<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended October 31, 1998
Micro Focus Group Public Limited Company
(Translation of Registrant's Name Into English)
The Lawn, Old Bath Road, Newbury, England RG14 1QN
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file
annual reports under cover of Form 20-F or Form 40-F.)
Form 20-F X Form 40-F
----- -----
(Indicate by check mark whether the registrant by furnishing the
information contained in this form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes X No
----- -----
(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2 (b): 82-795.)
The number of the Company's ordinary shares outstanding as of January 6, 1999
was 143,669,067.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Condensed Consolidated Statements of Income
(in thousands, except share, ADS, per share and per ADS data)
(unaudited)
<TABLE>
Three months ended Six months ended
October 31, October 31, October 31, October 31,
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Net revenue
Product revenue $42,878 $51,489 $93,604 $93,392
Maintenance revenue 25,203 20,944 49,711 41,119
Service revenue 19,078 18,896 39,119 36,638
..........................................................................................................
Total net revenue 87,159 91,329 182,434 171,149
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Cost of revenue
Cost of product revenue 2,942 3,355 5,704 5,775
Cost of maintenance revenue 6,427 4,969 12,630 10,247
Cost of service revenue 16,517 16,457 33,833 29,923
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Total cost of revenue 25,886 24,781 52,167 45,945
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Gross profit 61,273 66,548 130,267 125,204
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Operating expenses
Research and development 15,249 15,024 30,729 30,656
Sales and marketing 37,722 34,187 73,798 66,691
General and administrative 8,137 6,557 15,984 13,235
Non-recurring charges 49,662 176 49,662 176
..........................................................................................................
Total operating expenses 110,770 55,944 170,173 110,758
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(Loss) income from operations (49,497) 10,604 (39,906) 14,446
Interest income, net 1,619 894 3,029 1,831
..........................................................................................................
(Loss) income before income taxes (47,878) 11,498 (36,877) 16,277
Income taxes 5,574 (3,789) 1,802 (5,415)
..........................................................................................................
Net (loss) income (42,304) 7,709 (35,075) 10,862
Currency translation adjustment 5,860 (174) 3,886 702
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Comprehensive (loss) income ($36,444) $7,535 ($31,189) $11,564
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Net (loss) income per share: basic ($0.29) $0.05 ($0.25) $0.08
Net (loss) income per ADS: basic ($1.47) $0.27 ($1.23) $0.39
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Shares used in computing basic net (loss)
income per share (thousands) 143,642 140,560 143,130 138,125
Shares used in computing basic net (loss)
income per ADS (thousands) 28,728 28,112 28,626 27,625
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Net income per share: diluted ($0.29) $0.05 ($0.25) $0.08
Net income per ADS: diluted ($1.47) $0.27 ($1.23) $0.38
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Shares used in computing diluted net income
per share (thousands) 143,642 144,676 143,130 143,141
Shares used in computing diluted net income
per ADS (thousands) 28,728 28,935 28,626 28,628
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Note: Share and per share data for all periods presented above reflect the 5-for-1 stock split of the
Company's ordinary shares, which was effective as of the close of business on March 13, 1998. Each American
Depositary Share ("ADS") represents five ordinary shares.
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
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Condensed Consolidated Balance Sheets
(in thousands)
<TABLE>
October 31, April 30,
1998 1998
(Unaudited) (Unaudited)
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<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $83,256 $82,256
Short-term investments 45,909 36,316
Accounts receivable, net 102,543 110,571
Inventories 1,535 1,038
Prepaid expenses and other assets 13,111 22,483
..........................................................................................................
Total current assets 246,354 252,664
Fixed assets:
Property, plant and equipment, net 49,585 51,071
Goodwill, net 12,744 5,346
Software product assets, net 18,681 24,512
..........................................................................................................
Total assets $327,364 $333,593
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Liabilities and shareholders' equity
Current liabilities:
Bank loans $5,588 $5,126
Accounts payable 15,631 15,781
Accrued employee compensation 21,277 30,675
Income taxes payable 7,057 13,116
Deferred revenue 58,067 59,117
Other current liabilities 55,532 22,112
..........................................................................................................
Total current liabilities 163,152 145,927
Long-term debt and other liabilities 6 650
Deferred income taxes 15,192 14,423
..........................................................................................................
Total liabilities 178,350 161,000
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Shareholders' equity:
Ordinary shares 4,809 4,640
Additional paid-in capital and other reserves 152,903 151,802
Unrealized gain on available-for-sale securities, net of tax 16 44
Treasury stock (7,434) (7,769)
Retained earnings 2,307 32,045
Currency translation adjustment (3,587) (8,169)
..........................................................................................................
Total shareholders' equity 149,014 172,593
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Total liabilities and shareholders' equity $327,364 $333,593
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</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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Condensed Consolidated Statements of Cash Flow
(in thousands)
(unaudited)
<TABLE>
Six months ended
October 31, October 31,
1998 1997
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<S> <C> <C>
Operating activities
Net (loss) income ($35,075) $10,862
Adjustments to reconcile net (loss) income to cash (used) by operations
Depreciation of fixed assets 5,084 5,625
Amortization of software product assets 6,848 7,289
Amortization of goodwill 1,809 995
Loss (gain) on disposals of fixed assets 5,391 (587)
Deferred income taxes 656 1,985
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable 2,175 (7,166)
(Increase) in inventories (90) (276)
Decrease (increase) in prepaid expenses and other assets 5,776 (6,109)
(Decrease) in accounts payable (2,641) (2,486)
Increase in product royalties payable 135 484
(Decrease) increase in accrued employee compensation (4,659) 2,036
Increase in accrued payroll taxes 404 74
(Decrease) increase in income taxes payable (8,552) 1,389
Increase (decrease) in deferred revenue 2,138 (4,610)
Increase (decrease) in other current liabilities 35,915 (3,024)
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Net cash provided by operating activities 15,314 6,481
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Investing activities
Property, plant & equipment, net of capital lease obligations incurred (4,803) (12,552)
Software product assets (4,799) (4,921)
Acquisition of subsidiaries, net of cash balances acquired (7,082) (229)
Available-for-sale securities (5,461) 1,151
Disposals of property, plant and equipment (13) 715
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Net cash (used) by investing activities (22,158) (15,836)
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Financing activities
Issuance of ordinary shares, net of expenses 5,159 7,804
Borrowings (1,417) 6,022
Repayment of capital leases (19) (61)
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Net cash provided by financing activities 3,723 13,765
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Effect of exchange rate changes on cash (82) 97
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(Decrease) increase in cash (3,203) 4,507
Cash at beginning of period 86,459 60,348
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Cash at end of period $83,256 $64,855
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</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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Notes to Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
Micro Focus Group plc (the "Company") is incorporated in England and Wales.
Where applicable, the term "Company" also includes the direct and indirect
subsidiaries of Micro Focus Group plc. The condensed consolidated financial
statements shown herein are stated in U.S. dollars and are prepared under U.S.
generally accepted accounting principles for interim financial information. This
submission on Form 6-K is furnished on a voluntary basis, as the Company is not
required to report quarterly financial information to the U.S. Securities and
Exchange Commission (the "SEC").
