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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the Year Ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File Number: 0-20059
ARDENT SOFTWARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-2818132
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
50 WASHINGTON STREET
WESTBORO, MASSACHUSETTS 01581-1021
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
TELEPHONE NUMBER: (508) 366-3888
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
Common Stock, $.01 par value
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 14, 1998, there were outstanding 14,219,606 shares of the
registrant's common stock, $.01 par value. As of that date, the aggregate market
value of voting stock held by non-affiliates of the registrant was approximately
$152,860,765.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Annual Meeting of
Stockholders are incorporated by reference into Part III.
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This Form 10-K, future filings of the registrant, press releases of the
registrant, and oral statements made with the approval of an authorized
executive officer of the Registrant may contain forward looking statements. In
connection therewith, please see the cautionary statements and risk factors
contained in Item 1, "Business -- Cautionary Statement" and "Business -- Risk
Factors", which identify important factors which could cause actual results to
differ materially from those in any such forward-looking statements.
PART I
ITEM 1. GENERAL
Ardent Software, Inc. (formerly VMARK Software, Inc.) and its subsidiaries
("Ardent" or the "Company") is a data management software company. The Company
designs, develops, markets, sells and supports software that enables businesses
to maximize the information value of their data by giving them greater control
over ever-changing application complexity. Ardent's products are used for
developing, deploying, and maintaining business applications and data warehouse
solutions. Principal products include UniVerse and UniData, both extended
relational database management systems (RDBMS); DataStage, a software product
that simplifies data mart and data warehouse development management and
administration; and the O2 System, an object database management system (ODBMS)
for building and deploying complex applications. Ardent products are available
worldwide and are complemented by a variety of services including technical
support, consulting, and education.
BUSINESS STRATEGY
Ardent was founded in the mid-1980's to develop and market extended
relational database management systems, providing a means for thousands of
business software applications, originally developed on certain proprietary
systems, to be migrated with minimal re-coding to open systems running on the
Unix platform. In February, 1998, the Company merged with Unidata, Inc., a
relational database, object database, and software tools developer and marketer.
The driving force for this merger was to leverage the combined strengths of two
technology product leaders in the extended relational database marketplace, and
to further the Company's entry into the data warehousing and object database
technology sectors.
Ardent is structured around three product-focused business units:
Relational Technology and Tools; DataWarehouse; and Object Technology. The
Company maintains 68 sales/distribution offices in 52 countries around the
world. In addition to direct sales, Ardent has established more than 1,000 Value
Added Resellers (VAR's) that market the various Ardent products as part of their
vertical market business solutions.
The Company's strategy is to provide cost-effective and comprehensive
software and services for developing, deploying, and maintaining business
applications and data warehouses. Ardent's focus is to support and expand its
existing customer and reseller base while expanding its presence in the object
database and data warehouse markets.
Key features of Ardent strategy are:
- - Improved Developer and User Productivity -- The Company promotes increased
productivity of developers and users by offering products and services that
make it easier to manage today's most complex business applications.
- - Open Systems and Portability -- Ardent's products are designed to operate
uniformly across a broad range of computer systems, including PCs,
workstations, and servers, ensuring that customers do not bear unnecessary
costs for application re-deployment or user retraining.
- - Client/Server, 3-Tier and N-Tier Technologies -- Ardent's solutions are
designed to take advantage of current and future trends in computing network
architectures, preparing the company and its customers for distributed
computing solutions.
- - Worldwide Distribution -- Ardent sells its products and services worldwide to
a broad range of customer segments through multiple channels, including more
than 1,000 VAR's who provide packaged application
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solutions for numerous vertical markets; Systems Integrators who utilize
Ardent products and services when building solutions for their customers; a
worldwide direct sales force; distributors in key markets throughout the
world; and numerous strategic Original Equipment Manufacturer (OEM)
agreements.
- - International Presence -- Ardent maintains principal engineering and sales
subsidiaries in three strategic regions, the United Kingdom, France, and Asia
Pacific. Additionally, the Company has established subsidiary operations in
emerging growth markets, including Spain, New Zealand, South America, Russia,
Germany, and Canada.
- - Recurring Revenue -- The Company's distribution and pricing strategies for its
products are intended to generate recurring revenue. The sale of a development
license generally leads to follow-on sales as applications are deployed and
expanded. The Company also receives maintenance fees and charges for
consulting assignments and training courses.
- - Worldwide Customer Service -- Ardent offers installation assistance, telephone
and on-line support, consulting services, and training both at worldwide
Ardent locations and on-site at VAR and customer locations.
PRODUCTS
Ardent, following its merger with Unidata, possesses a broadened portfolio
that puts the Company in a strong position to serve the current and
ever-changing needs of its growing customer base. The Company's three business
units collectively provide effective data management solutions that help
customers simplify their complex data management issues.
Relational Technology & Tools Products
The traditional portion of Ardent's business is represented by its
Relational Technology & Tools business unit. This collection of software
technologies has long enabled customers to manage the most complex business data
in applications customized to a broad range of vertical industries. Products
sold through this business unit include:
UniVerse and UniData extended relational database management systems
(RDBMS) -- Each product is built on a powerful architecture that provides the
inherent capabilities developers need to produce, enhance and deploy high
performance business applications in open systems environments across UNIX and
NT platforms. Complete with ancillary products and toolsets, UniVerse and
UniData are some of the leading technologies for high volume transaction
processing requirements involving complex data structures and relationships.
RedBack -- A comprehensive solution for building and delivering scalable,
transactional applications for the Internet and corporate intranets, RedBack
lowers web technology barriers and makes it easier to integrate web-based
systems with existing data and applications.
wIntegrate -- A Graphical User Interface (GUI) development tool for
bringing the power of a Windows interface to character-based applications.
System Builder -- A powerful application development tool that allows
developers to migrate applications to graphical user interfaces (GUI) and
muti-tier deployment architectures, while preserving their original application
investment.
ESL -- An integrated toolset for building OS/2 and Windows GUI applications
with mainframe data sources. ESL features an integrated development environment
with a full set of visual tools, a debugger, compiler and a non-procedural,
event-driven language.
In addition to these products, the Relational Technology & Tools business
unit offers a variety of middleware products, a COBOL migration solution, and a
set of data analysis and reporting tools.
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Data Warehouse Products
The rapid accumulation of data in operational systems has created the need
to manage the movement of data into a database optimized for business analysis,
called a data warehouse or data mart depending upon its scope. Ardent's data
warehouse products simplify the complexities of the entire data warehouse life
cycle.
DataStage -- DataStage is a comprehensive solution for the fast, easy
creation and maintenance of data marts and data warehouses. DataStage is an
integrated, simple-to-use system that provides the tools for the customer to
build and manage these vital data stores. As a result, users have access to the
data they need to make faster, smarter business decisions. DataStage addresses
what has historically been the most difficult and time-consuming portion of a
data mart or data warehouse implementation. Using a simple, point-and-click
interface, the user can easily extract, cleanse, transform, and integrate data
from operation systems, archives, and third-party data sources. The result is a
cost-effective, usable data mart or warehouse which is up and running quickly
and which can easily adapt to change. DataStage offers support for a wide
variety of data sources, including popular databases such as Oracle, Microsoft
SQL Server, UniVerse, Sybase, Informix, and others, as well as legacy databases,
thus minimizing incompatibility issues.
Object Technology Products
In light of the growth of the Internet and the phenomena of the Java
programming language, object database technology is fast becoming the solution
of choice among leading-edge application developers seeking to model today's
most complex business environments. A proven technology and the leading object
database in use throughout Europe, the O2 System is one of the leading database
products for complex application developments.
O2 Object Database System -- An open, standard environment that enables
object developers to build high performance database applications. O2 fits
within existing computing environments, is database independent, and makes
object development simpler because it is compatible with both the Java and C++
object data models. Surrounding the O2 System is a complete set of application
development tools and language bindings tailored to the evolving needs of
today's application developers. O2 also provides interfaces to other databases,
the Web and CORBA.
SERVICES
In addition to its three product-focused business units, Ardent provides
customers worldwide with a full spectrum of services. These services include
Technical Support for customers purchasing maintenance contracts on Ardent's
software products; Education Services for customers learning how to use and work
with Ardent's products; and Consulting Services to assist customers with
implementing solutions based on Ardent's technologies.
SALES AND MARKETING
Ardent sells its products and services throughout the world to a broad
range of customer markets and through multiple channels, including the
following:
- - More than 1,000 VAR's which provide packaged application solutions for
targeted vertical markets.
- - Systems Integrators which utilize Ardent products and services when building
solutions for their customers.
- - Direct distributors and value-added OEM distributor agreements which sell
Ardent products as an integral part of their commercial offerings.
- - A worldwide, direct sales force.
In the United States, the Company's sales and support staff are located at
its Westboro, Massachusetts headquarters; Arlington, Texas; Bellevue,
Washington; Bridgewater, New Jersey; Cary, North Carolina; Columbus, Ohio;
Denver, Colorado; Irvine, California; Palo Alto, California; Princeton, New
Jersey; Rosemont, Illinois; and Tampa, Florida.
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Internationally, the Company has seven wholly owned international
subsidiaries located in the United Kingdom, France, Spain, Canada, Germany,
South Africa, and the Asia Pacific territory which includes Australia, Japan and
Russia.
The Company also has exclusive distributors in Argentina, Brazil, and
Ecuador which, in turn, maintain a distributor sales channel. Revenue derived
from outside the United States was approximately 38%, 40%, and 29% of total
revenue in 1997, 1996, and 1995 respectively. The Company intends to continue
making investments in international activities.
Ardent implements a variety of marketing programs to assist in the sale of
its products and services, including advertising and public relations campaigns,
regional seminars, reseller and end-user group meetings, and cooperative
programs. In addition, the Company participates in various computer industry and
vertical market trade shows, and provides catalogs, visual aids, newsletters,
and product sales literature, both in printed form and on the world wide web.
CUSTOMERS
Ardent's products are used by end-users in a broad range of industries.
Over 2,000,000 users employed Ardent products. A sampling of its customers
include:
Aetna John Deere
Anheuser-Busch Kaiser Permanente
Bankers Trust Lucent Technologies
Cabletron Motorola
Chase Manhattan Corporation New York City Library
Eurotunnel Sears, Roebuck &
France Telecom Company
Fujitsu Lab Sony Corporation
GE Aerospace Stanford University
Hyatt International Travelers Insurance
Hewlett Packard U.S. Sprint
IBM Wells Fargo
Xerox
PRODUCT DEVELOPMENT
The Company believes that continuing enhancements of its products and the
development of new products will be required in order to maintain its
competitive position.
In 1997, the Company began shipping commercially UniVerse version 9.4.1;
UniData version 4.1; UniData 3.3/NT; RedBack version 2.0; wIntegrate version
3.0; System Builder 3.1; O2 version 5.0; DataStage version 2.2 and DataStage
version 3.0/NT.
Throughout the year, the Company invested in the further development of
these existing products and established new technology sharing relationships to
begin work on new products. The Company's development efforts are focused on
enhancing the features of and adding new functionality to all of its products.
In 1997, 1996, and 1995, the Company's expenses relating to product
development were $7,180,000, $8,875,000, and $10,111,000 respectively. The
Company has experienced little turnover in its product development personnel and
believes that the experience, stability, and depth of its product development
staff are important factors in the Company's success.
COMPETITION
The computer software and service industry is intensely and increasingly
competitive. Because of the breadth of its overall product offering, Ardent
competes with many companies offering alternative solutions. Many of these firms
have greater financial, marketing and technical resources than Ardent. They may
be able to adapt more quickly to new or emerging technologies and standards or
changes in customer requirements, or they may be able to devote greater
resources to the promotion and sale of their products than can Ardent.
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The Company competes with other providers of database management products
and services for resellers. The Company's resellers in turn compete with the
vendors of other computer software and service providers.
EMPLOYEES
As of December 31, 1997, the Company had a total of 316 employees
worldwide, consisting of 187 in sales, support and marketing, 72 in engineering,
and 57 in finance and administration. The Company has experienced no work
stoppages and believes its relations with its employees are good.
PROPRIETARY RIGHTS AND LICENSES
The Company depends upon a combination of copyrights and restrictions on
access to its trade secrets to protect its proprietary rights. The Company
distributes its products under software license agreements which grant customers
a perpetual, non-exclusive license to the Company's products and contain terms
and conditions prohibiting the unauthorized reproduction or transfer of the
Company's products. Generally, the Company's products are furnished to customers
only in object code form. In the limited cases where the Company makes its
source codes available to third parties, it does so only under an obligation of
confidentiality. In addition, the Company generally enters into confidentiality
agreements with management and programming staff and limits access to and
distribution of its proprietary information.
While the Company has not registered any of its copyrights, it generally
includes copyright notices in its software. Despite these precautions, it may be
possible for unauthorized third parties to copy aspects of the Company's
products or to obtain information that the Company regards as proprietary.
The Company believes that, due to the rapid pace of innovation within the
software industry, factors such as the technological and creative skills of its
personnel and ongoing reliable product maintenance and support are more
important in establishing and maintaining a leadership position within the
industry than are the various legal protections of its technology. In addition,
the Company believes its policy of not furnishing updates, enhancements and
other continuing product support to unauthorized users of its software products
substantially reduces the risk of unauthorized reproduction.
All trademarks and registered trademarks used herein are the property of
their respective owners.
CAUTIONARY STATEMENT
When used anywhere in the Form 10-K and in future filings by the Company
with the Securities and Exchange Commission, in the Company's press releases and
in oral statements made with the approval of an authorized executive officer of
the Company, the words or phrases "will likely result", "are expected to", "will
continue", "is anticipated", "estimated", "project", or "outlook" or similar
expressions (including confirmations by an authorized executive officer of the
Company or any such expressions made by a third party with respect to the
Company) are intended to identify "forward-looking statements," which speak only
as of the date made. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements. The Company wishes to advise readers that the
various risk factors described below in this Form 10-K could cause the Company's
actual results for future periods to differ materially from any opinions or
statements expressed with respect to future periods in any current statements.
The Company specifically declines any obligation to publicly release the result
of any revisions which may be made to any forward-looking statements to reflect
events or circumstances after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events.
RISK FACTORS
Information with respect to risk factors is located in Item 7,
"Management's Discussion of Financial Condition and Results of Operations" under
the caption "Factors Affecting Future Results".
