement or other agreement which has
involved, or is reasonably expected to involve, a sharing of profits or losses
in excess of $25,000 per annum with any other party;
(e) contract or commitment for the employment of any officer, employee
or consultant, or any other type of contract or understanding with any officer,
employee or consultant, which is not immediately terminable without cost, notice
or other liability (except for normal severance benefits available to employees
generally as set forth in any OpenVision Benefit Arrangement and except to the
extent general principles of wrongful termination law may limit OpenVision's or
any of OpenVision Subsidiaries' ability to terminate employees at will);
(f) indenture, mortgage, promissory note, loan agreement, guarantee or
other agreement or commitment for the borrowing of money, for a line of credit
or for a leasing transaction of a type required to be capitalized in accordance
with Statement of Financial Accounting Standards No. 13 of the Financial
Accounting Standards Board (other than equipment leases entered into in the
ordinary course of business pursuant to which payments by OpenVision do not
exceed $100,000 in the aggregate);
(g) lease or other agreement under which OpenVision or any OpenVision
Subsidiary is lessee of or holds or operates any items of tangible personal
property or real property owned by any third party and under which payments to
such third party exceed $60,000 per annum;
(h) agreement or arrangement for the sale of any assets, properties or
rights having a value in excess of $25,000, other than in the ordinary course of
business consistent with past practice;
(i) agreement which restricts OpenVision or any OpenVision Subsidiary
from engaging in any aspect of its business or competing in any line of business
in any geographic area (including any agreement pursuant to which OpenVision has
granted exclusive rights to a third party);
(j) OpenVision IP Rights Agreement (as defined in Section 2.15 below),
other than standard form license agreements with end users (copies of which have
been delivered to VERITAS or its counsel), and, in any event, any agreement that
grants rights or access to any source code included in the OpenVision IP Rights;
or
(k) agreement between or among OpenVision or any OpenVision Subsidiary
regarding inter company loans, revenue or cost sharing, ownership or license of
OpenVision IP Rights, inter company royalties or dividends or similar matters.
The OpenVision Disclosure Letter further includes a schedule of the
outstanding maintenance and support obligations to be performed by OpenVision
pursuant to any contract or other arrangement, including a description of such
obligations, the names of the customers for whom such obligations must be
performed, the
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expiration date of such obligations and the fees payable to OpenVision in
respect of performance of such obligations.
2.12 NO DEFAULTS. Except as disclosed in the OpenVision SEC Documents
filed prior to the date of this Agreement, to OpenVision's knowledge, neither it
nor any of the OpenVision Subsidiaries is in default under, and there exists no
event, condition or occurrence which, after notice or lapse of time, or both,
would constitute such a default by OpenVision or any of the OpenVision
Subsidiaries under, any contract or agreement to which OpenVision or any of the
OpenVision Subsidiaries is a party and which would, if terminated or modified,
have a Material Adverse Effect on OpenVision.
2.13 CERTAIN AGREEMENTS. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will (i)
result in any payment (including, without limitation, severance, unemployment
compensation, golden parachute, bonus or otherwise) becoming due to any director
or employee of OpenVision or any of the OpenVision Subsidiaries from OpenVision
or any of the OpenVision Subsidiaries, under any OpenVision Employee Plan,
OpenVision Benefit Arrangement or otherwise, (ii) materially increase any
benefits otherwise payable under any OpenVision Employee Plan or OpenVision
Benefit Arrangement or (iii) result in the acceleration of the time of payment
or vesting of any such benefits.
2.14 TAXES. OpenVision and each of the OpenVision Subsidiaries have filed,
or caused to be filed, all Tax (as defined below) returns required to be filed
by them (all of which returns were true, correct and complete in all material
respects) and have paid or withheld, or caused to be paid or withheld, all Taxes
that are shown on such Tax returns as due and payable, other than such Taxes as
are being contested in good faith and for which adequate reserves have been
established on the OpenVision Balance Sheet and other than where the failure to
so file, pay or withhold would not have a Material Adverse Effect on OpenVision.
All Taxes required to have been paid or accrued by OpenVision and the OpenVision
Subsidiaries for all periods prior to the OpenVision Balance Sheet Date have
been fully paid or are adequately provided for or reflected in the OpenVision
Balance Sheet. Since the OpenVision Balance Sheet Date, no material Tax
liability has been assessed, proposed to be assessed, incurred or accrued other
than in the ordinary course of business. Neither OpenVision nor any OpenVision
Subsidiary has received any notification that any material issues have been
raised (and are currently pending) by the Internal Revenue Service or any other
taxing authority, including, without limitation, any sales tax authority, in
connection with any of the Tax returns referred to in the first sentence of this
Section 2.14, and no waivers of statutes of limitations have been given or
requested with respect to OpenVision or any of the OpenVision Subsidiaries. No
taxing authority is currently conducting an audit of any Tax returns of
OpenVision or, to OpenVision's knowledge, about to conduct such an audit. Any
deficiencies asserted or assessments (including interest and penalties) made as
a result of any examination by the Internal Revenue Service or by appropriate
national, state or departmental authorities of the Tax returns of or with
respect to OpenVision or any of the OpenVision Subsidiaries have been fully paid
or are adequately provided for in the OpenVision Balance Sheet and no material
proposed (but unassessed) additional Taxes have been asserted and no Tax liens
have been filed other than for Taxes not yet due and payable. None of OpenVision
or any of the OpenVision Subsidiaries (i) has made an election to be treated as
a "consenting corporation" under Section 341(f) of the Code or (ii) is a
"personal holding company" within the meaning of Section 542 of the Code.
As used in this Agreement, "Tax" means any of the Taxes and "Taxes" means,
with respect to any entity, (A) all income taxes (including any tax on or based
upon net income, gross income, income as specially defined, earnings, profits or
selected items of income, earnings or profits) and all gross receipts, sales,
use, ad valorem, transfer, franchise, license, withholding, payroll, employment,
excise, severance, stamp, occupation, premium, property or windfall profits
taxes, alternative or add-on minimum taxes, customs duties or other taxes, fees,
assessments or charges of any kind whatsoever, together with any interest and
any penalties or additional amounts imposed by any taxing authority (domestic or
foreign) on such entity, and (B) any liability for the payment of any amount of
the type described in the immediately preceding clause (A) as a result of being
a "transferee" (within the meaning of Section 6901 of the Code or of any other
applicable law) of another entity or a member of an affiliated or combined
group.
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2.15 INTELLECTUAL PROPERTY.
(a) The OpenVision Disclosure Letter contains a complete and accurate
list of all United States and foreign: (i) patents; (ii) copyright registrations
and mask work registrations; (iii) trademarks registrations and trademark
intent-to-use registrations; (iv) registered user licenses; (v) all
applications, provisional applications or other filings for or to obtain any of
the foregoing, and (vi) any other similar registrations or applications for
Intellectual Property Rights (as defined below) owned by, or filed by or on
behalf of, OpenVision or any of the OpenVision Subsidiaries anywhere in the
world (all of the foregoing, "OpenVision Registered Intellectual Property").
(b) The OpenVision Disclosure Letter contains a complete and accurate
list of all material software programs and other products sold or licensed by
OpenVision or any of the OpenVision Subsidiaries.
(c) All OpenVision Intellectual Property Rights are owned free and clear
of any liens, encumbrances or security interests.
(d) OpenVision and the OpenVision Subsidiaries own, or have the right to
use, sell or license such Intellectual Property Rights (as defined below) as are
necessary or required for the conduct of their respective businesses as
presently conducted (such Intellectual Property Rights being hereinafter
collectively referred to as the "OpenVision IP Rights") and such ownership or
rights to use, sell or license are reasonably sufficient for such conduct of
their respective businesses, except for any failure to own or have the right to
use, sell or license that would not have a Material Adverse Effect on
OpenVision;
(e) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not constitute a
material breach of any material instrument or material agreement in respect of
any Intellectual Property Rights licensed by or to OpenVision (the "OpenVision
IP Rights Agreements"), will not cause the forfeiture or termination or give
rise to a right of forfeiture or termination of any OpenVision IP Right or
materially impair the right of OpenVision and the OpenVision Subsidiaries or the
OpenVision Surviving Corporation to use, sell or license any OpenVision IP Right
or portion thereof (except where such breach, forfeiture, termination or
impairment would not have a Material Adverse Effect on OpenVision);
(f) There are no royalties, honoraria, fees or other payments payable by
OpenVision to any person by reason of the ownership, use, license, purchase,
sale, disposition or acquisition of the OpenVision IP Rights (other than as set
forth in the OpenVision IP Rights Agreements listed in the OpenVision Disclosure
Letter);
(g) To OpenVision's knowledge, no third party is infringing or
misappropriating any Intellectual Property Rights, including OpenVision
Registered Intellectual Property, owned by OpenVision or any of the OpenVision
Subsidiaries.
(h) Neither the manufacture, marketing, license, sale nor the intended
use of any product currently licensed or sold by OpenVision or any of the
OpenVision Subsidiaries or currently under development by OpenVision or any of
the OpenVision Subsidiaries violates any license or agreement between OpenVision
or any of the OpenVision Subsidiaries and any third party or infringes any
Intellectual Property Right of any other party; and there is no pending or, to
OpenVision's knowledge, threatened claim or litigation contesting the validity,
ownership or right to use, sell, license or dispose of any OpenVision IP Right,
nor has OpenVision received any notice asserting that any OpenVision IP Right or
the proposed use, sale, license or disposition thereof conflicts or will
conflict with the rights of any other party, except for any violations,
infringements, claims or litigation that would not have a Material Adverse
Effect on OpenVision, nor, to OpenVision's knowledge, is there any basis for any
such assertion; and
(i) OpenVision has taken reasonable and practicable steps designed to
safeguard and maintain the secrecy and confidentiality of, and its proprietary
rights in, all material trade secrets or other confidential information
constituting OpenVision IP Rights. To OpenVision's knowledge, no current or
prior officers, employees or consultants of OpenVision or of any of the
OpenVision Subsidiaries claim an ownership interest in any OpenVision IP Rights
as a result of having been involved in the development of such property while
employed by or consulting to OpenVision or of any of the OpenVision
Subsidiaries, or otherwise. All officers
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and development employees and, to OpenVision's knowledge, all other employees
and consultants of OpenVision or any of the OpenVision Subsidiaries have
executed and delivered to OpenVision or the OpenVision Subsidiary an agreement
regarding the protection of proprietary information and the assignment to
OpenVision or the OpenVision Subsidiary of all Intellectual Property Rights
arising from the services performed for OpenVision or the OpenVision Subsidiary
by such persons.
As used herein, the term "Intellectual Property Rights" shall mean all
industrial, intellectual property or other rights of a person in, to, or arising
out of: (i) any United States or foreign patent or any application therefor and
any and all reissues, divisions, continuations, renewals, extensions and
continuations-in-part thereof; (ii) inventions (whether patentable or not in any
country), invention disclosures, industrial designs, improvements, trade
secrets, proprietary information, know-how, technology and technical data; (iii)
copyrights, mask works, copyright registrations, mask work registrations, and
applications therefor in the United States or any foreign country, and all other
rights corresponding thereto throughout the world; (iv) United States or foreign
registered or common law trademarks, service marks, trade dress, trade names,
logos, intent-to-use registrations or notices, and applications to register or
use any of the foregoing anywhere in the world; and (v) any other proprietary
rights in technology, including software, all source and object code,
algorithms, architecture, structure, display screens, layouts, inventions,
development tools and all documentation and media constituting, describing or
relating to the above, including, without limitation, manuals, memoranda,
records, business information, or trade marks, trade dress or names, anywhere in
the world.
2.16 FEES AND EXPENSES. Except for the fees and expenses set forth in
OpenVision's engagement letter with Alex. Brown & Sons Incorporated, a copy of
which has been provided to VERITAS (the "Alex. Brown Engagement Letter"),
neither OpenVision nor any of the OpenVision Subsidiaries has paid or become
obligated to pay any fee or commission to any broker, finder or intermediary in
connection with the transactions contemplated by this Agreement.
2.17 INSURANCE. OpenVision and the OpenVision Subsidiaries maintain fire
and casualty, general liability, business interruption, directors and officers,
product liability and sprinkler and water damage insurance that OpenVision
believes to be reasonably prudent for its business. Correct and complete copies
of all such insurance policies presently in effect have been provided to VERITAS
or its counsel.
2.18 OWNERSHIP OF PROPERTY. Except (a) as disclosed in the OpenVision SEC
Documents filed prior to the date of this Agreement, (b) for liens for current
Taxes not yet delinquent or (c) for liens imposed by law and incurred in the
ordinary course of business for obligations not yet due to carriers,
warehousemen, laborers, material men and the like, OpenVision and each of the
OpenVision Subsidiaries owns its real and personal property free and clear of
all security interests, mortgages, liens, charges, claims, options and
encumbrances. All real and personal property of OpenVision and each of the
OpenVision Subsidiaries is in generally good repair and is operational and
usable in the operations of OpenVision, subject to ordinary wear and tear.
Neither OpenVision nor any OpenVision Subsidiary is in violation of any zoning,
building or safety ordinance, regulation or requirement or other law or
regulation applicable to the operation of owned or leased properties (the
violation of which would have a Material Adverse Effect on OpenVision), or has
received any notice of violation with which it has not complied, except where
such violation would not have a Material Adverse Effect on OpenVision.
2.19 ENVIRONMENTAL MATTERS.
(a) During the period that OpenVision and the OpenVision Subsidiaries
have leased or owned their respective properties or owned or operated any
facilities, there have been, to OpenVision's knowledge, no disposals, releases
or threatened releases of Hazardous Materials (as defined below) on, from or
under such properties or facilities. OpenVision has no knowledge of any
presence, disposals, releases or threatened releases of Hazardous Materials on,
from, under or about any of such properties or facilities, which may have
occurred prior to OpenVision or any of the OpenVision Subsidiaries having taken
possession of any of such properties or facilities. For the purposes of this
Agreement, the terms "disposal," "release," and "threatened release" shall have
the definitions assigned thereto by the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. sec. 9601 et seq., as amended
("CERCLA"). For the purposes of this Agreement "Hazardous Materials" shall mean
any hazardous or toxic substance, material or waste which is or
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becomes prior to the Closing regulated under, or defined as a "hazardous
substance," "pollutant," "contaminant," "toxic chemical," "hazardous materials,"
"toxic substance" or "hazardous chemical" under, (1) CERCLA; (2) any similar
international, federal, state or local law; or (3) regulations promulgated under
any of the above laws or statutes.
(b) None of the properties or facilities of OpenVision or the OpenVision
Subsidiaries is or has been in violation of any federal, state or local law,
ordinance, regulation or order relating to industrial hygiene or to the
environmental conditions on, above, under or about such properties or
facilities, including, but not limited to, air, soil, ground water or surface
water condition ("Environmental Violation"), except for such violations as would
not, individually or in the aggregate, have a Material Adverse Effect on
OpenVision. During the time that OpenVision or the OpenVision Subsidiaries have
owned or leased their respective properties and facilities, neither OpenVision,
nor any of the OpenVision Subsidiaries, nor, to OpenVision's knowledge, any
third party, has used, generated, manufactured or stored on, under or about such
properties or facilities or transported to or from such properties or facilities
any Hazardous Materials (except those Hazardous Materials associated with
general office use or janitorial supplies).
(c) During the time that OpenVision or the OpenVision Subsidiaries have
owned or leased their respective properties and facilities, there has been no
litigation brought or, to OpenVision's knowledge, threatened against OpenVision
or any of the OpenVision Subsidiaries by, or any settlement reached by
OpenVision or any of the OpenVision Subsidiaries with, any party or parties
alleging the presence, disposal, release or threatened release of any Hazardous
Materials on, from or under any of such properties or facilities or relating to
any alleged Environmental Violation.
2.20 INTERESTED PARTY TRANSACTIONS. Except as disclosed in the OpenVision
SEC Documents filed prior to the date of this Agreement, no officer or director
of OpenVision or any "affiliate" or "associate" (as those terms are defined in
Rule 405 promulgated under the Securities Act) of any such person has had,
either directly or indirectly, a material interest in: (i) any person or entity
which purchases from or sells, licenses or furnishes to OpenVision or any of the
OpenVision Subsidiaries any goods, property, technology or intellectual or other
property rights or services; or (ii) any contract or agreement to which
OpenVision or any of the OpenVision Subsidiaries is a party or by which it may
be bound or affected.
2.21 BOARD APPROVAL. The Board of Directors of OpenVision has unanimously
(i) approved this Agreement and the Merger, and (ii) determined that the Merger
is in the best interests of the stockholders of OpenVision and the terms of the
Merger are fair to such stockholders.
2.22 VOTE REQUIRED. The affirmative vote of at least a majority of the
votes that holders of the outstanding shares of OpenVision Common Stock are
entitled to cast is the only vote of the holders of any class or series of
OpenVision's capital stock necessary to approve this Agreement and the Merger.
2.23 DISCLOSURE. No representation or warranty made by OpenVision in this
Agreement, nor any document, written information, statement, financial
statement, certificate or exhibit prepared and furnished or to be prepared and
furnished by OpenVision or its representatives pursuant hereto or in connection
with the transactions contemplated hereby, when taken together, contains any
untrue statement of a material fact, or omits to state a material fact necessary
to make the statements or facts contained herein or therein not misleading in
light of the circumstances under which there were furnished.
2.24 FAIRNESS OPINION. OpenVision's Board of Directors has received an
opinion as of the date hereof from Alex. Brown & Sons Incorporated to the effect
that, as of the date hereof, the OpenVision Applicable Ratio is fair to
OpenVision's stockholders from a financial point of view.
3. REPRESENTATIONS AND WARRANTIES OF VERITAS AND NEWCO
Except as set forth in a letter dated the date of this Agreement, delivered
by VERITAS and Newco to OpenVision concurrently herewith, and certified by an
officer of VERITAS and Newco, on behalf of
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VERITAS and Newco, to be true, accurate and complete to the best of his
knowledge (the "VERITAS Disclosure Letter"), VERITAS and Newco hereby represent
and warrant to OpenVision that:
3.1 ORGANIZATION; GOOD STANDING; QUALIFICATION AND POWER. VERITAS, Newco
and each of VERITAS' subsidiaries set forth in Section 3.1 of the VERITAS
Disclosure Letter (the "VERITAS Subsidiaries") (the VERITAS Subsidiaries being
the only subsidiaries of VERITAS), is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted, and
is duly qualified and in good standing to do business in each jurisdiction in
which the nature of its business or the ownership or leasing of its properties
makes such qualification necessary, other than in such jurisdictions where the
failure so to qualify would not have a Material Adverse Effect on VERITAS (as
defined below). The VERITAS Disclosure Letter sets forth a correct and complete
list of the VERITAS Subsidiaries and a correct and complete list of each
jurisdiction in which each of VERITAS, Newco and the VERITAS Subsidiaries is
duly qualified and in good standing to do business. VERITAS has delivered to
OpenVision or its counsel complete and correct copies of the Articles of
Incorporation and Bylaws of VERITAS, the Certificate of Incorporation and Bylaws
of Newco and will deliver to OpenVision or its counsel prior to the Closing Date
the equivalent charter documents of each of the VERITAS Subsidiaries, in each
case as amended to the date of this Agreement. Newco does not own and, except
for the VERITAS Subsidiaries, VERITAS does not own, directly or indirectly, any
capital stock or other equity interest of any corporation or have any direct or
indirect equity or ownership interest in any other business, whether organized
as a corporation, partnership, joint venture or otherwise.
In this Agreement, any reference to the term "Material Adverse Effect on
VERITAS" means any event, change or effect which would have a material adverse
effect on the business, assets (including intangible assets), financial
condition, results of operations or prospects of VERITAS, Newco and the VERITAS
Subsidiaries, taken as a whole. In addition, any reference to the terms "to
VERITAS' knowledge" or "known to VERITAS" refers to the current actual knowledge
of any officer of VERITAS.
3.2 CAPITAL STRUCTURE.
(a) Stock and Options. The authorized capital stock of VERITAS consists
of 25,000,000 shares of VERITAS Common Stock, no par value, and 10,000,000
shares of Preferred Stock, no par value (the "VERITAS Preferred Stock"). At the
close of business on January 10, 1997, 13,543,926 shares of VERITAS Common Stock
were issued and outstanding, no shares of VERITAS Common Stock were held by
VERITAS in its treasury, 1,838,379 shares of VERITAS Common Stock were reserved
for issuance upon the exercise of outstanding VERITAS Options, 239,793 shares of
VERITAS Common Stock were available for the grant of additional awards under the
1993 Equity Incentive Plan, 55,000 shares of VERITAS Common Stock were available
for the grant of additional awards under the 1993 Director Stock Option Plan,
and 383,835 shares of VERITAS Common Stock were reserved for issuance upon the
exercise of VERITAS Stock Purchase Plan Options. No shares of VERITAS Preferred
Stock are issued or outstanding. All outstanding shares of VERITAS Common Stock
are validly issued, fully paid and nonassessable and not subject to preemptive
rights by statute, the Articles of Incorporation or Bylaws of VERITAS, or any
agreement or document to which VERITAS is a party or by which it is bound. All
outstanding shares of the capital stock of each of the VERITAS Subsidiaries are
validly issued, fully paid and nonassessable and are owned by VERITAS or one of
the VERITAS Subsidiaries free and clear of any liens, security interests,
pledges, agreements, claims, charges or encumbrances. VERITAS has delivered to
OpenVision a correct and complete list of each VERITAS Option outstanding as of
the date hereof, including the name of the holder of such VERITAS Option, the
VERITAS Plan pursuant to which such VERITAS Option was issued (if applicable),
the number of shares covered by such VERITAS Option, the per share exercise
price of such VERITAS Option, and the vesting schedule applicable to each such
VERITAS Option, including the number of shares vested as of the date of this
Agreement. VERITAS has also delivered to OpenVision a correct and complete list
of the employees currently enrolled in the current Offering Period (as defined
in the VERITAS Stock Purchase Plan), the amount of the periodic payroll
deduction from each such employee's compensation with respect to such plan, the
aggregate amount of payroll deductions with respect to the current Purchase
Period (as defined in the VERITAS Stock Purchase Plan) for each such employee to
date and the fair market
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value (as determined in accordance with the VERITAS Stock Purchase Plan) of the
VERITAS Common Stock on the date of commencement of the current Offering Period.
(b) Newco Capital. The authorized capital stock of Newco will consist of
75,000,000 shares of Newco Common Stock, $0.001 par value, and 10,000,000 shares
of Newco Preferred Stock, $0.001 par value, none of which shall be outstanding
immediately prior to the Effective Time. Immediately prior to the Effective
Time, Newco shall have reserved shares of Newco Common Stock for
issuance pursuant to OpenVision's Stock Purchase Plan, 4,100,000 shares of Newco
Common Stock for issuance pursuant to Newco's 1993 Equity Incentive Plan,
250,000 shares of Newco Common Stock for issuance pursuant to Newco's 1993
Director Stock Option Plan and 1,000,000 shares of Newco Common Stock for
issuance pursuant to Newco's 1993 Employee Stock Purchase Plan, under which
Newco Plans there shall be no Newco options or purchase rights outstanding.
(c) No Other Commitments. Except for the VERITAS Options and VERITAS
Stock Purchase Plan Options disclosed in Section 3.2(a) above, a list of which
has been provided to OpenVision, and except as provided in this Agreement, there
are no options, warrants, calls, rights, commitments, conversion rights or
agreements of any character to which VERITAS, Newco or any of the VERITAS
Subsidiaries is a party or by which VERITAS, Newco or any of the VERITAS
Subsidiaries is bound obligating VERITAS, Newco or any of the VERITAS
Subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, any shares of capital stock of VERITAS, Newco or any of the VERITAS
Subsidiaries or securities convertible into or exchangeable for shares of
capital stock of VERITAS, Newco or any of the VERITAS Subsidiaries, or
obligating VERITAS, Newco or any of the VERITAS Subsidiaries to grant, extend or
enter into any such option, warrant, call, right, commitment, conversion right
or agreement. There are no voting trusts or other agreements or understandings
to which VERITAS or Newco is a party with respect to the voting of the capital
stock of VERITAS or Newco or any of the VERITAS Subsidiaries.
(d) Registration Rights. Neither VERITAS nor Newco is under any
obligation to register under the Securities Act any of its presently outstanding
securities or any securities that may be subsequently issued, except as
disclosed in the VERITAS Disclosure Letter.
3.3 AUTHORITY.
(a) Corporate Action. Subject to approval of this Agreement and the
Merger by the shareholders of VERITAS, VERITAS has all requisite corporate power
and authority to enter into this Agreement and the VERITAS Agreement of Merger,
and Newco has, or will have, all requisite corporate power and authority to
enter into this Agreement and the Agreements of Merger, to perform their
respective obligations hereunder and thereunder and to consummate the Merger and
the other transactions contemplated by this Agreement. The execution and
delivery of this Agreement and the VERITAS Agreement of Merger by VERITAS, and
the execution and delivery of this Agreement and the Agreements of Merger by
Newco, and, subject to approval of this Agreement and the Merger by the
shareholders of VERITAS, the filing and recordation of the Agreements of Merger
pursuant to CGCL and the Delaware Law and the consummation by VERITAS and Newco
of the Merger and the other transactions contemplated hereby and thereby, have
been duly authorized by all necessary corporate action on the part of VERITAS
and Newco, respectively. This Agreement has been, and upon the Closing the
VERITAS Agreement of Merger will have been, duly executed and delivered by
VERITAS and this Agreement is, and the VERITAS Agreement of Merger as of the
Effective Time will be, the valid and binding obligations of VERITAS enforceable
in accordance with their terms, except as enforceability may be limited by
bankruptcy and other similar laws and general principles of equity. This
Agreement has been, and upon the Closing the Agreements of Merger will have
been, duly executed and delivered by Newco, and this Agreement is, and the
Agreements of Merger as of the Effective Time will be, the valid and binding
obligations of Newco, enforceable in accordance with their terms, except as
enforceability may be limited by bankruptcy and other similar laws and general
principles of equity.