Effective November 30, 1998, the Company elected to change its fiscal year end
and accounting reference date to April 30 from January 31. Consequently, the
results shown in this report are for the first six months of the fiscal year
beginning May 1, 1998 and ending April 30, 1999.
The financial information at October 31, 1998 and for the three and six month
periods ended October 31, 1998 and 1997 is unaudited, but includes all
adjustments the Company considers necessary for a fair presentation of its
financial position at such dates and the operating results and cash flows for
such periods. The year-end balance sheet at April 30, 1998 was derived from the
audited balance sheet of Micro Focus as of January 31, 1998 and INTERSOLV as of
April 30, 1998, but does not include all disclosures required by U.S. generally
accepted accounting principles. Results for the three-month and six-month
periods ended October 31, 1998 are not necessarily indicative of results that
may be expected for the fiscal year ending April 30, 1999 or any future interim
or full-year period. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with U.S. generally
accepted accounting principles have been condensed or omitted pursuant to SEC
regulations. Management believes that the disclosures are adequate t
o make the
information presented herein not misleading. These condensed consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements and notes thereto for the year ended January 31, 1998
included in the Company's Annual Report on Form 20-F which was filed with the
SEC on May 29, 1998, as well as the condensed consolidated financial statements
and the notes thereto for the quarters ended April 30, 1998 and July 31, 1998
included in the Company's Quarterly Reports on Form 6-K submitted to the SEC on
July 15, 1998 and September 22, 1998, respectively.
The financial information contained in this quarterly report does not constitute
statutory accounts as defined in section 240 of the UK Companies Act 1985. The
figures for the year ended January 31, 1998 are based on the audited financial
statements which have been filed with the UK Registrar of Companies, and the
auditors' reports on both the U.S. and UK financial statements for the year
ended January 31, 1998 were unqualified.
2. Acquisitions
On September 24, 1998, the Company completed the acquisition of INTERSOLV, Inc.
("INTERSOLV"). The acquisition has been accounted for as a pooling of interests
under U.S. GAAP, and accordingly, all periods presented disclose the combined
results of Micro Focus and INTERSOLV. Under the terms of the agreement, each
common share of INTERSOLV was exchanged for 0.55 Micro Focus ADSs. In addition,
each outstanding option or right to purchase or acquire shares of INTERSOLV
stock was assumed by the Company and became an option or right to purchase or
acquire Micro Focus ADSs, with appropriate adjustments to the price and number
of shares based on the exchange ratio of 0.55 ADSs per INTERSOLV share.
The merger was structured as a tax-free reorganization under U.S. tax law. Micro
Focus issued approximately 12.6 million new Micro Focus ADSs (representing
approximately 63.1 million new Micro Focus ordinary shares) in exchange for
INTERSOLV's common stock and share equivalents outstanding, which at the time of
the completion of the merger represented approximately 46% of Micro Focus' share
capital on a fully-diluted basis. Prior to the merger, INTERSOLV was a public
company listed on the Nasdaq National Market. INTERSOLV is based in Rockville,
Maryland and is a provider of software solutions that facilitate the
development, delivery and deployment of business information systems.
INTERSOLV's products and services are focused primarily in the areas of
automated software quality, data connectivity and enterprise application
renewal.
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On August 13, 1998, Micro Focus acquired all the share capital of its Australian
distributor, Advanced Software Engineering Pty Ltd., for total cash
consideration of $2.4 million. The transaction was accounted for as a purchase.
On May 15, 1998 Micro Focus acquired all the share capital of its Italian
distributor, Micro Focus Italia, s.r.l., for total cash consideration of $4.3
million. The transaction was accounted for as a purchase.
On January 20, 1998, the Company acquired all the share capital of XDB Systems,
Inc. ("XDB") for total consideration of approximately $18.6 million on the date
of the acquisition, which consisted of the issuance of 2,084,825 ordinary shares
of the Company (including up to 192,850 ordinary shares to be issued to holders
of XDB options upon exercise of such options). The transaction was accounted for
as a pooling of interests. XDB, which was a privately held corporation based in
Columbia, Maryland, is a provider of DB2 database development, maintenance and
connectivity solutions.
3. Cash and Cash Equivalents - Short-Term Investments
Cash and cash equivalents include cash placed on short-term deposit and
short-term money market instruments with original maturities of less than three
months.
The Company invests its excess cash in accordance with an investment policy
approved by the Board of Directors and implemented as of the beginning of fiscal
1998. This policy authorizes investment in U.S. government securities, municipal
bonds, certificates of deposit with highly rated financial institutions and
other specified money market instruments of similar liquidity and credit
quality.
In accordance with Financial Accounting Standards Board Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," management
of the Company determines the appropriate classification of debt securities at
the time of purchase and re-evaluates such designation at each balance sheet
date. Debt securities that the Company has the intent and the ability to hold
until maturity are classified as held-to-maturity, and all other debt securities
are classified as available-for-sale.
The Company has determined that all of its investment securities are to be
classified as available-for-sale. Such securities are stated at amounts which
approximate fair value, based on quoted market prices, with the unrealized gains
and losses reported as a separate component of shareholders' equity.
Available-for-sale securities with original maturities of less than three months
are classified as cash equivalents.
4. Earnings Per Share
The Company's ordinary shares have been listed on the London Stock Exchange
since 1983 under the symbol MICF. Since 1992, the Company's ordinary shares also
have been quoted on the Nasdaq Stock Market in the U.S. in the form of American
Depositary Shares ("ADSs"), as evidenced by American Depositary Receipts, under
the symbol MIFGY. Effective as of the close of business on March 13, 1998, the
Company undertook a subdivision (or stock split) of its ordinary shares on a
5-for-1 basis. The conversion ratio of the Company's ADSs has been adjusted such
that each ADS represents 5 ordinary shares. All share and per-share references
included in this report have been restated to reflect the impact of the
above-mentioned stock split. In addition, share and per share data have been
shown in the Condensed Consolidated Statement of Income on a basis consistent
with reporting prior to the stock split.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
condensed consolidated financial statements and notes thereto included in this
Part I, and with the Company's audited consolidated financial statements in U.S.
format for the fiscal year ended January 31, 1998, included in the Company's
Annual Report on Form 20-F filed with the SEC on May 29, 1998, the condensed
consolidated financial statements and the notes thereto for the quarters ended
April 30, 1998 and July 31, 1998 included in the Company's Quarterly Reports on
Form 6-K submitted to the SEC on July 15, 1998 and September 22, 1998,
respectively, the audited consolidated financial statements of INTERSOLV, Inc.
in U.S. format for the fiscal year ended April 30, 1998 included in INTERSOLV's
Annual Report on Form 10-K filed with the SEC on July 9, 1998, as amended by
Form 10-K/A filed with the SEC on August 21,1998, and the condensed consolidated
financial statements and the notes thereto for the quarter ended July 31, 1998
included in INTERSOLV's Quarterly Report on Form 10-Q filed with the SEC on
September 10, 1998.