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ITEM 2. PROPERTIES
The Company's principal administrative, marketing, product development, and
support facilities are located in Westboro, Massachusetts, where the Company
occupies approximately 90,000 square feet of office space under a lease that
expires in 2014. The Company also leases office space for its twenty US and
foreign sales and support offices and one foreign product development office.
The terms of these leases generally range from one to five years. The Company
believes the current space is adequate for its current needs and that additional
space will be available as needed.
ITEM 3. LEGAL PROCEEDINGS
LITIGATION
The Company is a defendant, together with certain of its officers, in two
actions initially filed in October 1995 in the U.S. District Court for the
District of Massachusetts. Those actions have been consolidated through the
filing of a Consolidated Amended Complaint (the "Complaint"). The plaintiffs
allege in the Complaint that the Company and certain of its officers, during
July through October 1995, made certain untrue statements and failed to disclose
certain information regarding the Company's prospective financial performance in
violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
thereunder and that such statements and omissions artificially inflated the
market prices of the Company's stock. The plaintiffs purport to bring the
actions on behalf of certain classes of stockholders and seek damages in
unspecified amounts. The Company has denied the allegations in its answer to the
Complaint. The discovery stage of the proceeding is now substantially complete
and the Company has filed a motion for summary judgement which is expected to be
heard within the next several months. Company management believes that the
actions are without merit and plans to continue to oppose them vigorously.
The Company is a defendant in two actions filed against Unidata, prior to
its merger with the Company, one in May, 1996 in the U.S. District Court for the
Western District of Washington and one filed in September, 1996, in the U.S.
District Court for the District of Colorado. The plaintiffs allege in both suits
that Unidata authorized usage of certain Unidata products for distribution and
assert claims for fraud, breach of contract, unfair competition, RICO
violations, and trademark and copyright infringement. Unidata denied the
allegations in its answers to the complaint and the proceedings for each case
are currently in the arbitration stage. Company management believes that the
actions are without merit and plans to continue to oppose them vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's stockholders during
the fourth quarter of the year ended December 31, 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Common stock of Ardent Software, Inc. is traded on the NASDAQ Stock Market
under the symbol "ARDT" (formerly "VMRK"). The table below presents the high and
low prices for Ardent Software, Inc. common stock for the periods indicated. The
prices reflect interdealer prices, without retail mark-ups, mark-downs or
commissions, and may not necessarily represent actual transactions.
1997 HIGH LOW
---- ------- ------
First Quarter................................ $ 7.875 $ 5.75
Second Quarter............................... 8.625 5.875
Third Quarter................................ 10.875 7.75
Fourth Quarter............................... 11.75 6.625
1996 HIGH LOW
---- ------- ------
First Quarter................................ $ 9.875 $ 6.50
Second Quarter............................... 12.625 7.00
Third Quarter................................ 11.125 6.50
Fourth Quarter............................... 10.00 5.50
The Company has not paid cash dividends on its common stock and does not
intend to do so in the foreseeable future. The Company presently intends to
retain its earnings to finance future growth of its business. Cash dividends are
subject to restriction under the Company's line of credit agreement. As of
December 31, 1997, there were approximately 305 shareholders of record and
approximately 4,000 beneficial owners of the Company's common stock.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
Software.................................................. $31,494 $35,149 $37,365 $40,867 $39,486
Services and other........................................ 26,060 34,117 30,999 24,585 17,717
------- ------- ------- ------- -------
Total revenue........................................... 57,554 69,266 68,364 65,452 57,203
------- ------- ------- ------- -------
Costs and expenses:
Cost of software.......................................... 3,961 4,745 5,040 4,989 4,335
Cost of services and other................................ 12,678 18,552 16,539 11,870 9,710
Selling and marketing..................................... 23,219 26,929 26,082 23,885 22,332
Product development....................................... 7,180 8,875 10,111 10,605 10,211
General and administrative................................ 5,237 7,351 7,908 6,801 7,345
Merger integration, exit and restructuring costs.......... -- 4,322 6,882 1,700 4,800
Litigation................................................ -- -- 499 650 --
Purchased research and development........................ -- -- -- 2,750 --
------- ------- ------- ------- -------
Total costs and expenses................................ 52,275 70,774 73,061 63,250 58,733
------- ------- ------- ------- -------
Income (loss) from operations............................... 5,279 (1,508) (4,697) 2,202 (1,530)
------- ------- ------- ------- -------
Other income (expense):
Other income (net)........................................ 930 472 664 626 432
Interest expense.......................................... (1,025) (869) (990) (105) (20)
Loss on investment in joint venture....................... -- (176) -- -- --
------- ------- ------- ------- -------
Total other income (expense)............................ (95) (573) (326) 521 412
Income (loss) before provision for income taxes,
extraordinary items and change in accounting.............. 5,184 (2,081) (5,023) 2,723 (1,118)
Provision (credit) for income taxes......................... 1,800 560 (1,133) 2,944 1,080
------- ------- ------- ------- -------
Income (loss) before extraordinary items and change in
accounting................................................ 3,384 (2,641) (3,890) (221) (2,198)
Extraordinary item -- loss from disposal of assets acquired
in a pooling of interests, net of tax benefit............. -- (4,734) -- -- --
Change in accounting........................................ -- -- -- -- 650
------- ------- ------- ------- -------
Net income (loss)........................................... $ 3,384 $(7,375) $(3,890) $ (221) $(1,548)
======= ======= ======= ======= =======
Basic net income (loss) per common share:
Before extraordinary item or change in accounting......... $ 0.41 $ (0.33) $ (0.49) $ (0.03) $ (0.29)
Net income (loss)......................................... $ 0.41 $ (0.91) $ (0.49) $ (0.03) $ (0.21)
Diluted net income (loss) per common share:
Before extraordinary item or change in accounting......... $ 0.40 $ (0.33) $ (0.49) $ (0.03) $ (0.29)
Net income (loss)......................................... $ 0.40 $ (0.91) $ (0.49) $ (0.03) $ (0.21)
Basic weighted average number of common shares
outstanding............................................... 8,199 8,096 8,013 7,824 7,515
======= ======= ======= ======= =======
Diluted weighted average number of common and common
equivalent shares outstanding............................. 8,531 8,096 8,013 7,824 7,515
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and equivalents........................................ $23,224 $14,733 $12,267 $16,017 $16,649
Working capital............................................. 21,492 14,282 17,566 22,668 19,233
Total assets................................................ 57,646 59,977 63,353 65,482 47,422
Long term debt, less current portion........................ 8,798 9,015 9,227 9,438 2
Stockholders' equity........................................ 33,531 28,831 37,167 39,338 33,701
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table sets forth certain items from the Company's
Consolidated Statement of Operations as a percentage of total revenue and the
percentage change in dollar amounts of such items.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 PERIOD-TO-PERIOD CHANGE
----------------------- ------------------------------
1997 1996 1995 1997 VS. 1996 1996 VS. 1995
----- ----- ----- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenue:
Software.................................. 54.7% 50.7% 54.7% (10.4)% (5.9)%
Services and other........................ 45.3 49.3 45.3 (23.6) 10.1
----- ----- ----- ------ ------
Total revenue........................... 100.0 100.0 100.0 (16.9) 1.3
----- ----- ----- ------ ------
Costs and expenses:
Costs of software......................... 6.9% 6.9% 7.4% (16.5)% (5.9)%
Costs of services and other............... 22.0 26.8 24.2 (31.7) 12.2
Selling and marketing..................... 40.3 38.9 38.2 (13.8) 3.2
Product development....................... 12.5 12.8 14.8 (19.1) (12.2)
General and administrative................ 9.1 10.6 11.6 (28.8) (7.0)
Merger integration, restructuring costs... -- 6.2 10.1 (100.0) (37.2)
Litigation costs.......................... -- -- .7 * *
----- ----- ----- ------ ------
Total costs and expenses................ 90.8 102.2 107.0 (26.1) (3.1)
----- ----- ----- ------ ------
Income (loss) from operations............... 9.2% (2.2)% (7.0)% 450.1% 67.9%
===== ===== ===== ====== ======
</TABLE>
* Not meaningful
The Company's revenue is derived from the licensing of software and the
delivery of related services. These services include consulting, training and
product maintenance. The Company generally licenses its software for use on
individual computers. Customers may elect to contract with the Company for
product maintenance, which includes product and documentation enhancements, as
well as telephone support for product problem resolution, by paying annual or
quarterly fees or paying fees based upon usage of such maintenance services.
1997 COMPARED TO 1996
The Company's total revenue decreased 17% to $57,554,000 in 1997 from
$69,266,000 in 1996. The overall decline in total revenue is primarily due to
the Company having exited certain non-strategic and unprofitable businesses in
the fourth quarter of 1996, including the Object Studio product line and related
services. This decrease is also the result of the decline in the value of
overseas revenue due to the strengthening of the US dollar in 1997 as
approximately 38% of total revenue for 1997 and 40% of revenue for 1996 was
contributed from foreign operations.
Software license revenue decreased 10% to $31,494,000 in 1997 from
$35,149,000 in 1996. This decrease is primarily due to the elimination of sales
of the Object Studio product line, as noted above. This decline was partially
offset by the impact of revenue associated with the Company's data warehouse
product, DataStage, which was released in late January, 1997. Software revenue
increased to approximately 55% of total revenue in fiscal year 1997 from 51% in
1996.
Services and other revenue declined 24% to $26,060,000 in 1997 from
$34,117,000 in 1996. This decrease is due to the elimination of Object Studio
related consulting and maintenance services, which represented approximately 50%
of consulting revenue and 12% of maintenance revenue in fiscal year 1996. The
Company also disposed of its third-party education business in 1996 which had
represented approximately 45% of the Company's training revenue. This decline
was partially offset by the revenue associated with DataStage consulting
projects, as well as the increase in maintenance revenue consistent with the
growth of the Company's installed license base.
Costs of software, which consist of amortization of technology licenses and
capitalized software, product royalties, product documentation, packaging, media
and production costs decreased 17% to $3,961,000 in 1997 from $4,745,000 in
1996. As a percentage of license revenue, costs of software remained consistent
at 13% for
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both 1997 and 1996. The dollar decrease in costs of software for 1997 compared
to 1996 is a result of the write-off of certain intangible assets in connection
with the restructuring and extraordinary charges recorded in December 1996, the
decline in license revenue and the expiration of certain royalty contracts in
late 1997.
Costs of services and other, which consist of personnel-related costs,
outside consulting fees, facilities and other costs associated with the delivery
of consulting, training and maintenance revenues, decreased 32% to $12,678,000
in 1997 from $18,552,000 in 1996 due to the elimination of Object Studio related
consulting and maintenance costs. As a percent of service and other revenue the
costs of these services decreased to 49% in 1997 from 54% in 1996. The profit
margin associated with services and other revenue increased approximately 5% in
1997 due to a change in the sales mix. A higher percentage of services and other
revenue in 1997 is comprised of customer maintenance support revenue which
typically has a higher profit margin than revenue derived from training and
consulting services.
Selling and marketing expenses, which consist primarily of sales
organization costs, marketing program expenses, advertising and salespersons
salaries and commissions, decreased 14% to $23,219,000 in 1997 from $26,929,000
in 1996. As a percent of total revenue, sales and marketing costs increased 1%
to 40% of revenue in 1997 from 39% of revenue in 1996. The increase in sales and
marketing costs as a percentage of revenue is a result of the increase in
DataStage marketing and program activities throughout 1997 and the increase in
the data warehouse sales force. These increases were offset by savings
associated with the elimination of Object Studio marketing activities.
Product development expenses, which consist principally of costs of
development staff and facility-related costs, decreased 19% to $7,180,000 in
1997 from $8,875,000 in 1996. As a percent of total revenue, product development
expenses decreased 1% to 12% of revenue in 1997 from 13% in 1996. The relative
flat level of spending as a percentage of revenue in 1997 over 1996 is due to
the cost savings associated with the elimination of development efforts
previously dedicated to the Object Studio product offset by an increase in
spending on data warehouse product development.
General and administrative expenses, which consist of the costs of finance,
legal, human resources, information systems and administrative functions,
decreased 29% to $5,237,000 in 1997 from $7,351,000 in 1996. As a percent of
total revenue, general and administrative costs decreased 2% to 9% in 1997 from
11% in 1996. This decrease in expense is primarily due to the decrease in the
bad debt provision, as well as the elimination of the administrative costs
associated with the Company's German subsidiary, which is currently inactive as
it had previously sold Object Studio products and services.
Other expenses decreased by 83% during 1997 when compared to 1996. This
decrease is due principally to interest income earned on the increasing levels
of cash and equivalents throughout 1997. Also, in 1996 the Company recorded a
loss on investment of joint venture of $176,000. There was no gain or loss
recognized from the investment in the joint venture in 1997.
The Company recorded a $1,800,000 tax provision in 1997 on income before
tax of $5,184,000 representing an effective rate of approximately 35%. The 1997
tax provision was a result of earnings generated from worldwide operations
partially offset by the reduction of the valuation allowance associated with the
Company's net operating losses due to the utilization of foreign net loss
carryforwards which had been fully reserved for in prior years. Future effective
tax rates will be dependent on a number of factors including but not limited to
geographical mix of earnings. Total deferred tax assets, net of liabilities,
amount to $8,557,000 against which the Company has provided a valuation
allowance of $5,247,000 at December 31, 1997. Realization of the Company's net
deferred tax assets is dependent upon the Company generating sufficient taxable
income in future years in appropriate tax jurisdictions to obtain benefit from
the reversal of temporary differences and from net operating loss carryforwards.
1996 COMPARED TO 1995
The Company's total revenue increased 1% to $69,266,000 in 1996 from
$68,364,000 in 1995. Software license revenue decreased 6% to $35,149,000 in
1996 from $37,365,000 in 1995. The overall decline in license revenue resulted
from decreased sales of the Hyperstar middleware product, the ESL integrated
development
11
<PAGE> 12
tool and the UniVerse database management software. The decline in sales of the
UniVerse product can be attributed to delays in new UniVerse orders as customers
awaited the release of UniVerse 9.0, which was released for general availability
in the middle of the fourth quarter of 1996. Sales of UniVerse licenses for the
fourth quarter of 1996 exceeded sales for the second and third quarters of 1996.