(b) No Conflict. Neither the execution, delivery and performance of this
Agreement, the VERITAS Agreement of Merger in the case of VERITAS, or the
Agreements of Merger in the case of Newco, nor the consummation of the
transactions contemplated hereby or thereby nor compliance with the provisions
hereof or thereof will: (i) conflict with, or result in any violations of, or
cause a default (with or without notice
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or lapse of time, or both) under, or give rise to a right of termination,
amendment, cancellation or acceleration of any obligation contained in, or the
loss of any material benefit under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the material properties or
assets of VERITAS, Newco or any of the VERITAS Subsidiaries under, any term,
condition or provision of (x) the Articles of Incorporation or Bylaws of
VERITAS, the Certificate of Incorporation or Bylaws of Newco, or the equivalent
organizational documents of any of the VERITAS Subsidiaries or (y) any loan or
credit agreement, note, bond, mortgage, indenture, lease or other material
agreement, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to VERITAS, Newco or any of the VERITAS Subsidiaries or their
respective properties or assets, other than any such conflicts, violations,
defaults, rights, losses, liens, security interests, charges or encumbrances
which, individually or in the aggregate, would not have a Material Adverse
Effect on VERITAS; or (ii) require the affirmative vote of the holders of
greater than a majority of the issued and outstanding shares of VERITAS Common
Stock.
(c) Governmental Consents. No consent, approval, order or authorization
of, or registration, declaration or filing with, any Governmental Entity is
required to be obtained by VERITAS, Newco or any of the VERITAS Subsidiaries in
connection with the execution and delivery of this Agreement or the Agreements
of Merger, or the consummation of the transactions contemplated hereby or
thereby, except for: (i) the filing with the SEC, and the effectiveness, of the
Form S-4, the filing of the Prospectus/Proxy Statement relating to the meeting
of the shareholders of VERITAS (the "VERITAS Shareholders Meeting") to be held
with respect to the approval by VERITAS' shareholders of this Agreement and the
Merger, and the filing of the Form S-8, and such reports and information under
the Exchange Act and the rules and regulations promulgated by the SEC
thereunder, including, but not limited to, the filing of a Form 8A by Newco with
the SEC, as may be required in connection with this Agreement and the
transactions contemplated hereby; (ii) the filing of the Agreements of Merger
with the Secretary of State of the State of California and the Secretary of
State of the State of Delaware and appropriate documents with the relevant
authorities of other states in which VERITAS or Newco is qualified to do
business; (iii) such filings, authorizations, orders and approvals as may be
required under State Takeover Laws; (iv) such filings and notifications as may
be necessary under the HSR Act; (v) such filings as may be required by the
Nasdaq Stock Market with respect to the Newco Common Stock to be issued in
connection with the Merger and the Stock Rights to be assumed by Newco in the
Merger; and (vi) such other filings, authorizations, orders and approvals which
if not obtained or made, would not have a Material Adverse Effect on VERITAS or
OpenVision or have a material adverse effect on the ability of the parties to
consummate the Merger.
3.4 SEC DOCUMENTS.
(a) SEC Reports. VERITAS has delivered to OpenVision or its counsel
correct and complete copies of each report, schedule, registration statement and
definitive proxy statement filed by VERITAS with the SEC on or after January 1,
1995 (the "VERITAS SEC Documents"), which are all the documents (other than
preliminary material) that VERITAS was required to file with the SEC on or after
January 1, 1995. As of their respective dates or, in the case of registration
statements, their effective dates, none of the VERITAS SEC Documents (including
all exhibits and schedules thereto and documents incorporated by reference
therein) contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and there is no requirement under the Securities Act or the
Exchange Act, as the case may be, to have amended any such filing. The VERITAS
SEC Documents complied, when filed, in all material respects with the then
applicable requirements of the Securities Act or the Exchange Act, as the case
may be, and the rules and regulations promulgated by the SEC thereunder. VERITAS
has filed all documents and agreements which were required to be filed as
exhibits to the VERITAS SEC Documents.
(b) Financial Statements. The financial statements of VERITAS included
in the VERITAS SEC Documents complied as to form in all material respects with
the then applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, were prepared in accordance with
GAAP applied on a consistent basis during the periods involved (except as may
have been indicated in the notes thereto) and fairly present (subject, in the
case of the unaudited statements, to normal year-end audit adjustments) the
consolidated financial position of VERITAS and its consolidated VERITAS
Subsidiaries as
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at the respective dates thereof and the consolidated results of their operations
and cash flows for the respective periods then ended.
3.5 INFORMATION SUPPLIED. None of the information supplied or to be
supplied by VERITAS or Newco for inclusion or incorporation by reference in the
Form S-4 and Prospectus/Proxy Statement will, at the time the Form S-4 is
declared effective, at the date the Prospectus/Proxy Statement is mailed to the
stockholders of VERITAS and at the time of the VERITAS Shareholders Meeting,
contain, after giving effect to any supplement or amendment thereto, any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Prospectus/Proxy
Statement will comply as to form in all material respects with the provisions of
the Exchange Act and the rules and regulations promulgated by the SEC
thereunder. Notwithstanding the foregoing, VERITAS and Newco make no
representation or warranty with respect to any information supplied by
OpenVision which is contained in any of the foregoing documents.
3.6 COMPLIANCE WITH APPLICABLE LAWS. Except as disclosed in the VERITAS
SEC Documents filed prior to the date of this Agreement, the businesses of
VERITAS and the VERITAS Subsidiaries are not being conducted in violation of any
law, ordinance, regulation, rule or order of any Governmental Entity where such
violation would have a Material Adverse Effect on VERITAS. Except as disclosed
in the VERITAS SEC Documents filed prior to the date of this Agreement, VERITAS
has not been notified in writing by any Governmental Entity that any
investigation or review with respect to VERITAS or any of the VERITAS
Subsidiaries is pending or threatened, nor has any Governmental Entity notified
VERITAS in writing of its intention to conduct the same, which investigation or
review could reasonably be expected to have a Material Adverse Effect on
VERITAS. VERITAS, Newco and the VERITAS Subsidiaries have all material permits,
licenses and franchises from Governmental Entities required to conduct their
businesses as now being conducted, except for those whose absence would not have
a Material Adverse Effect on VERITAS.
3.7 LITIGATION. Except as disclosed in the VERITAS SEC Documents filed
prior to the date of this Agreement, or as would not reasonably be expected to
have a Material Adverse Effect on VERITAS, there is no suit, action,
arbitration, demand, claim or proceeding pending or, to VERITAS' knowledge,
threatened against VERITAS, Newco or any of the VERITAS Subsidiaries; nor is
there any judgment, decree, injunction, ruling or order of any Governmental
Entity or arbitrator or settlement agreement outstanding against VERITAS, Newco
or any of the VERITAS Subsidiaries. VERITAS has delivered or made available to
OpenVision or its counsel correct and complete copies of all correspondence
prepared by its counsel for VERITAS auditors in connection with the last two
completed audits of VERITAS' financial statements and any such correspondence
since the date of the last such audit. Neither VERITAS, Newco nor any of the
VERITAS Subsidiaries is a party to any decree, order or arbitration award (or
agreement entered into in any administrative, judicial or arbitration proceeding
with any governmental authority) with respect to its properties, assets,
personnel or business activities which could reasonably be expected to have a
Material Adverse Effect on VERITAS. Neither VERITAS nor Newco is in violation
of, or delinquent in respect of, any decree, order or arbitration award naming
VERITAS, Newco or a VERITAS Subsidiary as a party or otherwise known to them, or
law, ordinance, statute, or governmental authority to which their properties,
assets, personnel or business activities are subject or to which VERITAS, Newco
or a VERITAS Subsidiary is subject, including, without limitation, laws, rules
and regulations relating to occupational health and safety, equal employment
opportunities, fair employment practices, and sex, race, religious and age
discrimination, except for such violations as would not have a Material Adverse
Effect on VERITAS.
3.8 ERISA AND OTHER COMPLIANCE.
(a) The VERITAS Disclosure Letter lists all the employees of VERITAS and
any VERITAS Subsidiaries and their salaries or base wage as of December 31,
1996. The VERITAS Disclosure Letter also identifies each "employee benefit
plan," as defined in Section 3(3) of ERISA, currently or previously maintained,
contributed to or entered into by VERITAS or any of the VERITAS Subsidiaries
under which VERITAS or any of the VERITAS Subsidiaries or any ERISA Affiliate
(as defined below) thereof has any present or future obligation or liability
(collectively, the "VERITAS Employee Plans"). For purposes of this Section 3.8,
"ERISA Affiliate" shall mean any entity which is a member of (A) a "controlled
group of
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corporations," as defined in Section 414(b) of the Code, (B) a group of entities
under "common control," as defined in Section 414(c) of the Code, or (C) an
"affiliated service group," as defined in Section 414(m) of the Code, or
treasury regulations promulgated under Section 414(o) of the Code, any of which
includes VERITAS or any of the VERITAS Subsidiaries. Copies of all VERITAS
Employee Plans (and, if applicable, related trust agreements) and all amendments
thereto and written interpretations thereof (including summary plan
descriptions) have been delivered to OpenVision or its counsel, together with
the three most recent annual reports (Form 5500, including, if applicable, the
auditor's report and any Schedule B thereto) prepared in connection with any
such VERITAS Employee Plan. All VERITAS Employee Plans which individually or
collectively would constitute an "employee pension benefit plan," as defined in
Section 3(2) of ERISA (collectively, the "VERITAS Pension Plans"), are
identified as such in the VERITAS Disclosure Letter. All VERITAS Employee Plans
which individually or collectively would constitute an "employee welfare benefit
plan," as defined in Section 3(1) of ERISA are identified as such in the VERITAS
Disclosure Letter. All contributions or premiums due from VERITAS or any of the
VERITAS Subsidiaries with respect to any of the VERITAS Employee Plans have been
made as required under ERISA or have been accrued on VERITAS or any such VERITAS
Subsidiary's financial statements as of September 30, 1996, or will be made
prior to the Closing. Each VERITAS Employee Plan has been maintained in
compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations, including, without limitation, ERISA
and the Code, which are applicable to such VERITAS Employee Plans, except as
would not have a Material Adverse Effect on VERITAS.
(b) No VERITAS Pension Plan constitutes, or has since the enactment of
ERISA constituted, a "multiemployer plan," as defined in Section 3(37) of ERISA.
No VERITAS Pension Plans are subject to Title IV of ERISA. No "prohibited
transaction," as defined in Section 406 of ERISA or Section 4975 of the Code,
has occurred with respect to any VERITAS Employee Plan which is covered by Title
I of ERISA which would result in a material liability to VERITAS or any of the
VERITAS Subsidiaries taken individually, excluding transactions effected
pursuant to a statutory or administrative exemption. Nothing done or omitted to
be done and no transaction or holding of any asset under or in connection with
any VERITAS Employee Plan has or will make VERITAS or any employee, officer or
director of VERITAS subject to any material liability under Title I of ERISA or
liable for any material Tax or penalty pursuant to Sections 4972, 4975, 4976,
4977 or 4979 of the Code or Section 502 of ERISA.
(c) With respect to each VERITAS Pension Plan that is intended to be
qualified under Section 401(a) of the Code (a "VERITAS 401(a) Plan"), either (i)
a favorable determination letter has been received from the IRS as to the
qualification of the VERITAS 401(a) Plan under the Code as in effect immediately
after the Tax Reform Act of 1986, or (ii) the VERITAS 401(a) Plan has been
established under a standardized prototype plan for which an Internal Revenue
Service opinion letter has been obtained and upon which the VERITAS 401(a) Plan
may rely. VERITAS has delivered to OpenVision or its counsel a complete and
correct copy of the most recent Internal Revenue Service determination letter
with respect to each VERITAS 401(a) Plan.
(d) No VERITAS Employee Plan provides or ever has provided death,
medical or health benefits (whether or not insured) with respect to current or
former employees after any such employee's retirement or other termination of
service (other than benefit coverage mandated by applicable law, including,
without limitation, coverage provided pursuant to Section 4980B of the Code).
(e) The VERITAS Disclosure Letter lists each employment, severance,
compensation or other similar contract, arrangement or policy and each plan or
arrangement (written or oral) providing for insurance coverage (including any
self-insured arrangements), workers' benefits, vacation benefits, severance
benefits, disability benefits, death benefits, hospitalization benefits,
retirement benefits, deferred compensation, profit-sharing, bonuses, stock
options, stock purchase, phantom stock, stock appreciation or other forms of
incentive compensation or post-retirement insurance, compensation or benefits
for employees, consultants or directors (other than workers' compensation,
unemployment compensation and other governmental mandated programs) which (A) is
not a VERITAS Employee Plan, (B) is entered into, maintained or contributed to,
as the case may be, by VERITAS or any of the VERITAS Subsidiaries, and (C)
covers any employee or former employee of VERITAS or any of the VERITAS
Subsidiaries. Such contracts, plans and arrangements as are
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described in this Section 3.8(e) are herein referred to collectively as the
"VERITAS Benefit Arrangements." Each VERITAS Benefit Arrangement has been
maintained in substantial compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations which are
applicable to such VERITAS Benefit Arrangement. VERITAS has delivered to
OpenVision or its counsel a complete and correct copy of each VERITAS Benefit
Arrangement document or, if such VERITAS Benefit Arrangement is unwritten, a
description thereof.
(f) There has been no amendment to, written interpretation or
announcement (whether or not written) by VERITAS or any of the VERITAS
Subsidiaries relating to any VERITAS Employee Plan or VERITAS Benefit
Arrangement that would increase materially the expense of maintaining such
VERITAS Employee Plan or VERITAS Benefit Arrangement above the level of the
expense incurred in respect thereof for the year ended December 31, 1996.
(g) VERITAS has timely provided, or will have provided prior to the
Closing (as defined in Section 6.1), to individuals entitled thereto all
required notices and coverage pursuant to Section 4980B of COBRA with respect to
any "qualifying event" (as defined in Section 4980B(f)(3) of the Code). VERITAS
will timely provide to individuals entitled thereto all required notices and
coverage pursuant to Code Section 4890B and COBRA with respect to any
"qualifying event" (as defined in Section 4980B(f)(3) of the Code) occurring
prior to and including the Closing Date. No material Tax payable on account of
Section 4980B of the Code has been incurred with respect to any current or
former employees (or their beneficiaries) of VERITAS or any of the VERITAS
Subsidiaries.
(h) No benefit payable or which may become payable by VERITAS or any of
the VERITAS Subsidiaries pursuant to any VERITAS Employee Plan or any VERITAS
Benefit Arrangement or as a result of or arising under this Agreement shall
constitute an "excess parachute payment" (as defined in Section 280G(b)(1) of
the Code) which is subject to the imposition of an excise Tax under Section 4999
of the Code or which would not be deductible by reason of Section 280G of the
Code.
(i) VERITAS and each VERITAS Subsidiary is in compliance in all material
respects with all applicable laws, agreements and contracts relating to
employment, employment practices, wages, hours and terms and conditions of
employment, including, but not limited to, employee compensation matters, but
not including ERISA.
(j) VERITAS and each VERITAS Subsidiary has good labor relations and has
no knowledge of any facts indicating that the consummation of the transactions
contemplated hereby will have a material adverse effect on labor relations, and
has no knowledge that any of its key employees intends to leave its or their
employ.
3.9 ABSENCE OF UNDISCLOSED LIABILITIES. Neither VERITAS, Newco nor any of
the VERITAS Subsidiaries has any liabilities or obligations of any nature
(matured or unmatured, fixed or contingent) which are, individually or in the
aggregate, of a nature required to be disclosed on the face of a balance sheet
prepared in accordance with GAAP and are material to the business of VERITAS and
the VERITAS Subsidiaries, taken as a whole, except for such liabilities or
obligations as (i) were accrued or fully reserved against in the consolidated
balance sheet of VERITAS at September 30, 1996 (the "VERITAS Balance Sheet") or
(ii) are of a normally recurring nature and were incurred after September 30,
1996 (the "VERITAS Balance Sheet Date") in the ordinary course of business
consistent with past practice. As of the VERITAS Balance Sheet Date, there were
no material loss contingencies (as such term is used in Statement of Financial
Accounting Standards No. 5 issued by the Financial Accounting Standards Board in
March 1975) which are not adequately provided for in the VERITAS Balance Sheet
as required by said Statement No. 5.
3.10 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed herein or
in the VERITAS SEC Documents filed prior to the date of this Agreement, since
the VERITAS Balance Sheet Date there has not occurred:
(a) any change not identified below that could reasonably be expected to
have a Material Adverse Effect on VERITAS;
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(b) any amendments or changes in the Articles of Incorporation or Bylaws
of VERITAS;
(c) any damage, destruction or loss, whether covered by insurance or
not, materially and adversely affecting any of the material properties or the
business of VERITAS;
(d) any redemption, repurchase or other acquisition of shares of VERITAS
Common Stock by VERITAS (other than pursuant to arrangements with terminated
employees or consultants), or any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with respect
to VERITAS Common Stock;
(e) any increase in or modification of the compensation or benefits
payable or to become payable by VERITAS to any of its directors or employees,
except in the ordinary course of business, consistent with past practice;
(f) other than as required by applicable statute or regulation, any
increase in or modification of any bonus, pension, insurance or VERITAS Employee
Plan or VERITAS Benefit Arrangement (including, but not limited to, the granting
of stock options, restricted stock awards or stock appreciation rights) made to,
for or with any of its employees, other than (a) in the ordinary course of
business, consistent with past practice, and (b) after the date of this
Agreement, which is authorized, if required, pursuant to Section 5.3 below;
(g) any acquisition or sale of a material amount of property or assets
of VERITAS, other than in the ordinary course of business, consistent with past
practice;
(h) any alteration in any term of any outstanding security of VERITAS,
including, but not limited to, acceleration of the vesting or any change in the
terms of any outstanding stock options;
(i) other than in the ordinary course of business, consistent with past
practice, the total amount of which is not material, any (A) incurrence,
assumption or guarantee by VERITAS of any debt for borrowed money; (B) issuance
or sale of any securities convertible into or exchangeable for debt securities
of VERITAS; or (C) issuance or sale of options or other rights to acquire from
VERITAS, directly or indirectly, debt securities of VERITAS or any securities
convertible into or exchangeable for any such debt securities;
(j) any creation or assumption by VERITAS of any mortgage, pledge,
security interest, lien or other encumbrance on any asset other than in the
ordinary course of business, consistent with past practice, not in excess of
$100,000 in the aggregate;
(k) any making of any loan, advance or capital contribution to or
investment in any person other than (i) loans, advances or capital contributions
made in the ordinary course of business of VERITAS, and (ii) other loans and
advances, where the aggregate amount of all such items outstanding at any time
does not exceed $50,000;
(l) any entering into, amendment of, relinquishment, termination or
non-renewal by VERITAS of any material contract, lease transaction, commitment
or other right or obligation other than in the ordinary course of business;
(m) any transfer or grant of a right under the VERITAS IP Rights (as
defined in Section 3.15 below), other than those transferred or granted in the
ordinary course of business, consistent with past practices, except for any
grant of a right to VERITAS source code or grant of any exclusive rights to any
VERITAS IP Rights, each of which shall be set forth in the VERITAS Disclosure
letter;
(n) any labor dispute or charge of unfair labor practice (other than
routine individual grievances), any activity or proceeding by a labor union or
representative thereof to organize any employees of VERITAS or, to VERITAS'
knowledge, any campaign being conducted to solicit authorization from employees
to be represented by such labor union; or
(o) any agreement by VERITAS, or to VERITAS' knowledge, any officer or
employee thereof, to take any of the actions described in the preceding clauses
(a) through (n) (other than negotiations with OpenVision and its representatives
regarding the transactions contemplated by this Agreement.)
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3.11 AGREEMENTS. The VERITAS Disclosure Letter sets forth a list of any of
the following currently effective contracts, agreements and other instruments to
which VERITAS, Newco or any VERITAS Subsidiary is a party, copies of each of
which have been delivered to OpenVision or its counsel:
(a) contract with or commitment to any labor union;
(b) continuing contract for the future purchase, sale or manufacture of
products, material, supplies, equipment or services requiring payment to or from
VERITAS, Newco or any VERITAS Subsidiary in an amount in excess of $100,000 per
annum which is not terminable on 120 days' or less notice without cost or other
liability at, or at any time after, the Effective Time or in which VERITAS,
Newco or such VERITAS Subsidiary has granted or received manufacturing rights,
most favored nations pricing provisions or exclusive marketing rights relating
to any product, group of products or territory, provided, however, that only
purchase orders for the top ten (10) vendors of VERITAS (as measured by 1996
VERITAS purchases) are listed in the VERITAS Disclosure Letter;
(c) contract providing for the development of technology for VERITAS
which technology is used or incorporated in any products currently distributed
by VERITAS or is anticipated to be used or incorporated in any planned products
of VERITAS or which requires VERITAS to perform specified development work for a
third party;
(d) joint venture contract or agreement or other agreement which has
involved or is reasonably expected to involve a sharing of profits or losses in
excess of $25,000 per annum with any other party;
(e) contract or commitment for the employment of any officer, employee
or consultant or any other type of contract or understanding with any officer,
employee or consultant which is not immediately terminable without cost, notice
or other liability (except for normal severance benefits available to employees
generally as set forth in any VERITAS Benefit Arrangement and except to the
extent general principles of wrongful termination laws may limit VERITAS' or any
of VERITAS' Subsidiaries ability to terminate employees at will);
(f) indenture, mortgage, promissory note, loan agreement, guarantee or
other agreement or commitment for the borrowing of money, for a line of credit
or for a leasing transaction of a type required to be capitalized in accordance
with Statement of Financial Accounting Standards No. 13 of the Financial
Accounting Standards Board (other than equipment leases entered into in the
ordinary course of business pursuant to which payments by VERITAS or Newco do
not exceed $100,000 in the aggregate);
(g) lease or other agreement under which VERITAS, Newco or any VERITAS
Subsidiary is lessee of or holds or operates any items of tangible personal
property or real property owned by any third party and under which payments to
such third party exceed $60,000 per annum;
(h) agreement or arrangement for the sale of any assets, properties or
rights having a value in excess of $25,000, other than in the ordinary course of
business consistent with past practice;
(i) agreement which restricts VERITAS, Newco or any VERITAS Subsidiary
from engaging in any aspect of its business or competing in any line of business
in any geographic area; including any agreement pursuant to which VERITAS has
granted exclusive rights to a third party;
(j) VERITAS IP Rights Agreement (as defined in Section 3.15 below),
other than standard form license agreements with end users (copies of which have
been delivered to OpenVision or its counsel) and, in any event, any agreement
that grants rights or access to any source code included in the VERITAS IP
Rights; or
(k) agreement between or among VERITAS or any VERITAS Subsidiary
regarding inter company loans, revenue or cost sharing, ownership or license of
VERITAS IP Rights, inter company royalties or dividends or similar matters.
The VERITAS Disclosure Letter further includes a schedule of the
outstanding maintenance and support obligations to be performed by VERITAS
pursuant to any contract or other arrangement, including a description of such
obligations, the names of the customers for whom such obligations must be
performed, the
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expiration date of such obligations and the fees payable to VERITAS in respect
of performance of such obligations.
3.12 NO DEFAULTS. Except as disclosed in the VERITAS SEC Documents filed
prior to the date of this Agreement, to VERITAS' knowledge, neither it, Newco
nor any of the VERITAS Subsidiaries is in default under, and there exists no
event, condition or occurrence which, after notice or lapse of time, or both,
would constitute such a default by VERITAS, Newco or any of the VERITAS
Subsidiaries under, any contract or agreement to which VERITAS, Newco or any of
the VERITAS Subsidiaries is a party and which would, if terminated or modified,
have a Material Adverse Effect on VERITAS.
3.13 CERTAIN AGREEMENTS. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will (i)
result in any payment (including, without limitation, severance, unemployment
compensation, golden parachute, bonus or otherwise) becoming due to any director
or employee of VERITAS or any of the VERITAS Subsidiaries from VERITAS or any of
the VERITAS Subsidiaries, under any VERITAS Employee Plan, VERITAS Benefit
Arrangement or otherwise, (ii) materially increase any benefits otherwise
payable under any VERITAS Employee Plan or VERITAS Benefit Arrangement or (iii)
result in the acceleration of the time of payment or vesting of any such
benefits.
3.14 TAXES. VERITAS and each of the VERITAS Subsidiaries have filed, or
caused to be filed, all Tax returns required to be filed by them (all of which
returns were true, correct and complete in all material respects) and have paid
or withheld, or caused to be paid or withheld, all Taxes that are shown on such
Tax returns as due and payable, other than such Taxes as are being contested in
good faith and for which adequate reserves have been established on the VERITAS
Balance Sheet and other than where the failure to so file, pay or withhold would
not have a Material Adverse Effect on VERITAS. All Taxes required to have been
paid or accrued by VERITAS and the VERITAS Subsidiaries for all periods prior to
the VERITAS Balance Sheet Date have been fully paid or are adequately provided
for or reflected in the VERITAS Balance Sheet. Since the VERITAS Balance Sheet
Date, no material Tax liability has been assessed, proposed to be assessed,
incurred or accrued other than in the ordinary course of business. Neither
VERITAS nor any VERITAS Subsidiary has received any notification that any
material issues have been raised (and are currently pending) by the Internal
Revenue Service or any other taxing authority, including, without limitation,
any sales tax authority, in connection with any of the Tax returns referred to
in the first sentence of Section 3.14, and no waivers of statutes of limitations
have been given or requested with respect to VERITAS or any of the VERITAS
Subsidiaries. No taxing authority is currently conducting an audit of any Tax
returns of VERITAS or, to VERITAS' knowledge, about to conduct such an audit.