RESULTS OF OPERATIONS
Net revenues for the second quarter of fiscal 1999 were $87.2 million compared
with $91.3 million for the quarter ended October 31, 1997. Including the effect
of one-time charges ($49.7 million pretax; $43.4 million after tax; $0.30 per
share; and $1.51 per ADS) associated with the acquisition of INTERSOLV, the
Company's net loss for the quarter was $42.3 million, net loss per ordinary
share was $0.29 and net loss per ADS was $1.47. Excluding one-time charges
associated with the acquisition of INTERSOLV, net income was $1.1 million in the
quarter ended October 31, 1998, compared with $7.7 million in the comparable
prior year period, diluted earnings per ordinary share were $0.01 in the quarter
ended October 31, 1998, compared with $0.05 in the quarter ended October 31,
1997, and earnings per ADS were $0.04 compared with $0.27 in the prior year
quarter.
Revenue for the first two quarters of fiscal 1999 increased 7% to $182.4 million
from $171.1 million for the comparable six-month period ended October 31, 1997.
Including the one-time charges associated with INTERSOLV acquisition, the
Company reported a loss before taxes for the first half of the fiscal year of
$39.9 million, a loss after taxes of $35.1 million , a net loss per ordinary
share of $0.25 and a net loss per ADS of $1.23. Excluding one-time charges, net
income for the half year was $8.4 million compared with $10.9 million for the
comparable period of fiscal 1998, and diluted earnings per ADS were $0.28
compared with $0.38 in the comparable prior year period. Diluted earnings per
ordinary share for the half year were $0.06 per share compared with $0.08 for
the comparable prior year period.
Revenue
Net revenue for the second quarter of fiscal 1999 was 9% lower than the
corresponding quarter of the prior fiscal year and 9% below the first quarter of
fiscal 1999. North American revenues were 13% below those reported in the
comparable prior year period, while international revenue was up 12%. The
weakness in North American revenues primarily reflected an unexpected continued
decrease in sales productivity following the reorganization of the Company's
North American sales force in the first quarter of fiscal 1999, integration
issues related to the INTERSOLV acquisition and delays in major purchases by
financial institutions. The Company's Year 2000 business was also affected by
customers moving to the verification and testing stages of their remediation
processes, for which the Company did not have the appropriate products generally
available until November 1998. Product revenue for the quarter ended October 31,
1998 was down 17% over the comparable prior year period. Service revenues, which
are primarily concentrated in Year 2000 consulting, were in the quarter
essentially flat with the second quarter of fiscal 1998. Maintenance revenue for
the quarter was up 20% from the comparable prior year period.
For the first half of fiscal 1999, net revenue increased 7% over the comparable
prior year period. North American revenue was 2% lower than the comparable prior
year period and accounted for 61% of the Company's total revenue. International
revenue grew by 22% during the first half of the fiscal year and contributed 39%
of the Company's total revenue. Product revenue was 1% higher than the first two
quarters of fiscal 1998, with service revenue up 6% and maintenance revenue up
20%.
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There can be no assurance that the market for the Company's products and
services will in future periods resume or grow at their historical rates of
growth, that certain segments will not decline, or that the Company will be able
to increase or maintain its market share in the future or achieve its historical
revenue growth rates.
Gross Profit
For the second quarter of fiscal 1999, gross profit as a percentage of net
revenue was 70%, which was three percentage points lower than the gross profit
percentage reported in the comparable prior year quarter and two percentage
points below the 72% margin recorded in the first quarter of 1999. Through the
first six months of the fiscal year, the Company's gross profit margin was 71%
compared with 73% for the first half of fiscal 1998. The decreased gross profit
margin for the quarter and year to date reflected lower utilization rates for
the Company's consulting staff.
The Company's gross profit margin can be affected by a number of factors,
including changes in product or distribution channel mix, the mix of product and
service revenue, and competitive pressures on pricing. Gross margin also is
dependent on discounts selectively provided to customers in competitive sales
situations. In addition, gross margin may also be adversely affected by
expansion of the Company's consulting organization and the ability to deploy its
capacity to revenue generating projects. As a result of the above factors, gross
margin percentages may be difficult to predict, and gross margins may fluctuate
from current levels in future periods.
Operating Expenses
Research and development (R&D) expenses for the quarter ended October 31, 1998
of $15.3 million were 1% higher than those reported in the second quarter of
fiscal 1998 and represented 17% of net revenue as compared to 16% for the prior
year period. R&D expenses for the quarter were 1% lower than those reported in
the first quarter of the current fiscal year for which such expenses represented
16% of net revenue. For the first half of the year, R&D expenses totaled $30.7
million, which was flat with R&D expenses recorded in the first half of fiscal
1998. The essentially unchanged level of R&D expenses from the comparable prior
year period was due to lower software product amortization expense and
negligible growth in compensation expenses and overhead. For the two quarters
ended October 31, 1998, R&D expenditures were 17% of net revenue compared with
18% in the comparable prior year period.
The Company believes that ongoing development of new products and features is
required to maintain and enhance its competitive position. Accordingly, while
the Company intends to continue to control expenses where possible, the Company
anticipates that aggregate R&D expenses will increase over time, and may not be
directly related to the level of revenue realized in future quarters.
Sales and marketing expenses for the quarter ended October 31, 1998 were 11%
higher than the second quarter of fiscal 1998 and 5% higher than the first
quarter of fiscal 1999. Such expenses represented 43%, 37% and 38% of net
revenue for the second quarter of fiscal 1999, the second quarter of fiscal 1998
and the first quarter of fiscal 1999, respectively.
Through the first six months of the fiscal year, sales and marketing expenses
totaled $73.8 million and represented 40% of net revenue. This total was 11%
higher than the same expenses in the comparable prior year period, which
represented 39% of net revenue. The increase in sales and marketing expenses
reflected sales force expansion, higher commissions, and higher advertising and
marketing expenses. The Company believes that continued investment in sales,
marketing, customer support and promotional activities is essential to
maintaining its competitive position. In addition, the Company is expanding its
sales and support staffs. Accordingly, the Company anticipates that sales and
marketing expenses will be higher in future periods.
General and administrative (G&A) expenses for the quarter ended October 31, 1998
were 24% above the second quarter of the prior fiscal year and 4% higher than
the first quarter of the current fiscal year. G&A expenses represented 9%, 8%
and 7% of net revenue in the same three periods, respectively. The increase in
G&A expenses for the second quarter of 1999 over the comparable prior year
period reflected staff additions and goodwill amortization associated with the
acquisitions of Micro Focus' Italian and Australian distributors. Through the
first six months of this fiscal year, G&A expenses have totaled $16.0 million
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and represented 9% of net revenue. In the comparable prior year period, G&A
expenses totaled $13.2 million and represented 8% of net revenue. The Company is
investing to strengthen its infrastructure and anticipates that aggregate G&A
expenses will increase in future quarters.