Services and other revenue increased 10% to $34,117,000 in 1996 from
$30,999,000 in 1995. All the major elements of services and other revenue
increased in 1996 versus 1995 with training revenue increasing 34% to
$5,821,000, consulting revenue increasing 10% to $10,496,000 and maintenance
revenue increasing 5% to $17,351,000 in 1996. The increase in training revenue
for 1996 came solely as a result of an increase in the training associated with
Ardent products such as UniVerse. The Company undertook, in 1996, a strategy of
aggressively selling appropriate training and education courses associated with
the sale of new Ardent licenses. Consulting revenue increased as the Company was
engaged to perform several large consulting contracts during 1996. These
contracts were some of the largest in the Company's history and the revenue was
recognized ratably over the length of the contracts in 1996. Maintenance revenue
increased consistent with the expansion of the Company's installed base.
Costs of software, which consist of amortization of technology licenses and
capitalized software, product royalties, product documentation, packaging, media
and production costs decreased 6% to $4,745,000 in 1996 from $5,040,000 in 1995.
As a percentage of license revenue, costs of software remained consistent at 13%
for both 1996 and 1995. The dollar decrease in costs of software for 1996
compared to 1995 is a result of lower royalty costs due to a decrease in license
sales as well as the full amortization of previously capitalized software and
purchased technology.
Costs of services and other, which consist of personnel-related costs,
outside consulting fees, facilities and other costs associated with the delivery
of consulting, training and maintenance revenues, increased 12% to $18,552,000
in 1996 from $16,539,000 in 1995. As a percent of service and other revenue the
costs of these services increased to 54% in 1996 from 53% in 1995; causing a 1%
decrease in the gross margin realized from service revenue in 1996. The dollar
increase in the costs of services and other is due directly to the increase in
the level of services and other revenue recognized in 1996. The costs of
services and other is variable over a twelve month period and should increase or
decrease consistently with the services and other revenue. The 1% loss of gross
margin in 1996 versus 1995 is attributed to the larger increases in consulting
and training revenue as compared to maintenance revenue. Consulting and training
revenue historically have a lower gross margin than maintenance revenue.
Sales and marketing expenses which consist primarily of sales organization
costs, marketing program expenses, advertising and salespersons salaries and
commissions, increased 3% to $26,929,000 in 1996 from $26,082,000 in 1995. As a
percent of total revenue, sales and marketing costs increased 1% to 39% of
revenue in 1996 from 38% of revenue in 1995. The increase in sales and marketing
costs is a result of increased investment in the North American sales force in
the latter part of 1996, additional marketing spending associated with the
Company's release 9.0 of UniVerse and beta release of DataStage and continued
investment in its international operations. This increased spending occurred in
the second half of 1996 while the revenue impact from these products and related
promotions is expected to occur in the future.
Product development expenses, which consist principally of costs of
development staff and facility-related costs, decreased 12% to $8,875,000 in
1996 from $10,111,000 in 1995. As a percent of total revenue, product
development expenses decreased 2% to 13% of revenue in 1996 from 15% in 1995.
The Company experienced this reduction in 1996 due to economies of scale
associated with the merger with Easel Corporation, headcount reductions in
connection with the second quarter restructuring and the establishment of a
joint venture in connection with future development efforts associated with the
Object Studio product line.
General and administrative expenses, which consist of the costs of finance,
legal, human resources, information systems and administrative functions
decreased 7% to $7,351,000 in 1996 from $7,908,000 in 1995. As a percent of
total revenue, general and administrative costs decreased 1% to 11% in 1996 from
12% in 1995. The dollar decrease in expenses is due to a reduction in headcount
associated with these functions in 1996 and a reduction in the bad debt
provision recorded in 1996 compared to 1995.
12
<PAGE> 13
In 1996, the Company recorded non-recurring charges of $4,322,000. These
charges related to two separate restructurings undertaken by the Company in May
and December 1996. In May, the Company recorded a $2,125,000 restructuring
charge associated with the downsizing of the ObjectStudio product line and
associated development efforts. The charge included approximately $1,900,000 in
employee severance and benefits, $153,000 for the write-off of capitalized
software and $72,000 for facility abandonment. In December the Company recorded
a $2,197,000 restructuring charge associated with further staff reductions
throughout all areas of the Company, as well as the write-off of certain
intangible assets associated with discontinued product lines. The charge
included approximately $1,591,000 in employee severance and $606,000 in
intangible asset write-offs.
Other expenses increased by 76% during 1996 when compared to 1995. This
increase is due principally to the Company's share in the loss of the joint
venture, which amounted to $176,000 in 1996.
The Company recorded a $560,000 tax provision in 1996 on a loss before tax
of $2,081,000. The 1995 effective tax rate was 23%. The 1996 tax provision was a
result of earnings generated from operations in certain international
jurisdictions, partially offset by the benefit of timing differences occurring
in the United States and was also impacted by certain non-deductible costs
associated with funding of the joint venture. In addition, benefit of losses
generated by certain foreign subsidiaries was not recognized due to uncertainty
regarding realization. Future effective tax rates will be dependent on a number
of factors including but not limited to geographical mix of earnings. Total net
deferred tax assets amount to $10,813,000 against which the Company has provided
a valuation allowance $5,444,000 at December 31, 1996. Realization of the
Company's net deferred tax assets is dependent upon the Company generating
sufficient taxable income in future years in appropriate tax jurisdictions to
obtain benefit from the reversal of temporary differences and from net operating
loss carryforwards.
In December 1996, as part of the Company's ongoing efforts to direct the
business towards growth areas, management, at the direction of the Board of
Directors, undertook a review of all existing businesses, including those
acquired through the merger with Easel. Following this review, in December 1996,
management recommended and the Board of Directors approved a comprehensive plan
to exit certain businesses. In general, these businesses represented portions of
the business with minimal profitability and lower future growth prospects. Among
the product lines and businesses to be discontinued or abandoned were certain
product lines of business present at the date of the merger with Easel. Because
these dispositions were not contemplated at the date of the merger and are
therefore outside of the normal course of business, they have been presented as
an extraordinary item in accordance with APB16. The extraordinary item
aggregated $5,918,000 before tax, with a related tax benefit of $1,184,000. See
Note 10 to the consolidated financial statements for further discussion.
INFLATION
Certain of the Company's expenses increase with general inflation in the
economy. However, the Company does not believe that its results of operations
have been, or will be, adversely affected by inflation.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations to date primarily through sales of
equity securities and positive cash flow from operations. As of December 31,
1997, the Company had $23,224,000 in cash and equivalents and $21,492,000 in
working capital. The Company has a working capital line of credit with a bank
under which the Company may borrow, on an unsecured basis, the lesser of up to
80% of domestic eligible accounts receivable and 70-80% of foreign eligible
accounts receivable or $10,000,000, conditioned upon meeting certain financial
covenants, including maintaining specified levels of quarterly earnings,
tangible net worth, working capital and liquidity. The line of credit also
limits the Company's ability to pay dividends. As of December 31, 1997, there
were no borrowings outstanding on the line.
Accounts receivable, net of the allowance for doubtful accounts, decreased
from $14,860,000 at December 31, 1996 to $9,823,000 at December 31, 1997. The
allowance for doubtful accounts decreased to $1,530,000 at December 31, 1997
from $1,864,000 at December 31, 1996. Throughout 1997, the Company
13
<PAGE> 14
improved its receivable cash collections and generated $11,257,000 in cash from
operations. The Company used $2,224,000 in investing activities in 1997. The
Company's significant cash investments in 1997 consisted of expenditures for
capitalized software of $1,158,000 and expenditures made on the cash surrender
value of officers' life insurance of $707,000. Current liabilities decreased
from $22,131,000 as of December 31, 1996 to $15,317,000 as of December 31, 1997.
The decrease is attributable to the Company's pay down on the line of credit in
1997 of $1,462,000, as well as the decrease in accrued restructuring costs of
$4,478,000 which were also paid out in 1997. Long-term liabilities decreased
slightly year over year as payments were made on capital lease obligations.
The Company hedges its exposure to foreign currency fluctuations through
foreign exchange forward contracts. As of December 31, 1997, the Company had
foreign exchange forward contracts outstanding used to hedge foreign exchange
exposure on intercompany balances of certain of its international subsidiaries.
These contracts are comprised of contracts to sell foreign currency aggregating
$5,236,000 of notional amount (principally British pounds and French francs).
These contracts are short-term in duration (typically 90 days) and have limited
market risk, since decreases or increases in the unrealized gain or loss on any
position is generally fully offset by corresponding increases or decreases in
gains and losses on the intercompany balances being hedged. Credit risk is
limited to the risk that counterparties to these contracts fail to deliver at
maturity. The Company deals only with reputable financial institutions in
entering into these contracts and therefore believes that credit risk is
insignificant. Currency forward contracts are used only to hedge identified
foreign currency commitments and are never held for speculative purposes. The
gains and losses associated with currency rate changes on these contracts, net
of the corresponding gains and losses on the hedged intercompany accounts, are
recorded as a component of other income/expense in the period the change occurs.
Foreign exchange gains or losses were not material in any period presented.
The Company believes that its available cash and anticipated cash generated
from operations will be sufficient to finance the Company's operations and meet
its foreseeable cash requirements, including expected capital expenditures, at
least through 1997 and for the foreseeable future. These sources can be
augmented by short-term borrowings under the credit facility, which currently
has availability of $5,830,000.
During the year, the Company transferred its rights to certain accounts
receivable to a finance company in exchange for cash payments from the finance
company. Receivables sold under these arrangements aggregated $7,150,000 in
1997.
The Company, together with a third-party leasing company, offers a leasing
program available to current and potential customers. Under the program,
customers are able to purchase Ardent products through operating and capital
leases with a third party lessor. All sales under this program are subject to
the Company's normal revenue recognition policies and are made without recourse
to the Company. Sales under the program in the year ended December 31, 1997
totaled approximately $1,536,000.
As part of the merger with Unidata, Inc. in February, 1998, the Company
estimates to incur nonrecurring costs of approximately $14,800,000. This
estimate includes $3,900,000 for financial advisor, legal and accounting fees
related to the merger and $10,900,000 for costs associated with the combining
operations of the two companies including estimated cash expenditures of
$5,500,000 for severance and benefits, $2,000,000 for closure of facilities and
$3,400,000 for non-cash charges for the write-off of redundant assets. The non-
recurring cost is an estimate only, although it is not likely that material
additional costs will be incurred.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, "Reporting Comprehensive Income" (SFAS 130) and SFAS No. 131,
"Disclosure About Segments of an Enterprise and Related Information" (SFAS 131).
SFAS 130 requires the presentation of an additional primary financial statement
in the format prescribed by the standard. SFAS 131 requires disclosure about the
Company's operations on a disaggregated basis consistent with management's
internal reporting structure. The Company will adopt these standards in the
first quarter of fiscal year 1998.
14
<PAGE> 15
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2, "Software Revenue Recognition." The
Company intends to adopt this pronouncement in the first quarter of fiscal year
1998 and does not expect it to have a material affect on the revenue recognition
practices of the Company.
YEAR 2000
The Company has conducted a review of its computer systems to identify
those areas that could be affected by the "Year 2000" issue. The Company
presently believes, with modification to the existing software, the "Year 2000"
problem will not pose significant operational problems and costs to complete
this process are not anticipated to be material to its financial position or
results of operations in any given year.
FACTORS AFFECTING FUTURE RESULTS
The Company operates in a rapidly changing environment that involves a
number of risks, many of which are beyond the Company's control. The following
discussion highlights some of these risks.
The Company's future operating results may vary substantially from period
to period. The timing and amount of the Company's license fee revenues are
subject to a number of factors that make estimation of revenues and operating
results prior to the end of the quarter extremely uncertain. Quarterly
fluctuations may be caused by several factors including but not limited to
timing of customer orders, adjustments of delivery schedules to accommodate
customer or regulatory requirements, timing and level of international sales,
mix of products sold, and timing of level of expenditures for sales, marketing
and new product development. The Company generally ships its products upon
receipt of orders and maintains no significant backlog. The Company has
experienced a pattern of recording 60 percent to 80 percent of its quarterly
revenues in the third month of the quarter, with a concentration of such
revenues in the last two weeks of that third month. The Company's operating
expenses are based on projected annual and quarterly revenue levels and a
substantial portion of the Company's costs and expenses, including costs of
personnel and facilities, cannot be easily reduced. As a result, if projected
revenues are not achieved in the expected time frame, the Company's results of
operations for that quarter would be adversely affected. Accordingly, the
results of any one period may not be indicative of the operating results for
future periods.
The market price of the Company's common stock is highly volatile. Failure
to achieve revenue, earnings, and other operating and financial results as
forecasted or anticipated by analysts could result in an immediate adverse
effect on the market price of the Company's stock.
Technological developments, customer requirements and industry standards
change frequently in the computer software database market. As a result, the
Company's success will depend upon our ability to enhance current products and
to develop or acquire new products which meet customer needs and comply with
industry standards. The possibility exists that the Company's products will be
rendered obsolete by technological advances, or that the Company will not be
able to develop and market the products required to continue to be competitive.
Certain of the Company's planned products are in various stages of development.
It is possible that such products will prove not to be commercially viable or
that we will experience operational problems with such products after commercial
introduction that could delay or defeat the ability of such products to generate
revenue. The products that the Company intends to devote substantial resources
in the foreseeable future are object oriented database products and data
warehousing and datamart products. There is no assurance that products in either
of these two areas will be commercially successful. In particular, object
technology requires customers to make a substantial investment in retraining
application programmers. Several companies have failed in attempts to introduce
object technology and there is no assurance that such technology will gain
widespread customer acceptance. The Company has experienced product delays and
undetected errors or bugs in certain products in the past and may experience
such problems in the future. The Company's success will also depend on the
ability of its products to interoperate and perform well with existing and
future industry-standard leading application software products intended to be
used in connection with relational database management systems.
15
<PAGE> 16
Approximately 38% of the Company's total revenue in fiscal 1997 was
attributable to international sales made through international subsidiaries.
Because a substantial portion of the Company's total revenue is derived from
such international operations, which are conducted in foreign currencies,
changes in the value of those currencies relative to the United States dollar
may affect the Company's results of operations and financial position. The
Company engages in certain currency-hedging transactions intended to reduce the
effect of fluctuations of foreign currency exchange rates on the Company's
results of operations. However, there can be no assurance that such hedging
transactions will materially reduce the effect of fluctuations on such results.
If, for any reason, exchange or price controls or other restrictions on the
conversion of foreign currencies were imposed, the Company's business could be
adversely affected. Other potential risks inherent in the Company's
international business generally include longer payment cycles, greater
difficulties in accounts receivable collection and the burdens of complying with
a wide variety of foreign laws and regulations.