Any deficiencies asserted or assessments (including interest and penalties) made
as a result of any examination by the Internal Revenue Service or by appropriate
state or departmental authorities of the Tax returns of or with respect to
VERITAS or any of the VERITAS Subsidiaries have been fully paid or are
adequately provided for in the VERITAS Balance Sheet and no material proposed
(but unassessed) additional Taxes have been asserted and no Tax liens have been
filed other than for Taxes not yet due and payable. None of VERITAS or any of
the VERITAS Subsidiaries (i) has made an election to be treated as a "consenting
corporation" under Section 341(f) of the Code or (ii) is a "personal holding
company" within the meaning of Section 542 of the Code.
3.15 INTELLECTUAL PROPERTY.
(a) The VERITAS Disclosure Letter contains a complete and accurate list
of all United States and foreign: (i) patents; (ii) copyright registrations and
mask work registrations; (iii) trademarks registrations and trademark
intent-to-use registrations; (iv) registered user licenses; (v) all
applications, provisional applications or other filings for or to obtain any of
the foregoing, and (vi) any other similar registrations or applications for
Intellectual Property rights (as defined below) owned by, or filed by, or on
behalf of, VERITAS or any of the VERITAS Subsidiaries anywhere in the world (all
of the foregoing, "VERITAS Registered Intellectual Property").
(b) The VERITAS Disclosure Letter contains a complete and accurate list
of all material software programs and other products sold or licensed by VERITAS
or any of the VERITAS Subsidiaries.
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(c) All VERITAS Intellectual Property Rights are owned free and clear of
any liens, encumbrances or security interests.
(d) VERITAS and the VERITAS Subsidiaries own, or have the right to use,
sell or license such Intellectual Property Rights (as defined below) as are
necessary or required for the conduct of their respective businesses as
presently conducted (such Intellectual Property Rights being hereinafter
collectively referred to as the "VERITAS IP Rights") and such ownership or
rights to use, sell or license are reasonably sufficient for such conduct of
their respective businesses, except for any failure to own or have the right to
use, sell or license that would not have a Material Adverse Effect on VERITAS;
(e) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not constitute a
material breach of any material instrument or material agreement in respect of
any Intellectual Property Rights licensed by or to VERITAS (the "VERITAS IP
Rights Agreements"), will not cause the forfeiture or termination or give rise
to a right of forfeiture or termination of any VERITAS IP Right or materially
impair the right of VERITAS and the VERITAS Subsidiaries or the VERITAS
Surviving Corporation to use, sell or license any VERITAS IP Right or portion
thereof (except where such breach, forfeiture, termination or impairment would
not have a Material Adverse Effect on VERITAS);
(f) There are no royalties, honoraria, fees or other payments payable by
VERITAS to any person by reason of the ownership, use, license, purchase, sale
or disposition or acquisition of the VERITAS IP Rights (other than as set forth
in the VERITAS IP Rights Agreements listed in the VERITAS Disclosure Letter);
(g) To VERITAS' knowledge, no third party is infringing or
misappropriating any Intellectual Property Rights, including VERITAS Registered
Intellectual Property, owned by VERITAS or any of the VERITAS Subsidiaries.
(h) Neither the manufacture, marketing, license, sale or intended use of
any product currently licensed or sold by VERITAS or any of the VERITAS
Subsidiaries or currently under development by VERITAS or any of the VERITAS
Subsidiaries violates any license or agreement between VERITAS or any of the
VERITAS Subsidiaries and any third party or infringes any Intellectual Property
Right of any other party; and there is no pending or, to VERITAS' knowledge,
threatened claim or litigation contesting the validity, ownership or right to
use, sell, license or dispose of any VERITAS IP Right, nor has VERITAS received
any notice asserting that any VERITAS IP Right, or the proposed use, sale,
license or disposition thereof, conflicts or will conflict with the rights of
any other party, except for any violations, infringements, claims or litigation
that would not have a Material Adverse Effect on VERITAS, nor, to VERITAS'
knowledge, is there any basis for any such assertion; and
(i) VERITAS has taken reasonable and practicable steps designed to
safeguard and maintain the secrecy and confidentiality of, and its proprietary
rights in, all material trade secrets or other confidential information
constituting VERITAS IP Rights. To VERITAS' knowledge, no current or prior
officers, employees or consultants of VERITAS claim an ownership interest in any
VERITAS IP Rights as a result of having been involved in the development of such
property while employed by or consulting with VERITAS or any of the VERITAS
Subsidiaries, or otherwise. All officers and development employees and, to
VERITAS' knowledge, all other employees and consultants of VERITAS or any of the
VERITAS Subsidiaries have executed and delivered to VERITAS or the VERITAS
Subsidiary an agreement regarding the protection of proprietary information and
the assignment to VERITAS or the VERITAS Subsidiary of all Intellectual Property
Rights arising from the services performed for VERITAS or the VERITAS Subsidiary
by such persons.
3.16 FEES AND EXPENSES. Except for the fees and expenses set forth in
VERITAS' engagement letter with Cowen & Company and a letter agreement dated
December 1, 1996 with Steven Brooks, copies of which have been provided to
OpenVision, neither VERITAS, Newco nor any of the VERITAS Subsidiaries has paid
or become obligated to pay any fee or commission to any broker, finder or
intermediary in connection with the transactions contemplated by this Agreement.
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3.17 INSURANCE. VERITAS and the VERITAS Subsidiaries maintain fire and
casualty, general liability, business interruption, directors and officers,
product liability and sprinkler and water damage insurance that VERITAS believes
to be reasonably prudent for its business. Correct and complete copies of all
such insurance policies presently in effect have been provided to OpenVision and
its counsel.
3.18 OWNERSHIP OF PROPERTY. Except (a) as disclosed in the VERITAS SEC
Documents filed prior to the date of this Agreement, (b) for liens for current
taxes not yet delinquent or (c) for liens imposed by law and incurred in the
ordinary course of business for obligations not yet due to carriers,
warehousemen, laborers, material men and the like, VERITAS and each of the
VERITAS Subsidiaries owns its real and personal property free and clear of all
security interests, mortgages, liens, charges, claims, options and encumbrances.
All real and personal property of VERITAS and each of the VERITAS Subsidiaries
is in generally good repair and is operational and usable in the operations of
VERITAS, subject to ordinary wear and tear. Neither VERITAS nor any VERITAS
Subsidiary is in violation of any zoning, building or safety ordinance,
regulation or requirement or other law or regulation applicable to the operation
of owned or leased properties (the violation of which would have a Material
Adverse Effect on VERITAS), or has received any notice of violation with which
it has not complied, except where such violation would not have a Material
Adverse Effect on VERITAS.
3.19 ENVIRONMENTAL MATTERS.
(a) During the period that VERITAS and the VERITAS Subsidiaries have
leased or owned their respective properties or owned or operated any facilities,
there have been, to VERITAS' knowledge, no disposals, releases or threatened
releases of Hazardous Materials on, from, under or about such properties or
facilities. VERITAS has no knowledge of any presence, disposals, releases or
threatened releases of Hazardous Materials on, from, under or about any of such
properties or facilities, which may have occurred prior to VERITAS or any of the
VERITAS Subsidiaries having taken possession of any of such properties or
facilities.
(b) None of the properties or facilities of VERITAS or the VERITAS
Subsidiaries is or has been the subject of an Environmental Violation. During
the time that VERITAS or the VERITAS Subsidiaries have owned or leased their
respective properties and facilities, neither VERITAS nor any of the VERITAS
Subsidiaries nor, to VERITAS' knowledge, any third party, has used, generated,
manufactured or stored on, under or about such properties or facilities or
transported to or from such properties or facilities any Hazardous Materials
(except those Hazardous Materials associated with general office use or
janitorial supplies).
(c) During the time that VERITAS or the VERITAS Subsidiaries have owned
or leased their respective properties and facilities, there has been no
litigation brought or, to VERITAS' knowledge, threatened against VERITAS or any
of the VERITAS Subsidiaries by, or any settlement reached by VERITAS or any of
the VERITAS Subsidiaries with, any party or parties alleging the presence,
disposal, release or threatened release of any Hazardous Materials on, from or
under any of such properties or facilities or relating to any alleged
Environmental Violation.
3.20 INTERESTED PARTY TRANSACTIONS. Except as disclosed in the VERITAS SEC
Documents filed prior to the date of this Agreement, no officer or director of
VERITAS or any "affiliate" or "associate" (as those terms are defined in Rule
405 promulgated under the Securities Act) of any such person has had, either
directly or indirectly, a material interest in: (i) any person or entity which
purchases from or sells, licenses or furnishes to VERITAS or any of the VERITAS
Subsidiaries any goods, property, technology or intellectual or other property
rights or services; or (ii) any contract or agreement to which VERITAS or any of
the VERITAS Subsidiaries is a party or by which it may be bound or affected.
3.21 BOARD APPROVAL. The Board of Directors of VERITAS and Newco have each
unanimously approved this Agreement and the Merger, and the Board of Directors
of VERITAS has determined that the Merger is in the best interests of the
shareholders of VERITAS and the terms of the Merger are fair to such
shareholders.
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3.22 VOTE REQUIRED. The affirmative vote of at least a majority of the
votes that holders of the outstanding shares of VERITAS Common Stock are
entitled to cast is the only vote of the holders of any class or series of
VERITAS capital stock necessary to approve this Agreement and the Merger.
3.23 INTERIM OPERATIONS OF NEWCO AND NEWCO SUBSIDIARIES. Newco, VERITAS
Sub and OpenVision Sub will be formed for the purpose of engaging in the
transactions contemplated hereby, will engage in no other business activities
and will conduct their operations only as contemplated hereby.
3.24 DISCLOSURE. No representation or warranty made by VERITAS or Newco in
this Agreement, nor any document, written information, statement, financial
statement, certificate or exhibit prepared and furnished or to be prepared and
furnished by VERITAS, Newco or their respective representatives pursuant hereto
or in connection with the transactions contemplated hereby, when taken together,
contains any untrue statement of a material fact, or omits to state a material
fact necessary to make the statements or facts contained herein or therein not
misleading in light of the circumstances under which they were furnished.
3.25 FAIRNESS OPINION. VERITAS' Board of Directors has received an opinion
as of the date hereof from Cowen & Company to the effect that, as of the date
hereof, the terms of the Merger are fair to VERITAS' shareholders from a
financial point of view.
4. OPENVISION COVENANTS
4.1 ADVICE OF CHANGES. During the period from the date of this Agreement
until the earlier of the Effective Time or the termination of this Agreement in
accordance with its terms, OpenVision will promptly advise VERITAS in writing,
(a) of any event occurring subsequent to the date of this Agreement that would
reasonably be likely to render any representation or warranty of OpenVision or
VERITAS contained in this Agreement, if made on or as of the date of such event
or the Closing Date, untrue or inaccurate in any material respect, (b) of any
event that would reasonably be likely to have a Material Adverse Effect on
OpenVision, and (c) of any material breach by OpenVision of any covenant or
agreement contained in this Agreement. To ensure compliance with this Section
4.1, OpenVision shall use its reasonable best efforts to deliver to VERITAS as
soon as practicable but in any event within thirty days after the end of each
monthly accounting period ending after the date of this Agreement and before the
earlier of the Closing Date or the termination of this Agreement in accordance
with its terms, an unaudited consolidated balance sheet, statement of operations
and statement of cash flows for OpenVision, which financial statements shall be
prepared in the ordinary course of business, in accordance with OpenVision's
books and records and GAAP and shall fairly present the consolidated financial
position of OpenVision as of their respective dates and the results of
OpenVision's operations for the periods then ended except that footnotes, as
required by GAAP, for interim financial statements may be omitted.
4.2 MAINTENANCE OF BUSINESS. During the period from the date of this
Agreement until the earlier of the Effective Time or the termination of this
Agreement in accordance with its terms, OpenVision will use its best efforts (i)
to carry on and preserve its business and its relationships with customers,
suppliers, employees and others in substantially the same manner as it has prior
to the date hereof and, (ii) to execute on its existing operating plan through
the date of the Closing. If OpenVision becomes aware of any material
deterioration in the relationship with any customer, supplier or key employee,
it will promptly bring such information to the attention of VERITAS in writing
and, if requested by VERITAS, will exert its reasonable best efforts to restore
the relationship.
4.3 CONDUCT OF BUSINESS. During the period from the date of this Agreement
until the earlier of the Effective Time or the termination of this Agreement in
accordance with its terms, OpenVision will continue to conduct its business and
maintain its business relationships in the ordinary and usual course and, except
as otherwise disclosed herein, it will not, without the prior written consent of
the President of VERITAS, which consent shall not be unreasonably withheld:
(a) borrow any money except for amounts that are not in the aggregate
material to the financial condition of OpenVision and the OpenVision
Subsidiaries, taken as a whole;
(b) enter into any transaction not in the ordinary course of its
business;
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(c) encumber or permit to be encumbered any of its assets except in the
ordinary course of its business consistent with past practice and to an extent
which is not material;
(d) dispose of any of its assets except in the ordinary course of
business, consistent with past practice;
(e) enter into any material lease or contract for the purchase or sale
or license of any property, real or personal, except in the ordinary course of
business, consistent with past practice (which shall include renewal of
agreements relating to OpenVision's principal offices);
(f) fail to maintain its equipment and other assets in good working
condition and repair according to the standards it has maintained to the date of
this Agreement, subject only to ordinary wear and tear;
(g) pay (or make any oral or written commitments or representations to
pay) any bonus, increased salary or special remuneration to any officer,
employee or consultant (except for bonuses in amounts consistent with past
practices and normal salary increases consistent with past practices not to
exceed 10% per year and that are not inconsistent with the Radford Compensation
Survey for software companies and except pursuant to existing arrangements
previously disclosed to VERITAS) or enter into or vary the terms of any
employment, consulting or severance agreement with any such person, pay any
severance or termination pay (other than payments in amounts consistent with
past practice or made in accordance with plans or agreements existing on the
date hereof), grant any stock option (except for normal grants to employees
consistent with past practices) or issue any restricted stock, or enter into or
modify any agreement or plan or increase benefits of the type described in
Section 2.8;
(h) except as required by GAAP, change accounting methods;
(i) declare, set aside or pay any cash or stock dividend or other
distribution in respect of capital stock, or redeem or otherwise acquire any of
its capital stock (other than pursuant to arrangements with terminated employees
or consultants in the ordinary course of business, consistent with past
practice);
(j) amend or terminate any contract, agreement or license to which it is
a party except those amended or terminated in the ordinary course of its
business, consistent with past practice, and which are not material in amount or
effect;
(k) lend any amount to any person or entity, other than (i) advances for
travel and expenses which are incurred in the ordinary course of business,
consistent with past practice, not material in amount and documented by receipts
for the claimed amounts, or (ii) any loans pursuant to any OpenVision Section
401(a) Plan;
(l) guarantee or act as a surety for any obligation except for
obligations of OpenVision Subsidiaries in amounts that are not material to the
financial condition of OpenVision and the OpenVision Subsidiaries, taken as a
whole;
(m) waive or release any right or claim except for the waiver or release
of non-material claims in the ordinary course of business, consistent with past
practice, or the waiver or release of rights or claims described in the
OpenVision Disclosure Letter;
(n) issue or sell any shares of its capital stock of any class (except
upon the exercise of an option, stock purchase right or warrant currently
outstanding or permitted to be granted under Section 4.3(g)), or any other of
its securities, or issue or create any warrants, obligations, subscriptions,
options (except as expressly permitted under Section 4.3(g)), convertible
securities or other commitments to issue shares of capital stock, or accelerate
the vesting or change any other term of any outstanding option or other
security;
(o) split or combine the outstanding shares of its capital stock of any
class or enter into any recapitalization or agreement affecting the number or
rights of outstanding shares of its capital stock of any class or affecting any
other of its securities;
(p) merge, consolidate or reorganize with, or acquire any entity, except
as set forth in the OpenVision Disclosure Letter;
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(q) amend its Certificate of Incorporation or Bylaws;
(r) license any OpenVision IP Rights except in the ordinary course of
business, consistent with past practice, or grant any exclusive rights (other
than to Sun Microsystems, Inc.) or agree to do any development projects with
respect to the OpenVision IP Rights;
(s) agree to any audit assessment by any Tax authority;
(t) materially change any insurance coverage or issue any certificates
of insurance except in the ordinary course of business consistent with past
practice;
(u) take any action, or permit any action within OpenVision's control,
which would (i) prevent the Merger from qualifying as a tax-free reorganization
under Section 368(a)(1)(A) of the Code, (ii) prevent the Merger from qualifying
for accounting as a pooling of interests, or fail to use its reasonable best
efforts to prevent any of its officers or directors from taking or permitting
any such action or (iii) result in a failure to maintain the trading of
OpenVision Common Stock on the Nasdaq Stock Market without causing such stock to
be listed on the New York Stock Exchange or the American Stock Exchange at or
prior to the termination of its trading on the Nasdaq Stock Market, or fail to
use its reasonable best efforts to prevent its officers or directors from taking
or permitting such action;
(v) provide or publish to its stockholders any material which might
constitute an unauthorized "prospectus" within the meaning of the Securities
Act; or
(w) agree to take, or permit any OpenVision Subsidiary to take or agree
to take, or enter into negotiations with respect to, any of the actions
described in the preceding clauses in this Section 4.3.
4.4 STOCKHOLDER APPROVAL. OpenVision will call the OpenVision Stockholders
Meeting, to be held within 45 days after the Form S-4 shall have been declared
effective by the SEC, to submit this Agreement, the Merger and related matters
for the consideration and approval of the OpenVision stockholders. Subject to
the fiduciary obligations of OpenVision's directors and officers and to
OpenVision's legal disclosure obligations, the Prospectus/Proxy Statement will
include a statement to the effect that OpenVision's Board of Directors has
recommended that OpenVision stockholders vote for the Merger. Such meeting will
be called, held and conducted, and any proxies will be solicited, in compliance
with applicable law.
4.5 OPENVISION AFFILIATE AGREEMENTS.
(a) Affiliate Agreement. Concurrently with the execution of this
Agreement, OpenVision shall cause each of those persons who may be deemed to be,
in OpenVision's reasonable judgment, an "affiliate" (within the meaning of Rule
145 of the rules and regulations promulgated by the SEC under the Securities Act
("Rule 145")) of OpenVision, which persons are all listed on Exhibit 4.5(a)
hereto, to sign and deliver to VERITAS and Newco an Affiliate Agreement in the
form of Exhibit 4.5(b) hereto (the "OpenVision Affiliate Agreements") agreeing
that such persons (a) will have no present intent to dispose of more than fifty
percent (50%) of the Newco Common Stock received in the Merger; and (b) will
make no disposition of OpenVision Common Stock, or the Newco Common Stock
received in exchange therefor: (i) in the 30 day period prior to the Closing
Date; (ii) after the Closing Date until Newco shall have publicly released its
first report of quarterly financial statements that include the combined
financial results of Newco, OpenVision and VERITAS for a period of at least 30
days of combined operations; or (iii) except in compliance with SEC Rule 145(d),
pursuant to another available exemption from the registration requirements under
the Securities Act or in a registered offering. Newco shall be entitled to place
legends on the certificates evidencing any Newco Common Stock to be received by
such OpenVision affiliates pursuant to the terms of this Agreement and the
OpenVision Agreement of Merger, and to issue appropriate stop transfer
instructions to the transfer agent for Newco Common Stock, consistent with the
terms of such OpenVision Affiliate Agreements, whether or not such OpenVision
Affiliate Agreements are actually delivered to VERITAS.
(b) Voting Agreement. Concurrently with the execution of this Agreement,
Warburg, Michael S. Fields and Geoffrey W. Squire will sign and deliver to
VERITAS and Newco a Voting Agreement in the form of Exhibit 4.5(c) hereto (the
"Voting Agreement") agreeing that such persons will vote in favor of the Merger
at the OpenVision Stockholder Meeting.
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4.6 LETTERS OF OPENVISION'S ACCOUNTANTS.
(a) OpenVision shall use its reasonable best efforts to cause to be
delivered a letter of Ernst & Young LLP, OpenVision's independent auditors,
dated a date within five business days following the date of this Agreement,
stating that firm's written concurrence with the VERITAS management's and the
OpenVision management's conclusions, respectively, as to the appropriateness of
pooling of interests accounting for the Merger under Accounting Principles Board
Opinion No. 16, if closed and consummated in accordance with this Agreement.
(b) OpenVision shall use its reasonable best efforts to cause to be
delivered to VERITAS a letter of Ernst & Young LLP dated a date within two
business days before the date on which the Form S-4 shall become effective and
addressed to VERITAS, in form and substance reasonably satisfactory to VERITAS
and customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the Form S-4.
4.7 PROSPECTUS/PROXY STATEMENT. OpenVision will mail to its stockholders
in a timely manner, for the purpose of considering and voting upon the Merger at
the OpenVision Stockholders Meeting, the Prospectus/Proxy Statement in the Form
S-4. OpenVision will promptly provide to VERITAS all information relating to its
business or operations necessary for inclusion in the Prospectus/Proxy Statement
to satisfy all requirements of applicable state and federal securities laws.
None of the information relating to OpenVision (or, to OpenVision's knowledge,
any other person, contained in any document, certificate or other writing
furnished or to be furnished by OpenVision) included in (i) the Prospectus/Proxy
Statement at the time the Proxy Statement is mailed or at the time of the
meeting of OpenVision's stockholders to vote on the Merger or at the Effective
Time, as then amended or supplemented, or (ii) the Form S-4 at the time the Form
S-4 becomes effective or at the Effective Time, as then amended or supplemented,
will contain any untrue statement of a material fact or will omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading
or necessary to correct any statement which has become false or misleading in
any earlier communication with respect to the solicitation of proxies for the
VERITAS and OpenVision stockholder meetings. The Prospectus/Proxy Statement, as
it relates to OpenVision, will comply as to form in all material respects with
the requirements of the Exchange Act and the rules and regulations thereunder in
effect at the time the Prospectus/Proxy Statement is mailed.
4.8 REGULATORY APPROVALS. OpenVision will promptly execute and file, or
join in the execution and filing, of any application or other document that may
be necessary in order to obtain the authorization, approval or consent of any
governmental body, federal, state, local or foreign, which may be reasonably
required, or which VERITAS or Newco may reasonably request, in connection with
the consummation of the transactions contemplated by this Agreement. OpenVision
will use its reasonable best efforts to promptly obtain all such authorizations,
approvals and consents. In addition, OpenVision shall use its reasonable best
efforts to cause Warburg, as promptly as practicable after the execution of this
Agreement, to file with the Federal Trade Commission (the "FTC") and the
Antitrust Division of the Department of Justice (the "DOJ"), a pre-merger
notification report under the HSR Act.
4.9 NECESSARY CONSENTS. OpenVision will use its reasonable best efforts to
obtain such written consents and to take such other actions as may be necessary
or appropriate in addition to those set forth in Section 4.8 to allow the
consummation of the transactions contemplated hereby and to allow the OpenVision
Surviving Corporation to carry on OpenVision's business after the Effective
Time.
4.10 ACCESS TO INFORMATION. OpenVision will allow VERITAS and its agents
reasonable access to the files, books, records, technology and offices of
OpenVision and each OpenVision Subsidiary, including, without limitation, any
and all information relating to OpenVision's Taxes, commitments, contracts,
leases, licenses and real, personal, intellectual and intangible property and
financial condition. OpenVision will use its reasonable best efforts to cause
its accountants to cooperate with VERITAS and its agents in making available to
VERITAS all financial information reasonably requested, including, without
limitation, the right to examine all working papers pertaining to all Tax
returns and financial statements prepared or audited by such accountants.
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4.11 SATISFACTION OF CONDITIONS PRECEDENT. OpenVision will use its
reasonable best efforts to satisfy or cause to be satisfied all the conditions
precedent that are set forth in Section 8 and to cause the Merger and the other
transactions contemplated by this Agreement to be consummated.