Interest income for the second quarter of 1999 totaled $1.6 million and was 81%
higher than the comparable prior year period and 15% higher than the first
quarter of the current fiscal year. Through the first half of the current year,
interest income totaled $3.0 million, up 65% from the comparable prior year
period. The year-over-year increase in interest income reflected higher average
cash balances.
The Company reported $49.7 million in non-recurring charges during the quarter.
Aggregate direct transaction costs of approximately $24.5 million were incurred.
A majority of these charges were for investment banker fees and expenses, other
professional fees and expenses, severance costs and stamp tax duties associated
with listing new share capital on the London Stock Exchange. In addition, $25.2
million of charges were provided for to reflect costs associated with ongoing
integration efforts. These charges were primarily comprised of the write-off of
redundant or impaired assets, elimination of accumulated currency translation
adjustments and severance costs. Below is a summary of the Company's operating
results for the quarter and six months to date excluding these non-recurring
charges.
<TABLE>
Excluding one-time charges: Three months ended Six months ended
($000's) October 31, October 31, October 31, October 31,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Income before income taxes $1,784 $11,498 $12,785 $16,277
Net income 1,123 7,709 8,352 10,862
Net income per ADS: diluted $0.04 $0.27 $0.28 $0.38
</TABLE>
Including the effect of non-recurring charges, the Company's tax rate for the
first two quarters of fiscal 1999 was 95%. This tax rate primarily reflected the
non-deductibility for tax purposes of costs associated with acquisitions.
Excluding non-recurring charges, the Company's tax rate was 35% which reflects
the incremental tax rate the Company expects to sustain during the balance of
the fiscal year (excluding non-recurring charges).
LIQUIDITY AND CAPITAL RESOURCES
The Company generated $15.3 million in cash from operating activities in the
first half of fiscal 1999, primarily from income before one-time charges,
depreciation and amortization. These factors were offset in part by decreases in
income taxes payable, accrued employee compensation and accounts payable. The
$5.4 million disposal of fixed assets, the $5.8 million decrease in prepaid
assets and the $35.9 million increase in current liabilities were primarily due
to the accounting for the non-recurring charges.
The Company had $129.2 million in cash, cash equivalents and short-term
investments at October 31, 1998. This balance was $10.6 million higher than at
April 30, 1998, reflecting cash provided by operating activities. During the
first two quarters of the fiscal year, the Company expended approximately $7.8
million in cash related to the acquisition of INTERSOLV. The Company anticipates
that it will incur during the second half of this fiscal year approximately
$29.7 million in cash expenditures relating to the INTERSOLV acquisition and its
integration.
The Company has a GBP 5.0 million unsecured revolving multi-currency LIBOR loan
facility as a means of hedging currency exposures against the French Franc. This
line of credit expires in January 2001. The interest rate on outstanding
borrowings under this facility is equal to 0.75% above the LIBOR rate for the
currency in which the borrowings are made. Borrowings denominated in French
Francs under the credit line at April 30, 1998 were the equivalent of $1.7
million and were incurring interest at the rate of 4.4% per annum.
During the first half of fiscal 1999, the Company spent $4.8 million for capital
and leasehold improvements largely on upgrades and expansions of its information
systems. This spending level is below the $12.6 million spent during the first
two quarters of the prior fiscal year. For the current year, the Company expects
to fund additional capital and leasehold improvements from existing cash
balances or leasing arrangements as deemed appropriate.
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The Company believes that existing balances of cash, cash equivalents and
short-term investments in combination with its available bank line of credit and
leasing facilities will be sufficient to meet its operating cash requirements.
YEAR 2000 CONSIDERATIONS
The Year 2000 problem is the result of the widespread practice since the early
days of computing of using only two digits to refer to a year (such as "98" for
"1998") instead of four digits in computer systems. When the Year 2000 arrives
or the computer system refers to dates after December 31, 1999, such systems
will interpret the two digits "00" as "1900" as opposed to "2000". Failure to
address this problem could cause results ranging from system failures to
erroneous calculations in date-dependent operations for dates falling after
December 31, 1999. The Company has instituted various projects to become Year
2000 ready. "Year 2000 ready" as used in this report means that the performance
or functionality of the Company's internal systems will not be significantly
affected by the dates prior to, during and after the Year 2000.
State of Readiness
The Company has developed and implemented an enterprise-wide plan to analyze and
address potential Year 2000 issues affecting its internal systems, its
interaction with third party vendors and suppliers, and its products and
services.
The Company has established a Year 2000 Project Team to implement a
comprehensive four-phase Year 2000 readiness plan addressing the Year 2000
readiness of the Company's internal systems. The Year 2000 readiness plan is
comprised of four phases (inventory, analysis, remediation and validation
phases) with a target completion date of June 30, 1999. The Year 2000 readiness
plan covers IT systems (desktop, laptop, servers, routers, hubs, switches, and
remote access systems, operating systems, software and critical business
systems), non-IT embedded systems (telephone, voice messaging, teleconferencing,
data services and equipment, fax, copiers and similar equipment.), facilities
(elevators, security systems, card access systems and similar systems), and the
Company's vendors and suppliers. As part of the inventory phase, the Company has
sought confirmation from its material suppliers on the current Year 2000
readiness of their systems and/or their intended time schedule for achieving
Year readiness. The Company's Year 2000 readiness plan is progressing as
scheduled, with the inventory phase having been substantially completed and the
analysis phase now underway and expected to be substantially completed by
January 31, 1999.
With respect to its software products, each of the Company's product business
units has completed a Year 2000 assessment of its currently offered products. In
preparing for the Year 2000 date change, the Company has adopted the Year 2000
compliance standard published by the British Standards Institute (BSI) - BSI
DISC PD2000-1 "A Definition of Year 2000 Conformity Requirements." As a result
of this assessment, the Company believes that the vast majority of its currently
offered products are Year 2000 compliant, and expects virtually all of its
remaining currently offered products to become compliant during calendar 1999
through new releases. In any event, the Company expects that all the then
current versions of its offered products will be Year 2000 compliant before the
end of calendar 1999. Because Year 2000 compliance is generally integrated into
its normal product development activities, the Company has not incurred and does
not expect to incur any significant incremental expenses in addressing this
issue in its product lines. The Company believes that a small number of
customers who receive product support from the Company are operating product
versions that may not be Year 2000 compliant or products that the Company has
replaced or intends to replace with comparable Year 2000 compliant products. The
Company believes that the vast majority of such customers are migrating and will
continue to migrate to compliant versions and products through new releases,
which the Company is strongly encouraging. In addition, certain former customers
may be operating non-compliant versions of products in respect of which the
Company's agreed-upon product support and warranty periods have expired. The
Company has not undertaken, and does not plan to undertake in the future, an
assessment of whether these former customers are taking appropriate steps to
address any related Year 2000 issues.
The Company does not expect customers who purchase or migrate to Year 2000
compliant versions of its products to experience any Year 2000 failures caused
by such products. In addition, the Company believes that its licenses and other
agreements contain customary and appropriate limitations on the Company's
obligations with respect to any Year 2000 failures that may be caused by its
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<PAGE> 11
current or former products. However, there can be no assurance that the
Company's expectations and beliefs as to these matters will prove to be
accurate. Moreover, the Company's products are used in IT systems comprised of
third-party hardware and software, some of which may not be Year 2000 compliant.