The market for application development software is intensely competitive.
The Company competes with many companies offering alternative solutions to the
needs addressed by the Company's products. Many of these competitors may have
greater financial, marketing, or technical resources than the Company and may be
able to adapt more quickly to new or emerging technologies and standards or
changes in customer requirements or to devote greater resources to the promotion
and sale of their products than the Company.
The Company's business is led by a number of key, highly skilled technical,
managerial and marketing personnel, the loss of which could adversely affect the
Company. Competition of such personnel in the software industry is intense. The
success of the Company depends in large part on the ability to hire and retain
such personnel.
The Company cannot guarantee that the merger with Unidata, Inc.,
consummated on February 10, 1998, will be efficient, effective and timely enough
to achieve the anticipated benefits of the merger. Integrating the two companies
successfully will require the timely combination of management, sales and
marketing research and development teams that are in different geographic
locations. Integration of the companies also will require the combination of
complex software technology, product lines and software development plans.
James T. Dresher owns beneficially approximately 21% of the outstanding
common stock of the Company. Such concentration of ownership gives Mr. Dresher
substantial power to affect the outcome of the election of directors and other
matters requiring stockholder vote and, in addition, may have the effect of
delaying or preventing a change in control of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements and the related independent
auditor's report are presented in the following pages. The consolidated
financial statements filed in this Item 8 are as follows:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report................................ 17
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... 18
Consolidated Statements of Operations for each of the three
years in the period ended December 31, 1997............... 19
Consolidated Statements of Stockholders' Equity for each of
the three years in the period ended December 31, 1997..... 20
Consolidated Statements of Cash Flows for each of the three
years in the period ended December 31, 1997............... 21
Notes to Consolidated Financial Statements.................. 22
Selected Quarterly Financial Data (unaudited)............... 35
</TABLE>
16
<PAGE> 17
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Ardent Software, Inc. :
We have audited the consolidated balance sheets of Ardent Software, Inc.
(formerly VMARK Software, Inc.) and its subsidiaries (the Company) as of
December 31, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1997. Our audits also included the financial
statement schedule listed in the Index at Item 14. These financial statements
and financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1997 and 1996, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles. Also, in our opinion, such 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.
Deloitte & Touche LLP
Boston, Massachusetts
January 23, 1998
17
<PAGE> 18
ARDENT SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
--------- ---------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents...................................... $ 23,224 $ 14,733
Accounts receivable (less allowance for doubtful accounts,
$1,530 in 1997 and $1,864 in 1996)...................... 9,823 14,860
Income tax receivable..................................... 322 1,103
Prepaid expenses and other current assets................. 2,963 4,309
Deferred income taxes..................................... 477 1,320
Assets held for sale...................................... -- 420
-------- --------
Total current assets.................................... 36,809 36,745
-------- --------
Property and equipment:
Building under capital lease.............................. 9,689 9,689
Computer equipment........................................ 6,906 7,040
Office furnishings and fixtures........................... 3,207 3,187
Leasehold improvements.................................... 1,295 1,239
-------- --------
Total................................................... 21,097 21,155
Less accumulated depreciation and amortization............ 8,923 6,950
-------- --------
Property and equipment -- net............................. 12,174 14,205
-------- --------
Other long-term assets:
Intangible assets -- net.................................. 3,502 3,667
Deferred income taxes..................................... 2,827 3,717
Other long-term assets.................................... 2,334 1,643
-------- --------
Total other long-term assets............................ 8,663 9,027
-------- --------
Total....................................................... $ 57,646 $ 59,977
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit............................................ $ -- $ 1,462
Current portion of capital lease obligation............... 216 211
Accounts payable.......................................... 1,956 2,779
Accrued compensation...................................... 2,357 2,021
Accrued expenses.......................................... 4,077 4,374
Accrued restructuring costs............................... 1,068 5,546
Deferred revenue.......................................... 5,643 5,738
-------- --------
Total current liabilities............................... 15,317 22,131
-------- --------
Long-term liabilities:
Capital lease obligation.................................. 8,798 9,015
-------- --------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, authorized 10,000,000
shares; issued none
Common stock, $.01 par value, authorized 25,000,000
shares; issued and outstanding 8,596,905 in 1997 and
8,380,474 in 1996....................................... 85 83
Additional paid-in capital................................ 47,767 46,297
Accumulated deficit....................................... (11,200) (14,584)
Cumulative translation adjustment......................... (79) 105
Treasury stock at cost, 280,082 shares.................... (2,956) (2,956)
Unearned compensation..................................... (86) (114)
-------- --------
Total stockholders' equity.............................. 33,531 28,831
-------- --------
Total....................................................... $ 57,646 $ 59,977
======== ========
</TABLE>
See notes to consolidated financial statements.
18
<PAGE> 19
ARDENT SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
Revenue:
Software.................................................. $31,494 $35,149 $37,365
Services and other........................................ 26,060 34,117 30,999
------- ------- -------
Total revenue........................................... 57,554 69,266 68,364
------- ------- -------
Costs and expenses:
Cost of software.......................................... 3,961 4,745 5,040
Cost of services and other................................ 12,678 18,552 16,539
Selling and marketing..................................... 23,219 26,929 26,082
Product development....................................... 7,180 8,875 10,111
General and administrative................................ 5,237 7,351 7,908
Merger integration, exit and restructuring costs.......... -- 4,322 6,882
Litigation costs.......................................... -- -- 499
------- ------- -------
Total costs and expenses................................ 52,275 70,774 73,061
------- ------- -------
Income (loss) from operations............................... 5,279 (1,508) (4,697)
------- ------- -------
Other expense:
Other income (net)........................................ 930 472 664
Interest expense.......................................... (1,025) (869) (990)
Loss on investment in joint venture....................... -- (176) --
------- ------- -------
Total other expense..................................... (95) (573) (326)
Income (loss) before provision for income taxes and
extraordinary item........................................ 5,184 (2,081) (5,023)
Provision for (benefit from) income taxes................... 1,800 560 (1,133)
------- ------- -------
Income (loss) before extraordinary item..................... 3,384 (2,641) (3,890)
Extraordinary loss from disposal of assets acquired in a
pooling of interests, net of tax benefit of $1,184........ -- (4,734) --
------- ------- -------
Net income (loss)........................................... $ 3,384 $(7,375) $(3,890)
======= ======= =======
Basic income (loss) per common share:
Before extraordinary item................................. $ 0.41 $ (0.33) $ (0.49)
Net income (loss)......................................... $ 0.41 $ (0.91) $ (0.49)
======= ======= =======
Diluted income (loss) per common share:
Before extraordinary item................................. $ 0.40 $ (0.33) $ (0.49)
Net income (loss)......................................... $ 0.40 $ (0.91) $ (0.49)
======= ======= =======
Shares for basic computation................................ 8,199 8,096 8,013
Shares for diluted computation.............................. 8,531 8,096 8,013
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
19
<PAGE> 20
ARDENT SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CUMULATIVE
------------------ PAID-IN ACCUMULATED TRANSLATION TREASURY UNEARNED
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT STOCK COMPENSATION TOTAL
--------- ------ ---------- ----------- ----------- -------- ------------ -------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995.... 7,893,255 $78 $42,719 $ (3,319) $(140) $ -- $ -- $39,338
Issuance of stock for
cash...................... 214,217 3 1,423 1,426
Repurchase and retirement of
common stock.............. (3,777) (59) (59)
Tax benefit arising from
early disposition of stock
options................... 300 300
Net loss.................... (3,890) (3,890)
Translation adjustment...... 52 52
--------- --- ------- -------- ----- ------- ----- -------
Balance, December 31,
1995...................... 8,103,695 81 44,383 (7,209) (88) -- -- 37,167
Issuance of stock for
cash...................... 276,779 2 1,582 1,584
Unearned compensation....... 140 (114) 26
Repurchase of common stock
(280,082 shares).......... (2,956) (2,956)
Tax benefit arising from
early disposition of stock
options................... 192 192
Net loss.................... (7,375) (7,375)
Translation adjustment...... 193 193
--------- --- ------- -------- ----- ------- ----- -------
Balance, December 31,
1996...................... 8,380,474 83 46,297 (14,584) 105 (2,956) (114) 28,831
Issuance of stock for
cash...................... 216,431 2 1,324 1,326
Unearned compensation....... 28 28
Tax benefit arising from
early disposition of stock
options................... 146 146
Net income.................. 3,384 3,384
Translation adjustment...... (184) (184)
--------- --- ------- -------- ----- ------- ----- -------
Balance, December 31,
1997...................... 8,596,905 $85 $47,767 $(11,200) $ (79) $(2,956) $ (86) $33,531
========= === ======= ======== ===== ======= ===== =======
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 21
ARDENT SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................... $ 3,384 $(7,375) $(3,890)
Adjustments to reconcile net income (loss) to cash provided
by operating activities (net of acquisitions):
Depreciation and amortization............................. 2,233 2,873 2,681
Amortization of intangible assets......................... 1,620 2,801 4,333
Equity in loss of joint venture........................... -- 176 --
Deferred income taxes..................................... 1,703 16 (1,494)
Stock compensation........................................ 28 26 --
Writedown of assets in connection with exit of
businesses.............................................. -- 3,059 --
Increase (decrease) in cash from:
Accounts receivable....................................... 4,347 590 4
Other current assets...................................... 1,930 576 (1,259)
Current liabilities....................................... (3,988) 4,490 2,084
------- ------- -------
Cash provided by operating activities................... 11,257 7,232 2,459
------- ------- -------
Cash flows from investing activities:
Expenditures for property and equipment -- net............ (359) (1,820) (3,141)
Expenditures for intangible assets........................ -- (163) (2,250)
Capitalized software costs................................ (1,158) (1,658) (418)
Increase in cash surrender value of officers' life
insurance and deposits and other........................ (707) (115) (461)
------- ------- -------
Cash used in investing activities....................... (2,224) (3,756) (6,270)
------- ------- -------
Cash flows from financing activities:
Sale of common stock...................................... 1,326 1,584 1,426
Repurchase of common stock................................ -- (2,956) (59)
Repayments of note payable................................ -- (587) --
Borrowing (repayments) under line of credit............... (1,462) 1,462 (1,250)
Repayments of capital lease and other obligations......... (212) (240) (165)
------- ------- -------
Cash used in financing activities......................... (348) (737) (48)
------- ------- -------
Effect of exchange rate changes on cash..................... (194) (273) 109
------- ------- -------
Increase (decrease) in cash and equivalents................. 8,491 2,466 (3,750)
Cash and equivalents, beginning of year..................... 14,733 12,267 16,017
------- ------- -------
Cash and equivalents, end of year........................... $23,224 $14,733 $12,267
======= ======= =======
</TABLE>
See notes to consolidated financial statements
21
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of the Business -- Ardent Software, Inc., formerly VMARK Software,
Inc. (see Note 12), and subsidiaries (the Company) designs, develops, markets,
sells and supports software for developing, deploying, and maintaining business
applications and data warehousing solutions. The Company also provides a
comprehensive range of services, including customer maintenance support,
training, on-site assistance and consulting. The Company has operations in the
United States, Canada, Europe, Australia, and Africa. Selling and marketing
activities are conducted through direct selling efforts, value-added resellers,
and distributors throughout the world. Research and development efforts are
conducted in the United States and the United Kingdom.
Use of Estimates -- The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires, out of
necessity, the use of estimates to determine the appropriate carrying value of
certain assets and liabilities. Each of these estimates requires the Company to
assess past history and to estimate probable outcomes in the future. Actual
results could differ from these estimates.
Basis of Presentation -- The consolidated financial statements include the
accounts of the Company and its subsidiaries, all of which are wholly owned. All
significant intercompany balances and transactions have been eliminated.
Foreign Currency Translation -- The functional currency of foreign
operations is deemed to be the local country's currency. Assets and liabilities
of operations outside the United States are translated into United States
dollars using current exchange rates at the balance sheet date. Results of
operations are translated at average exchange rates prevailing during each
period. Translation adjustments are accumulated as a separate component of
stockholders' equity.
The Company hedges its exposure to foreign currency fluctuations through
foreign exchange forward contracts. As of December 31, 1997, the Company had
foreign exchange forward contracts outstanding used to hedge foreign exchange
exposure on intercompany balances of certain of its international subsidiaries.
These contracts are comprised of contracts to sell foreign currency aggregating
$5,236,000 of notional amount (principally British pounds and French francs).
These contracts are short-term in duration (typically 90 days) and have limited
market risk, since decreases or increases in the unrealized gain or loss on any
position is generally fully offset by corresponding increases or decreases in
gains and losses on the intercompany balances being hedged. Credit risk is
limited to the risk that counterparties to these contracts fail to deliver at
maturity. The Company deals only with reputable financial institutions in
entering into these contracts and therefore believes that credit risk is
insignificant. Currency forward contracts are used only to hedge identified
foreign currency commitments and are never held for speculative purposes. The
gains and losses associated with currency rate changes on these contracts, net
of the corresponding gains and losses on the hedged intercompany accounts, are
recorded as a component of other income/expense in the period the change occurs.
Foreign exchange gains or losses were not material in any period presented.
Revenue Recognition -- Revenue from the sale of software licenses is
recognized upon shipment of the product provided that no significant obligations
remain and collection of the receivables is considered probable. Insignificant
vendor and post-contract support obligations, if any, are accrued upon shipment.
Revenue from customer maintenance support agreements is deferred and recognized
ratably over the term of the agreements. Revenue from training and consulting is
recognized as the related services are performed.
Concentration of Credit Risk -- The Company sells its products to various
companies in several industries. The Company performs on-going credit
evaluations of its customers and maintains allowances for potential credit
losses, and such losses have been within management's expectations. The Company
generally requires no collateral from its customers.
Software Development Costs -- Certain software development costs for
products and product enhancements are capitalized after technological
feasibility has been established. Such costs are included in intangible assets
and are amortized over two years using the straight-line method. Related
accumulated amortization was
22
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- (CONTINUED)
approximately $352,000 and $119,000 at December 31, 1997 and 1996, respectively.
Research and development costs and software development costs incurred before
technological feasibility has been established are expensed as incurred.
Property and Equipment -- Purchased property and equipment is recorded at
cost. Leased equipment is recorded at the present value of the minimum lease
payments required during the lease period. Depreciation and amortization are
provided on the straight-line method over the estimated useful lives of the
related assets (three to eleven years) or over the terms of the related leases
(three to twenty years) whichever is shorter. Capitalized cost of the leased
assets was $9,689,000 and related accumulated amortization was $1,493,000 and
$1,008,000 at December 31, 1997 and 1996, respectively.