4.12 NO OTHER NEGOTIATIONS. From and after the date of this Agreement
until the earlier of the Effective Time or the termination of this Agreement in
accordance with its terms, OpenVision shall not, directly or indirectly, (a)
solicit or initiate discussions, or, except to the extent that OpenVision has
received a Superior Proposal (as defined below), engage in negotiations with any
person or, except to the extent that OpenVision has received a Superior Proposal
(as defined below), take any other action intended, designed or reasonably
likely to facilitate the efforts of any person, other than VERITAS and Newco,
relating to the possible acquisition of OpenVision or any of the OpenVision
Subsidiaries (whether by way of merger, purchase of capital stock, purchase of
assets or otherwise) or any material portion of its or their capital stock or
assets, (b) except to the extent that OpenVision has received a Superior
Proposal, and provided that OpenVision has required the party submitting the
Superior Proposal to execute a non-disclosure agreement comparable to the one
referred to in Section 9.3 hereof, provide non-public information with respect
to OpenVision or any of the OpenVision Subsidiaries to any person, other than
VERITAS and Newco, relating to the possible acquisition of OpenVision or any of
the OpenVision Subsidiaries (whether by way of merger, purchase of capital
stock, purchase of assets or otherwise) or any material portion of its or their
capital stock or assets, (c) enter into an agreement with any person, other than
VERITAS and Newco, providing for the possible acquisition of OpenVision or any
of the OpenVision Subsidiaries (whether by way of merger, purchase of capital
stock, purchase of assets or otherwise) or any material portion of its or their
capital stock or assets, or (d), except to the extent that OpenVision has
received a Superior Proposal, make or authorize any statement, recommendation or
solicitation in support of any possible acquisition of OpenVision or any of the
OpenVision Subsidiaries (whether by way of merger, purchase of capital stock,
purchase of assets or otherwise) or any material portion of its or their capital
stock or assets by any person, other than by VERITAS and Newco. A "Superior
Proposal" shall mean a written, unsolicited proposal relating to the possible
acquisition of OpenVision or any of the OpenVision Subsidiaries (whether by way
of merger, purchase of capital stock, purchase of assets or otherwise) or any
material portion of its or their capital stock or assets by any person other
than by VERITAS or Newco, which proposal is, in the reasonable good faith
judgment of the Board, after consultation with its legal and financial advisors,
on financial and other terms more favorable to the stockholders of OpenVision
than the terms of the Merger and which is made by a party that can reasonably be
expected to consummate the transaction on the terms proposed. If OpenVision or
any of its Subsidiaries receives any offer or proposal to enter negotiations
relating to any of the above, OpenVision shall, as promptly as practicable,
notify VERITAS or Newco thereof, including information as to the identity of the
party making any such offer or proposal and the specific terms of such offer or
proposal, as the case may be and (b) provide VERITAS or Newco with the same
information (if any) OpenVision provides to the party making the Superior
Proposal. Nothing contained in this Agreement (but subject to the terms hereof)
will prevent the Board of Directors of OpenVision, if OpenVision has received a
Superior Proposal, from recommending such Superior Proposal to OpenVision's
stockholders, if the Board determines that such action is required by its
fiduciary duties under applicable law. In such case, the Board of Directors of
OpenVision may withdraw or modify its recommendation concerning the approval of
this Agreement and the Merger.
5. VERITAS AND NEWCO COVENANTS
5.1 ADVICE OF CHANGES. During the period from the date of this Agreement
until the earlier of the Effective Time or the termination of this Agreement in
accordance with its terms, VERITAS will promptly advise OpenVision in writing
(a) of any event occurring subsequent to the date of this Agreement that would
reasonably be likely to render any representation or warranty of VERITAS, Newco
or OpenVision contained in this Agreement, if made on or as of the date of such
event or the Closing Date, untrue or inaccurate in any material respect, (b) of
any event that would reasonably be likely to have a Material Adverse Effect on
VERITAS, and (c) of any material breach by VERITAS or Newco of any covenant or
agreement contained in this Agreement. To ensure compliance with this Section
5.1, VERITAS shall use its reasonable best efforts to deliver to OpenVision as
soon as practicable but in any event within thirty days after the end of each
monthly accounting period ending after the date of this Agreement and before the
earlier of the Closing Date
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or the termination of this Agreement in accordance with its terms, an unaudited
consolidated balance sheet, statement of operations and statement of cash flows
for VERITAS, which financial statements shall be prepared in the ordinary course
of business, in accordance with VERITAS books and records and GAAP and shall
fairly present the consolidated financial position of VERITAS as of their
respective dates and the results of VERITAS operations for the periods then
ended except that footnotes, as required by GAAP for interim financial
statements, may be omitted.
5.2 MAINTENANCE OF BUSINESS. During the period from the date of this
Agreement until the earlier of the Effective Time or the termination of this
Agreement in accordance with its terms, VERITAS will use its best efforts (i) to
carry on and preserve its business and its relationships with customers,
suppliers, employees and others in substantially the same manner as it has prior
to the date hereof, and (ii) to execute on its existing operating plan through
the date of Closing. If VERITAS becomes aware of any material deterioration in
the relationship with any customer, supplier or key employee, it will promptly
bring such information to the attention of OpenVision in writing and, if
requested by OpenVision, will exert its reasonable best efforts to restore the
relationship.
5.3 CONDUCT OF BUSINESS. During the period from the date of this Agreement
until the earlier of the Effective Time or the termination of this Agreement in
accordance with its terms, VERITAS will continue to conduct its business and
maintain its business relationships in the ordinary and usual course and, except
as otherwise disclosed herein, it will not, without the prior written consent of
OpenVision, which consent shall not be unreasonably withheld:
(a) borrow any money except for amounts that are not in the aggregate
material to the financial condition of VERITAS, Newco and the VERITAS
Subsidiaries, taken as a whole;
(b) enter into any transaction not in the ordinary course of its
business, except for those transactions described in the VERITAS Disclosure
Letter;
(c) encumber or permit to be encumbered any of its assets except in the
ordinary course of its business, consistent with past practice, and to an extent
which is not material;
(d) dispose of any of its assets, except in the ordinary course of
business, consistent with past practice (which shall include renewal of
agreements relating to VERITAS' principal offices);
(e) enter into any material lease or contract for the purchase or sale
or license of any property, real or personal, except in the ordinary course of
business, consistent with past practice;
(f) fail to maintain its equipment and other assets in good working
condition and repair according to the standards it has maintained to the date of
this Agreement, subject only to ordinary wear and tear;
(g) pay (or make any oral or written commitments or representations to
pay) any bonus, increased salary or special remuneration to any officer,
employee or consultant (except for bonuses in amounts consistent with past
practices, and normal salary increases consistent with past practices not to
exceed 10% per year and that are not inconsistent with the Radford Compensation
Survey of software companies and except pursuant to existing arrangements
previously disclosed to OpenVision) or enter into or vary the terms of any
employment, consulting or severance agreement with any such person, pay any
severance or termination pay (other than payments in amounts consistent with
past practices or made in accordance with plans or agreements existing on the
date hereof), grant any stock option (except for normal grants to employees
consistent with past practices) or issue any restricted stock, or enter into or
modify any agreement or plan of the type described in Section 3.8, (except for
amendments to the VERITAS Plans to increase the number of shares reserved
thereunder to the number set forth in Section 3.2(b) hereof and to accommodate
the assumption of such Plans by Newco in the Merger);
(h) except as required by GAAP, change accounting methods;
(i) declare, set aside or pay any cash or stock dividend or other
distribution in respect of capital stock, or redeem or otherwise acquire any of
its capital stock (other than pursuant to arrangements with terminated employees
or consultants in the ordinary course of business, consistent with past
practice);
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(j) amend or terminate any contract, agreement or license to which it is
a party except those amended or terminated in the ordinary course of its
business, consistent with past practice, and which are not material in amount or
effect;
(k) lend any amount to any person or entity, other than (i) advances for
travel and expenses which are incurred in the ordinary course of business,
consistent with past practice, not material in amount and documented by receipts
for the claimed amounts, or (ii) any loans pursuant to any VERITAS Section
401(a) Plan;
(l) guarantee or act as a surety for any obligation except for
obligations of Newco or any of the VERITAS Subsidiaries in amounts that are not
material to the financial condition of VERITAS, Newco and the VERITAS
Subsidiaries, taken as a whole;
(m) waive or release any right or claim except for the waiver or release
of non-material claims in the ordinary course of business, consistent with past
practice, or the waiver or release of rights or claims described in the VERITAS
Disclosure Letter;
(n) except in connection with the any transaction described in the
VERITAS Disclosure Letter, issue or sell any shares of its capital stock of any
class (except upon the exercise of an option or warrant currently outstanding or
permitted to be granted by Section 5.3(g)), or any other of its securities, or
issue or create any warrants, obligations, subscriptions, options (except as
expressly permitted by Section 5.3(g)), convertible securities or other
commitments to issue shares of capital stock, or accelerate the vesting or
change any other term of any outstanding option or other security;
(o) split or combine the outstanding shares of its capital stock of any
class or enter into any recapitalization or agreement affecting the number or
rights of outstanding shares of its capital stock of any class or affecting any
other of its securities;
(p) merge, consolidate or reorganize with, or acquire any entity that
would preclude or interfere with the Merger;
(q) amend its Articles of Incorporation or Bylaws, or amend the
Certificate of Incorporation or Bylaws of Newco, except in connection with any
transaction described in the VERITAS Disclosure Letter;
(r) license any VERITAS IP Rights except in the ordinary course of
business, consistent with past practice;
(s) agree to any audit assessment by any Tax authority;
(t) materially change any insurance coverage or issue any certificates
of insurance except in the ordinary course of business consistent with past
practices;
(u) take any action, or permit any action within VERITAS' control, which
would (i) prevent the Merger from qualifying as a tax-free reorganization under
Section 368(a)(1)(A) of the Code, (ii) prevent the Merger from qualifying for
accounting as a pooling of interests, or fail to use its reasonable best efforts
to prevent any of its officers or directors from taking or permitting any such
action or (iii) result in a failure to maintain the trading of VERITAS Common
Stock on the Nasdaq Stock Market without causing such stock to be listed on the
New York Stock Exchange or the American Stock Exchange at or prior to the
termination of its trading on the Nasdaq Stock Market, or fail to use its
reasonable best efforts to prevent its officers or directors from taking or
permitting such action;
(v) provide or publish to its shareholders any material which might
constitute an unauthorized "prospectus" within the meaning of the Securities
Act; or
(w) agree to take, or permit Newco or any VERITAS Subsidiary to take or
agree to take, or enter into negotiations with respect to, any of the actions
described in the preceding clauses in this Section 5.3.
5.4 SHAREHOLDER APPROVAL. VERITAS will call the VERITAS Shareholders
Meeting, to be held within 45 days after the Form S-4 shall have been declared
effective by the SEC, to submit the Merger and related matters for the
consideration and approval of the VERITAS shareholders. Subject to the fiduciary
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obligations of VERITAS' directors and officers and to VERITAS' legal disclosure
obligations, the Prospectus/Proxy Statement will include a statement to the
effect that VERITAS' Board of Directors has recommended that VERITAS
shareholders vote in favor of the Merger. Such meeting will be called, held and
conducted, and any proxies will be solicited, in compliance with applicable law.
5.5 VERITAS AFFILIATE AGREEMENTS.
(a) Affiliate Agreement. Concurrently with the execution of this
Agreement, VERITAS shall cause each of those persons who may be deemed to be, in
VERITAS' reasonable judgment, an "affiliate" (within the meaning of Rule 145 of
the rules and regulations promulgated by the SEC under the Securities Act ("Rule
145")) of VERITAS, which persons are all listed on Exhibit 5.5(a) hereto, to
sign and deliver to OpenVision an Affiliate Agreement in the form of Exhibit
5.5(b) hereto (the "VERITAS Affiliate Agreements") agreeing that such persons
(a) will have no present intent to dispose of more than fifty percent (50%) of
the Newco Common Stock received in the Merger; and (b) will make no disposition
of VERITAS Common Stock, or the Newco Common Stock received in exchange
therefor: (i) in the 30 day period prior to the Closing Date; (ii) after the
Closing Date until Newco shall have publicly released its first report of
quarterly financial statements that include the combined financial results of
Newco, OpenVision and VERITAS for a period of at least 30 days of combined
operations; or (iii) except in compliance with SEC Rule 145(d), pursuant to
another available exemption from the registration requirements under the
Securities Act or in a registered offering. Newco shall be entitled to place
legends on the certificates evidencing any Newco Common Stock to be received by
such VERITAS affiliates pursuant to the terms of this Agreement and the VERITAS
Agreement of Merger, and to issue appropriate stop transfer instructions to the
transfer agent for Newco Common Stock, consistent with the terms of such VERITAS
Affiliate Agreements, whether or not such VERITAS Affiliate Agreements are
actually delivered to OpenVision.
(b) Voting Agreement. Concurrently with the execution of this Agreement,
each of the persons listed in Exhibit 5.5(a) will sign and deliver to OpenVision
a Voting Agreement in the form of Exhibit 5.5(c) hereto (the "VERITAS Voting
Agreement") agreeing that such persons will vote in favor of the Merger at the
VERITAS Stockholder Meeting.
5.6 LETTER OF VERITAS' ACCOUNTANTS.
(a) VERITAS shall use its reasonable best efforts to cause to be
delivered a letter of Ernst & Young LLP, VERITAS' independent auditors, dated a
date within five business days following the date of this Agreement, stating
that firm's written concurrence with VERITAS management's and the OpenVision
management's conclusions, respectively, as to the appropriateness of pooling of
interests accounting for the Merger under Accounting Principles Board Opinion
No. 16, if closed and consummated in accordance with this Agreement.
(b) VERITAS shall use its reasonable best efforts to cause to be
delivered to OpenVision a letter of Ernst & Young LLP, dated a date within two
business days before the date on which the Form S-4 shall become effective and
addressed to OpenVision, in form and substance reasonably satisfactory to
OpenVision and customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Form S-4.
5.7 PROSPECTUS/PROXY STATEMENT. VERITAS will mail to its shareholders in a
timely manner, for the purpose of considering and voting upon the Merger at the
VERITAS Shareholders Meeting, the Prospectus/Proxy Statement in the Form S-4.
VERITAS and Newco will prepare and file the Proxy Statement/Prospectus with the
SEC as promptly as practicable, and each will use its respective best reasonable
efforts to cause the Form S-4 to become effective as soon after such filing as
practicable. In this regard, VERITAS and Newco will advise OpenVision promptly
as to the time at which the Form S-4 becomes effective and of the issuance by
the SEC of any stop order suspending the effectiveness of the Form S-4 or the
initiation of any proceedings for such purpose and each will use its respective
reasonable best efforts to prevent the issuance of any stop order and to obtain
as soon as possible the lifting thereof, if issued. Until the Effective Time,
VERITAS and Newco will advise OpenVision promptly of any requirement of the SEC
for any amendment or supplement of the Form S-4 or for additional information,
and will not at any time file any
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amendment of or supplement to the prospectus contained therein (or to the
prospectus filled pursuant to Rule 424(b) of the SEC) (the "Prospectus") which
shall not have been previously submitted to OpenVision in reasonable time prior
to the proposed filing thereof or to which OpenVision shall reasonably object or
which is not in compliance in all material respects with the Securities Act and
the rules and regulations issued by the SEC thereunder. None of the information
relating to VERITAS or Newco (or, to VERITAS' or Newco's knowledge, any other
person, contained in any document, certificate or other writing furnished or to
be furnished by VERITAS) included in (i) the Prospectus/Proxy Statement at the
time the Prospectus/Proxy Statement is mailed or at the time of the meeting of
VERITAS shareholders to vote on the Merger or at the time of the meeting of the
stockholders of OpenVision to vote on the Merger or at the Effective Time, as
then amended or supplemented, or (ii) the Form S-4 at the time the Form S-4
becomes effective or at the Effective Time, as then amended or supplemented,
will contain any untrue statement of a material fact or will omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading
or necessary to correct any statement which has become false or misleading in
any earlier communication with respect to the solicitation of proxies for the
OpenVision and VERITAS stockholder meetings. From and after the date the Form
S-4 becomes effective and until the Effective Time, if any event known to
VERITAS or Newco occurs as a result of which the Prospectus would include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading, or
if it is necessary at any time to amend the Form S-4 or the Prospectus to comply
with the Securities Act, VERITAS and Newco will promptly notify OpenVision and
will prepare an amended or supplemented Form S-4 or Prospectus which will
correct such statement or omission and will use its reasonable best efforts to
cause any such amendment to become effective as promptly as possible. The
Prospectus/Proxy Statement, as it relates to VERITAS and Newco, will comply as
to form in all material respects with the requirements of the Exchange Act and
the rules and regulations thereunder in effect at the time the Prospectus/Proxy
Statement is mailed.
5.8 STATE SECURITIES LAW COMPLIANCE. VERITAS and Newco shall use their
respective reasonable best efforts to (i) qualify the Newco Common Stock to be
issued pursuant to the Merger under the state securities or "blue sky" laws of
every jurisdiction of the United States in which (a) any registered stockholder
of OpenVision has an address on the records of OpenVision's transfer agent on
the record date for determining the OpenVision stockholders entitled to notice
of and to vote on the Merger, (b) any registered shareholder of VERITAS has an
address on the records of VERITAS' transfer agent on the record date for
determining the VERITAS shareholders entitled to notice of and to vote on the
Merger, and (c) a Nasdaq Stock Market or other exemption from the qualification
requirements under such laws is unavailable, and (ii) qualify the Stock Rights
to be assumed by VERITAS pursuant to Sections 1.8 and 1.9 hereof under the state
securities or "blue sky" laws of every jurisdiction of the United States in
which (a) the records of VERITAS or OpenVision, as of the Closing Date, indicate
that a holder of such Stock Rights resides and (b) a Nasdaq Stock Market or
other exemption from the qualification requirements under such laws is
unavailable;
5.9 REGULATORY APPROVALS. VERITAS and Newco will promptly execute and
file, or join in the execution and filing, of any application or other document
that may be necessary in order to obtain the authorization, approval or consent
of any governmental body, federal, state, local or foreign which may be
reasonably required, or which OpenVision may reasonably request, in connection
with the consummation of the transactions contemplated by this Agreement.
VERITAS and Newco will each use its respective reasonable best efforts to
promptly obtain all such authorizations, approvals and consents. Without
limiting the generality of the foregoing, as promptly as practicable after the
execution of this Agreement, VERITAS and Newco shall file with the FTC and the
DOJ a pre-merger notification report under the HSR Act.
5.10 NECESSARY CONSENTS. VERITAS and Newco will each use its respective
reasonable best efforts to obtain such written consents and to take such other
actions as may be necessary or appropriate in addition to those set forth in
Section 5.9 to allow the consummation of the transactions contemplated hereby
and to allow the VERITAS Surviving Corporation to carry on VERITAS' business
after the Effective Time.
5.11 ACCESS TO INFORMATION. VERITAS will allow OpenVision and its agents
reasonable access to the files, books, records and offices of VERITAS, Newco and
each VERITAS Subsidiary, including, without limitation, any and all information
relating to VERITAS Taxes, commitments, contracts, leases, licenses and
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real, personal and intangible property and financial condition. VERITAS will use
its reasonable best efforts to cause its accountants to cooperate with
OpenVision and its agents in making available to OpenVision all financial
information reasonably requested, including, without limitation, the right to
examine all working papers pertaining to all Tax returns and financial
statements prepared or audited by such accountants.
5.12 SATISFACTION OF CONDITIONS PRECEDENT. VERITAS and Newco will each use
its respective reasonable best efforts to satisfy or cause to be satisfied all
the conditions precedent that are set forth in Section 7 and to cause the Merger
and the other transactions contemplated by this Agreement to be consummated.
5.13 OPENVISION EMPLOYEE PLANS AND BENEFIT ARRANGEMENTS; SEVERANCE. The
OpenVision Employee Plans and OpenVision Benefit Arrangements listed in the
OpenVision Disclosure Letter that are in effect at the date of this Agreement
shall, to the extent practicable, remain in effect until OpenVision employees
are allowed to participate in comparable VERITAS Employee Plans and VERITAS
Benefit Arrangements. Newco will use reasonable efforts to arrange that, as soon
as practicable after the Effective Time, the VERITAS Benefit Arrangements and
VERITAS Employee Plans provide the same or a comparable benefit or plan to each
employee of OpenVision as is provided to VERITAS' employees who are similarly
situated. The VERITAS Benefit Arrangements and VERITAS Employee Plans shall give
full credit for each participant's period of service with OpenVision and each
ERISA Affiliate prior to the Effective Time for all purposes for which such
service was recognized under OpenVision Benefit Arrangements or OpenVision
Employee Plans prior to the Effective Time. From and after the Effective Time,
Newco shall provide all employees of OpenVision and its ERISA Affiliates with
the opportunity to participate in any employee stock option or other incentive
compensation plan of Newco and its ERISA Affiliates on substantially the same
terms and subject to substantially the same conditions as are available to
similarly situated employees of VERITAS.
5.14 INDEMNIFICATION AND INSURANCE.
(a) OpenVision Rights.
(i) The Certificate of Incorporation and Bylaws of the OpenVision
Surviving Corporation shall contain the provisions with respect to
indemnification and limitation of liability for monetary damages set forth in
the Certificate of Incorporation and Bylaws of OpenVision on the date of this
Agreement, which provisions shall not be amended, repealed or otherwise modified
for a period of ten years from the Effective Time in any manner that would
adversely affect the rights thereunder of individuals who at the Effective Time
were directors, officers, employees or agents of OpenVision, unless such
modification is required by law.
(ii) From and after the Effective Time, Newco and the OpenVision
Surviving Corporation shall honor, in all respects, all of the indemnity
agreements entered into prior to the date hereof by OpenVision with its
respective officers and directors, copies of which have been provided to VERITAS
or to its counsel, whether or not such persons continue in their positions with
Newco or the OpenVision Surviving Corporation following the Effective Time.
Following the Effective Time, VERITAS' form of indemnification agreement shall
be adopted as the form of indemnification agreement for Newco and the OpenVision
Surviving Corporation and all continuing officers and directors of Newco or the
OpenVision Surviving Corporation shall be afforded the opportunity to enter into
such indemnification agreement, and shall be covered by such directors' and
officers' liability insurance policies as Newco shall have in effect from time
to time.
(iii) After the Effective Time, Newco and the OpenVision Surviving
Corporation will, jointly and severally, to the fullest extent permitted under
applicable law, indemnify and hold harmless, each present and former director or
officer of OpenVision or any OpenVision subsidiary (collectively, for purposes
of Section 5.14(a), the "Indemnified Parties") against any costs or expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and amounts paid in settlement in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal administrative or
investigative, to the extent arising out of or pertaining to any action or
omission in his or her capacity as a director or officer of OpenVision arising
out of or pertaining to the transactions contemplated by this Agreement for a
period of six years after the date hereof. In the event of any such claim,
action, suit, proceeding or investigation (whether
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arising before or after the Effective Time), (a) any counsel retained for the
defense of the Indemnified Parties for any period after the Effective Time will
be reasonably satisfactory to the Indemnified Parties, (b) after the Effective
Time, the OpenVision Surviving Corporation will pay the reasonable fees and
expenses of such counsel promptly after statements therefor are received, and
(c) the OpenVision Surviving Corporation will cooperate in the defense of any
such matter; provided, however, that the OpenVision Surviving Corporation will
not be liable for any settlement effected without its written consent (which
consent will not be unreasonably withheld); and provided, further, that, in the
event that any claim or claims for indemnification are asserted or made within
such six-year period, all rights to indemnification in respect of any such claim
or claims will continue until the disposition of any and all such claims. The
Indemnified Parties as a group may be defended by only one law firm (in addition
to local counsel) with respect to any single action unless there is, under
applicable standards of professional conduct, a conflict on any significant
issue between the positions of any two or more Indemnified Parties.
(iv) For the entire period from and after the Effective Time until at
least six years after the Effective Time, Newco will cause the OpenVision
Surviving Corporation to use its commercially reasonable efforts to maintain in
effect directors' and officers' liability insurance covering those persons who
are currently covered by OpenVision's directors' and officers' liability
insurance policy (a copy of which has been heretofore delivered to VERITAS) of
at least the same coverage and amounts, containing terms that are no less
advantageous with respect to claims arising at or before the Effective Time than
OpenVision's policies in effect immediately prior to the Effective Time to those
applicable to the then current directors and officers of Newco and the VERITAS
Surviving Corporation; provided, however, that in no event shall Newco or the
OpenVision Surviving Corporation be required to expend in excess of 150% of the
annual premium currently paid by OpenVision for such coverage in which event
Newco shall purchase such coverage as is available for such 150% of such annual
premium.
(v) Newco and the OpenVision Surviving Corporation shall pay all
expenses, including attorneys' fees, that may be incurred by any Indemnified
Parties in enforcing the indemnity and other obligations provided for in this
Section 5.14(a).
(b) VERITAS Rights.
(i) The Articles of Incorporation and Bylaws of the VERITAS Surviving
Corporation shall contain the provisions with respect to indemnification and
limitation of liability for monetary damages set forth in the Articles of
Incorporation and Bylaws of VERITAS on the date of this Agreement, which
provisions shall not be amended, repealed or otherwise modified for a period of
ten years from the Effective Time in any manner that would adversely affect the
rights thereunder of individuals who at the Effective Time were directors,
officers, employees or agents of VERITAS, unless such modification is required
by law.
(ii) From and after the Effective Time, Newco and the VERITAS
Surviving Corporation shall honor, in all respects, all of the indemnity
agreements entered into prior to the date hereof by VERITAS with its respective
officers and directors, whether or not such persons continue in their positions
with Newco or the VERITAS Surviving Corporation following the Effective Time.
Following the Effective Time, VERITAS' form of indemnification agreement shall
be adopted as the form of indemnification agreement for Newco and the VERITAS
Surviving Corporation and all continuing officers and directors of Newco or the
VERITAS Surviving Corporation shall be afforded the opportunity to enter into
such indemnification agreement, and shall be covered by such directors' and
officers' liability insurance policies as Newco shall have in effect from time
to time.
(iii) After the Effective Time, Newco and the VERITAS Surviving
Corporation will, jointly and severally, to the fullest extent permitted under
applicable law, indemnify and hold harmless, each present and former director or
officer of VERITAS or any of its subsidiaries (collectively, for purposes of
Section 5.14(b), the "Indemnified Parties") against any costs or expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and amounts paid in settlement in connection with any claim, action,
suit, proceeding or investigation, whether civil, criminal administrative or
investigative, to the extent arising out of or pertaining to any action or
omission in his or her capacity as a director or officer of VERITAS arising out
of or pertaining to the transactions contemplated by this Agreement for a period
of six
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years after the date hereof. In the event of any such claim, action, suit,
proceeding or investigation (whether arising before or after the Effective
Time), (a) any counsel retained for the defense of the Indemnified Parties for
any period after the Effective Time will be reasonably satisfactory to the
Indemnified Parties, (b) after the Effective Time, the VERITAS Surviving
Corporation will pay the reasonable fees and expenses of such counsel, promptly
after statements therefor are received, and (c) the VERITAS Surviving
Corporation will cooperate in the defense of any such matter; provided, however,
that the VERITAS Surviving Corporation will not be liable for any settlement
effected without its written consent (which consent will not be unreasonably
withheld); and provided, further, that, in the event that any claim or claims
for indemnification are asserted or made within such six-year period, all rights
to indemnification in respect of any such claim or claims will continue until
the disposition of any and all such claims. The Indemnified Parties as a group
may be defended by only one law firm (in addition to local counsel) with respect
to any single action unless there is, under applicable standards of professional
conduct, a conflict on any significant issue between the positions of any two or
more Indemnified Parties.