Many of the Company's customers use legacy computer systems that are expected to
be particularly susceptible to Year 2000 compliance issues. Various commentators
have predicted that a significant amount of litigation may arise out of Year
2000 compliance issues. While the Company has not been subject to any Year 2000
product claims or lawsuits to date, there can be no assurance that customers or
former customers will not bring claims or lawsuits against the Company seeking
compensation for losses associated with Year 2000-related failures. A material
adverse outcome in a Year 2000 claim or lawsuit could have a material adverse
effect on the Company's business, financial condition and results of operations.
A small number of the products the Company sells are licensed from third
parties. Although the current versions of these products have generally been
warranted to the Company as being Year 2000 compliant, these products have
generally not been subjected to the same extensive Company testing as those
products developed or acquired by the Company. The Company is therefore working
with these third party suppliers to obtain assurance of Year 2000 compliance.
The Company has designated its website as the Company's "Year 2000 Internet
Website" under the terms of the Year 2000 Information and Readiness Disclosure
Act (the "Act") (S.2392). The information provided on past and present pages on
this website regarding the Year 2000 compliance of Company products has been
designated as "Year 2000 Readiness Disclosures." The pages on this website have
been and will continue to be the Company's primary means for communicating to
customers regarding the Year 2000 compliance of its products.
Demand for Year 2000 Remediation Products and Services
The Company anticipates that demand in the Year 2000 product and service market
will decline, perhaps rapidly, in anticipation of or following the Year 2000,
and the demand for the Company's Year 2000 compliance products and services may
also decline significantly as a result of new technologies, competition or other
factors. In the quarter ended October 31, 1998, the Company's Year 2000 business
was affected by customers moving to the verification and testing stages of their
remediation processes, for which the Company did not have the appropriate
products generally available until November 1998. If these factors were to
continue, the Company's license revenue and professional service fees could be
materially and adversely affected.
Costs and Risks Associated with Year 2000 Issues; Contingency Plans
The Company currently does not anticipate that it will incur material operating
expenses or be required to invest heavily in internal systems improvements as a
result of Year 2000 readiness issues. In addition, the Company has not incurred
and does not currently expect to incur any significant incremental expenses in
addressing this issue in its product and services. Upon completion of the
analysis phase of the Company's Year 2000 readiness plan, the Company plans to
undertake an assessment of any material expenses it will be required to incur in
order to complete its Year 2000 readiness plan.
Although the Company believes that its Year 2000 readiness efforts are designed
to appropriately identify and address those Year 2000 issues that are within the
Company's control, there can be no assurance that the Company's efforts will be
fully effective or that Year 2000 issues will not have a material adverse effect
on the Company's business, financial condition or results of operations. The
novelty and complexity of the issues presented and the Company's dependence on
the preparedness of third parties are among the factors that could cause the
Company's efforts to be less than fully effective. Moreover, Year 2000 issues
present many risks that are simply beyond the Company's control, such as the
potential effects of Year 2000 issues on the economy in general and on the
Company's business partners and customers in particular. The Company intends to
continue to evaluate both existing and newly identified Year 2000 risks and to
develop and implement such further responsive measures as it deems appropriate.
The Company currently does not have a contingency plan, but plans to develop a
contingency plan upon the completion of the analysis phase of its Year 2000
readiness plan. Should the evaluation of both existing and newly identified Year
2000 risks indicate that there is a sooner need for a contingency plan,
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<PAGE> 12
responsive measures will be developed as appropriate. Any such contingency plan
will seek to minimize the impact on the Company's business, financial condition
and results of operations.
FACTORS THAT MAY INFLUENCE FUTURE OPERATING RESULTS
The Company operates in a rapidly changing environment that involves a number of
risks, some of which are beyond the Company's control. This section of the
discussion highlights some of these risks and the possible impact of these
factors on future results of operations.
The factors set forth below as well as statements made elsewhere in this
quarterly report contain certain forward looking statements that are based on
the beliefs of the Company's management, as well as assumptions made by, and
information currently available to, the Company's management. The Company's
actual results, performance or achievements in the remainder of fiscal 1999 and
beyond could differ materially from those expressed in, or implied by, any such
forward-looking statements.
Factors that could cause or contribute to such material differences include, but
are not limited to, those discussed in this section below, as well as those
discussed elsewhere in this Form 6-K. The Company undertakes no obligation to
release publicly any updates or revisions to any such forward-looking statements
that may reflect events or circumstances occurring after the date of this Form
6-K. For more information regarding forward-looking statements, see "Special
Note on Forward-Looking Statements" below in this Part I, Item 2.
Integration of INTERSOLV; Synergies. The Company acquired INTERSOLV with the
expectation that the acquisition will result in long-term strategic benefits.
Realization of these anticipated benefits depends in part on whether the
operations and administration of the companies are integrated in an efficient
and effective manner. There can be no assurance that this will occur. The
combined company's integration efforts have yet to be completed and are still
ongoing. The successful integration of the Company and INTERSOLV will require,
among other things, integration of the product offerings of the companies, sales
and marketing and research and development efforts, the cooperation and
coordination of the business managers of the two companies, and the integration
of globally dispersed operations. It is possible that this integration will not
be accomplished smoothly or successfully, and that efforts to achieve
integration may require more time, expense and management attention than
anticipated. The diversion of management's attention from day-to-day operations
and any difficulties encountered in the integration process could have a
material adverse effect on the Company's business, financial condition and
results of operations. If the integration of the Company's and INTERSOLV's
operations is not successful, if the combined companies do not achieve the
operational efficiencies and other business synergies that are anticipated or if
those synergies are not achieved as quickly as may be expected by financial
analysts or at the level expected by financial analysts, or if the effect of the
merger on earnings per share is not in line with the expectation of financial
analysts, the market price of the Micro Focus Ordinary Shares or the Micro Focus
ADSs could be significantly and adversely affected. The Company reported non-
recurring charges of $49.7 million during the second quarter of fiscal 1999
associated with the INTERSOLV acquisition. These charges are based on the
assumptions made by, and information currently available to, the Company's
management. There can be no assurance that these charges will be adequate to
cover the actual non-recurring costs incurred by the Company which are
associated with the INTERSOLV acquisition or that the Company may not report
additional non-recurring charges associated with the INTERSOLV acquisition in
one or more future quarters.
Fluctuations in Operating Results; Absence of Significant Backlog. The Company's
future operating results are subject to quarterly and annual fluctuations due to
a variety of factors, including demand for the Company's products, the size and
timing of customer orders and the lengthy sales cycle, product life cycles, the
ability of the Company to introduce and market new and enhanced versions of the
Company's products on a timely basis, the introduction and acceptance of new
products and product enhancements by the Company or its competitors, customer
order deferrals in anticipation of new or enhanced products or technologies, the
timing of product introductions or enhancements by the Company or its
competitors, technological changes in the software industry, changes in the mix
of distribution channels through which the Company's products are offered,
purchasing patterns of distributors and retailers, including customer budgeting
cycles, the quality of products sold, price and other competitive conditions in
the industry, changes in the Company's level of operating expenses, changes in
the Company's sales incentive plans, the cancellation of licenses during the
warranty period, non-renewal of maintenance agreements, the effects of extended
payment terms (particularly for international customers), economic conditions
generally or in various geographic areas, and other factors discussed in this
section.