Intangible Assets -- Intangible assets, other than capitalized software
development costs, are principally comprised of purchased technology and
goodwill and are recorded at cost. Amortization expense is recorded to costs of
software and other depending on the use of the related intangible asset.
Amortization expense is provided on a straight-line method over the estimated
life of the asset (two to five years). The Company periodically reviews the
carrying value of intangible assets in relation to expectations of nondiscounted
future cash flows attributable to each asset. A permanent impairment in the
value of an intangible asset is recognized in operating results in the period
the impairment occurs. Accumulated amortization was $9,145,000 and $7,590,000 at
December 31, 1997 and 1996, respectively.
Cash Equivalents -- The Company considers all short-term, highly liquid
investments, purchased with a remaining maturity of three months or less, to be
cash equivalents.
Supplemental cash flow information is as follows ( in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Cash paid for income taxes.............................. $ 136 $ 386 $2,906
Cash refunds of income taxes............................ 1,913 3,406 --
Cash paid for interest.................................. 1,025 869 896
Transfer of accounts receivable as consideration for
purchase acquisition.................................. -- -- 1,000
</TABLE>
Income Taxes -- Deferred taxes are provided to reflect temporary
differences in the basis between book and tax assets and liabilities. Deferred
tax assets and liabilities are measured using currently enacted tax rates (see
Note 5).
Income (Loss) Per Common Share -- In the fourth quarter of 1997, the
Company adopted Statement of Financial Accounting Standards No. 128, Earnings
Per Share (SFAS 128). Prior to the fourth quarter of 1997, the Company computed
income (loss) per common share using the methods outlined in Accounting
Principles Board Opinion No. 15, Earnings Per Share, and its interpretations.
Previously reported income (loss) per common share for years prior to 1997 did
not differ from that computed using SFAS 128.
Basic income (loss) per common share is computed using the weighted average
number of common shares outstanding during each year. Diluted income (loss) per
common share reflects the effect of the Company's outstanding options (using the
treasury stock method), except where such items would be antidilutive.
23
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. NATURE OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- (CONTINUED)
A reconciliation between shares used for the computation of basic income
(loss) per common share and diluted is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Shares for basic computation............................ 8,199 8,096 8,013
Effect of dilutive stock options........................ 332 -- --
------ ------ ------
Shares for diluted computation.......................... 8,531 8,096 8,013
====== ====== ======
</TABLE>
Fair Value of Financial Instruments -- Financial instruments held or used
by the Company include cash and its equivalents, accounts receivable, accounts
payable, capital lease obligations and foreign currency forward contracts. The
fair values of these instruments, which could change if market conditions
change, are based on management's estimates. With the exception of forward
contracts, management believes that the carrying value of these instruments
approximates fair value. The unrealized gain on foreign exchange contracts at
December 31, 1997 was approximately $107,000. At December 31, 1996 there was an
unrealized loss on foreign exchange contracts of approximately $306,000.
Stock-Based Compensation -- Compensation cost associated with awards of
stock or options to employees is measured using the intrinsic value method. Tax
benefits associated with early exercise of stock options are generally recorded
as increases to additional paid-in capital.
New Accounting Pronouncements -- In October 1997, the American Institute of
Certified Public Accountants released Statement of Position No. 97-2, Software
Revenue Recognition (SOP 97-2), which the Company will be required to adopt in
1998. Adoption of the provisions of SOP 97-2 will not result in significant
changes to the Company's historical revenue recognition practices and,
accordingly, is not expected to have a material impact on financial position,
results of operations or cash flows of the Company.
In June 1997, the Financial Accounting Standards Board (FASB) released
Statement of Financial Accounting Standards No. 131, Disclosures about Segments
of an Enterprise and Related Information (SFAS 131), which the Company will be
required to adopt in 1998. SFAS 131 will require the Company to provide
information about the segments of its business based upon discrete components of
its businesses. In addition, SFAS 131 requires that such information be provided
in greater detail than currently required. The Company is currently evaluating
its lines of business to determine reportable segments, but has not yet
completed such evaluation.
In June 1997, the FASB released Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income," (SFAS 130) which the Company will be
required to adopt in 1998. SFAS 130 requires that the Company provide a
prominent display of the components of items of other comprehensive income. The
only item that the Company currently records as other comprehensive income is
the change in cumulative translation adjustment resulting from changes in
exchange rates and the effect of those changes upon translation of the financial
statements of the Company's foreign operations. Adoption of SFAS 130 will not
have an effect on reported consolidated results of operations or financial
position.
Changes in Presentation -- Certain prior year amounts have been
reclassified to conform to the current year presentation.
2. MERGERS AND ACQUISITIONS
Merger with Unidata, Inc. (Unaudited)
On February 10, 1998, the Company merged with Unidata, Inc. (see Note 11).
24
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. MERGERS AND ACQUISITIONS -- (CONTINUED)
Merger with Easel Corporation
On June 14, 1995, the Company merged with Easel Corporation (Easel). In
connection with the merger, the Company issued approximately 1,500,000 shares of
common stock to Easel shareholders in exchange for substantially all of their
interest in Easel. The merger was accounted for as a pooling-of-interests.
In connection with the merger, the Company recorded one-time charges
aggregating $6,882,000, reflecting costs of integrating the operations of the
two companies, as well as the costs of personnel termination (for which a
specific plan was in place), facilities closures, and legal, accounting and
investment banking fees associated with the transaction. All related costs were
completely paid by the end of 1996.
ACQUISITIONS
During the last three years, the Company has made the following
acquisitions, all of which were accounted for as purchases and the results of
operations included with those of the Company from the date of acquisition
(amounts in thousands):
<TABLE>
<CAPTION>
LIABILITIES TOTAL
COMPANY ACQUIRED CASH PAID ASSUMED CONSIDERATION
---------------- --------- ----------- -------------
<S> <C> <C> <C>
FT Technology Institute (January 1996)..... $ 360 $ -- $ 360
VMARK Canada (September 1995).............. 1,329 171 1,500
Edgetech S.A. (January 1995)............... 1,500 -- 1,500
</TABLE>
FT Technology Institute -- FT Technology Institute operates as an education
and service training business based in Sydney, Australia. The purchase price was
allocated between property and equipment and goodwill based upon an independent
appraisal. In December 1996, the Company decided to withdraw from this line of
business. The writedown of the remaining net book value of related assets and
employee termination costs are included in the results of operations in 1996 as
a component of costs and expenses. See Note 9.
VMARK Canada -- VMARK Canada previously operated as an independent
distributor for the Company. Of the total cash included in consideration for the
purchase, $750,000 was paid at closing and the remainder was payable in the form
of a note which was paid in February 1996. The purchase price was allocated
between property and equipment and intangible assets based upon an independent
appraisal.
Edgetech S.A. -- Edgetech S.A. previously operated as an independent
distributor for the Company. Of the total cash consideration shown above,
$500,000 was paid at closing and the remainder was payable in the form of a
note. In March 1995, the Company transferred an account receivable to the
sellers in full satisfaction of amounts due. The Company guaranteed collection
of the receivable, which has since been repaid, and paid interest to the sellers
aggregating $71,600. The purchase price was allocated between property and
equipment and intangible assets based upon an independent appraisal.
Pro Forma Results of Operations -- The results of operations of the
acquired entities were not significant to the Company. Accordingly, pro forma
information has not been presented.
Other Purchases -- During 1995, the Company purchased completed software
tools and technology from outside vendors totaling $480,000.
3. FINANCING AND LEASING ARRANGEMENTS
Leasing Arrangements
The Company has a twenty-year capital lease on its principal operating
facility which commenced in November 1994. The Company leases other office
facilities, motor vehicles and certain office furnishings under noncancelable
operating lease agreements expiring on various dates through December 2002.
Total rent
25
<PAGE> 26
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. FINANCING AND LEASING ARRANGEMENTS -- (CONTINUED)
expense under all operating leases for the years ended December 31, 1997, 1996
and 1995 approximated $1,556,000, $1,832,000 and $2,665,000, respectively.
At December 31, 1997, future minimum payments under operating and capital
leases are due as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING LEASES CAPITAL LEASE
---------------- -------------
<S> <C> <C>
1998.............................................. $1,328 $ 982
1999.............................................. 863 982
2000.............................................. 552 982
2001.............................................. 392 982
2002.............................................. 38 982
Thereafter........................................ -- 12,147
------ -------
$3,173 17,057
======
Less amount representing interest................. (8,043)
-------
9,014
Amounts due within one year....................... 216
-------
Long-term debt.................................... $ 8,798
=======
</TABLE>
Line of Credit
The Company has an unsecured working capital line of credit with a bank
under which the Company may borrow up to the lesser of 80% of domestic and
70-80% of foreign eligible accounts receivable or $10,000,000. The agreement
limits the Company's ability to pay dividends and, among other things, requires
the Company to maintain specified minimum levels of tangible net worth and
working capital and limits the ratio of debt to tangible net worth. Interest on
outstanding borrowings under the facility is at the bank's prime rate (8.5% and
8.25% at December 31, 1997 and 1996, respectively). At December 31, 1997 there
were no borrowings outstanding under the line of credit facility; as of that
date $5,830,000 was available to the Company under the line of credit.
Receivables Financing Arrangements
As part of the Company's working capital management, certain accounts
receivable are periodically factored to financial institutions. Such factoring
arrangements are treated as sales in accordance with SFAS 125, since the Company
relinquishes control and all rights over the accounts are transferred to the
factor. Receivables sold under these arrangements aggregated $7,150,000 in 1997.
These sales are typically done on a limited recourse basis, and any potential
losses are evaluated at the time the asset is sold. To date, no losses on
factored receivables have been incurred, other than the fee charged to the
Company by the factor.
The Company, together with a third-party leasing company, offers a leasing
program to current and potential customers. Under the program, customers are
able to purchase Ardent products through operating and capital leases with a
third party lessor. All sales under this program are subject to the Company's
normal revenue recognition policies and are made without recourse to the
Company. Sales under the program in the year ended December 31, 1997 totaled
approximately $1,536,000.
4. STOCKHOLDERS' EQUITY
Preferred Stock -- The Board of Directors is authorized to designate one or
more series of preferred stock and to establish the voting, dividend,
liquidation and other rights and preferences of the shares of each series, and
to provide for the issuance of shares of any series. The Board of Directors has
designated 15,000 shares of
26
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. STOCKHOLDERS' EQUITY -- (CONTINUED)
$0.01 par value preferred stock as Series A Junior Preferred Stock. At December
31, 1997, no shares of preferred stock were outstanding.
Preferred Share Purchase Rights -- On June 6, 1996, the Company's Board of
Directors declared a dividend of one purchase right (a "Right") for every
outstanding share of the Company's common stock. The Rights were distributed on
June 12, 1996 to holders of record as of that date. Each Right entitles the
holder to purchase from the Company one one-thousandth of a share of Series A
Junior Preferred Stock at a price of $75, subject to adjustments in certain
events. The Rights will be exercisable only if a person or group acquires 15% or
more of the outstanding shares of the Company's common stock or announces a
tender offer, the consummation of which would result in such person or group
owning 30% or more of the Company's common stock. If a person or group (other
than the Company and its affiliates) acquires 15% or more of the Company's
outstanding common stock, each Right (other than Rights held by such person or
group) will entitle the holder to receive shares of Common Stock, or in certain
circumstances, cash, property, or other securities of the Company, having a
market value of two times the exercise price of the Right. In addition if the
Company were acquired in a merger or other business combination, or if more than
50% of its assets or earning power were sold, each holder of a Right would be
entitled to exercise such Right and thereby receive common stock of the
acquiring company with a market value of two times the exercise price of the
Right. Furthermore, at any time after a person or group acquires more than 15%
of the outstanding stock, but prior to the acquisition of 50% of such stock, the
Board of Directors may, at its option, exchange all or a part of the Rights at
an exchange ratio of one share of Common Stock for each Right. The Company will
be entitled to redeem the Rights at $.01 per Right, subject to adjustment in
certain events, at any time on or prior to the tenth day after public
announcement that a 15% or greater position has been acquired by any person or
group. The Rights expire on June 12, 2006.
1986 Stock Option Plan -- The Company's 1986 Stock Option Plan (the 1986
Plan) provides for the issuance of up to an aggregate 2,916,000 shares of common
stock upon the exercise of incentive stock options (ISOs) and non-qualified
stock options (NSOs) granted to key employees and consultants of the Company and
its subsidiaries. The exercise price for ISOs must be at least equal to the fair
market value of the underlying shares of common stock at the time of grant, and
the exercise price of NSOs may be at any price established by the Board of
Directors. The term of each option may not exceed ten years. Options are
exercisable either in full immediately, or in installments, as the Board of
Directors may determine at the time it grants such options. In general, the
shares acquired by exercising the options vest ratably over four to five years
from the date the options first become exercisable. As of December 31, 1997,
there were 404,456 options available for grant under the 1986 Plan. On October
7, 1997 the Board of Directors adopted and on February 10, 1998 the stockholders
approved an increase to the total number of shares issuable under the 1986 Plan
to 4,500,000.
1991 Director Stock Option Plan -- The 1991 Director Stock Option Plan (the
Director Plan) provides for the grant of non-qualified stock options to
non-employee directors of the Company for the purchase of up to an aggregate of
350,000 shares of common stock. Under the Director Plan, each non-employee
director is entitled to receive, when first elected to serve as a director, an
option to purchase 15,000 shares. In addition, each non-employee director is
entitled to receive on January 31 of each year an option to purchase 5,000
shares (10,000 shares for years after 1998). The exercise price of the options
may not be less than fair market value on the date of grant. Options may only be
exercised with respect to vested shares. As of December 31, 1997, there were
154,302 options available for grant under the Director Plan.
1995 Non-Statutory Stock Option Plan -- The Company's 1995 Non-Statutory
Stock Option Plan (the 1995 Plan), provides for the grant of non-qualified stock
options to key employees (other than executive officers, who are not eligible to
participate) and consultants of the Company for the purchase of up to an
aggregate of 3,750,000 shares of common stock. The exercise price of the options
may be at any price established by the Board of Directors which administers the
1995 Plan. The term of each option may not
27
<PAGE> 28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. STOCKHOLDERS' EQUITY -- (CONTINUED)
exceed ten years. Options are exercisable over periods determined at the
discretion of the Board of Directors and are generally subject to vesting on a
monthly basis over four to five years. As of December 31, 1997, there were
2,575,769 options available for grant under the 1995 Plan.