(iv) For the entire period from and after the Effective Time until at
least six years after the Effective Time, Newco will cause the VERITAS Surviving
Corporation to use its commercially reasonable efforts to maintain in effect
directors' and officers' liability insurance covering those persons who are
currently covered by VERITAS' directors' and officers' liability insurance
policy (a copy of which has been heretofore delivered to OpenVision) of at least
the same coverage and amounts, containing terms that are no less advantageous
with respect to claims arising at or before the Effective Time than VERITAS'
policies in effect immediately prior to the Effective Time to those applicable
to the then current directors and officers of Newco and the VERITAS Surviving
Corporation; provided, however, that in no event shall Newco or the VERITAS
Surviving Corporation be required to expend in excess of 150% of the annual
premium currently paid by VERITAS for such coverage in which event Newco shall
purchase such coverage as is available for such 150% of such annual premium.
(v) Newco and the VERITAS Surviving Corporation shall pay all
expenses, including attorneys' fees, that may be incurred by any Indemnified
Parties in enforcing the indemnity and other obligations provided for in this
Section 5.14(b).
(c) In the event Newco, the OpenVision Surviving Corporation or the
VERITAS Surviving Corporation or any of their respective successors or assigns
(a) consolidates with or merges into any other person or entity and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger, or (b) transfers or conveys all or a substantial portion of its
properties or assets to any person or entity, then, and in each such case, to
the extent necessary to effectuate the purposes of this Section 5.14(c), proper
provision shall be made so that the successors and the assigns of Newco, the
OpenVision Surviving Corporation and the VERITAS Surviving Corporation assume
the obligations set forth in this Section 5.14.
(d) The provisions of this Section 5.14 shall survive the Effective Time
and are intended to be for the benefit of, and shall be enforceable by, each
officer and director of OpenVision or VERITAS described in Sections 5.14(a)(i)
and 5.14(b)(i) and his or her heirs and representatives.
5.15 REGISTRATION RIGHTS AGREEMENT. Prior to the Effective Time, Newco,
OpenVision and the stockholders of OpenVision listed under Section 5.15 of the
OpenVision Disclosure Letter shall enter into a Registration Rights Agreement in
the form attached hereto as Exhibit 5.15 (the "Registration Rights Agreement").
5.16 EMPLOYEE MATTERS. Prior to the Effective Time, VERITAS, Newco and
OpenVision shall mutually agree upon an integration plan relating to the Merger
which shall include, among other things, provisions relating to compensation and
other equity incentives for employees of OpenVision.
5.17 BOARD REPRESENTATION. Newco shall appoint Geoffrey W. Squire and
William H. Janeway to Newco's Board of Directors as of the Effective Time. In
addition, at the Effective Time, Newco shall execute a Nomination Agreement in
the form attached hereto as Exhibit 5.17 (the "Nomination Agreement") providing
for the following rights of Warburg:
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(a) provided that Warburg holds a number of shares of Newco Common Stock
in excess of fifteen percent (15%) of the outstanding Common Stock of Newco,
Newco shall nominate, in connection with each stockholder solicitation relating
to the election of directors, two candidates selected by Warburg, consisting of
one representative of Warburg and one independent person reasonably acceptable
to Newco; or
(b) provided that Warburg holds a number of shares of Newco Common Stock
equal to or less than fifteen percent (15%) but exceeding five percent (5%) of
the outstanding Common Stock of Newco, Newco shall nominate one candidate
selected by Warburg.
At such time as Warburg ceases to hold in excess of five percent (5%) of
the outstanding Common Stock of Newco, the Nomination Agreement will terminate
and will have no further force or effect.
6. CLOSING MATTERS
6.1 THE CLOSING. Subject to the termination of this Agreement as provided
in Section 9 below, the Closing of the transactions contemplated by this
Agreement (the "Closing") will take place at the offices of Fenwick & West, Two
Palo Alto Square, Palo Alto, California 94306 on a date (the "Closing Date") and
at a time to be mutually agreed upon by the parties, which date shall be as soon
as practicable after the OpenVision Stockholders Meeting and the VERITAS
Shareholders Meeting and, in any event, no later than the third business day
after all conditions to Closing set forth herein shall have been satisfied or
waived, unless another place, time and date is mutually selected by OpenVision
and VERITAS. Concurrently with the Closing, the Agreements of Merger will be
filed in the offices of the Secretary of the State of Delaware and the VERITAS
Agreement of Merger shall be filed in the offices of the Secretary of State of
the State of California.
6.2 EXCHANGE OF CERTIFICATES.
(a) Exchange Agent. ChaseMellon Shareholder Services LLC shall act as
exchange agent (the "Exchange Agent") in the Merger. Promptly after the
Effective Time, Newco shall deposit with the Exchange Agent, for the benefit of
the holders of shares of VERITAS Common Stock and OpenVision Common Stock, for
exchange in accordance with this Agreement and the Agreements of Merger,
certificates representing the shares of Newco Common Stock (such shares of Newco
Common Stock, together with any dividends or distributions with respect thereto,
being hereinafter referred to as the "Exchange Fund") issuable pursuant to this
Agreement and the Agreements of Merger, and cash in an amount sufficient for
payment in lieu of fractional shares pursuant to Section 1.7, in exchange for
outstanding shares of VERITAS Common Stock and OpenVision Common Stock.
(b) Exchange Procedures. As soon as practicable after the Effective
Time, Newco shall cause the Exchange Agent to mail to each holder of record of a
certificate or certificates which immediately prior to the Effective Time
represented issued and outstanding shares of OpenVision Common Stock (including
persons who purchase OpenVision Common Stock prior to the Effective Time upon
exercise of OpenVision Stock Purchase Plan Options in accordance with Section
1.9(b)) (collectively, the "Certificates"), (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as VERITAS and
OpenVision may reasonably specify) and (ii) instructions for use in effecting
the surrender of the Certificates in exchange for certificates representing
Newco Common Stock. Upon surrender of a Certificate for cancellation to the
Exchange Agent, together with a duly executed letter of transmittal and such
other documents as may be reasonably required by the Exchange Agent, the holder
of such Certificate shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of Newco Common Stock and
cash in lieu of fractional shares which such holder has the right to receive
pursuant to the provisions of this Agreement and the Agreements of Merger, and
the Certificate so surrendered shall forthwith be canceled. Certificates which
immediately prior to the Effective Time represented issued and outstanding
shares of VERITAS Common Stock do not need to be delivered to the Exchange Agent
and from and after the Effective Time, such certificates shall be deemed to
evidence the ownership of an equal number of full shares of Newco Common Stock.
In the event of a transfer of ownership of shares of OpenVision Common Stock
which is not registered on the transfer records of VERITAS or
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OpenVision, respectively, a certificate representing the proper number of shares
of Newco Common Stock may be issued to a transferee if the Certificate
representing such VERITAS Common Stock or OpenVision Common Stock is presented
to the Exchange Agent, accompanied by all documents required to evidence and
effect such transfer and by evidence that any applicable stock transfer taxes
have been paid. Until surrendered as contemplated by this Section 6.2 and the
Agreements of Merger, each Certificate shall be deemed, on and after the
Effective Time, to evidence the ownership of the number of full shares of Newco
Common Stock into which such shares of OpenVision Common Stock shall have been
so converted and the right to receive an amount in lieu of any fractional shares
of Newco Common Stock as contemplated by Section 1.7, the Agreements of Merger
and the Delaware Law.
(c) Distributions with Respect to Unsurrendered Certificates. No
dividends or other distributions declared or made after the Effective Time with
respect to Newco Common Stock with a record date after the Effective Time shall
be paid to the holder of any unsurrendered Certificate with respect to the
shares of Newco Common Stock represented thereby, and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section 1.7 and
the OpenVision Agreement of Merger, until the holder of record of such
Certificate shall surrender such Certificate. Subject to the effect of
applicable laws, following surrender of any such Certificate, there shall be
paid to the record holder of the certificates representing whole shares of Newco
Common Stock issued in exchange therefor, without interest, (i) at the time of
such surrender, the amount of any cash payable in lieu of a fractional share of
Newco Common Stock to which such holder is entitled pursuant to Section 1.7 and
the OpenVision Agreement of Merger and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of Newco Common Stock, and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such whole shares of Newco Common Stock.
(d) No Further Ownership Rights in OpenVision Common Stock. All shares
of Newco Common Stock issued upon the surrender for exchange of shares of
OpenVision Common Stock in accordance with the terms of this Agreement and the
OpenVision Agreement of Merger (including any cash paid pursuant to Section 1.7
and Section 6.2(c)) shall be deemed to have been issued in full satisfaction of
all rights pertaining to such shares of OpenVision Common Stock. After the
Effective Time there shall be no further registration of transfers on the stock
transfer books of (i) the VERITAS Surviving Corporation of the shares of VERITAS
Common Stock, or (ii) the OpenVision Surviving Corporation of the shares of
OpenVision Common Stock, which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
OpenVision Surviving Corporation for any reason, they shall be canceled and
exchanged as provided in this Section 6.2 and the Agreements of Merger.
(e) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the stockholders of OpenVision six months after the
Effective Time shall be delivered to Newco, upon demand, and any former
stockholders of OpenVision who have not theretofore complied with this Section
6.2 and the OpenVision Agreement of Merger shall thereafter look only to Newco
for payment of their claim for Newco Common Stock, any cash in lieu of
fractional shares of Newco Common Stock and any dividends or distributions with
respect to Newco Common Stock.
(f) No Liability. Neither the Exchange Agent, Newco, VERITAS or
OpenVision shall be liable to any holder of shares of OpenVision Common Stock or
Newco Common Stock, as the case may be, for any amount delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
(g) Lost, Stolen or Destroyed Certificates. In the event any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof and the posting of
reasonable bond therefor, such shares of Newco Common Stock, cash for fractional
shares, if any, as may be required pursuant to Section 1.7 and any dividends or
distributions payable pursuant to Section 6.2(c).
6.3 ASSUMPTION OF OPTIONS. Promptly after the Effective Time, Newco shall
(a) notify in writing each holder of a Stock Right of the assumption of such
Stock Right by Newco, the number of shares of Newco Common Stock that are then
subject to such Stock Right and the exercise price or purchase price of such
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Stock Right, as determined pursuant to Sections 1.8 and 1.9 hereof, and (b) file
the Form S-8 to register the Stock Rights.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF OPENVISION
The obligations of OpenVision hereunder are subject to the fulfillment or
satisfaction on or before the Closing of each of the following conditions (any
one or more of which may be waived by OpenVision, but only in a writing signed
by OpenVision):
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of VERITAS and Newco set forth in Section 3 (as qualified by the
VERITAS Disclosure Letter) shall be true and accurate on and as of the Closing
Date, except for changes contemplated by this Agreement and except for those
representations and warranties that address matters only as of a particular date
(which shall remain true and correct as of such particular date), with the same
force and effect as if they had been made at the Closing, except, in all such
cases, where such breaches of such representations and warranties, individually
or in the aggregate, have not resulted in, nor reasonably would be expected to
result in liabilities amounting in the aggregate to in excess of $5,000,000 or,
have not substantially impaired nor reasonably would be expected to
substantially impair, VERITAS' ability after the Closing to continue to develop,
produce, sell and distribute the products and services that are material to
VERITAS' business in substantially the same manner as it has prior to the date
of this Agreement, and OpenVision shall receive certificates to such effect
executed by each of VERITAS' Chief Executive Officer and Newco's Chief Executive
Officer.
7.2 COVENANTS. VERITAS and Newco shall have performed and complied in all
material respects with all of their respective covenants contained in Section 5
on or before the Closing, and OpenVision shall receive certificates to such
effect executed by each of VERITAS' Chief Executive Officer and Newco's Chief
Executive Officer.
7.3 ABSENCE OF SUBSTANTIAL MATERIAL ADVERSE CHANGE. There shall not have
been any Substantial Material Adverse Change since the date of this Agreement.
"Substantial Material Adverse Change" shall be deemed to have occurred only in
the event that, prior to the Effective Time, there shall occur any event or
change which, individually or in the aggregate of all such events or changes,
have resulted, or reasonably would be expected to result in, a substantial
impairment to VERITAS' ability after the Closing to continue to develop,
produce, sell and distribute the products and services that are material to
VERITAS' business in substantially the same manner as it has prior to the date
of this Agreement.
7.4 COMPLIANCE WITH LAW. There shall be no order, decree or ruling by any
governmental agency which would prohibit or render illegal the transactions
contemplated by this Agreement.
7.5 CONSENTS. There shall have been obtained on or before the Closing the
permits and authorizations listed on Exhibit 7.5 hereto, and VERITAS shall have
received the written consents, assignments, waivers, authorizations and other
certificates also listed on Exhibit 7.5.
7.6 FORM S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop-order or proceedings
seeking a stop-order and the Prospectus/Proxy Statement shall on the Closing
Date not be subject to any proceedings commenced or overtly threatened by the
SEC.
7.7 OPINION OF VERITAS AND NEWCO'S COUNSEL. OpenVision shall have received
from Fenwick & West LLP, counsel to VERITAS and Newco, an opinion substantially
in the form of Exhibit 7.7.
7.8 OPENVISION STOCKHOLDER APPROVAL. The principal terms of this Agreement
and the Merger shall have been approved and adopted by the OpenVision
stockholders in accordance with applicable law and OpenVision's Certificate of
Incorporation and Bylaws.
7.9 VERITAS SHAREHOLDER APPROVAL. The principal terms of this Agreement
and the Merger shall have been approved and adopted by the VERITAS shareholders
in accordance with applicable law and VERITAS' Articles of Incorporation and
Bylaws. Holders of no more than 5% of the outstanding shares of VERITAS Common
Stock shall be eligible to exercise dissenter's rights under Chapter 13 of the
CGCL.
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7.10 NO LEGAL ACTION. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the consummation of
the Merger shall have been issued by any federal or state court and remain in
effect.
7.11 TAX OPINION. Each of VERITAS and OpenVision shall have received an
opinion in form and substance satisfactory to them from their respective
counsel, to the effect that the Merger will be treated for Federal income tax
purposes as a tax-free reorganization within the meaning of Section 368 of the
Code, provided that if the respective counsel to VERITAS or OpenVision does not
render such opinion, this condition shall nonetheless be deemed satisfied with
respect to such party if counsel to the other party renders such opinion to such
party. The parties shall make representations related to the VERITAS and
OpenVision tax opinions, which representations counsel may rely upon.
7.12 ELECTION OF OPENVISION DESIGNEES TO THE BOARD OF DIRECTORS OF
NEWCO. The Board of Directors of Newco shall have taken appropriate action to
elect Geoffrey W. Squire and William H. Janeway to the Board of Directors of
Newco, effective upon the Effective Time.
7.13 POOLING OPINION. OpenVision shall have received from Ernst & Young
LLP an opinion, in form and substance satisfactory to OpenVision, dated as of
the Closing that the Merger will be treated as a "pooling of interests" in
accordance with GAAP and all published rules, regulations and policies of the
SEC.
7.14 NASDAQ LISTING. The Newco Common Stock to be issued in the Merger
shall have been approved for quotation on the Nasdaq Stock Market, subject to
notice of issuance.
7.15 INCORPORATION OF NEW DELAWARE COMPANIES. Newco shall have formed
VERITAS Sub and OpenVision Sub prior to the Closing Date, which corporations
shall be duly organized, validly existing and in good standing under the laws of
Delaware and which corporations shall have been formed solely for the purpose of
the transactions hereunder and shall not have engaged in any business activities
during the period from incorporation to the Closing Date. OpenVision shall
receive a certificate to such effect signed by Newco's Chief Executive Officer.
8. CONDITIONS PRECEDENT TO OBLIGATIONS OF VERITAS AND NEWCO
The obligations of VERITAS and Newco hereunder are subject to the
fulfillment or satisfaction on or before the Closing of each of the following
conditions (any one or more of which may be waived by VERITAS, but only in a
writing signed by VERITAS):
8.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties of OpenVision set forth in Section 2 (as qualified by the OpenVision
Disclosure Letter) shall be true and accurate on and as of the Closing Date,
except for changes contemplated by this Agreement and except for those
representations and warranties that address matters only as of a particular date
(which shall remain true and correct as of such particular date) with the same
force and effect as if they had been made at the Closing, except in all such
cases, where such breaches of such representations and warranties, individually
or in the aggregate, have not resulted in, nor reasonably would be expected to
result in, liabilities amounting in the aggregate to in excess of $5,000,000, or
have not substantially impaired, nor reasonably would be expected to
substantially impair, OpenVision's ability after the Closing to continue to
develop, produce, sell and distribute the products and services that are
material to OpenVision's business in substantially the same manner as it has
prior to the date of this Agreement, and VERITAS shall receive a certificate to
such effect executed by OpenVision's Chief Executive Officer and Chief Financial
Officer.
8.2 COVENANTS. OpenVision shall have performed and complied in all
material respects with all of its covenants contained in Section 4 on or before
the Closing, and VERITAS shall receive a certificate to such effect signed by
OpenVision's Chief Executive Officer and Chief Financial Officer.
8.3 ABSENCE OF SUBSTANTIAL MATERIAL ADVERSE CHANGE. There shall not have
been any Substantial Material Adverse Change since the date of the Agreement.
"Substantial Material Adverse Change" shall be deemed to have occurred only in
the event that prior to the Effective Time there shall occur any event or change
which, individually or in the aggregate of all such events or changes, have
resulted, or reasonably
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would be expected to result in, a substantial impairment to OpenVision's ability
after the Closing to continue to develop, produce, sell and distribute the
products and services that are material to OpenVision's business in
substantially the same manner as it has prior to the date of this Agreement.
8.4 COMPLIANCE WITH LAW. There shall be no order, decree or ruling by any
court or governmental agency which would prohibit or render illegal the
transactions contemplated by this Agreement.
8.5 CONSENTS. There shall have been obtained on or before the Closing the
permits and authorizations listed on Exhibit 8.5 hereto, and OpenVision shall
have received the written consents, assignments, waivers, authorizations and
other certificates also listed on Exhibit 8.5.
8.6 FORM S-4. The Form S-4 shall have become effective under the
Securities Act and shall not be the subject of any stop-order or proceedings
seeking a stop-order and the Prospectus/Proxy Statement shall on the Closing
Date not be subject to any proceedings commenced or overtly threatened by the
SEC.
8.7 OPINION OF OPENVISION'S COUNSEL. VERITAS shall have received from
Wilson, Sonsini, Goodrich & Rosati, P.C., counsel to OpenVision, an opinion
substantially in the form of Exhibit 8.7.
8.8 VERITAS SHAREHOLDER APPROVAL. The principal terms of this Agreement
and the Merger shall have been approved and adopted by the VERITAS shareholders
in accordance with applicable law and VERITAS' Articles of Incorporation and
Bylaws. Holders of no more than five percent of the outstanding shares of
VERITAS Common Stock shall be eligible to exercise dissenters' rights.
8.9 OPENVISION STOCKHOLDER APPROVAL. The principal terms of this Agreement
and the Merger shall have been approved and adopted by the OpenVision
stockholders in accordance with applicable law and OpenVision's Certificate of
Incorporation and Bylaws.
8.10 NO LEGAL ACTION. No temporary restraining order, preliminary
injunction or permanent injunction or other order preventing the consummation of
the Merger shall have been issued by any federal or state court and remain in
effect.
8.11 TAX OPINION. Each of VERITAS and OpenVision shall have received an
opinion in form and substance satisfactory to them from their respective counsel
to the effect that the Merger will be treated for Federal income tax purposes as
a tax-free reorganization within the meaning of Section 368 of the Code,
provided that if the respective counsel to VERITAS or OpenVision does not render
such opinion, this condition shall nonetheless be deemed satisfied with respect
to such party if counsel to the other party renders such opinion to such party.
The parties shall make representations related to the VERITAS and OpenVision tax
opinions, which representations counsel may rely upon.
8.12 POOLING OPINION. VERITAS shall have received from Ernst & Young LLP
an opinion, in form and substance satisfactory to VERITAS, dated as of the
Closing that the Merger will be treated as a "pooling of interests" in
accordance with GAAP and all published rules, regulations and policies of the
SEC.
9. TERMINATION OF AGREEMENT
9.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the Merger by the
stockholders of VERITAS or OpenVision:
(a) by mutual written agreement of OpenVision and VERITAS;
(b) by OpenVision, if there has been a breach by VERITAS or Newco of any
representation or warranty set forth in this Agreement on the part of VERITAS or
Newco, and, as a result of such breach, the conditions set forth in Section 7.1
would not then be satisfied, and which VERITAS or Newco fails to cure within ten
(10) business days after notice thereof from OpenVision (except that no cure
period shall be provided for a breach by VERITAS or Newco which by its nature
cannot be cured);
(c) by OpenVision, if there has been a breach by VERITAS or Newco of any
covenant or agreement set forth in this Agreement on the part of VERITAS or
Newco and as a result of such breach, the conditions set forth in Section 7.2
would not then be satisfied, and which VERITAS or Newco fails to cure
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within ten (10) business days after notice thereof from OpenVision (except that
no cure period shall be provided for a breach by VERITAS or Newco which by its
nature cannot be cured);
(d) by VERITAS, if there has been a breach by OpenVision of any
representation or warranty set forth in this Agreement on the part of
OpenVision, and as a result of such breach, the conditions set forth in Section
8.1 would not then be satisfied, and which OpenVision fails to cure within ten
(10) business days after notice thereof from VERITAS (except that no cure period
shall be provided for a breach by OpenVision which by its nature cannot be
cured);
(e) by VERITAS, if there has been a breach by OpenVision of any covenant
or agreement set forth in this Agreement on the part of OpenVision, and as a
result of such breach, the conditions set forth in Section 8.2 would not then be
satisfied, and which OpenVision fails to cure within ten (10) business days
after notice thereof from VERITAS (except that no cure period shall be provided
for a breach by OpenVision which by its nature cannot be cured);
(f) by VERITAS or OpenVision, if all the conditions for Closing the
Merger shall not have been satisfied or waived on or before the Final Date (as
defined below) other than as a result of a breach of this Agreement by the
terminating party;
(g) by VERITAS or OpenVision, if a permanent injunction or other order
by any federal or state court which would make illegal or otherwise restrain or
prohibit the consummation of the Merger shall have been issued and shall have
become final and nonappealable;
(h) by VERITAS or OpenVision, if the stockholders of OpenVision do not
approve the Merger contemplated by this Agreement at the OpenVision stockholders
meeting (a "OpenVision Stockholder Rejection");
(i) by VERITAS or OpenVision, if the shareholders of VERITAS do not
approve the Merger contemplated by this Agreement at the VERITAS shareholders
meeting (a "VERITAS Shareholder Rejection");
(j) by VERITAS, if (i) the OpenVision Board of Directors recommends a
Superior Proposal or withdraws or modifies in any manner adverse to the
consummation of the Merger, its unanimous recommendation to the OpenVision
stockholders that they approve the Merger, or (ii) the condition to Closing set
forth in Sections 7.13 or 8.12 is not met for any reason related to OpenVision;
(k) by OpenVision, if (i) the VERITAS Board of Directors withdraws, or
changes in any manner adverse to the consummation of the Merger, its unanimous
recommendation to the VERITAS shareholders that they approve the Merger, or (ii)
the condition to Closing set forth in Sections 7.13 or 8.12 is not met for any
reason related to VERITAS;
(l) by OpenVision, if the average closing price of VERITAS Common Stock,
as presently constituted, as quoted on the Nasdaq Stock Market and reported in
the Wall Street Journal, over the ten (10) trading days immediately preceding
the date of the VERITAS Shareholder Meeting is less than $33.00 per share.
As used herein, the Final Date shall be April 30, 1997, except that if the
FTC or the DOJ issues a "second request" under the HSR Act, then the Final Date
shall be extended to July 31, 1997; and except that if a temporary, preliminary
or permanent injunction or other order by any Federal or state court which would
prohibit or otherwise restrain consummation of the Merger shall have been issued
and shall remain in effect on April 30, 1997, and such injunction shall not have
become final and nonappealable, either party, by giving the other written notice
thereof on or prior to April 30, 1997, may extend the time for consummation of
the Merger up to and including the earlier of the date such injunction shall
become final and non-appealable or July 31, 1997, so long as such party shall,
at its own expense, use its reasonable best efforts to have such injunction
dissolved.
9.2 NOTICE OF TERMINATION. Any termination of this Agreement under Section
9.1 above will be effective by the delivery of notice of the terminating party
to the other party hereto.
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<PAGE> 48
9.3 NO LIABILITY. Except as provided in Section 9.4 below, any termination
of this Agreement in accordance with this Section 9 will be without further
obligation or liability upon any party in favor of the other parties hereto
other than the obligations contained in the Amended and Restated Mutual
Confidential Nondisclosure Agreement dated December 11, 1996 between OpenVision
and VERITAS (the "Nondisclosure Agreement"), which will survive termination of
this Agreement; provided, however, that nothing herein will relieve any party
from liability for any willful breach of this Agreement.
9.4 BREAKUP FEES.
(a) If this Agreement is terminated by OpenVision or VERITAS as a result
of a OpenVision Stockholder Rejection or by VERITAS pursuant to Section
9.1(j)(i), then OpenVision shall pay to VERITAS (by wire transfer or cashier's
check) a nonrefundable fee of $10,000,000 within ten (10) days of the delivery
of the notice of termination to or by VERITAS pursuant to Section 9.2.