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<PAGE> 13
A relatively high percentage of the Company's operating expenses is fixed over
the short term and if anticipated revenue for a fiscal quarter does not occur or
is delayed, the operating results for that quarter would be immediately and
adversely affected. The Company historically has operated with little product
backlog, because its products are generally shipped as orders are received. As a
result, revenue of the Company in any quarter will depend on the volume and
timing of, and the ability to fill, orders received in that quarter. In
addition, a substantial portion of the Company's revenue for most quarters is
booked and shipped in the last month of the quarter such that the magnitude of
the quarterly fluctuations may not become evident until late in or even at the
end of the particular quarter.
Seasonality of Operating Results. The Company's revenue also is affected by
seasonal fluctuations resulting from lower sales that typically occur during the
summer months in Europe and other parts of the world. The Company typically has
recognized a high proportion of its quarterly revenue during the last month of a
fiscal quarter and significant fluctuations in new order revenue can occur due
to the timing of customer orders. Quarterly results therefore can vary to the
extent that sales for a quarter are delayed, particularly since a relatively
high proportion of the Company's expenses do not vary with revenue. Due to all
of the foregoing factors, it is possible that in some future quarters the
Company's operating results will be below the expectations of stock market
analysts and investors and that the Company's share price would likely be
materially adversely affected.
Product Concentration. Approximately half of the Company's total net revenue is
derived from products and related services for mainframe application development
in the COBOL language and COBOL compilers running on workstations and personal
computers. The Company expects that a substantial portion of its total net
revenue will be derived from such products and services in the future. As a
result, the Company's future operating results depend upon continued market
acceptance and use of the COBOL language. Any decline in the demand for or
market acceptance or use of the COBOL language or mainframes as a result of
competition, technological change or other factors could have a material adverse
effect on the Company's business, financial condition and results of operations.
Year 2000 Business and Compliance Issues. Information concerning the Company's
state of Year 2000 readiness, the demand for its Year 2000 remediation products
and services, the costs associated with its Year 2000 issues and its contingency
plans are incorporated herein by reference to the information included above in
this Form 6-K under the caption entitled "Item 2 - Management's Discussion and
Analysis or Financial Condition and Results of Operations -- Year 2000
Considerations".
Rapid Technological Change; Dependence on New Products. The Company is in a
market that is subject to rapid technological change. The Company must
continually adapt to that change by improving its products and introducing new
products, technologies and services. The growth and financial performance of the
Company will depend in part on its ability, on a timely and cost-effective
basis, to develop and introduce enhancements of existing products and new
products that accommodate the latest technological advances and standards,
customer requirements and market conditions. The Company's ability to develop
and market enhancements of existing products and new products depends in part on
its ability to attract and retain qualified employees. In the past, the Company
has experienced delays and increased expenses in developing certain new
products. Any failure by the Company to anticipate or respond adequately to
changes in technology and market conditions, to complete product development and
introduce new products on a timely basis and with an adequate level of
performance and functionality, or to attract and retain qualified employees
could materially adversely affect the Company's business, financial condition
and results of operations.
Competition. The markets in which the Company competes are characterized by
rapid technological change and aggressive competition. The Company expects
competition to increase in the future from existing competitors and from other
companies that may enter the Company's existing or future markets with similar
or substitute solutions that may be less costly or provide better performance or
functionality than the Company's products. Some of the Company's current and
prospective competitors in its product and service markets have greater
financial, marketing or technical resources than the Company and may be able to
adapt more quickly to new or emerging technologies, or devote greater resources
to the promotion and sale of their products than can the Company. There can be
no assurance that other companies will not develop competitive products in the
future. In addition, the software industry is characterized generally by low
barriers to entry, as a result of which new competitors possessing
technological, marketing or other competitive advantages may emerge and rapidly
acquire market share. Furthermore, there can be no assurance that the Company
will be able to compete effectively in the future in the professional services
market and, particularly, in the Year 2000 professional services market.
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Susceptibility to General Economic Conditions. The Company's revenue and results
of operations are subject to fluctuations in the general economic conditions in
the various areas of the world in which it does business. The risks inherent in
conducting international business generally include exposure to exchange rate
fluctuations (see the section entitled "Exchange Rate Fluctuations" below),
longer payment cycles, greater difficulties in accounts receivable collection
and enforcing agreements, tariffs and other restrictions on foreign trade, U.S.
export requirements, economic and political instability, withholding and other
tax consequences, restrictions on repatriation of earnings, and the burdens of
complying with a wide variety of foreign laws. In addition, the laws of certain
foreign countries in which the Company's products may be marketed may not
protect the Company's intellectual property rights to the same extent, as do the
laws of the United States and Europe. There can be no assurance that the factors
described above will not have an adverse effect on the Company's future
international revenue.
Dependence on Key Personnel. Several of the senior management personnel of the
Company are relatively new to the Company, including the Company's Chief
Executive Officer and Chief Financial Officer, and the Company's success will
depend in part on the successful assimilation and performance of these
individuals. Competition for qualified personnel in the software industry is
intense, and there can be no assurance that the Company will be able to attract
and retain a sufficient number of qualified personnel to conduct its business in
the future. The Company's success depends to a significant degree upon the
continued contributions of its key management, marketing, product development,
professional services and operational personnel, including key personnel of
acquired companies. The Company will not have employment agreements with most of
its key personnel, nor does it maintain key person life insurance on any of
these persons.
Management of Growth. Each of the Company and Intersolv has recently experienced
a period of rapid growth in net revenue. This growth has placed a significant
strain on the financial, management, operational and other resources of the
combined companies, and if it continues is expected to continue to place a
significant strain on the Company's financial, management, operational and other
resources. There can be no assurance that the Company's management personnel,
systems, procedures and controls will be adequate to support the Company's
existing and future operations.
Volatility of Stock Price. The market price of the Company's securities has
experienced significant price volatility, particularly since the announcement of
the Company's proposed acquisition of INTERSOLV in June 1998, and such
volatility may occur in the future. Factors such as actual or anticipated
fluctuations in the Company's operating results, changes in financial estimates
by securities analysts, announcements of technological innovations, new products
or new contracts by the Company or its competitors, developments with respect to
patents, copyrights or proprietary rights, conditions and trends in the software
and other technology industries, adoption of new accounting standards affecting
the software industry, general market conditions and other factors may have a
significant impact on the market price of the Company's securities. Furthermore,
the stock market has experienced extreme volatility that has particularly
affected the market prices of equity securities of many high technology
companies. These market fluctuations, as well as general economic, political and
market conditions may adversely affect the market price of the Company's
securities.