The following is a summary of activity for all of the Company's option
plans:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE
SHARES PER SHARE
--------- ----------------
<S> <C> <C>
Outstanding at January 1, 1995....................... 1,408,260 $10.82
Granted............................................ 903,881 8.99
Exercised.......................................... (157,095) 3.94
Canceled........................................... (270,664) 14.59
--------- ------
Outstanding at December 31, 1995..................... 1,884,382 9.61
Granted............................................ 1,484,317 8.33
Exercised.......................................... (118,983) 4.49
Canceled........................................... (775,359) 12.04
--------- ------
Outstanding at December 31, 1996..................... 2,474,357 8.14
Granted............................................ 950,950 6.77
Exercised.......................................... (143,971) 6.30
Canceled........................................... (768,486) 8.50
--------- ------
Outstanding at December 31, 1997..................... 2,512,850 $ 7.54
========= ======
</TABLE>
The following table sets forth information regarding options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE AND/OR
--------------------------------------------------- SHARES TRANSFERRABLE
NUMBER WEIGHTED AVERAGE ------------------------------
RANGE OF OF REMAINING CONTRACTUAL WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES SHARES LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- --------- --------------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ .16 - $ 2.50............. 98,104 4.4 $ 1.94 98,104 $ 1.94
4.90 - 6.88............. 916,915 8.8 6.41 233,563 6.33
7.00 - 8.75............. 1,102,612 8.4 7.66 424,383 7.71
9.12 - 11.00............. 301,199 7.9 10.22 124,181 10.13
12.00 - 14.88............. 64,990 6.5 12.60 46,109 12.65
16.00 - 17.88............. 27,711 6.7 16.51 21,206 16.61
20.59 - 23.50............. 1,319 2.8 22.86 1,053 22.98
--------- -------
2,512,850 8.3 $ 7.54 948,599 $ 7.59
========= =======
</TABLE>
At December 31, 1996 and 1995, respectively, 648,702 and 1,299,200 options
were exercisable or the related shares were transferable.
As described in Note 1, the Company uses the intrinsic value method to
measure compensation expense associated with grants of stock options to
employees. Had the Company used the fair value method to measure compensation,
the Company's net income (loss) and income (loss) per share would have been
$921,000 or $0.11 per share in 1997, $(9,462,000) or $(1.17) per share in 1996
and $(4,317,000) or $(0.54) per share in 1995.
The fair value of each stock option is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions in 1997, 1996 and 1995: expected lives of .5 to 6 years, expected
volatility of 46.9% in 1997 and 64.9% in 1996 and 1995, a dividend yield of 0%
and a risk-free interest rate of 5% in 1997 and 6.10% in 1996 and 1995. The
weighted average fair value of options granted and awarded in 1997, 1996 and
1995 was $3.41, $5.33 and $6.09, respectively.
The option pricing model used was designed to value readily tradable stock
options with relatively short lives. The options granted to employees are not
tradable and have contractual lives of ten years. However,
28
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. STOCKHOLDERS' EQUITY -- (CONTINUED)
management believes that the assumptions used and the model applied to value the
awards yields a reasonable estimate of the fair value of the grants made under
the circumstances.
During 1996, a total of 80,000 options were granted to certain officers of
the Company at exercise prices which were an aggregate of $140,000 lower than
the market value at the date of grant. This amount was recorded as unearned
compensation and is being amortized to expense over the five year vesting period
of the options. Related compensation expense was approximately $28,000 and
$26,000 in 1997 and 1996, respectively. The weighted average exercise price of
the options involved is $6.38 per share.
In January 1996, the Company offered non-officer employees holding
incentive stock options with an exercise price greater than $7.75 (the then
current market price) per share, the opportunity to exchange their options for
the equivalent number of non-qualified stock options with an exercise price
equal to fair market value of the common stock. As a result of this offer,
options for approximately 326,107 shares were exchanged.
On January 31, 1998, an additional 25,000 options were granted under the
Directors Plan at an exercise price of $7.00.
Employee Stock Purchase Plan -- The Company's Employee Stock Purchase Plan
(the Purchase Plan) provides for the purchase of Company's common stock at
six-month intervals at 85% of the lower of the fair market value on the first
day or the last day of each six-month period. The Company issued 72,460, 157,590
and 58,580 shares in 1997, 1996 and 1995, respectively, under the Purchase Plan.
At December 31, 1997, 134,633 shares were reserved for future issuance's under
the Purchase Plan. The pro forma disclosures presented above include
compensation expense related to the Purchase Plan of $74,000, $446,000 and
$168,000 in 1997, 1996 and 1995, respectively. On September 30, 1997 the Board
of Directors adopted and on February 10, 1998 the shareholders approved an
increase of 200,000 to shares issuable under the Purchase Plan.
5. INCOME TAXES
The components of income (loss) before income taxes and extraordinary item
was comprised of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
------ ------- -------
<S> <C> <C> <C>
Domestic.............................................. $3,940 $ (611) $(3,783)
Foreign............................................... 1,244 (1,470) (1,240)
------ ------- -------
$5,184 $(2,081) $(5,023)
====== ======= =======
</TABLE>
The components of the provision (benefit) for income taxes consists of the
following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996 1995
------ ------ -------
<S> <C> <C> <C>
Current:
Federal.............................................. $ 107 $ (295) $ --
State................................................ 70 (55) --
Foreign.............................................. (94) (259) 361
------ ------ -------
Total.............................................. 83 (609) 361
------ ------ -------
Deferred:
Federal.............................................. 1,159 824 (770)
State................................................ 176 154 (88)
Foreign.............................................. 382 191 (636)
------ ------ -------
Total.............................................. 1,717 1,169 (1,494)
------ ------ -------
Total.......................................... $1,800 560 $(1,133)
====== ====== =======
</TABLE>
29
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES -- (CONTINUED)
Significant components of the Company's deferred income tax assets and
liabilities were as follows at December 31 (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Current assets:
Accounts receivable....................................... $ 394 $ 404
Accrued expenses and other................................ 83 916
------- -------
Total current assets.................................... $ 477 $ 1,320
======= =======
Long-term assets and liabilities:
Property and equipment.................................... (159) $ 80
Intangible assets......................................... 498 385
Capitalized software costs................................ (511) --
Net operating loss carryforwards - U.S.................... 5,460 5,725
Net operating loss carryforwards - foreign................ 1,720 2,071
Tax credit carryforwards - U.S............................ 967 967
Other - foreign........................................... 99 (67)
Valuation allowance....................................... (5,247) (5,444)
------- -------
Total net long-term assets.............................. $ 2,827 $ 3,717
======= =======
</TABLE>
The valuation allowance for deferred tax assets as of December 31, 1996,
was $5,444,000. The net change in the total valuation allowance for the year
ended December 31, 1997, was a decrease of $197,000 principally due to the
realization in 1997 of previously reserved tax benefits of foreign loss
carryforwards. A valuation allowance of $5,247,000 remains at December 31, 1997,
and is primarily attributable to loss and credit carryforwards.
At December 31, 1997, the Company has federal net operating loss
carryforwards of approximately $15,000,000, and federal tax credit carryforwards
of approximately $967,000, that all expire through 2010. Due to the "change in
ownership" provisions of the Internal Revenue Code of 1986, the availability of
net operating loss and tax credit carryforwards to offset future federal taxable
income is subject to cumulative annual limitations. Restrictions on net
operating loss carryforwards expire at a rate of approximately $1,800,000 per
year. As of December 31, 1997, $4,900,000 of limited net operating loss
carryforwards were not subject to restrictions of future usage. Foreign tax loss
carryforwards of $4,600,000 are available for use in reducing future taxable
income in certain foreign jurisdictions.
The difference between the provision (benefit) for income taxes and the
amount computed by applying the federal statutory income tax rate of 35% to
income (loss) before provision (benefit) for income taxes is explained below:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate.......................................... 35% (35)% (35)%
State taxes, net of federal benefit......................... 3 (4) (4)
Surtax exemption............................................ (1) 1 1
Nondeductible charges and other............................. 1 35 12
Foreign income taxes........................................ 1 4 3
Change in valuation allowance............................... (4) -- --
Foreign net operating losses for which no benefit is
recognized................................................ -- 26 --
--- --- ---
Effective tax rate.......................................... 35% 27% (23)%
=== === ===
</TABLE>
30
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. SEGMENT INFORMATION
The Company operates in one industry segment consisting of the development,
marketing and support of software for the development and execution of
commercial applications for industry standard operating systems. Geographic
segment information was as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Revenue:
United States (including export sales).................... $35,942 $41,651 $48,780
Other North America....................................... 1,029 1,444 578
United Kingdom............................................ 5,937 5,517 6,602
France.................................................... 7,310 6,257 --
Germany................................................... 28 7,198 5,814
Asia Pacific, primarily Australia......................... 5,851 5,939 5,147
South Africa.............................................. 1,457 1,260 1,365
Other..................................................... -- -- 78
------- ------- -------
Total revenue........................................... $57,554 $69,266 $68,364
======= ======= =======
Merger integration, exit and restructuring costs:
United States............................................. $ -- $ 3,471 $ 5,561
Other North America....................................... -- -- --
United Kingdom............................................ -- 9 998
France.................................................... -- 268 --
Germany................................................... -- -- 323
Asia Pacific, primarily Australia......................... -- 574 --
South Africa.............................................. -- -- --
Other..................................................... -- -- --
------- ------- -------
Total merger integration, exit and restructuring
costs................................................. $ -- $ 4,322 $ 6,882
======= ======= =======
Operating income (loss):
United States............................................. $ 4,354 $ 138 $(3,483)
Other North America....................................... 155 (183) 256
United Kingdom............................................ 2 (459) (1,998)
France.................................................... 362 (321) --
Germany................................................... 28 107 43
Asia Pacific, primarily Australia......................... 215 (719) 287
South Africa.............................................. 171 5 207
Other..................................................... (8) (76) (9)
------- ------- -------
Total operating income (loss)........................... $ 5,279 $(1,508) $(4,697)
======= ======= =======
Identifiable assets:
United States............................................. $54,562 $48,216 $58,050
Other North America....................................... 369 763 611
United Kingdom............................................ 3,940 4,435 2,545
France.................................................... 3,488 4,249 --
Germany................................................... 19 2,563 12
Asia Pacific, primarily Australia......................... 2,815 2,564 945
South Africa.............................................. 1,008 1,316 588
Other..................................................... 4 5 --
Eliminations.............................................. (8,559) (4,134) 602
------- ------- -------
Total identifiable assets............................... $57,646 $59,977 $63,353
======= ======= =======
</TABLE>
Export sales from the United States did not exceed ten percent of revenue
for any year presented.
31
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. LITIGATION
The Company is a defendant, together with certain of its officers, in two
actions initially filed in October 1995 in the U.S. District Court for the
District of Massachusetts. Those actions have been consolidated through the
filing of a Consolidated Amended Complaint (the "Complaint"). The plaintiffs
allege in the Complaint that the Company and certain of its officers, during
July through October 1995, made certain untrue statements and failed to disclose
certain information regarding the Company's prospective financial performance in
violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5
thereunder and that such statements and omissions artificially inflated the
market prices of the Company's stock. The plaintiffs purport to bring the
actions on behalf of certain classes of stockholders and seek damages in
unspecified amounts. The Company has denied the allegations in its answer to the
Complaint. The discovery stage of the proceeding is now substantially complete
and the Company has filed a motion for summary judgement which is expected to be
heard within the next several months. Based upon its review to date, management
of the Company believes that the actions are without merit and plans to oppose
them vigorously.
During 1995, the Company recorded approximately $499,000 in settlement
costs. Approximately $300,000 in costs were recorded relating to the settlement
and payout of two potential lawsuits involving Easel at the time of merger with
the Company. Approximately $199,000 was recorded due to the additional
settlement costs incurred in 1995 based on a court rendered decision in a 1994
suit settlement.
8. RETIREMENT PLANS
The Company provides certain supplemental requirement benefits to its
executive officers, which it has funded through life insurance policies in a
"split dollar" arrangement. The executive officers are allowed to borrow against
the excess cash surrender value in the policy over and above the Company's
cumulative paid in premiums. Upon termination of a policy or the death of the
insured executive, the Company will receive proceeds equal to the amount of the
cumulative premium paid by the Company. The Company may borrow against its share
of the accumulated cash surrender value in the respective policies at any time.
The Company accounts for these policies as a defined contribution plan and
expenses premiums on the policies as incurred, which represents the compensation
element of the plan. In addition, since the Company controls its share of the
cash surrender value of the policies at all times, it accounts for any changes
in cash surrender value in accordance with the guidance provided in Financial
Accounting Standards Board Technical Bulletin No. 85-4, "Accounting for
Purchases of Life Insurance." Accordingly, increases or decreases in cash
surrender value are recognized each period and the asset recorded on the
Company's books represents the lesser of the Company's share of cash surrender
value or the cumulative premiums paid on the policies. This amount is included
in other long-term assets and was $2,016,000 and $1,356,000 at December 31, 1997
and 1996, respectively. Total premiums in 1997, 1996, and 1995 were
approximately $659,000, $466,000, and $420,000, respectively.
The Company has a 401(k) retirement and savings plan (the Plan) covering
substantially all domestic employees. The Plan allows each participant to
contribute up to 15% of his or her base wage up to an amount not to exceed an
annual statutory maximum. Through December 31, 1995, the Company matched
contributions in an amount equal to 25% of the contributions of each participant
in excess of 2% of such participant's annual compensation up to 4% of such
participant's annual compensation. Effective January 1, 1996, the Company
increased its matching contribution to 50% of the contributions of each
participant in excess of 2% of such participant's annual compensation, up to 4%
of such participant's annual compensation. The Company made matching
contributions to the Plan of approximately $253,000, $315,000, and $125,000 in
1997, 1996, and 1995, respectively.
9. RESTRUCTURING COSTS
The 1996 results include a $2,125,000 restructuring charge associated with
the downsizing of Object Studio-related activities. The charge was recorded
pursuant to a formal plan adopted and announced in May 1996. The charge included
approximately $1,900,000 in employee severance and benefits, $153,000 for
32
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. RESTRUCTURING COSTS -- (CONTINUED)
the write off of capitalized software and $72,000 related to abandonment of
facilities. Fifty employees were terminated in this restructuring. As of
December 31, 1997, approximately $98,000 in employee severance and benefits were
unpaid.