(b) If this Agreement is terminated by OpenVision or VERITAS as a result
of a VERITAS Shareholder Rejection or by OpenVision pursuant to Section
9.1(k)(i), then VERITAS shall pay to OpenVision (by wire transfer or cashier's
check) a nonrefundable fee of $10,000,000 within ten (10) days of the delivery
of the notice of termination to or by OpenVision pursuant to Section 9.2.
10. SURVIVAL OF REPRESENTATIONS
10.1 NO SURVIVAL OF REPRESENTATIONS. All representations, warranties and
covenants of the parties contained in this Agreement will remain operative and
in full force and effect, regardless of any investigation made by or on behalf
of the parties to this Agreement, until the earlier of the termination of this
Agreement or the Closing Date, whereupon such representations, warranties and
covenants will expire (except for covenants that by their terms survive for a
longer period).
11. MISCELLANEOUS
11.1 GOVERNING LAW. The internal laws of the State of California
(irrespective of its choice of law principles) will govern the validity of this
Agreement, the construction of its terms and the interpretation and enforcement
of the rights and duties of the parties hereto, except that the fiduciary duties
of the directors of OpenVision and Newco shall be governed by the Delaware Law.
11.2 ASSIGNMENT; BINDING UPON SUCCESSORS AND ASSIGNS. None of the parties
hereto may assign any of its rights or obligations hereunder without the prior
written consent of the other parties hereto. This Agreement will be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
11.3 SEVERABILITY. If any provision of this Agreement, or the application
thereof, will for any reason and to any extent be invalid or unenforceable, the
remainder of this Agreement and application of such provision to other persons
or circumstances will be interpreted so as reasonably to effect the intent of
the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the greatest extent possible, the economic, business and
other purposes of the void or unenforceable provision.
11.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures of
all the parties reflected hereon as signatories.
11.5 OTHER REMEDIES. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby or by law on such party,
and the exercise of any one remedy will not preclude the exercise of any other.
11.6 AMENDMENT AND WAIVERS. Any term or provision of this Agreement may be
amended, and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only by a writing signed by the party or parties to be bound thereby. The
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<PAGE> 49
waiver by a party of any breach hereof or default in the performance hereof will
not be deemed to constitute a waiver of any other default or any succeeding
breach or default. The Agreement may be amended by the parties hereto at any
time before or after approval of the OpenVision stockholders or the VERITAS
shareholders, but, after such approval, no amendment will be made which by
applicable law requires the further approval of the OpenVision stockholders or
the VERITAS shareholders without obtaining such further approval.
11.7 EXPENSES. In the event that the Merger is consummated, the expenses
and fees of both parties with respect to this Agreement and the transactions
contemplated hereby will be borne by Newco. In the event that the Merger is not
consummated, each party will bear its respective fees and expenses incurred with
respect to this Agreement and the transactions contemplated hereby; provided,
however, that OpenVision and VERITAS shall share equally all fees and expenses,
other than attorneys', accountants' and financial advisors' fees, incurred in
connection with the printing and filing of the Form S-4 (including financial
statements and exhibits) and any amendment or supplements thereto.
11.8 ATTORNEYS' FEES. Should suit be brought to enforce or interpret any
part of this Agreement, the prevailing party will be entitled to recover, as an
element of the costs of suit and not as damages, reasonable attorneys' fees to
be fixed by the court (including, without limitation, costs, expenses and fees
on any appeal). The prevailing party will be entitled to recover its costs of
suit, regardless of whether such suit proceeds to final judgment.
11.9 NOTICES. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following address (or at such other address for a party as shall
be specified by like notice):
<TABLE>
<S> <C>
If to OpenVision to: OpenVision Technologies, Inc.
7133 Koll Center Parkway, Suite 200
Pleasanton, CA 94566
Attention: Chief Executive Officer
Telecopier: (510) 426-3603
With a copy to: Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, CA 94304
Attention: Barry Taylor, Esq.
Telecopier: (415) 493-6811
And if to VERITAS or VERITAS Software Corporation
Newco to: 1600 Plymouth Street
Mountain View, CA 94043
Attention: Chief Executive Officer
Telecopier: (415) 335-8455
With a copy to: Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Attention: Jacqueline A. Daunt, Esq.
Telecopier: (415) 494-1417
</TABLE>
All such notices and other communications shall be deemed to have been
received (a) in the case of personal delivery, on the date of such delivery, (b)
in the case of a telecopy, when the party receiving such copy shall have
confirmed receipt of the communication, (c) in the case of delivery by
nationally-recognized overnight courier, on the business day following dispatch,
and (d) in the case of mailing, on the third business day following such
mailing.
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<PAGE> 50
11.10 CONSTRUCTION OF AGREEMENT. This Agreement has been negotiated by the
respective parties hereto and their attorneys and the language hereof will not
be construed for or against either party. A reference to a Section or an exhibit
will mean a Section in, or exhibit to, this Agreement unless otherwise
explicitly set forth. The titles and headings herein are for reference purposes
only and will not in any manner limit the construction of this Agreement which
will be considered as a whole.
11.11 NO JOINT VENTURE. Nothing contained in this Agreement will be deemed
or construed as creating a joint venture or partnership between any of the
parties hereto. No party is by virtue of this Agreement authorized as an agent,
employee or legal representative of any other party. No party will have the
power to control the activities and operations of any other and their status is,
and at all times, will continue to be, that of independent contractors with
respect to each other. No party will have any power or authority to bind or
commit any other. No party will hold itself out as having any authority or
relationship in contravention of this Section.
11.12 FURTHER ASSURANCES. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
any other party to evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Agreement.
11.13 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. Except as otherwise
provided in Sections 5.13, 5.14, 5.15, 5.17 and 11.7, no provisions of this
Agreement are intended, nor will be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, stockholder, partner or any party hereto or any other
person or entity unless specifically provided otherwise herein, and, except as
so provided, all provisions hereof will be personal solely between the parties
to this Agreement.
11.14 PUBLIC ANNOUNCEMENT. Upon execution of this Agreement, VERITAS and
OpenVision promptly will issue a joint press release approved by both parties
announcing the Merger. Thereafter, VERITAS or OpenVision may issue such press
releases, and make such other disclosures regarding the Merger, as it determines
(after consultation with legal counsel) are required under applicable securities
laws or NASD rules; provided that VERITAS or OpenVision shall, to the extent
practicable, obtain the approval of the other party (which approval shall not be
unreasonably withheld) prior to any such release or disclosure.
11.15 ENTIRE AGREEMENT. This Agreement and the exhibits hereto constitute
the entire understanding and agreement of the parties hereto with respect to the
subject matter hereof and supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied, written or oral,
between the parties with respect hereto other than the Nondisclosure Agreement,
which shall remain in full force and effect. The express terms hereof control
and supersede any course of performance or usage of the trade inconsistent with
any of the terms hereof.
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<PAGE> 51
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
Plan of Reorganization as of the date first above written.
<TABLE>
<S> <C>
VERITAS SOFTWARE CORPORATION, OPENVISION TECHNOLOGIES, INC.,
a California corporation a Delaware corporation
By: By:
----------------------------------------- -----------------------------------------
Mark Leslie Geoffrey W. Squire
President and Chief Executive Officer President and Chief Executive Officer
VERITAS SOFTWARE CORPORATION,
a Delaware corporation
By:
-----------------------------------------
Mark Leslie
President
</TABLE>
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
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<PAGE> 1
Exhibit 10.04
VERITAS SOFTWARE CORPORATION
1993 DIRECTORS STOCK OPTION PLAN
As Adopted October 1, 1993, Amended January 26, 1994, Amended October 19, 1994,
Amended April 20, 1995 and Amended Through April 17, 1996*
1. PURPOSE. This Stock Option Plan (this "Plan") is established to
provide equity incentives for nonemployee members of the Board of Directors of
VERITAS Software Corporation (the "Company") who are described in Section 6.1
below, by granting such persons options to purchase shares of stock of the
Company.
2. ADOPTION AND SHAREHOLDER APPROVAL. This Plan shall become effective
on the date that it is adopted by the Board of Directors (the "Board") of the
Company. This Plan shall be approved by the affirmative vote or written consent
of the holders of a majority of the outstanding shares of Common Stock of the
Company, within twelve months after the date this Plan is adopted by the Board.
Upon the effective date of this Plan, options under this Plan ("Options") may be
granted provided that, in the event that shareholder approval is not obtained
within the time period provided herein, this Plan, and all Options granted
hereunder, shall terminate. No Option that is issued as a result of any increase
in the number of shares authorized to be issued under this Plan shall be
exercised prior to the time such increase has been approved by the shareholders
of the Company and all such Options granted pursuant to such increase shall
similarly terminate if such shareholder approval is not obtained. So long as the
Company is subject to Section 16(b) of the Securities Exchange Act of 1934, as
amended, (the "Exchange Act") the Company will comply with the requirements of
Rule 16b-3 with respect to shareholder approval.
3. TYPES OF OPTIONS AND SHARES. Options granted under this Plan shall
be nonqualified stock options ("NQSOs"). The shares of stock that may be
purchased upon exercise of Options granted under this Plan (the "Shares") are
shares of the Common Stock of the Company.
4. NUMBER OF SHARES. The maximum number of Shares that may be issued
pursuant to Options granted under this Plan is 150,000 Shares, subject to
adjustment as provided in this Plan. If any Option is terminated for any reason
without being exercised in whole or in part, the Shares thereby released from
such Option shall be available for purchase under other Options subsequently
granted under this Plan. At all times during the term of this Plan, the Company
shall reserve and keep available such number of Shares as shall be required to
satisfy the requirements of outstanding Options under this Plan.
- --------
* Shares are as adjusted for the three for two share split effective September
30, 1996.
<PAGE> 2
5. ADMINISTRATION. This Plan shall be administered by the Board or by a
committee of not less than two members of the Board appointed to administer this
Plan (the "Committee"). As used in this Plan, references to the Committee shall
mean either such Committee or the Board if no committee has been established.
The interpretation by the Committee of any of the provisions of this Plan or any
Option granted under this Plan shall be final and binding upon the Company and
all persons having an interest in any Option or any Shares purchased pursuant to
an Option.
6. ELIGIBILITY AND AWARD FORMULA.
6.1 Eligibility. Options may be granted only to directors of the
Company who are not employees of the Company or any Parent, Subsidiary or
Affiliate of the Company, as those terms are defined in Section 17 below (each
an "Optionee"). Directors who are consultants and independent contractors of the
Company or of any Parent, Subsidiary or Affiliate of the Company are eligible to
participate in the Directors Plan.
6.2 Initial Grant. Each Optionee who is first elected or
reelected to the Board after the effective date of the Company's registration
statement (the "Registration Statement") filed with, and declared effective by,
the Securities and Exchange Commission (the "SEC") under the Securities Act of
1933, as amended (the "1933 Securities Act") (to occur no later than December
31, 1993) will automatically be granted an option for 24,000 Shares on the later
of (i) the date such Optionee is first elected or reelected to the Board or (ii)
the date his or her most recent prior option becomes fully vested as to all
Shares (whether such option was granted under this Plan, the Company's 1993
Equity Incentive Plan or otherwise) (the "Initial Grant").
6.3 Succeeding Grants. Effective beginning January 1, 1997, each
year on the anniversary date of his or her most recent prior option (whether
such option was granted under this Plan, the Company's 1993 Equity Incentive
Plan or otherwise) Optionee will automatically be granted an Option for 6,000
Shares, provided that Optionee is still a member of the Board (a "Succeeding
Grant").
6.4 Maximum Shares. The maximum number of Shares that may be
issued to any one director under this Plan is 48,000. No grant will be made,
however, if such grant will cause the number of Shares issued or subject to
outstanding Options under this Plan to exceed the number specified in Section 4
above.
7. TERMS AND CONDITIONS OF OPTIONS. Subject to the following and to
Section 6 above:
7.1 Form of Option Grant. Each Option granted under this Plan
shall be evidenced by a written Stock Option Grant ("Grant") in such form (which
need not be the same for each Optionee) as the Committee shall from time to time
approve, which Grant shall comply with and be subject to the terms and
conditions of this Plan.
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<PAGE> 3
7.2 Vesting. The date an Optionee is first elected or reelected
to the Board for the first time, as to the Initial Grant, and the date a
Succeeding Grant is granted, is referred to in this Plan as the "Start Date" for
such Option. Each Initial Grant will vest as to 1,500 Shares subject to it on
the last day of each calendar quarter (not to exceed 6,000 Shares per year);
provided that Optionee attended at least one Board meeting during such quarter
and provided further that the Board meeting Optionee attended occurred after the
date of grant. Each Succeeding Grant shall vest as to 375 Shares subject to it
on the last day of each calendar quarter (not to exceed 1,500 Shares per year)
provided that Optionee attended at least one Board meeting during such quarter
and provided further that the Board meeting Optionee attended occurred after the
date of grant. Initial Grants granted on or after April 17, 1996 and Succeeding
Grants shall be exercisable immediately upon grant for a period of ten years.
Exercised unvested Shares shall be subject to a right of repurchase in the
Company at the original purchase price that lapses as such Shares vest. Each
Option will fully vest as to any Shares that remain unvested on the day
immediately preceding the tenth anniversary of the Start Date of such Option.
Each outstanding Option shall be exercisable and vest in accordance with the
Grant by which it was originally granted.
7.3 Exercise Price. The exercise price of an Option shall be the
Fair Market Value (as defined in Section 17.4) of the Shares, at the time that
the Option is granted.
7.4 Termination of Option. Except as provided below in this
Section , this Option shall terminate and may not be exercised if Optionee
ceases to be a member of the Board or a consultant of the Company. The date on
which Optionee ceases to be a member of the Board or a consultant of the Company
shall be referred to as the "Termination Date."
(a) Termination Generally. If Optionee ceases to be a
member of the Board or a consultant of the Company for any reason except death
or disability, this Option, to the extent (and only to the extent) that it would
have been exercisable by Optionee on the Termination Date, may be exercised by
Optionee within six (6) months after the Termination Date, but in no event later
than the Expiration Date.
(b) Death or Disability. If Optionee ceases to be a member
of the Board or a consultant of the Company because of the death of Optionee or
the disability of Optionee within the meaning of Section 22(e)(3) of the
Internal Revenue Code of 1986, as amended, (the "Code") this Option, to the
extent (and only to the extent) that it would have been exercisable by Optionee
on the Termination Date, may be exercised by Optionee (or Optionee's legal
representative) within twelve (12) months after the Termination Date, but in no
event later than the Expiration Date.
8. EXERCISE OF OPTIONS.
8.1 Notice. Options may be exercised only by delivery to the
Company of an exercise agreement in a form approved by the Committee, stating
the number of Shares being purchased, the restrictions imposed on the Shares and
such representations and agreements regarding the Optionee's investment intent
and access to information as may be required by
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<PAGE> 4
the Company to comply with applicable securities laws, together with payment in
full of the exercise price for the number of Shares being purchased.
8.2 Payment. Payment for the Shares may be made (a) in cash or
by check; (b) by surrender of shares of Common Stock of the Company that have
been owned by Optionee for more than six (6) months (and which have been paid
for within the meaning of SEC Rule 144 and, if such shares were purchased from
the Company by use of a promissory note, such note has been fully paid with
respect to such shares) or were obtained by the Optionee in the open public
market, having a Fair Market Value equal to the exercise price of the Option;
(c) by waiver of compensation due or accrued to Optionee for services rendered;
(d) provided that a public market for the Company's stock exists, through a
"same day sale" commitment from Optionee and a broker-dealer that is a member of
the National Association of Securities Dealers (a "NASD Dealer") whereby
Optionee irrevocably elects to exercise the Option and to sell a portion of the
Shares so purchased to pay for the exercise price and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward the exercise price
directly to the Company; (e) provided that a public market for the Company's
stock exists, through a "margin" commitment from Optionee and a NASD Dealer
whereby Optionee irrevocably elects to exercise the Option and to pledge the
Shares so purchased to the NASD Dealer in a margin account as security for a
loan from the NASD Dealer in the amount of the exercise price, and whereby the
NASD Dealer irrevocably commits upon receipt of such Shares to forward the
exercise price directly to the Company; or (f) by any combination of the
foregoing.
8.3 Withholding Taxes. Prior to issuance of the Shares upon
exercise of an Option, Optionee shall pay or make adequate provision for any
federal or state withholding obligations of the Company, if applicable.
8.4 Limitations on Exercise. Notwithstanding the exercise
periods set forth in the Grant, exercise of an Option shall always be subject to
the following limitations:
(a) An Option shall not be exercisable until such time as
the Plan or, in the case of Options granted pursuant to an amendment to the
number of shares that may be issued pursuant to the Plan, the amendment has been
approved by the shareholders of the Company in accordance with Section 16
hereof.
(b) An Option shall not be exercisable unless such
exercise is in compliance with the 1933 Securities Act and all applicable state
securities laws, as they are in effect on the date of exercise.
(c) The Committee may specify a reasonable minimum number
of Shares that may be purchased on any exercise of an Option, provided that such
minimum number will not prevent Optionee from exercising the full number of
Shares as to which the Option is then exercisable.
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<PAGE> 5
9. NONTRANSFERABILITY OF OPTIONS. During the lifetime of Optionee, an
Option shall be exercisable only by Optionee or by Optionee's guardian or legal
representative, unless otherwise permitted by the Committee. No Option may be
sold, pledged, assigned, hypothecated, transferred or disposed of in any manner
other than by will or by the laws of descent and distribution.
10. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of the
rights of a shareholder with respect to any Shares subject to an Option until
the Option has been validly exercised. No adjustment shall be made for dividends
or distributions or other rights for which the record date is prior to the date
of exercise, except as provided in this Plan. The Company shall provide to each
Optionee a copy of the annual financial statements of the Company, at such time
after the close of each fiscal year of the Company as they are released by the
Company to its shareholders.
11. ADJUSTMENT OF OPTION SHARES. In the event that the number of
outstanding shares of Common Stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration,
the number of Shares available under this Plan, the maximum number of Shares
that can be granted to a director and the number of Shares subject to
outstanding Options, the number of Shares vesting per quarter and the exercise
price per Share of such Options shall be proportionately adjusted, subject to
any required action by the Board or shareholders of the Company and compliance
with applicable securities laws; provided, however, that no certificate or scrip
representing fractional shares shall be issued upon exercise of any Option and
any resulting fractions of a Share shall be ignored.
12. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Option granted
under this Plan shall confer on any Optionee any right to continue as a director
or a consultant of the Company.
13. COMPLIANCE WITH LAWS. The grant of Options and the issuance of
Shares upon exercise of any Options shall be subject to and conditioned upon
compliance with all applicable requirements of law, including without limitation
compliance with the 1933 Securities Act, any required approval by the
Commissioner of Corporations of the State of California, compliance with all
other applicable state securities laws and compliance with the requirements of
any stock exchange or national market system on which the Shares may be listed.
The Company shall be under no obligation to register the Shares with the
Securities and Exchange Commission or to effect compliance with the registration
or qualification requirement of any state securities laws, stock exchange or
national market system.
14. ASSUMPTION OF OPTIONS BY SUCCESSORS. In the event of a dissolution
or liquidation of the Company, a merger in which the Company is not the
surviving corporation, the sale of substantially all of the assets of the
Company, or any other transaction which qualifies as a "corporate transaction"
under Section 424 of the Code wherein the shareholders of the Company give up
all of their equity interest in the Company (except for the acquisition of all
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<PAGE> 6
or substantially all of the outstanding shares of the Company) the vesting of
all options granted pursuant to the Plan will accelerate and the options will
become exercisable in full prior to the consummation of such event at such times
and on such conditions as the Committee determines.
15. AMENDMENT OR TERMINATION OF PLAN. The Committee may at any time
terminate or amend this Plan but not the terms of any outstanding option;
provided, however, that the Committee shall not, without the approval of the
shareholders of the Company, increase the total number of Shares available under
this Plan (except by operation of the provisions of Sections 4 and 11 above) or
change the class of persons eligible to receive Options. Further, the provisions
in Sections 6 and 7 of this Plan shall not be amended more than once every six
(6) months, other than to comport with changes in the Code, the Employee
Retirement Income Security Act or the rules thereunder. In any case, no
amendment of this Plan may adversely affect any then outstanding Options or any
unexercised portions thereof without the written consent of Optionee.
16. TERM OF PLAN. Options may be granted pursuant to this Plan from
time to time within a period of ten (10) years from the date this Plan is
adopted by the Board of Directors.
17. CERTAIN DEFINITIONS. As used in this Plan, the following terms
shall have the following meanings:
17.1 "Parent" means any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company if, at the time of the
granting of the Option, each of such corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
17.2 "Subsidiary" means any corporation (other than the Company)
in an unbroken chain of corporations beginning with the Company if, at the time
of granting of the Option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
17.3 "Affiliate" means any corporation that directly, or
indirectly through one or more intermediaries, controls or is controlled by, or
is under common control with, another corporation, where "control" (including
the terms "controlled by" and "under common control with") means the possession,
direct or indirect, of the power to cause the direction of the management and
policies of the corporation, whether through the ownership of voting securities,
by contract or otherwise.
17.4 "Fair Market Value" shall mean the fair market value of the
Shares as determined by the Committee from time to time in good faith. If a
public market exists for the Shares, the Fair Market Value shall be the average
of the last reported bid and asked prices for the common stock of the Company on
the last trading day prior to the date of
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<PAGE> 7
determination, or, in the event the common stock of the Company is listed on the
Nasdaq National Market, the Fair Market Value shall be the average of the high
and low prices of the common stock on the option grant date as quoted on the
Nasdaq National Market and reported in The Wall Street Journal.
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<PAGE> 8
VERITAS SOFTWARE CORPORATION
DIRECTORS NONQUALIFIED STOCK OPTION GRANT
Optionee: ______________________________________
Address: ______________________________________
______________________________________
Total Shares Subject to Option: ______________________________________
Exercise Price Per Share: ______________________________________
Date of Grant: ______________________________________
Expiration Date: ______________________________________
1. GRANT OF OPTION. VERITAS SOFTWARE CORPORATION, a California
corporation (the "Company"), has granted to the optionee named above
("Optionee") an option (this "Option") to purchase the total number of shares of
Common Stock of the Company set forth above (the "Shares") at the exercise price
per share set forth above (the "Exercise Price"), subject to all of the terms
and conditions of this Grant and the Company's 1993 Directors Stock Option Plan,
as amended through April 20, 1995 (the "Plan"). Unless otherwise defined herein,
capitalized terms used herein shall have the meanings ascribed to them in the
Plan.
2. EXERCISE PERIOD OF OPTION. Subject to the terms and conditions of
the Plan and this Grant, this Option shall be exercisable as it vests. Subject
to the terms and conditions of the Plan and this Grant, this Option shall vest
as to 1,000 Shares subject to it on the last day of each calendar quarter (not
to exceed 4,000 Shares per year); provided that Optionee attended at least one
Board meeting during such quarter and provided further that the Board meeting
Optionee attended occurred after the date of grant. This Option shall be
exercisable as it vests for a period of ten years and will fully vest as to any
Shares that remain unvested on the day immediately preceding the tenth
anniversary of the Start Date of such Option. This Option may not be exercised
until the Plan, or in the case of Options granted pursuant to an amendment to
the number of shares that may be issued under the Plan, the amendment has been
approved by the shareholders of the Company as set forth in the Plan.
<PAGE> 9
3. RESTRICTION ON EXERCISE. This Option may not be exercised unless
such exercise is in compliance with the 1933 Securities Act, and all applicable
state securities laws, as they are in effect on the date of exercise, and the
requirements of any stock exchange or national market system on which the
Company's Common Stock may be listed at the time of exercise. Optionee
understands that the Company is under no obligation to register, qualify or list
the Shares with the Securities and Exchange Commission (the "SEC"), any state
securities commission or any stock exchange or national market system to effect
such compliance.
4. TERMINATION OF OPTION. Except as provided below in this Section ,
this Option shall terminate and may not be exercised if Optionee ceases to be a
Board Member or a consultant of the Company. The date on which Optionee ceases
to be a Board Member or a consultant of the Company shall be referred to as the
"Termination Date."
4.1 Termination Generally. If Optionee ceases to be a Board
Member or a consultant of the Company for any reason except death or disability,
this Option, to the extent (and only to the extent) that it would have been
exercisable by Optionee on the Termination Date, may be exercised by Optionee
within six (6) months after the Termination Date, but in no event later than the
Expiration Date.
4.2 Death or Disability. If Optionee ceases to be a Board Member
or a consultant of the Company because of the death of Optionee or the
disability of Optionee within the meaning of Section 22(e)(3) of the Code, this
Option, to the extent (and only to the extent) that it would have been
exercisable by Optionee on the Termination Date, may be exercised by Optionee
(or Optionee's legal representative) within twelve (12) months after the
Termination Date, but in no event later than the Expiration Date.
5. MANNER OF EXERCISE.
5.1 Exercise Agreement. This Option shall be exercisable by
delivery to the Company of an executed written Directors Stock Option Exercise
Agreement in the form attached hereto as Exhibit A, or in such other form as may
be approved by the Board or the committee thereof that administers the Plan,
which shall set forth Optionee's election to exercise some or all of this
Option, the number of Shares being purchased, any restrictions imposed on the
Shares and such other representations and agreements as may be required by the
Company to comply with applicable securities laws.