Recent and Future Acquisitions. The challenges of integrating the organizations
and operations of the Company and Intersolv have been compounded by ongoing
efforts associated with the integration of recent acquisitions by both
companies, including the acquisitions by the Company of Millennium UK Limited in
April 1997, XDB in January 1998, Micro Focus Italia S.r.L. in May 1998 and
Advanced Software Engineering Pty. Ltd. in August 1998 and the acquisition by
Intersolv of SQL Software, Ltd. in March 1998. The Company is still in the
process of integrating the operations acquired in these transactions with its
own. There can be no assurance that the anticipated benefits of recently
concluded business combinations will be realized. In addition, these
acquisitions have required significant additional management resources and
attention. The Company expects to continue growing its business through
acquisitions. If the Company is unsuccessful in integrating and managing the
recently acquired businesses or other businesses it may acquire in the future,
the Company's business, financial condition and results of operations could be
adversely affected in future periods.
Enforceability of U.S. Judgments. The Company is a public limited company
organized under the laws of England and Wales. Judgments of U.S. courts,
including judgments against the Company, predicated on the civil liability
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<PAGE> 15
provisions of the federal securities laws of the United States, may not be
enforceable in English courts.
Exchange Rate Fluctuations
Revenue, costs and expenses arising in currencies other than U.S. dollars are
translated using average exchange rates for the applicable period. Assets and
liabilities denominated in currencies other than the reporting currency are
translated at exchange rates in effect at the balance sheet date. The majority
of the Company's net revenue arises in U.S. dollars, while its costs are
incurred approximately equally in U.S. dollars and other currencies,
predominately GB pounds. Consequently, fluctuations in exchange rates,
particularly between the U.S. dollar and the GB pound, may have a significant
impact on the Company's operating results, notably when expressed in GB pounds.
During the second quarter of fiscal 1999, fluctuations between the U.S. dollar
and the GB pound were not significant, and net exchange rate gains or losses on
operational transactions were immaterial.
Special Note on Forward-Looking Statements
The Company is subject to various U.S. securities laws and regulations relating
to the disclosure of information. In particular, the Private Securities
Litigation Reform Act of 1995, which became effective in the United States as of
January 1, 1996 (the "Securities Litigation Reform Act"), applies to the Company
and its disclosure of information and provides that the Company can be exempt
from liability for making forward-looking statements if certain cautionary
language is included along with such statements. This quarterly report contains
certain "forward-looking statements" (as such term is defined under Section 21E
of the U.S. Securities Exchange Act of 1934, as amended) that are based on the
beliefs of the Company's management, as well as assumptions made by and
information currently available to the Company's management. Such
forward-looking statements are subject to the safe harbor created by the
Securities Litigation Reform Act. When used in this document, the words
"anticipate," "believe," "estimate," "expect," "intend" and similar expressions,
as they relate to the Company or its management, are intended to identify such
forward-looking statements. In addition, statements concerning future matters
(such as future gross margins and operating expense levels, capital needs, the
development of new products, matters related proprietary rights, competition,
litigation and the Company's Year 2000 readiness), related costs and risks and
other statements that are not historical are forward-looking statements. Such
statements reflect the current views of the Company or its management with
respect to future events and are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, the Company's actual results,
performance or achievements in fiscal 1999 and beyond could differ materially
from those expressed in, or implied by, any such forward-looking statements.
Factors that could cause or contribute to such material differences include, but
are not limited to, those discussed above in Part I hereof under the heading
"Factors That May Influence Future Operating Results", as well as those
discussed elsewhere in this quarterly report. The inclusion of such
forward-looking information should not be regarded as a representation by the
Company or any other person that the future events, plans or expectations
contemplated by the Company will be achieved. The Company undertakes no
obligation to release publicly any updates or revisions to any such
forward-looking statements that may reflect events or circumstances occurring
after the date of this quarterly report.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
On December 3, 1998, a complaint was filed in the United States District Court
for the Southern District of New York entitled Seymour Lazar, et al. v. Micro
Focus Group plc, et al., 98 CIV. 8591. The plaintiff seeks to have the matter
certified as a class action of purchasers of the American Depositary Shares of
Micro Focus Group plc during the period from June 17, 1998 to November 12, 1998,
including the former shareholders of INTERSOLV who acquired ADSs in connection
with the merger involving the two companies. In addition to naming as defendants
Micro Focus Group plc and Tower Merger Sub Inc., the complaint names as
defendants Martin Waters and Richard Van Hoesen. The complaint alleges that the
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<PAGE> 16
Company and certain of its officers and directors violated Sections 11, 12(a)(2)
and 15 of the Securities Act of 1933 (as amended), Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934 (as amended) and Securities and Exchange
Commission Rule 10b-5 by failing to disclose allegedly adverse material
nonpublic information concerning the Company's business condition and prospects.
On December 4, 1998, a complaint was filed in the United States District Court
for the Southern District of New York entitled Sol Poller, TTEE UAD 1/23/91, et
al. v. Micro Focus Group plc, et al. , 98 CIV. 8619. The plaintiff seeks to have
the matter certified as a class action of persons who acquired securities of the
Company in the merger involving INTERSOLV and the Company. In addition to naming
as defendants Micro Focus Group plc and Tower Merger Sub Inc., the complaint
names as defendants Martin Waters, Richard Van Hoesen, Paul Adams, J. Michael
Gullard, Harold Hughes and J. Sidney Webb. The complaint alleges that the
Company and certain of its officers and directors violated Sections 11, 12(a)(2)
and 15 of the Securities Act of 1933 (as amended), Sections 14(a) and 20(a) of
the Securities Exchange Act of 1934 (as amended) and Securities and Exchange
Commission Rule 14a-9 by failing to disclose allegedly adverse material
nonpublic information concerning the Company's business condition and prospects.
On January 1, 1999, a substantially similar complaint to the Poller complaint,
entitled Mark Levy, et. al. v. Micro Focus Group plc, et. al., 99 CIV. 0001, was
filed in the United States District Court for the Southern District of New York.
The Company anticipates that the three actions described above will be
consolidated into a single action. The Company intends to defend all of its
litigation vigorously. However, due to the inherent uncertainties of litigation,
the Company cannot accurately predict the ultimate outcome of the litigation.
Any unfavorable outcome of litigation could have an adverse impact on the
Company's business, financial condition and results of operations.
Item 2 - Changes In Securities and Use of Proceeds
None.
Item 3 - Defaults Upon Senior Securities
None.