The 1996 results also include a $2,197,000 charge associated with a
restructuring and reduction in staff from all areas of the Company. Management
approved the restructuring plan late in fiscal year 1996 with the intent to
bring costs in line with revenues. The charge included $1,591,000 in employee
severance and benefits and $606,000 for the write-off of intangible assets. This
intangible asset write-off related to the impairment of the remaining net book
value of technology purchased in 1992, the development of which ceased with the
release of UniVerse 9.0. Thirty-four employees were terminated in this
restructuring. As of December 31, 1997, approximately $9,000 in employee
severance and benefits were unpaid.
10. EXTRAORDINARY ITEM
In December 1996, as part of the Company's ongoing efforts to direct the
business towards growth areas, management, at the direction of the Board of
Directors, undertook a review of all existing businesses, including those
acquired through the merger with Easel discussed in Note 2. Following this
review, in December 1996, management recommended and the Board of Directors
approved a comprehensive plan to exit certain businesses. In general, these
businesses represented portions of the business with minimal profitability and
lower future growth prospects. For discussion of certain abandoned businesses
and asset write-offs, see Note 9.
Among the product lines and businesses to be discontinued or abandoned were
certain products or lines of business present at the date of the merger with
Easel. Because these dispositions were not contemplated at the date of the
merger and are therefore outside of the normal course of business, they have
been presented as an extraordinary item.
The components of the extraordinary item recorded in 1996 consist of the
following (in thousands):
<TABLE>
<S> <C>
Net loss on disposition of ASG.............................. $ 537
Object Studio:
Asset writedown........................................... 1,845
Facilities closure........................................ 1,419
Severance related costs................................... 417
Expected costs and funding for joint venture.............. 1,700
-------
Pre-tax extraordinary item.................................. 5,918
Tax benefit................................................. (1,184)
-------
Extraordinary loss.......................................... $ 4,734
=======
</TABLE>
The Company's US education business, ASG, was sold to a third party for
$420,000. The net loss reflected above represents the writedown of the assets of
ASG to net realizable value. The amount received for ASG is included in assets
held for sale on the consolidated balance sheet as of December 31, 1996.
In October, 1996, the Company entered into a joint venture with one of its
resellers (the "Other Party") to develop and support the ObjectStudio product
suite. This joint venture was formed to allow the Company to reduce its ongoing
cash cost of continued development of ObjectStudio. The Company's investment
consisted of certain product rights. The Company's share of the venture's loss
for the quarter ended December 31, 1996 is included as a component of other
income and expense.
Despite the formation of the joint venture, profitability related to the
ObjectStudio product line continued to be below expectation. In addition,
certain actions by competitors in the ObjectStudio marketplace led the Company
to conclude that it was not in the best interest of the Company to continue to
support this product
33
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. EXTRAORDINARY ITEM -- (CONTINUED)
line and that the Company would be best served by focusing its resources on
product lines with more favorable prospects. Accordingly, the Company decided to
exit the ObjectStudio product line.
To facilitate exit from the ObjectStudio product line, in December 1996 the
Company entered into certain agreements which effectively transferred all of the
Company's rights to the product to the Other Party. The Other Party also agreed
to take over the operations of the Company's German subsidiary (devoted to
ObjectStudio) and to assume all of the Company's obligations related to
ObjectStudio in exchange for a one time payment of $300,000. In addition, the
Company agreed to maintain its funding commitment to the joint venture for 1997,
aggregating $1,400,000, and accepted a significant reduction in its rights in
the venture. Because the Company had committed to pay the one time payment and
1997 funding, such costs were considered to be exit costs and were accrued at
December 31, 1996.
As a result of the plan to exit the ObjectStudio business, forty employees
were terminated and such costs were accrued at December 31, 1996. The Company
also incurred costs for facility abandonment related to the German subsidiary
which was also charged to the extraordinary item.
In 1997, the Company recorded no revenue or expenses associated with
ObjectStudio activity or the joint venture. In addition, the Company has paid
substantially all amounts described above and the dissolution of the joint
venture commenced in 1997, in line with the Company's expectations in 1996. At
December 31, 1997, approximately $961,000 in facilities costs remain unpaid.
11. EVENTS SUBSEQUENT TO THE DATE OF THE INDEPENDENT AUDITOR'S REPORT
(UNAUDITED)
Merger with Unidata, Inc. -- On February 10, 1998, following approval by
the Company's stockholders, the Company consummated a merger with Unidata, Inc.
("Unidata"), a relational database, object database and software tools developer
and marketer. Such merger is expected to be accounted for as a pooling of
interests, and accordingly, once financial statements for periods including the
date of consummation are prepared, the results of operations of the Company and
Unidata, Inc. will be retroactively combined for all periods presented.
In connection with the merger, the Company issued approximately 5,750,000
shares of common stock for all outstanding common stock of Unidata. In addition,
options outstanding under Unidata's stock option plans were converted into
options to acquire the Company's common stock at prices adjusted to reflect the
conversion rate between the two stocks.
Following the merger, the Company changed its name to Ardent Software, Inc.
Summarized pro forma statement of operations data for the Company combined
with Unidata for the fiscal years ended 1997, 1996, and 1995 are as follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Revenue............................................ $106,666 $110,499 $92,721
Income (loss) from operations...................... 6,668 (4,079) (3,019)
Net income (loss).................................. 2,825 (9,993) (2,626)
Net income (loss) per share:
Basic............................................ $ 0.20 $ (0.75) $ (0.20)
Diluted.......................................... $ 0.20 $ (0.75) $ (0.20)
Basic weighted average shares outstanding.......... 13,856 13,243 13,063
Diluted weighted average shares outstanding........ 14,188 13,243 13,063
</TABLE>
Unidata is a defendant in two actions filed, one in May, 1996 in the U.S.
District Court for the Western District of Washington and one filed in
September, 1996, in the U.S. District Court for the District of Colorado. The
plaintiffs allege in both suits that Unidata authorized usage of certain Unidata
products for
34
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. EVENTS SUBSEQUENT TO THE DATE OF THE INDEPENDENT AUDITOR'S REPORT
(UNAUDITED) -- (CONTINUED)
distribution and assert claims for fraud, breach of contract, unfair
competition, RICO violations, and trademark and copyright infringement. Unidata
has denied the allegations in its answers to the complaint and the proceedings
for each case are currently in the arbitration stage. Based upon reviews to
date, management of Unidata believes that the actions are without merit and
intends to oppose them vigorously.
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED -- IN THOUSANDS)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1997
Revenue................................... $13,721 $15,040 $13,770 $15,023
Income from operations.................... 593 1,110 1,379 2,197
Net income................................ 305 651 864 1,564
Basic net income per common share......... .04 .08 .11 .19
Diluted net income per common share....... .04 .08 .10 .18
1996
Revenue................................... $17,736 $17,958 $16,688 $16,884
Income (loss) from operations............. 970 (531) 316 (2,263)
Net income (loss)......................... 559 (725) 131 (7,340)
Basic net income (loss) per common
share................................... .07 (.09) .02 (.91)
Diluted net income (loss) per common
share................................... .07 (.09) .02 (.91)
</TABLE>
Income (loss) per share has been restated in accordance with SFAS 128. See
Note 1 -- Income (Loss) Per Common Share.
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
Information with respect to Directors may be found under the caption
"Election of Directors" appearing in the Company's definitive Proxy Statement
for the 1998 Annual Meeting of Stockholders. Such information is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the captions "Executive Officer
Compensation" and "Director Compensation" appearing in the Company's definitive
proxy statement for the 1998 Annual Meeting of Stockholders is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the captions "Principal Stockholders" and
"Stock Ownership of Directors and Executive Officers" appearing in the Company's
definitive proxy statement for the 1998 Annual Meeting of Stockholders is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
35
<PAGE> 36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(1) Financial Statements
The following financial statements are filed as part of this Annual Report:
Independent Auditors Report.
Consolidated Balance Sheets as of December 31, 1997 and 1996.
Consolidated Statements of Operations for the years ended December 31,
1997, 1996 and 1995.
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
Supplemental Financial Data not covered by the Independent Auditors Report:
Selected Quarterly Financial Data
(2) Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
(3) Exhibits
Documents listed below, except for documents incorporated herein by
reference, are being filed as exhibits herewith. Pursuant to Rule 12b-32 of the
General Rules and Regulations promulgated by the Commission under the Securities
Exchange Act of 1934, certain exhibits re incorporated herein by reference.
2.1 Agreement and Plan of Merger and Reorganization dated as of
October 7, 1997 between VMARK and Unidata.(9)
2.2 Amendment to Agreement and Plan of Merger and Reorganization
dated as of November 7, 1997 between VMARK and Unidata.(9)
2.3 Certificate of Merger dated February 10, 1998 between VMARK
and Unidata.
3.2 Second Restated Certificate of Incorporation of the
Company.(1)
3.3 By-laws of the Company, as amended and restated effective as
of March 17, 1992.(1)
3.3a Amendment to By-laws effective February 10, 1994.(3)
3.3b Amendment to By-laws effective February 10, 1998.
3.4 Certificate of Designations, Rights, Preferences and
Privileges of Series A Junior Preferred Stock.(7)
4.1 Rights Agreement dated as of June 12, 1996 between the
Company and State Street Bank and Trust Company, as Rights
Agent.(7)
4.2 First Amendment to Rights Agreement dated as of September
30, 1997 between the Company, as Rights Agent.(9)
10.1a 1986 Stock Option Plan, as amended and restated.(2)
10.1d Amendment to 1986 Stock Option Plan effective January 28,
1997.(10)
10.2 1991 Director Stock Option Plan, as amended and restated.(2)
10.2b Amendment to 1991 Director Stock Option Plan effective
January 31, 1995. (10)
10.2c Amendment to 1991 Director Stock Option Plan effective July
29, 1996.(10)
10.6 Restated Registration Rights Agreement dated as of April 10,
1992 between the Company and certain of its stockholders.(1)
10.11a Lease dated as of May 5, 1994 between the Company and 50
Washington Street Associated Limited Partnership(4)
10.18a Employee Stock Purchase Plan, as amended and restated.(2)
10.23 Split Dollar Life Insurance Agreement between the Company
and James K. Walsh dated as of October 12, 1993.(3)
10.27 Split Dollar Life Insurance Agreement between the Company
and Jason E. Silvia dated as of April 27, 1994.(6)
36
<PAGE> 37
<TABLE>
<C> <S>
10.28 Asset Purchase Agreement between the Company and Constellation Software, Inc. dated
February 15, 1994.(5)
10.31 1995 Non-Statutory Stock Option Plan, as amended and effected January 1, 1996.(10)
10.32 Split Dollar Life Insurance Agreement between the Company and Charles F. Kane dated as of
December 15, 1995.(10)
10.33 Split Dollar Life Insurance Agreement between the Company and Peter L. Fiore dated as of
September 15, 1996.(10)
10.34 Split Dollar Life Insurance Agreement between the Company and Peter Gyenes dated as of
June 15, 1996.(10)
10.35 Loan and Security Agreement dated as of May 3, 1996 by and between Silicon Valley Bank
and Company.(10)
10.36 Amended and Restated Promissory Note -- Revolving Line of Credit loans by the Company to
Silicon Valley Bank, dated May 3, 1996.(10)
10.38 Second Loan Modification Agreement to the Loan and Security Agreement (dated May 3, 1996)
and the First Amendment to the Amended and Restated Promissory Note (dated May 3, 1996)
dated September 9, 1997 by and between Silicon Valley Bank and the Company.(9)
10.39 Split Dollar Life Insurance Agreement between the Company and James D. Foy dated as of
April 15, 1997.(9)
10.40 Registration Rights Agreement dated February 10, 1998 between the Company and James T.
Dresher.(11)
10.41 Registration Rights Agreement dated December 1, 1995 between Massachusetts Mutual Life
Insurance Company and certain affiliates and the Company.
10.42 Distribution Agreement dated November, 1995 among System Builder Software Ltd., SB Tech
Pty. Ltd., Desmond Miller and the Company.
10.43 Shareholder Agreement dated November 14, 1995 among certain Shareholders of the Company
and the Company.
21.1 Subsidiaries of Ardent.
23 Independent Auditors' Consent.
27.1 Financial Data Schedule.
</TABLE>
- ---------------
(1) Incorporated by reference to the respective exhibit filed with the
Company's Registration Statement on Form S- 1, File No. 33-46533, initially
filed on March 19, 1992.
(2) Incorporated by reference to the respective exhibit to the Company's
Registration Statement on Form S-8, File No. 333-00218, filed on January 5,
1996.
(3) Incorporated by reference to the exhibit filed with the Company's Form 10-K
dated March 28, 1994.
(4) Incorporated by reference to the exhibit filed with the Company's Form 8-K
dated May 19, 1994.
(5) Incorporated by reference to the exhibit filed with the Company's Form 8-K
dated March 1, 1994.
(6) Incorporated by reference to the exhibit with the Company's Form 8-K dated
March 29, 1996.
(7) Incorporated by reference to the respective exhibit of the Company's
Registration Statement on Form 8-A dated July 17, 1996, File No. 000-20059,
filed on July 29, 1996.
(8) Incorporated by reference to the exhibit filed with the Company's Form 10-K
dated March 28, 1996.
(9) Incorporated by reference to the exhibit filed with the Company's Form 10-Q
dated November 12, 1997.
(10) Incorporated by reference to the exhibit filed with the Company's Form 10-K
dated March 31, 1997.
(11) Incorporated by reference to the exhibit filed with the Company's Form 10-Q
dated February 12, 1998.
(4) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the fourth quarter
of the year ended December 31, 1997.
37
<PAGE> 38
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 28th day of
March, 1998.
ARDENT SOFTWARE, INC.