5.2 Payment. Payment for the Shares may be made (a) in cash or
by check; (b) by surrender of shares of Common Stock of the Company that have
been owned by Optionee for more than six (6) months (and which have been paid
for within the meaning of SEC Rule 144 and, if such shares were purchased from
the Company by use of a promissory note, such note has been fully paid with
respect to such shares) or were obtained by Optionee in the open public market,
having a Fair Market Value equal to the exercise price of the Option; (c) by
waiver of compensation due or accrued to Optionee for services rendered; (d)
-2-
<PAGE> 10
provided that a public market for the Company's stock exists, through a "same
day sale" commitment from Optionee and a broker-dealer that is a member of the
National Association of Securities Dealers (an "NASD Dealer") whereby Optionee
irrevocably elects to exercise the Option and to sell a portion of the Shares so
purchased to pay for the exercise price and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward the exercise price directly to
the Company; (e) provided that a public market for the Company's stock exists,
through a "margin" commitment from Optionee and an NASD Dealer whereby Optionee
irrevocably elects to exercise the Option and to pledge the Shares so purchased
to the NASD Dealer in a margin account as security for a loan from the NASD
Dealer in the amount of the exercise price, and whereby the NASD Dealer
irrevocably commits upon receipt of such Shares to forward the exercise price
directly to the Company; or (f) by any combination of the foregoing.
5.3 Withholding Taxes. Prior to the issuance of the Shares upon
exercise of this Option, Optionee shall pay or make adequate provision for any
applicable federal or state withholding obligations of the Company.
5.4 Issuance of Shares. Provided that such notice and payment
are in form and substance satisfactory to counsel for the Company, the Company
shall cause the Shares to be issued in the name of Optionee or Optionee's legal
representative.
6. NONTRANSFERABILITY OF OPTION. During the lifetime of Optionee, an
Option shall be exercisable only by Optionee or by the Optionee's guardian or
legal representative, unless otherwise permitted by the Committee. No Option may
be sold, pledged, assigned, hypothecated, transferred or disposed of in any
manner other than by will or by the laws of descent and distribution.
7. INTERPRETATION. Any dispute regarding the interpretation of this
Grant shall be submitted by Optionee or the Company to the Company's Board of
Directors or the committee thereof that administers the Plan, which shall review
such dispute at its next regular meeting. The resolution of such a dispute by
the Board or committee shall be final and binding on the Company and on
Optionee. Nothing in the Plan or this Grant shall confer on Optionee any right
to continue as a Board Member, employee, officer or consultant of the Company.
-3-
<PAGE> 11
8. ENTIRE AGREEMENT. The Plan and the Directors Stock Option Exercise
Agreement are incorporated herein by this reference. This Grant, the Plan and
the Directors Stock Option Exercise Agreement constitute the entire agreement of
the parties hereto and supersede all prior undertakings and agreements with
respect to the subject matter hereof.
VERITAS SOFTWARE CORPORATION
By: ____________________________________________
Name: ___________________________________________
Title: _________________________________________
ACCEPTANCE
Optionee hereby acknowledges receipt of a copy of the Plan, represents
that Optionee has read and understands the terms and provisions thereof, and
accepts this Option subject to all the terms and conditions of the Plan and this
Grant. Optionee acknowledges that there may be adverse tax consequences upon
exercise of this Option or disposition of the Shares and that Optionee should
consult a qualified tax advisor prior to such exercise or disposition.
_________________________________________________
Optionee
-4-
<PAGE> 12
EXHIBIT A
VERITAS SOFTWARE CORPORATION
DIRECTORS STOCK OPTION EXERCISE AGREEMENT
This Agreement is made this ___ day of ____________, 19___ between
VERITAS Software Corporation (the "Company"), and the optionee named below
("Optionee") with respect to the Directors Nonqualified Stock Option Grant dated
as of the Date of Option Grant set forth below (the "Grant") issued to Optionee
under the Company's 1993 Directors Stock Option Plan (the "Plan").
Optionee: _______________________________________
Social Security Number: _______________________________________
Address: _______________________________________
_______________________________________
Number of Shares Purchased: _______________________________________
Price per Share: _______________________________________
Aggregate Purchase Price: _______________________________________
Date of Option Grant: _______________________________________
Optionee hereby delivers to the Company the Aggregate Purchase Price, to the
extent permitted in the Grant, as follows (check as applicable and complete):
[ ] in cash or check in the amount of $_________, receipt of which is
acknowledged by the Company;
[ ] by delivery of ________ fully-paid, nonassessable and vested shares of
the Common Stock of the Company owned by Optionee for at least six (6)
months prior to the date hereof (and which have been paid for within
the meaning of SEC Rule 144), or obtained by Optionee in the open
public market, and owned free and clear of all liens, claims,
encumbrances or security interests, valued at the current Fair Market
Value of $______ per share;
<PAGE> 13
[ ] by the waiver hereby of compensation due or accrued to Optionee for
services rendered in the amount of $______________;
[ ] through a "same-day-sale" commitment, delivered herewith, from Optionee
and the NASD Dealer named therein in the amount of $____________; or
[ ] through a "margin" commitment, delivered herewith from Optionee and the
NASD Dealer named therein in the amount of $______________.
The Company and Optionee hereby agree as follows:
1. PURCHASE OF SHARES. On this date and subject to the terms and
conditions of this Agreement, Optionee hereby exercises the Grant with respect
to the Number of Shares Purchased set forth above of the Company's Common Stock
(the "Shares") at an aggregate purchase price equal to the Aggregate Purchase
Price set forth above and the Price per Share set forth above. The term "Shares"
refers to the Shares purchased under this Agreement and includes all securities
received in replacement of the Shares and as a result of stock dividends or
stock splits in respect of the Shares. Capitalized terms used herein that are
not defined herein have the definitions ascribed to them in the Plan or the
Grant.
2. REPRESENTATIONS OF PURCHASER. Optionee represents and warrants to
the Company that Optionee acknowledges that Optionee has received, read and
understood the Plan and the Grant and agrees to abide by and be bound by their
terms and conditions.
3. COMPLIANCE WITH SECURITIES LAWS. Optionee understands that the
Shares have been, or are expected to be, registered on Form S-8 under the 1933
Securities Act.
4. STOP-TRANSFER NOTICES. Optionee understands and agrees that, in
order to ensure compliance with the restrictions referred to herein, the Company
may issue appropriate "stop-transfer" instructions to its transfer agent, if
any, and that, if the Company transfers its own securities, it may make
appropriate notations to the same effect in its own records.
5. TAX CONSEQUENCES. OPTIONEE UNDERSTANDS THAT OPTIONEE MAY SUFFER
ADVERSE TAX CONSEQUENCES AS A RESULT OF OPTIONEE'S PURCHASE OR DISPOSITION OF
THE SHARES. OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED WITH ANY TAX
CONSULTANT(S) OPTIONEE DEEMS ADVISABLE IN CONNECTION WITH THE PURCHASE OR
DISPOSITION OF THE SHARES AND THAT OPTIONEE IS NOT RELYING ON THE COMPANY FOR
ANY TAX ADVICE. IN PARTICULAR, OPTIONEE REPRESENTS THAT OPTIONEE HAS CONSULTED
WITH OPTIONEE'S TAX ADVISORS CONCERNING THE ADVISABILITY OF FILING A SECTION
83(b) ELECTION WITH THE INTERNAL REVENUE SERVICE.
-2-
<PAGE> 14
6. ENTIRE AGREEMENT. The Plan and Grant are incorporated herein by
reference. This Agreement, the Plan and the Grant constitute the entire
agreement of the parties and supersede in their entirety all prior undertakings
and agreements of the Company and Optionee with respect to the subject matter
hereof, and are governed by California law except for that body of law
pertaining to conflict of laws.
7. TITLE. Optionee desires to take title to the Shares as follows:
( ) Individual, as separate property
( ) Husband and wife, as community property
( ) Joint Tenants
( ) Tenants in Common
( ) Other (e.g., corporation, partnership, custodian, trust,
etc.):____________________________________________________
__________________________________________________________
The exact spelling of name(s) under which title to the Shares is to be taken
is:_____________________________________________________________________________
Submitted by: Accepted by:
OPTIONEE:______________________________ VERITAS SOFTWARE CORPORATION
(print name)
_______________________________________ By:___________________________________
(signature)
Dated: ________________________________ Dated:________________________________
-3-
<PAGE> 1
EXHIBIT 10.10
VERITAS 1996 CHIEF EXECUTIVE OFFICER COMPENSATION PLAN
The 1996 CEO Annual Compensation Plan shall consist of three components, as
follows:
<TABLE>
<CAPTION>
COMPONENT AMOUNT VESTED PAID
<S> <C> <C> <C>
Base Salary Weekly Regular payroll
Qualitative Bonus Quarterly Annually
EPS Bonus Quarterly Annually
</TABLE>
BASE SALARY
The Base Salary will be earned on a weekly basis. Additionally, the base salary
shall be the basis for calculating life and disability benefits (and any other
such benefits which are base salary driven) which shall be provided consistent
with the standard company benefits policy.
QUALITATIVE BONUS
Qualitative Bonus shall be earned by performance against measurable qualitative
goals, which will be proposed by the CEO at the beginning of the year for
approval by the compensation committee of the board. If appropriate, the CEO
will submit a revision to the goals contemporaneously with the submission of the
mid-year operating plan update.
EPS BONUS
The EPS Bonus shall be earned by achieving the earnings per share specified in
the approved operating plan. An earnings per share achievement below 70% of plan
shall not earn any bonus, and at 70% shall earn 50% of bonus. Achievement of
100% of the earnings per share shall earn 100% of the bonus, with any
intermediate achievement between 70% and 100% earning a proportional amount of
the bonus. At an earnings per share of 130% of plan 150% of bonus will be
earned, with any intermediate achievement between 100% and 130% earning a
proportional amount. In the event that the board of directors approves a mid
year update, than the annual earnings per share objective shall be the sum of
the first two quarters as specified in the original plan, and the second two
quarters as specified in the mid-year update.
PAYMENTS/VESTING
The compensation committee of the board of directors shall be responsible for
assessing and awarding payment for the Qualitative and EPS Bonuses. In the event
of termination, voluntary or involuntary, with or without cause, the bonuses
above shall be vested 25% for each quarter of employment completed prior to the
termination, and payable to the extent the specified goals were achieved by the
company by the end of the year.
Bonus payments shall be made not later than January 31, 1997.
DISCRETION OF THE BOARD OF DIRECTORS
Notwithstanding the above, the Company's board of directors, at its sole
discretion, may, for reasonable cause, modify or change this Plan or its
implementation at any time.
___________________ _________ _____________________ _________
for Veritas Date Mark Leslie Date
<PAGE> 1
EXHIBIT 10.11
VERITAS 1996 EXECUTIVE COMPENSATION PLAN
The 1996 Executive Annual Compensation Plan shall consist of four components for
sales executives, and three components for all other executives , as follows:
<TABLE>
<CAPTION>
COMPONENT AMOUNT VESTED PAID
<S> <C> <C> <C>
Base Salary Weekly Regular payroll
Qualitative Bonus Quarterly Quarterly
Sales Commission On Revenue Monthly
EPS Bonus Quarterly Annually
</TABLE>
BASE SALARY
The Base Salary will be earned on a weekly basis. Additionally, the base salary
shall be the basis for calculating life and disability benefits (and any other
such benefits which are base salary driven) which shall be provided consistent
with the standard company benefits policy.
QUALITATIVE BONUS
Qualitative Bonus shall be earned by performance against measurable qualitative
goals, which will be proposed by the executive at the beginning of each quarter
for approval by the CEO. In any one quarter, the Qualitative Bonus can be paid
as little as 0%, and a maximum of 150%, with the annual total not to exceed
125%.
SALES COMMISSION
Sales Commission shall be paid according to attachment A.
EPS BONUS
The EPS Bonus shall be earned by achieving the earnings per share specified in
the approved operating plan. An earnings per share achievement below 70% of plan
shall not earn any bonus, and at 70% shall earn 50% of bonus. Achievement of
100% of the earnings per share shall earn 100% of the bonus, with any
intermediate achievement between 70% and 100% earning a proportional amount of
the bonus. At an earnings per share of 130% of plan 150% of bonus will be
earned, with any intermediate achievement between 100% and 130% earning a
proportional amount. In the event that the board of directors approves a mid
year update, than the annual earnings per share objective shall be the sum of
the first two quarters as specified in the original plan, and the second two
quarters as specified in the mid-year update.
PAYMENTS/VESTING
The CEO shall be responsible for assessing and awarding payment for the
Qualitative Bonus. Qualitative Bonus payments shall be paid no later than the
last day of the month following the end of the quarter.
The CEO shall be responsible for assessing and recommending to the compensation
committee payment for the EPS Bonus. In the event of termination, voluntary or
involuntary, with or without cause, the EPS Bonus shall be vested 25% for each
quarter of employment completed prior to the termination, and payable to the
extent the specified goals were achieved by the company by the end of the year.
Payment for the EPS Bonus shall be made not later than January 31, 1997.
DISCRETION OF THE CEO AND BOARD OF DIRECTORS
Notwithstanding the above, the Company's CEO or board of directors, at its sole
discretion, may, for reasonable cause, modify or change this Plan or its
implementation at any time.
____________________ _________ ____________________________ __________
for Veritas Date Officer name Date
<PAGE> 1
EXHIBIT 10.12
AGREEMENT
THIS AGREEMENT is made and executed at Pune on this 7th day of November 1996.
BETWEEN
1. TALWALKAR & TALWALKAR, A Proprietory concern, having its Office at "Sai
House", 17/7, Erandawane, Near Excel Service Station, Pune 411 004,
hereinafter referred to or called as "THE PROMOTER", (which expression unless
repugnant to the context or meaning thereof shall mean and include its
Proprietor, his legal heirs, executors, administrators, assigns, etc.)
...PARTY OF THE FIRST PART
2. VERITAS SOFTWARE INDIA PVT. LTD., a Company incorporated under the Companies
Act 1986 having office at 1179/3 Shivajinagar, Modern College Road, Pune -
411 005, through its Director Mr. Madhu Velji Popat, Age: Adult years,
Occupation: Service, residing at 476 Bhau Daji Road, Matunga, Mumboi 400 095
, athorised to execute this agreement vide Resolution dated________,
hereinafter referred to or called as "THE PURCHASER" (which expression unless
repugnant to the context or meaning thereof shall mean and include its
Directors, their successors in title, executors and administrators.
...PARTY OF THE SECOND PART
AND
3.
1. MR. RAJENDRA DATTATRAYA PATHAK, Age about 37 years, Occupation:
Advocate, Residing at 41, Shailesh Society, Karvengar, Pune 411 052.
2. MRS. KAMAL TRIMBAK NIGHOJKAR, Age about 67 years, Occupation:
Housewife, Residing at 301, Amarpuri, 38/2, Karvengar, Pune 411 052.
3. MRS. BAKUL PRABHAKAR PATHAK, Age about 64 years, Occupation:
Housewife, Residing at 27 -B Swapnanagari, 20 Karve Road,
Pune 411 004. Through her Constituted Attorney
Mr. Dhananjay T. Nighohkar.
4. MRS. NALINI MANOHAR SARAF, Age about 61 years, Occupation:
Housewife, Residing at 528, Narayan Peth, Pune 411 030. Through her
Constituted Attorney Mr. Dhananjay T. Nighohkar. Residing at: 301
Karvenagar, Pune 411 052.
5. i) MR. NARHAR VAMAN PANDIT, Age about 60 years, Occupation:
Business, Residing at 384, Sadashiv Peth, Pune 411 030.
ii) MR. MADHAV NARHAR PANDIT, Age about 36 years, Occupation:
Service, Residing at 384, Sadashiv Peth, Pune 411 030.
iii) MR. MAHESH NARHAR PANDIT, Age about 29 years, Occupation:
Service, Residing at 384, Sadashiv Peth, Pune 411 030
iv) MS. MADHAVI DAMODAR THITE, Age about 26 years, Occupation:
Service, Residing at 384, Sadashiv Peth, Pune 411 030.
v) MS. MEDHA NARHAR PANDIT, Age about 25 years, Occupation:
Housewife, Residing at 384 Sadashiv Peth, Pune 411 030
hereinafter referred to or called as "THE CONFIRMING PARTIES", (which
expression unless repugnant to the context or meaning thereof shall mean
and include the owners themselves, there respective heirs, legal
representatives, executors, administrators and assigns).
<PAGE> 2
...PARTY OF THE THIRD PART
through their constituted attorney MRS. BHARATI VIKRAM PATWARDHAN/MR.
RAJAN ALUR.
(A) The confirming parties herein are the owners, of the property which is
more particularly described in the Schedule I written hereinunder,
(hereinafter referred to as "THE SAID LAND" and the Confirming Parties
also represented to the Promoter herein that they have a marketable title
to the said land:
(B) AND WHEREAS the Confirming Parties herein are the sole and absolute Owners
of land more particularly described in Schedule I written hereunder
(hereinafter referred to or called as the said land).
(C) AND WHEREAS the Competant Authority, Pune, vide its order under section
8(4) of the ULC Act dated 18-9-95, declared that out of the total area of
Schedule I property of 3400 sq. mtrs. an area admeasuring 2130.38 sq.
mtrs. was non vacant and 1269.62 sp. mtrs. as vacant land. AND WHEREAS the
Competant Authority, Pune, vide its order dated 21.10.1995 under section
22 of the ULC Act has permitted the redevelopment scheme for the said
total non vacant area of 2130.38 sq. mtrs.
AND WHEREAS the Promoter prepared and got sanctioned plan of the proposed
building on portion of the first schedule property admeasuring 1794 sq.
mtrs. Consisting of commercial units vide commencement certificate bearing
No. 5176 dated 07.06.1996.
(D) AND WHEREAS the Confirming Parties did not have knowledge expertise and
experience of construction of the buildings and they therefore appointed
the Promoter herein for the development of the said land by executing
Development Agreement dated 02.05.1995 with the Promoter and gave the
Promoter herein power and exclusive authority and right to develop and to
construct and so sell and transfer and allot the Offices parking space
etc. to the intending purchasers, subject to the terms and conditions
mentioned in the said Agreement.
(E) The Promoter herein has appointed M/s. Pandit Joshi & Associates, Pune and
Ruikar Associates, Pune as their Architects and as Structural Engineers
respectively for the preparation of the design and drawings of the
building/s which are proposed to be constructed on the said land. The
Promoter herein has reserved the right to change such Architect and
Structural Engineer before the completion of the building/s.
(F) As a result of the aforsaid agreement, the Promoter herein alone is
entitled to develop and construct the buildings on the said land and has
exclusive right to sell, lease, mortgage etc. the Offices, tenements, car
parkings, terraces, reserved/ restricted areas, garden area,
garage/outhouse, space for advertisement on the terrace of buildings, etc.
in the buildings which are under construction or to be constructed on the
said land by the Promoter and to enter into agreements with the
Purchasers, Mortgagees, lessees, etc. and to receive sale price/
consideration and deposit and other charges in respect thereof.
(G) The copies of Certificate of Title issued by the Advocate of the Promoter,
7/12 extract showing the nature of the title, of the Owners of the said
land, on which the units are under construction and the copies of the
plan/s and details of the Offices and specifications have been annexed
hereto and marked as Annexure "A", "B", "C", "D" and "E" respectively.
(H) The Purchaser/s herein has/have demanded from the Promoter and the
Promoter has given inspection to the Purchaser/s of all the documents
relating to the said land and the plans, design and specifications
prepared by the aforesaid Architect of the Promoter and such other
documents as are specified under the Maharashtra Ownership Flats
(Regulation of the Promotion of Construction, sale Management and
Transfer) Act, 1963 (hereinafter referred to as "The Said Act") and rules
made thereunder.
(I) After the Purchaser's enquiry the Promoter herein has requested the
Purchaser to carry out independent search by appointing its own Advocate
and to ask any queries, he/she/ they has have regarding the marketable
title and nature of the title of the confirming parties of the Owners and
the Promoter. The purchaser/s has/have satisfied himself/herself/
themselves in respect of the marketable title of the Confirming Parties
and rights of the Promoter herein therefore, has agreed to purchase the
Offices, more particularly described in the Annexure-D herein and
delineated red colour boundary line on the Annexure-C annexed hereto
(hereinafter referred to or called as "THE SAID OFFICES").
<PAGE> 3
(J) The Promoter herein has agreed to provide amenities in the said
Accommodation which are more particularly described in the Annexure E
annexed hereto.
(K) The Purchaser/s herein is/are aware of the fact that the Promoter herein
and the Confirming Parties herein have entered or will enter into similar
or separate agreement/s with sever alot her person/s and parties in
respect of other Offices, terrace/s, garage/s car parking/s under the
stilt, land adjacent to the building within the said land for garden etc.
(L) The Office Purchaser/s herein represented, assured and declared that
he/she/they is/are entitled to and otherwise not debarred or disentitled
to acquire a Offices under the provision of Maharashtra Co-operative
Societies Act, 1960. (Maharashtra Act No. XXIV of 1960) and Urban Land
(Ceiling & Regulation) Act, 1976.
(M) The Parties herein have filed Form No. 37-1 under section 269 UC of the
Income-Tax at 1960 in respect of this transaction and have obtained
consent of the Appropriate Authority vide Order No. AHD/AA/PN 2789/95-96
dated 27th May 1996.
(N) AND WHEREAS under section 4 of the said Act the Promoter is required to
execute a written Agreement for Sale of the Premises/units to the
Purchaser being infact these presents and also registered the said
Agreement under the Registration Act.
(O) The parties here to are desirous to reduce into writing all the terms and
conditions of this transactions and hence these presents.
NOW THEREFORE, THIS INDENTURE WITNESSETH AND IT IS HEREBY AGREED BY AND BETWEEN
THE PARTIES HERETO AS UNDER:
1. The Promoter herein has obtained sanction of the building plans in respect
of the buildings which are under construction on the said land and the
Promoter herein shall continue to construct and complete the construction
of the said buildings on the said land in accordance with the plans,
designs and specifications approved or to be approved by the concerned
authority, which have been seen and approved by the Purchaser/s subject to
such alterations and modifications as the Promoter in its sole discretion
may think fit and necessary or may be required by the concerned local
authority/ Government to be made in them or any of them.
2. The Purchaser/s hereby gives / give his / her / their irrevocable consent
to the Promoter herein to carry out such alteration, modifications in the
sanctioned plan/s of the said building/s as the Promoter in his sole
discretion thinks fit and proper and/or such any law, rules, regulations,
order or request made by the local authority, planning authority,
competent authority or Government or any local authority.
Provided that the Promoter shall have to obtain prior consent in writing
of the purchaser/s if such alterations and modifications adversely affect
the construction of the said accommodation.
The Purchaser/s herein shall have no right to withhold such permission
without any reasonable cause and shall give such permission as and when
required by the Promoter herein.
3. Relying on the Purchaser's representation and the assurance, the Promoter
here in agreed to sell and the Purchaser/s has/have agreed to purchase
Office Nos. 1&2 (ONE AND TWO) in Building No. "A", admeasuring built-up
area 959.12 SQ. MTRS approximately i.e. 10,324 SQ. FT. and carpet area
about 854 SQ. MTRS. I.E. 9,188 SQ. FT. and (including area of balcony/ies)
on First and Second floors above Parking, in Building No. "A", which
Offices are shown in RED colour boundary line on the plan annexed hereto
as Annexure "C" along with six (6) Car Parks No. 14, 15, 16, 17, 18, & 19,
in the same Building No. " A" which is more particularly delineated in Red
Colour boundary line in Annexure-C annexed hereto and hereinafter, the
aforesaid premises referred to or called as "THE SAID OFFICE", at or for a
total consideration of RS. 2,47,11,400/- (RUPEES TWO CRORES FORTY SEVEN
LACS ELEVEN THOUSAND FOUR HUNDRED ONLY) including the price for
proportionate share in the said land and includes price of the common
areas and facilities, appurtenant to the premises, excluding all expenses
for stamp duty and registration fees, which shall be paid by Offices
Purchaser separately. The nature, extent and described in the Schedule-II
written hereunder and the Promoter has agreed to
<PAGE> 4
provide the amenities in the said Offices and more particularly described
in the annexure "E" written hereto.
The Purchaser/s herein shall pay the aforesaid agreed consideration to the
Promoter in the following manner:
i) Rs. 11,75,000/- paid prior to the execution of these presents vide
cheque No. 282926 dated 29/3/96 drawn on CitiBank,
Mumbai.
ii) 20% Paid at the time of execution of this Agreement by
Rs. 37,67,280/- adjustment of the deposit amount of Rs 11,75,000
(Rupees Eleven Lacs Seventy Five Thousand only_
paid on MOU and valance by Cheque No. 178871 dated
7/11/96 drawn on Bank of India Bank.
iii) 10% At the time of concreting of first slab of the building.
iv) 10% At the time of concreting of the second slab of the
building.
v) 15% At the time of concreting of third slab of the building.
vi) 10% At the time of completion of internal plaster work of
first & second floors.
vii) 20% At the time of completion of plumbing work of first &
second floors.
viii) 15% At the time of handing over possession of the premises.
- ---------
100% Total RS. 2,47,11,400/- (Rupees Two Crores, Forty Seven
Lacs, Eleven Thousand, Four Hundred Only.)
- ---------
The Purchaser shall on or before delivery of possession of the said premises
keep deposit of the following amount as demanded by the Promoter from time to
time.
i) Towards MSEB charges : At actuals + Rs. 50,000/-
ii) Towards Association Formation/Legal Charges : Rs. 50,000/-
The Purchaser herein shall pay the aforesaid amount on the Purchaser receiving
the written intimation from the Promoter calling upon the Purchaser to make the
payment. "Payment in time is the essence of the contract."