Item 4 - Submission of Matters to a Vote of Security Holders
An Extraordinary General Meeting of the Company was held on September 23, 1998
(the "Meeting"). At the Meeting, the following resolutions were approved, in
accordance with the Company's Articles of Association, by a show of hands of
those shareholders (or persons holding proxies) voting in person at the Meeting:
Special Resolution
1. THAT subject to the passing of resolution 2 and to the Merger
Agreement having become unconditional in all respects other than as to
the condition relating to Admission (as defined in the listing
particulars dated 24 August 1998) (the "Listing Particulars"):
(a) the proposed acquisition of INTERSOLV, Inc. on the terms
of the Merger Agreement as described in the Listing Particulars be and
it is hereby approved and that the directors be and they are hereby
unconditionally authorized to do all such acts, deeds and things and
execute such documents as may be necessary or desirable, in their
opinion, to complete the merger in accordance with its terms and to
waive, vary or extend the terms and/or conditions of the Merger
Agreement (to such an extent as will not constitute a material waiver,
variation or extension of the terms and conditions of the Merger
Agreement) as they may, in their absolute discretion, think fit;
(b) the authorized share capital of the Company be increased
from GBP 2,250,00 to GBP 4,240,000 by the creation of 99,500,000
additional ordinary shares of 2p each having the rights and subject to
the restrictions set out in the company's articles of association;
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(c) without prejudice to the generality of the authority
granted by paragraph (a) of this resolution, the directors be and are
hereby authorized for the purposes of effecting the Merger, to exercise
all the powers of the Company to allot relevant securities (within the
meaning of Section 80 of the Companies Act 1985, as amended (the "Act")
up to an aggregate nominal amount of GBP 1,508,174, such authority to
expire no later than 15 November 1998;
(d) Section 89(1) of the Act shall not apply to any allotment
of equity securities (within the meaning of Section 94 of the Act) made
pursuant to the authorities given by the preceding paragraphs of this
resolution for the purpose of complying with obligations to be under
taken by Intersolv pursuant to the Merger Agreement to allot equity
securities to holders of Intersolv Options and to holders of Intersolv
Warrants as defined in the Listing Particulars (namely, outstanding
options or rights granted to employees, directors or consultants of
INTERSOLV, Inc. or its subsidiaries or predecessors pursuant to any
stock option, stock bonus, stock award or stock purchase plan, program
or arrangement and warrants, exchangeable or convertible securities or
other rights to acquire common stock of INTERSOLV, Inc.);
(e) the directors be and are hereby generally and
unconditionally authorized (in addition to the authority conferred by
paragraph (c) of this resolution) to exercise all the powers of the
Company to allot relevant securities (within the meaning of Section 80
of the Act) up to an aggregate amount of GBP1,110,128, such authority
to expire no later than 22 September 2003, provided that:
(i) the Company may before such expiry make an offer
of agreement which would or might require relevant securities to be
allotted after such expiry and the directors may allot relevant
securities in pursuance of such offer or agreement as if the authority
conferred hereby had not expired; and
(ii) the authority conferred on the directors hereby
shall be in substitution for the authority conferred on the directors
on 19 June 1996 which to the extend not used is hereby revoked:
(f) The directors be and are hereby empowered pursuant to
Section 95 of the Act to allot equity securities (within the meaning of
Section 94 of the Act) for cash pursuant to and subject to the
authority conferred by paragraph (e) of this resolution as if Section
89(1) of the Act did not apply to any such allotment, provided that
this power shall be limited:
(i) to the allotment of equity securities in
connection with a rights issue or other issue of shares in favor of
ordinary shareholders of the Company where the equity securities for
which such ordinary shareholders are respectively entitled to subscribe
are proportionate (as nearly as may be) to the respective numbers of
ordinary shares held by them, but subject to such exclusions or other
arrangements as the directors may deem necessary or expedient in
relation to fractional entitlements or any legal or practical problems
under the laws of any overseas territory or the requirements of any
regulatory body or stock exchange; and
(ii) to the allotment (otherwise than pursuant to
sub-paragraph (i) above) of equity securities up to an aggregate
nominal value of GBP 143,427,
and further, that this power shall expire on the date of the annual
general meeting of the Company to be held in 1999 or, if earlier,
fifteen months after the date of passing of this resolution, save that
the Company may before such expiry make an offer or agreement which
would or might require equity securities to be allotted after such
expiry and the board may allot equity securities in pursuance of such
offer or agreement as if the power conferred hereby had not expired.
Ordinary Resolutions
2. THAT the Micro Focus 1998 Share Option Plan ("the new Micro Focus
Plan") as outlined in Paragraph 3 of Part 5 of the Listing Particulars
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be and is hereby approved and adopted and that the directors by and are
hereby authorized to grant options to subscribe for or purchase fully
paid ordinary shares in the capital of the Company in accordance with
the terms and conditions of the new Micro Focus Plan and the directors
be and are hereby authorized to do all acts and things necessary to
implements the new Micro Focus Plan, to ensure and maintain treatment
as Incentive Stock Options (as defined in the new Micro Focus Plan) of
those which are intended to be treated as such and to carry the same
into effect and to make alterations to the new Micro Focus plan as may
be necessary or desirable in order to obtain or maintain approval of
the new Micro Focus Plan from any government or other regulatory or
advisory body whether in the United Kingdom or the United States of
America or elsewhere provided that any such alteration shall not affect
the basic principles of the new Micro Focus Plan; and the directors may
be counted in the quorum and their votes may be counted on any matter
connected with the grant of options in accordance with this resolution
(except that no director may vote or be counted in the quorum in any
matter solely relating to an option granted or to be granted to him)
not withstanding that they may be interested in the same and the
prohibitions in this regard contained in the article of association of
the Company be and they are hereby suspended and relaxed to that
extent.
3. THAT the directors be and they are hereby authorized to amend,
subject where necessary in any case to the approval of the Inland
Revenue, the Company's Inland Revenue approved share option scheme as
outlined in Paragraph 4 of Part 5 of the Listing Particulars and the
directors be and they are hereby authorized to vote as directors in
relation to any such amendment and to e counted in the quorum at any
relevant board meeting notwithstanding that they may be interested in
the same.
4. THAT the amount of the aggregate directors' fees set out in article
102 of the Company's articles of association be increased from GBP
50,000 to GBP 250,000 per annum with effect from 1 February 1998.
At the Meeting, in accordance with the Company's Articles of Association and UK
practice, there was not a tabulation of the exact number of votes cast (in
person or by proxy) for, against or withheld with respect to any resolution, or
the number of abstentions and brokers non-votes as to each such resolution. As a
foreign private issuer, the Company is not subject to the proxy solicitation
rules specified in Regulation 14A under the Securities Exchange Act of 1934, as
amended.
Item 5 - Other Information
Effective December 1, 1998, Martin Waters resigned as the President and Chief
Executive Officer of the Company, and Gary Greenfield became the President and
Chief Executive Officer of the Company.
Effective December 11, 1998, Kenneth Sexton became Chief Financial Officer of
the Company, and the former Chief Financial Officer, Richard Van Hoesen, became
the general manager of the Company's Application Development Solutions business
unit.
Effective November 30, 1998, the Company changed its fiscal year end from
January 31 to April 30. The Company plans to file with the Commission a report
on Form 20-F covering the interim transition period from February 1, 1998 to
April 30, 1998.
Item 6 - Exhibits
No exhibits are submitted herewith.
18
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SIGNATURES
Pursuant to the requirements 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.
Micro Focus Group Public Limited Company
(Registrant)
Date: January 12, 1999 By: _________________________________
Kenneth A. Sexton
Senior Vice President and
Chief Financial Officer