4. It is hereby agreed that the Promoter and the Purchaser/s shall observe
and perform and comply with all terms and conditions, stipulations,
restrictions, if any, which have been or which may be imposed by local
authority at the time of sanctioning of the plans or any time thereafter
or at the time of granting Completion Certificate. The Purchaser/s shall
not be entitled to claim possession of the said Offices until the
completion certificate in respect of the said Offices is received by the
Promoter and the Purchaser pays all dues payable under this agreement in
respect of the said Offices to the Promoter.
5. It is hereby declared that sanctioned plan/s has/have been shown to the
Purchaser /s and the floor space index (F.S.I.) available is shown in the
said plan/s. Similarly, the floor space index, if any utilised as floating
floor space index or any other manner i.e. to say transfer from this
property to another property or the floor space Index of any other
property used by this property is also shown in the
<PAGE> 5
plan/s. In this Agreement, the word F.S.I or floor area ratio shall have
the same meaning as understood by the planning Authority under its
relevant Building Regulation or Bye-Laws. The Promoter shall have right of
pre-emption or first right to utilise the residual or available F.S.I. or
which may be increased for whatever reason in respect of the said land or
any other F.S.I. granted by the appropriate authority and allowed to use
the same on the said land by constructing or raising any floor of the
building which is under construction on the said land even after
completion of existing work but in any case before execution of final
conveyance, in favour of society or apartment holders. And the Promoters
is entitled to sell the said F.S.I. to any person of his choice & the
Society Association of Apartments Owners shall admit such person/s as
member/s of the Society/Association of Apartments Owners. The Purchaser/s
herein by executing these presents has given its irrevocable consent for
the aforesaid purposes.
6. The Promoter has made full and true disclosure of the title to the said
land as the encumbrance, if any known to the Promoter. The Promoter has
also disclosed to the Office Purchaser/s, nature of its right, title and
interest or right to construct building/s. The Promoter has also given
inspection of all the original documents and given certified true copies
of all documents to the Office Purchaser to carry out the search and to
investigate the title by appointing its own Advocate. The Office
Purchaser/s having acquainted itself with all the facts and right of the
Promoter and has entered into this Agreement. The Office Purchaser/s
hereinafter shall not be entitled to challenge or question the title of
the Confirming Parties and the right/authority of the Promoter in respect
of the said land and to enter into this agreement.
7. It is hereby agreed that the time for payment as specified above is the
essence of the contract and on failure of the Office Purchaser/s to pay
the same on due dates, it shall be deemed that the Office Purchaser/s
has/have committed breach of this Agreement and the Promoter shall be
entitled to take such action as he is entitled to take in case of breach
of this Agreement.
8. Without prejudice to the right of the Promoter to take action for breach
arising out of delay in payment of the Installments on the due dates, the
Office Purchaser shall be bound and liable to pay interest @24% per annum
with quarterly rests, on all the amounts which become due and payable by
the Office Purchaser/s to the Promoter till the date of actual payment,
provided that tender of the principle amounts and interest or tender of
the interest and expenses thereof shall not itself be considered as waiver
of the right of the Promoter under this Agreement, nor shall it be
construed as condonation of the delay by the Promoter.
9. On the Officer Purchaser/s committing default in payment on the due dates
of any of the installments payable under this Agreement or any other
amount due and payable under this Agreement (Including its proportionate
shares of taxes levied by the concerned local authority and any other
outgoings) and on the Office Purchaser/s committing breach of any of the
terms and conditions of this Agreement, the Promoter shall in his sole
discretion be entitled to terminate this Agreement. Provided always that
the power of termination under this Agreement shall not be exercised by
the Promoter unless the Promoter has given to the purchaser 15 (fifteen)
days prior notice in writing of his intention to terminate the Agreement,
and point out the breach of the breaches of the terms and conditions on
account of which it is intended to terminate this Agreement, and the
Purchaser has called and/or neglected to rectify the breach or breaches
within the period of 15 (fifteen) days of such notice. Provided further
that upon termination of this agreement after deducting 10% amount of the
total consideration as the earnest money which the Promoter herein is
entitled to forfeit, the Promoter shall refund to the Purchaser the
installments or price which the Purchaser/s might have till then paid to
the Promoter but without any interest, the aforesaid amount shall be paid
by the Promoter to the Purchaser/s immediately prior or after resale of
the said Accomodation and on such condition the Promoter shall be entitled
to resale the said Accommodation and/or dispose off or otherwise alienate
the same in any of the manner as the Promoter herein in its sole
discretion thinks fit. The Purchaser/s herein both hereby agrees to
execute Deed of Cancellation or any other document as may be required to
cancel this transaction in law on termination of the agreement as
aforesaid and is entitled to do the same on refund of amount by
cheque/demand draft as aforesaid by post.
10. The specifications of the Offices, and fixtures, fittings and the
amenities to be provided by the Promoter to the said Offices or to the
said building are described in the Annexure "E" annexed hereto.
<PAGE> 6
If any other extra fittings, or amenities are provided by the Promoter,
the Officer Purchaser shall be bound to pay the extra price for such
additions as per bill of the Promoter. The bill raised by the Promoter
shall be final. If any extra fittings, fixtures and/or amenities are
required by the Purchaser/s, then the Purchaser/s shall inform in writing
(the promoter may in his discretion entertain and act even on an oral
request) to the Promoter. Then the Promoter herein at his/their sole
discretion may carry out the work after the Purchaser/s depositing such
extra cost/price with the Promoter and for such additions bills raised by
the Promoter shall be final.
11. The Promoter herein shall give the possession of the said Offices, to the
Purchaser/s on execution of conveyance only. (on or before 18th September
1997). If the Promoter fails or neglects to execute aforesaid document/s
and handover the possession for the reasons beyond its control by the
aforesaid date or within the period mentioned under Section 8 of the
Maharashtra Ownership Flats Act, 1963, then the Promoter shall be entitled
or liable on demand to refund to the Purchaser/s the amount already
received by the Promoter in respect of the said Offices, with interest @
24% per annum, from the date the Promoter received the said sum till the
date the amount and interest are repaid. Till the entire amount and
interest thereon is refunded by the Promoter to the Purchaser/s they shall
subject to the prior encumbrances, if any, be a charge on the said
Offices. Provided that the Promoter shall be entitled to reasonable
extension of time for giving possession of the said Offices on the
aforesaid date, if the construction and completion of building in which
the said Offices is to be situated is delayed on account of:
i) non- availability of steel, cement, other building materials, water
or electric supply.
ii) War- Civil commotion or act of God
iii) any notice order, rule notification of the Government and/or public
or competent authority.
The Promoter herein has agreed to pay liquidated damages to the Purchaser
@ 2% per month of the purchase price for delay beyond one month from the
date mentioned above i.e. 18.09.1997. The Promoter has also agreed to
allow the Purchaser to enter into premises for starting internal
furnishing on or before 18.06.1997.
12. If within a period of three years from the date of obtaining completion
certificate from the Pune Municipal Corporation, Pune, the Purchaser/s
brings to the notice of the Promoter any structural defect in the Offices
or the building in which the Offices, are situated or the material used
thereon or any unauthorised change in the construction of the said
building, then wherever possible such defects or unauthorised changes
shall be rectified by the Promoter at its own cost and in case it is not
possible to rectify such defects or unauthorised changes, then the Office
Purchaser shall be entitled to receive from the Promoter reasonable
compensation for such defects or unauthorised change in the said
accommodation.
Provided further that it is agreed that the described liability period
shall be deemed to have commenced from the date on which the Promoter has
given the necessary intimation under this Agreement whichever is earlier.
Provided however, that the Office Purchaser/s shall not carry out any
alterations of whatsoever nature in the said Offices or in the fittings
therein, in particular it is hereby agreed that the Office Purchaser/s
shall not make any alterations in any of the fittings, pipes, water supply
connections or any of the erection in the bathroom as this may result in
seepage of the water. If any of such works are carried out without the
written consent of the Promoter, the defect liability automatically shall
become void.
13. The Office Purchaser/s shall use the said Offices or any part thereof or
permit the same to be used only for the purpose permitted by the local
authority. Is shall use the garage or parking space only for the purpose
of keeping or parking the Office Purchaser's own vehicle.
14. The Office Purchaser/s along with other Purchaser/s of office/shop etc.,
in the building/s shall join in forming and registering the Society or a
Limited Company or an Association of Apartment Owners and also from time
to time sign and execute all the applications for registration and/or
membership and other papers and documents necessary for the formation and
the registration of such body including the bye-laws of the proposed
society or a limited company or an Association of Apartment owners and
duty fill in, sign and return to the Promoter within 15 days of the same
being forwarded by the Promoter to the Office Purchaser, so as to enable
the Promoter to register the Organisation of the
<PAGE> 7
Offices. In the event the Purchaser failing or neglecting to sign the
necessary papers or not giving the co-operation or assistance required by
the Promoters, the Promoters shall not be liable for any delay in the
formation of the society, Association or the company as the case may be
and if the defaulter neglects or any of the Office Purchaser continues to
default for a period of 4 months then the Promoters shall be relieved of
their obligation to form the Society/Association/ Company which shall
thereafter be formed only by all the Office/Shop Purchasers. No objection
shall be taken by the Office Purchaser/s if any changes or modifications
are made in the draft bye-laws of the Memorandum and/or Articles of
Association, unless it is required by the Registrar of Co-operative
Societies or the Registrar of the Company the case may be, or any other
Competent Authority.
15. Unless prevented by circumstances beyond the control of Confirming Parties
and the Promoter, it is agreed that within four months of the registration
of the Association the building together with land below the building
shall be transferred to the Unit Holders of Association or after
submitting the said land or any part thereof along with building/s
constructed or to be constructed thereon under the provision of
Maharashtra Apartment /Ownership Act, 1970, by the owners and the
Promoters herein and after payment of all dues if any by the Office
Purchaser/s to the Promoter, and after the sale of all flats in the scheme
the Owners and the Promoter herein shall execute necessary deed of
apartment/conveyance in favour of the Purchaser herein. In the event the
scheme consisting of multiple buildings the conveyance shall be executed
within three years of the completion of the last building.
16. It is hereby agreed that the Promoter has the exclusive right of allotment
of the different parking spaces or garages or terraces or open spaces or
right to develop garden in adjoining open spaces to one or more person/s
of their choice, and such person/s may not be the owners or holders of the
Offices. The person/s to whom such terraces or parking space/s or garage/s
or open spaces are allotted shall be admitted as the members of the
Association. The areas mentioned in Schedule- II shall be the common areas
and facilities and the Promoter shall be entitled to declare all other
areas as restricted or reserved areas and facilities and/or alienate and
dispose of other areas and facilities in such manner as the Promoter
thinks fit.
17. Commencing a week after notice in writing is given by the Promoter to the
Purchaser/s that the Offices are ready for use and occupation, the
Purchaser/s shall be liable to bear and pay the proportionate share (i.e.
in proportion to the floor area of the Offices or in lump-sum monthly
amount) of outgoings in respect of the said land and building/ buildings
namely local taxes, betterment charges or such other levies imposed by the
concerned local authority and /or Government, Water charges, Insurance,
Common lights, repairs, and salaries of clerks , bill collectors,
chowkidars, sweepers and all other expenses necessary and incidental to
the Management and maintenance of the said land and building/s. The amount
of consideration mentioned in this agreement includes maintenance charges
for 6 months from the date of issue of completion/ occupation certificate
by PMC. However, due to any reason if the management of the Association of
the Apartment owners is not handed over by the Promoter/Developer to the
said Society/Association, then in that event, the Officer Purchaser shall
pay Rs. 1500/-per month towards management of the premises to the
Promoter/Developer, till such time the management is handed over to the
proposed Association by the Promoter/Developer.
18. The Purchaser/s itself with intention to bring all persons into whatsoever
hands the said Offices may come, both hereby covenant with the Promoter as
follows for the said Offices and also for the building in which the
Offices is situated.
a) To maintain the said offices at Purchaser's owns cost any good
tenantable repair and condition from the date of completion
certificate and shall not do or cause to be done anything in or to
the said Offices or building in which the said Offices or the
building in which the said accommodation is situated, staircase or
any passages which may be against the rules, regulations or bye laws
of the concerned local or any other authority or change/alter or
make addition in or to the said Offices and/or building in which the
said Offices are situated and the said Offices itself or ant part
thereof.
b) Not to store in/outside the said Offices/building/surrounding area
any goods which are of hazardous combustible or dangerous nature or
are too heavy as to cause damage to the construction or structure of
the building or storing of which goods is objected to by the
concerned local or other authority and shall not carry or caused to
be carried heavy packages to upper floors,
<PAGE> 8
which may damage or are likely to damage the staircases, common
passages or any other structure of the building including entrances
of the building and in case any damage is caused to the building in
which the said Offices are situated or to the said Offices on
account of negligence or default of the Purchaser/s in this behalf,
the Purchaser/s shall be liable for all the consequences of the
breach.
c) To carry at its own cost all internal repairs to the said Offices
and maintain the said Offices in the same condition, state and order
in which it was delivered by the Promoter : Provided that for the
defect liability period such repairs shall be carried out by the
Purchaser/s with the written consent and the supervision of the
Promoter and shall not do or cause to be done anything contrary to
the rules under regulations and bye-laws of the concerned local
authority or other public authority. And in the event of the
Purchaser/s committing any act in contravention of the above
provisions, the Purchaser/s shall be responsible and liable for the
consequences thereof to the concerned authority and / or other
public authority.
d) Not to demolish or cause to be demolished; and not to make at any
time or cause to be made any addition or to the said Offices or any
part thereof, or in or to the building in which said Offices are
situated and not to make any alteration the elevation outside colour
scheme of the building and shall keep the portion, sewers, drains,
pipes and appurtenances thereto in good tenantable repair and
condition, and in particular, so as to support shelter and protect
other parts of the buildings and shall not chisel or in any other
manner cause damage to the columns, beams, walls, slabs or RCC,
pardis or other structural members in the said Offices without the
prior written permission of the Promoter till final conveyance.
e) Not to do cause to be done any act or thing which may render void or
voidable any insurance of the said land and the building or any part
thereof whereby any increase in premium shall become payable in
respect of the insurance.
f) Not to throw dirt, rubbish, rags, garbage, or other refuse or permit
the same to be thrown form the said Offices in the compound or any
portion of the said land and the building.
g) Pay to the Promoter within seven days on demand from the Promoter,
its share of security deposit demanded by the concerned local
authority or the Government for giving water, electricity, or any
other service connection to the building in which the said Offices
are situated.
h) To bear and pay the local taxes, water charges, insurance and such
other levies, if any, from the date of completion certificate in
respect of the said Offices and also any additional increased taxes,
insurance etc., which are imposed by the concerned local authority
and / or the Government and / or other public authority on account
of change of user of the said Offices by the Purchaser/s viz. user
for any purposes other than for permitted purpose.
i) The Purchaser/s shall not let, sub-let, transfer, assign, or part
within Purchaser/s interest or benefit factor of this agreement or
part with the possession of the said Offices until all the dues
payable by the Purchaser/s to the Promoter under this agreement are
fully paid up and only if the Purchaser/s had not been guilty of
breach of or non-observance of any of the terms and conditions of
this agreement.
j) The Purchaser/s shall observe and perform all the rules and
regulations which the Association of Office/Shop Owners may adopt at
its inception and the additions, alterations or amendments thereof
that may be made from time to time for protection and maintenance of
the said building and the Offices/Shops therein and for the
observance and performance of the Buildings Rules, Regulations and
Bye-laws for the time being of the concerned local authority and of
the Government and other public bodies. The Purchaser/s shall also
observe and perform all the stipulations and conditions laid down by
the Association of Apartment Owners regarding the occupation and use
of the Offices in the building and shall pay and contribute
regularly and
<PAGE> 9
punctually towards the taxes, expenses or other outgoings in
accordance with the terms and conditions of this agreement.
k) Till a conveyance of the building in which the said Offices are
situated is executed, the Office Purchaser/s shall permit the
Promoter and their surveyors and agents with or without workmen and
others, at all reasonable times to enter into the upon the said
Offices and the said land and buildings/s or any part thereof to
view and examine the state and conditions thereof.
19. Nothing contained in this agreement is intended to be nor shall be
construed as a grant, demise or assignment in law of the said Flats or of
the said Plot and Building or any part thereof. The Purchaser/s shall have
no claim save and except in respect of the said Offices hereby agreed to
be sold to it and all open spaces, parking spaces, lobbies, staircases,
terraces, recreation spaces etc., will remain the property of the Promoter
until the said land and building/s is / are transferred to the Association
of Apartment Owners as herein before mentioned.
20. Any delay tolerated or indulgence shown or omission on the part of the
Promoter in enforcing the terms of this Agreement or any forbearance in
giving of time to the Purchaser/s by the Promoter shall not be construed
as the waiver on the part of the Promoter of any breach or noncompliance
of any of the terms and conditions of this agreement by the Purchaser/s
nor shall the same in any manner prejudice the rights of the Promoter.
21. The Purchaser/s shall present this agreements as well as any other deeds,
documents etc., which are to be executed by the parties hereto in
pursuance of these presents at the proper registration office for
registration within the time limit prescribed by the Registration Act and
the Promoter after receiving written intimation with a copy of the
Registration receipt will attend such office and admit execution thereof.
22. All notices to be served on the Purchaser/s as contemplated by this
Agreement shall be deemed to have been duly served if sent to the
Purchaser/s by Under Certificate of Posting at his / her / their
address/es specified in the title of this Agreement or at the address
intimated in writing by the Purchaser/s after execution of this agreement.
23. This agreement shall always be subject to the Provisions of the
Maharashtra Ownership Flats (Regulation of the promotion of construction,
sale, management and transfer) Act, 1963 and the Maharashtra Apartment
Ownership Flats Act, 1970 and the rules made thereunder.
24. The Promoter has not undertaken any responsibility nor has he agreed
anything with the Purchaser/s orally or otherwise and there is no implied
agreement or covenant on the part of the Promoter and the owner/s other
than the terms and conditions expressly provided under this agreement.
25. After the Promoter obtaining the completion certificate in respect of the
said Accommodation the Purchaser/s shall also execute such other documents
such as Possession, Receipt, Indemnity, Declaration, Undertaking,
Supplementary agreement, etc. as might be required by the Promoter.
26. The Purchaser/s herein shall bear and pay stamp duty and registration fees
and all other incidental charges etc. in respect of this agreement and all
other agreements deed of apartment of any final conveyance deed which is
to be executed by the Promoter and Confirming Parties in favour of the
Purchaser/s herein or Housing Society of Company in which the Purchaser/s
will be member.
27. The consideration of the said Offices as agreed between the Promoter and
the Purchaser herein and also as per the prevailing market rate in the
subject locality, is true and fair market rate of the said Offices. This
agreement is executed by the parties hereto under the Maharashtra
Ownership Flats Act, 1963 and / or Maharashtra Apartment Ownership Act,
1970, and Offices Purchaser/s is/are/desire/s to pay the stamp duty for
this transaction as per the Bombay Stamp Act, 1958 Schedule-I,
Article 25 (d)
<PAGE> 10
this transaction attracts stamp duty @ 10% of the consideration amount
i.e. Rs.24,71,140/- (Rupees twenty four lacs, seventy one thousand, one
hundred and forty only) and the Purchaser/s herein has paid the said stamp
duty alongwith appropriate registration fees herewith. The parties hereto
shall be entitled to get the aforesaid stamp duty adjusted, leviable on
the conveyance, which is to be executed by the Promoter and the
Owners/Confirming parties herein favour of the Purchaser.
28. If at any time, after execution if this agreement, any additional
tax/duty/ charges/ premium/ cess/surcharge etc. by whatever name called,
is levied or recovered or becomes payable under any
statute/rule/regulation notification order/either by the Central or the
State Govt. or by the local authority or by any revenue or other
authority, in respect of the said land or the local authority, in respect
of the said land or the said Accommodation or this Agreement or the
transaction herein, shall exclusively be paid/borne by the Purchaser/s.
29. In the event of the condominium being formed and registered before the
sale and disposal of all the Accommodation in the building, all the
powers, authorities and rights of the Accommodation Purchaser/s herein
shall be always subject to the Promoter's over all right to dispose of
unsold apartment and all other rights thereon. It is specifically agreed
between the parties hereto that for the unsold premises the Promoter or
Owner herein shall and will not be liable or required to contribute
towards the common expenses, or maintenance charges or any amount under
any head towards the share in the common charges in respect of unsold
premises. Nor will the Promoter be liable and required to pay any transfer
charges.
30. The Promoter herein is constructing building/s on the remaining portions
of the said land in phases. The Purchaser/s undertake/s that it shall not
raise any objection on whatsoever ground including expenses in respect of
the unsold premises. Nor will the Promoter be liable & required to pay any
transfer nuisance and annoyance or shall not obstruct the construction in
any manner.
SCHEDULE I
All that piece and parcel of land bearing Survey No. 210, Hissa No. A,
Situated at Shivajinagar, Pune 411 007, within limits of Pune Municipal
Corporation and within the Registration Sub District Taluka Haveli, District
Pune, admeasuring about 34 R (3400 sq. mtrs. i.e. 36,597 sq. ft.) and bounded
as follows:
On or towards East : By Survey No. 209
On or towards South : By Ashoknagar Co-op. Hsg. Soc.
On or towards North : By Khadki Cantonment
On or towards West : By Survey No. 136
SCHEDULE II
a. COMMON AREAS AND FACILITIES
1. Open space of the plot surrounding the building.
2. The Terrace on Top of the Building.
3. Staircase from ground floor to top of the building alongwith a lift.
4. Drainage and drainage disposal system, water lines.
5. Common lights, underground and overhead water tank, common pumping
arrangement, electrical meters, water meters for common connections,
pump sets, etc.
6. Plants and trees existing and planted in the open space of the said
land.
7. Open space and the structure thereon (to be constructed)
8. R.C.C. frame structure and foundation.
b. RESTRICTED AREAS:
1. Terrace adjoining individual offices.
2. Individual parking space under stilts.
<PAGE> 11
IN WITNESS WHEREOF the parties hereto have here unto set and subscribed their
respective hands and seals on the day, month and the year first hereinabove
written.
I) SIGNED SEALED AND DELIVERED
By the within named Proprietor
M/s. TALWAKAR & TALWALKAR
through its Proprietor MR. PRAMOD
SHYAMSUNDER TALWALKAR /s/ Mr Pramod Shyamsunder Talwalker
II) SIGNED SEALED AND DELIVERED
By the with named Purchaser/s
Veritas Software India Pvt. Ltd.
Through its Director________________
____________________________________
III) SIGNED SEALED AND DELIVERED
By the Confirming Parties / Owners/s
1. MR. RAJENDRA D. PATHAK /s/ Mr. Rajendra D. Pathak
2. MS. KAMAL T. NIGHOJKAR /s/ Ms. Kamal T. Nighojkar
3. MS. BAKUL P. PATHAK )
)
4. MS. NALINI M. SARAF ) /s/ Mr. Dhananjay T. Nighohkar
)
Through their Constituted Attorney )
)
MR. DHANANJAY T. NIGHOJKAR )
5. i) MR. NARHAR V. PANDIT )
For self and as Constituted )
Attorney )
For ) /s/ Mr. Narhar V. Pandit
ii) MR. MADHAV N. PANDIT )
iii) MS. MEDHA N. PANDIT /s/ Mr. Narhar V. Pandit
iv) MR. MAHESH N. PANDIT /s/ Mr. Mahesh N. Pandit
v) MS. MADHAVI D. THITE /s/ Ms. Madhavi D. Thite
IN THE PRESENCE OF:
(1) Signature /s/ Mrs. A.V. Padhye
-----------------------------
Name Mrs. A.V. Padhye
-----------------------------
Address Aman Park - 10
-----------------------------
134, Dahamukar Colony
-----------------------------
Kethrud, Pune 29
-----------------------------
(2) Signature /s/ Tushar Shah
-----------------------------
Name Tushar Shah
-----------------------------
Address C-3 Chaitrabai Residency
-----------------------------
Aundh, Pune - 411 007
-----------------------------
<PAGE> 1
EXHIBIT 11.01
VERITAS Software Corporation
Statement Re Computation of Per Share Earnings
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Net income ................................... $ 9,768 $ 9,874 $ 2,838
======= ======= =======
Computation of weighted average common
and common equivalent shares outstanding
(primary):
Weighted average common shares outstanding 13,383 12,914 12,252
Common equivalent shares attributable
to warrants and stock options ............ 1,022 850 597
------- ------- -------
Shares used in per share computation ......... 14,405 13,764 12,849
======= ======= =======
Net income per share ......................... $ 0.68 $ 0.72 $ 0.22
======= ======= =======
Computation of weighted average common
and common equivalent shares outstanding
(fully diluted):
Weighted average common shares outstanding 13,383 12,914 12,252
Common equivalent shares attributable
to warrants and stock options ............ 1,246 1,003 642
------- ------- -------
Shares used in per share computation ......... 14,629 13,917 12,894
======= ======= =======
Net income per share ......................... $ 0.67 $ 0.71 $ 0.22
======= ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 21.01
SUBSIDIARIES OF THE REGISTRANT
VERITAS Software India Private Limited
1179/3, Shivajinagat.
Modern College Road
Pune, - 411 005
VERITAS Japan K.K.
Kasuga 2-24-11,
Bunkyo-ku, Tokyo
<PAGE> 1
EXHIBIT 23.01
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-74712, 33-83858 and 33-07795) pertaining to the 1985 Stock
Option Plan, 1991 Executive Stock Option Plan, 1993 Equity Incentive Plan, 1993
Directors Stock Option Plan and 1993 Employee Stock Purchase Plan of VERITAS
Software Corporation of our report dated January 31, 1997, with respect to the
consolidated financial statements and schedule of VERITAS Software Corporation
included in the Annual Report (Form 10-K) for the year ended December 31, 1996.
ERNST & YOUNG LLP
San Jose, California
March 14, 1997
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