By: /s/ PETER GYENES
---------------------------------
Peter Gyenes
Chairman of the Board and
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>
/s/ PETER GYENES Chairman of the Board and Chief Executive
------------------------------ Officer (Principal Executive Officer)
Peter Gyenes
/s/ CHARLES F. KANE Vice President, Finance, and Chief Financial
------------------------------ Officer (Principal Finance and Accounting
Charles F. Kane Officer)
/s/ MARTIN HART Director
------------------------------
Martin Hart
/s/ ROBERT G. CLAUSSEN Director
------------------------------
Robert G. Claussen
/s/ ROBERT MORRILL Director
------------------------------
Robert Morrill
/s/ JAMES DRESHER Director
------------------------------
James Dresher
/s/ DAVID BRUNEL President, Director and Chief Operating Officer
------------------------------
David Brunel
</TABLE>
<PAGE> 39
SCHEDULE 11
ARDENT SOFTWARE, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
BEGINNING OF COSTS AND AT END OF
YEAR EXPENSES DEDUCTIONS YEAR
------------ ---------- ----------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts receivable:
For the Year Ended December 31, 1997....... $1,864,000 $ 238,000 $ (572,000) $1,530,000
========== ========== =========== ==========
For the Year Ended December 31, 1996....... $1,891,000 $1,286,000 $(1,313,000) $1,864,000
========== ========== =========== ==========
For the Year Ended December 31, 1995....... $ 828,000 $1,849,000 786,000) $1,891,000
========== ========== =========== ==========
</TABLE>
<PAGE> 1
EXHIBIT 2.3
CERTIFICATE OF MERGER
OF
VMARK SOFTWARE, INC.
AND
UNIDATA, INC.
It is hereby certified that:
1. The constituent corporations participating in the merger are:
(i) VMARK Software, Inc., which is incorporated under the laws of the State
of Delaware; and
(ii) Unidata, Inc., which is incorporated under the laws of the State of
Colorado.
2. An Agreement and Plan of Merger and Reorganization has been approved,
adopted, certified, executed and acknowledged by each of the constituent
corporations in accordance with the provisions of Section 252 of the General
Corporation Law of the State of Delaware.
3. The surviving corporation in the merger is VMARK Software, Inc., which will
continue its existence as said surviving corporation under the name Ardent
Software, Inc.
4. The Second Restated Certificate of Incorporation of VMARK Software, Inc.,
as now in force and effect, shall be the Certificate of Incorporation of said
surviving corporation, except that the Second Restated Certificate of
Incorporation shall be amended (i) to change the name of the surviving
corporation as set forth in the foregoing paragraph and (ii) to delete the first
sentence of Article IV and replace it as follows:
"The total number of shares of stock which the Corporation shall
have the authority to issue is 50,000,000, of which 40,000,000
shares shall be Common Stock, $.01 par value, and 10,000,000
shares shall be Preferred Stock, $.01 par value."
5. The executed Agreement and Plan of Merger and Reorganization between the
constituent corporations is on file at the principal place of business of the
surviving corporation, the address of which is as follows:
Ardent Software, Inc.
<PAGE> 2
50 Washington Street
Westboro, Massachusetts 01581-1021
6. A copy of the Agreement and Plan of Merger and Reorganization will be
furnished by the surviving corporation, on request and without cost, to any
stockholder of each of the constituent corporations.
7. The authorized capital stock of Unidata, Inc. is 40,000,000 shares of
Class A common stock, no par value, 3,000,000 shares of Class B common stock, no
par value, and 10,000,000 shares of preferred stock, no par value.
8. This Certificate of Merger shall become effective upon the filing of this
certificate.
Dated: As of February 10, 1998.
<PAGE> 3
VMARK SOFTWARE, INC.
By: /s/ Peter Gyenes
President and CEO (Title)
Attest:
/s/ Richard N. Hoehn
UNIDATA, INC.
By: /s/ David W. Brunel
President and CEO (Title)
Attest:
/s/ Harold Nussenfeld
<PAGE> 1
EXHIBIT 3.3b
ARDENT SOFTWARE, INC.
AMENDMENT TO BY-LAWS
----------------
ARTICLE XIV of the By-laws of Ardent Software, Inc. (formerly VMark
Software, Inc.) was amended by the Board of Directors on February 10, 1998,
effective as of that date, to delete such Article in its entirety and insert in
its place the following:
CHAIRMAN OF THE BOARD; PRESIDENT
If a chairman of the board of directors is elected, he shall preside at all
meetings of the board of directors at which he is present and, if so designated
by the board, shall be the chief executive officer of the corporation.
The president shall be chief executive officer of the corporation unless
the chairman of the board of directors is so designated, in which event the
president shall be the chief operating officer.
The chief executive officer shall, subject to the direction and under the
supervision of the board of directors, have general and active control of the
affairs and business of the corporation and general supervision over its
officers, agents and employees. He shall preside, when present, at all meetings
of stockholders and shall have custody of the treasurer's bond, if any.
<PAGE> 1
Exhibit 10.41
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is entered into as of
December 1, 1995 by and among (1) Unidata, Inc., a Colorado corporation (the
"Company"), (ii) Massachusetts Mutual Life Insurance Company, MassMutual
Corporate Investors, MassMutual Participation Investors and MassMutual Corporate
Value Partners Limited (hereinafter referred to collectively as the
"Institutional Investors"), and (iii) James T. Dresher ("Dresher").
WHEREAS, the Institutional Investors have negotiated with the officers of
the Company to enter into a Note Agreement, dated as of the date hereof (the
"Note Agreement"), pursuant to which the Institutional Investors will purchase
from the Company (i) $10,000,000 aggregate principal amount of the Company's
11.5% Senior Subordinated Notes due December 1, 2003 (the "Notes"), (ii)
Warrants (the "Warrants") to purchase 250,000 shares of Class B Common Stock,
having no par value per share (the "Class B Common Stock"), of the Company, and
(iii) 500,000 shares of Class B Common Stock of the Company for an aggregate
consideration equal to $2,000,000. The Notes, Warrants and Class B Common Stock
are collectively referred to as the "Institutional Investor Securities." The
shares of Class B Common Stock including the shares of Class B Common Stock to
be issued upon exercise of the Warrants together with the shares of Class A
Common Stock, having no par value per share (the "Class A Common Stock") of the
Company, to be issued to the Institutional Investors upon conversion of the
Class B Common Stock, are collectively referred to as the "Institutional
Investor Stock". The term "Common Stock" as used herein shall include the Class
A Common Stock and the Class B Common Stock, including the shares of Class B
Common Stock deliverable upon the exercise of the rights granted under the
Warrants; provided, however, that for purposes of the registration rights
contained in Section 4, Common Stock shall include only Class A Common Stock of
the Company and any class of Common Stock issued in substitution therefor.
WHEREAS, Dresher and his Related Parties (as defined below) own 9,200,000
shares of Class A Common Stock of the Company, which will constitute
approximately 75% of the capital stock outstanding immediately after the
purchase of the Institutional Investor Securities by the Institutional
Investors.
WHEREAS, the Institutional Investors have required as an absolute condition
to the purchase of the Institutional Investor Securities from the Company, that
the Company and Dresher enter into this Agreement, and whereas the Company and
Dresher are desirous that the Institutional Investors enter into the Note
Agreement and purchase from the Company the Institutional Investor Securities
described above, the Company and Dresher have agreed to enter into this
Agreement.
NOW THEREFORE, in consideration of the mutual covenants herein contained
and for other good and valuable consideration, the parties agree as follows:
<PAGE> 2
SECTION 1. ACQUISITION OF INSTITUTIONAL INVESTOR STOCK.
(a) Acquired for Own Account. Each of the Institutional Investors
represents and warrants that the Institutional Investor Stock to be acquired by
it pursuant to the Note Agreement will be acquired for investment purposes only
and not with a view toward resale or distribution thereof in violation of the
Securities Act of 1933, as amended (the "Act"), and will not be disposed of in
contravention of the Act.
(b) Institutional Investor Stock Not Registered. Each of the Institutional
Investors acknowledges that none of the Institutional Investor Stock has been
registered pursuant to the Act.
(c) Knowledge of Transaction. Each of the Institutional Investors
represents and warrants that it has had an opportunity to ask questions and
receive answers concerning the terms and conditions of the Note Agreement, has
had legal counsel review such terms and conditions and has had sufficient
opportunity for such Institutional Investor and its legal counsel to conduct
diligence concerning the Company.
SECTION 2. RESTRICTIONS ON TRANSFER.
(a) Transfer of Institutional Investor Stock. With the exception of the
Institutional Investor Stock owned by MassMutual Corporate Value Partners
Limited which may be pledged to its creditors from time to time, none of the
Institutional Investors will sell, pledge or otherwise transfer any interest in
any shares of Institutional Investor Stock except pursuant to the provisions of
subsections (b), (c) or (d) of this Section 2 or unless such sale occurs in
connection with or after a Qualified Public Offering consummated by the Company.
Any attempted transfer of Institutional Investor Stock in violation of this
Agreement shall be void and of no effect. As used herein, "Qualified Public
Offering" shall mean a public offering of Common Stock registered under the Act
which results in net proceeds to the Company and any of its shareholders
participating in such public offering in an aggregate amount of at least
$15,000,000.
(b) First Refusal Rights. Any Institutional Investor desiring to transfer
any shares of Institutional Investor Stock (other than pursuant to Section 2(c)
below), shall, at least 120 days prior to making such transfer, deliver written
notice (a "Sale Notice") to the Company and Dresher disclosing in detail the
identity of the prospective transferee(s) and the terms and conditions of the
proposed transfer. Such Institutional Investor agrees not to consummate any such
transfer until the earlier to occur of (i) 120 days after the Sale Notice has
been delivered to the Company and Dresher, and (ii) the date on which the
parties to the transfer have been determined pursuant to this Section 2(b). The
date of the first to occur of such events is referred to as the "Authorization
Date." Within ninety (90) days of receiving such Sale Notice, the Company may
elect to purchase all or any portion of the Institutional Investor Stock
proposed to be transferred upon the same terms and conditions as set forth in
the Sale Notice by notifying such Institutional Investor in writing within such
90-day period. If the Company does not elect to purchase all of the shares of
Institutional Investor Stock specified in the Sale Notice, Dresher may elect to
purchase any portion of such Institutional Investor Stock that the Company
elects not to purchase upon the same terms and conditions as set forth in the
Sale Notice, provided that Dresher notifies in writing such Institutional
Investor of Dresher's election to purchase within the
<PAGE> 3
same 90-day period following receipt of the Sale Notice. If the Company and
Dresher together do not elect to purchase all of the shares of Institutional
Investor Stock specified in the Sale Notice, such Institutional Investor may,
during the 90-day period immediately following the Authorization Date, transfer
such shares of Institutional Investor Stock that the Company has not elected to
purchase at a price and on terms no more favorable to the proposed transferee(s)
than specified in the Sale Notice; provided that if such transfer shall be
consummated prior to a Qualified Public Offering, such transferee has agreed in
writing to be bound by the provisions of this Agreement prior to such transfer.
Any shares of Institutional Investor Stock not transferred within such 90-day
period shall be subject to the provisions of this Section 2(b) upon a subsequent
attempt by such Institutional Investor to transfer such Institutional Investor
Stock. The right of first refusal provided in this Section 2(b) shall terminate
upon the Company's consummation of a Qualified Public Offering.
(c) Sale of the Company. If the Board of Directors of the Company and the
holders of at least 66% of shares of Class A Common Stock (or other voting
capital stock) (the "Required Percentage") then outstanding approve the sale of
all or substantially all of the Company's consolidated assets or a sale or
exchange of all or substantially all of its outstanding capital stock (an
"Approved Sale"), the holders of Institutional Investor Stock (i) shall be
offered the opportunity to sell or exchange all of their shares of Institutional
Investor Stock for the same price and otherwise on the same terms and conditions
as said holders of the Required Percentage in such Approved Sale for the same
price and otherwise on the same terms and conditions as said holders and (ii)
shall consent to and raise no objections against the Approved Sale of the
Company and, if requested to vote on such Approved Sale, shall vote all shares
of Class A Common Stock that said holders beneficially own in favor of such
Approved Sale. It is intended that the provisions of this Section 2(c)
constitute a "voting agreement" within the meaning of Section 7-107-302 of the
Colorado Business Corporation Act (the "CBCA") and not a "voting trust" within
the meaning of Section 7-107-301 of the CBCA. If the Approved Sale of the
Company is structured as a sale or exchange of stock, the holders of
Institutional Investor Stock shall agree to sell or exchange all of their shares
of Institutional Investor Stock, including the rights to acquire shares of
Institutional Investor Stock, on the terms and conditions approved by the Board
of Directors and the holders of at least the Required Percentage. In any
Approved Sale, all of the holders of Common Stock (including shares received or
to be received upon exercise of the Warrants) shall be entitled to receive the
same form and amount of consideration per share of Common Stock, or if any
holders of Common Stock are given an option as to the form and amount of
consideration to be received, all holders of Common Stock shall be given the
same option. The holders of Institutional Investor Stock shall take all
necessary and desirable actions in connection with the consummation of the
Approved Sale of the Company as requested by counsel to the Company. The rights
provided in this Section 2(c) shall terminate upon the Company's consummation of
a Qualified Public Offering.
(d) Notice of Proposed Transfer Following A Qualified Public Offering.
Following the consummation of a Qualified Public Offering, any Institutional
Investor desiring to transfer any shares of Institutional Investor Stock, other
than pursuant to an effective registration statement under the Act, shall
deliver written notice to the Company, at least 5 business days prior to the
date of the proposed transfer, describing the manner and circumstances of such
proposed transfer.
<PAGE> 4
(e) Unless the Company shall have received an opinion from counsel to the
Company (which opinion shall be obtained by the Company on or prior to the date
of such proposed transfer) that a proposed transfer of Institutional Investor
Stock may not be effected without registration or qualification under Federal or
state law, such holder of Institutional Investor Stock shall be entitled to
transfer such Institutional Investor Stock in the manner proposed.
(f) The certificates representing the Institutional Investor Stock to be
issued to the Institutional Investors shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"), AND MAY NOT
BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER AND CERTAIN OTHER AGREEMENTS SET
FORTH IN A REGISTRATION RIGHTS AGREEMENT DATED AS OF DECEMBER 1, 1995,
A COPY OF WHICH MAY BE OBTAINED BY THE HOLDER HEREOF WITHOUT CHARGE AT
THE COMPANY'S PRINCIPAL PLACE OF BUSINESS.
(g) Each holder of Institutional Investor Stock agrees not to effect any
public sale or distribution of any equity securities of the Company, or any
securities convertible into or exchangeable or exercisable for such securities,
including a sale pursuant to Rule 144 (or any similar provision then in force)
under the Act during the seven days prior to, and during the 180 days beginning
on the effective date of the registration statement relating to any underwritten
public offering of the Company's Common Stock or preferred stock, except as part
of such underwritten public offering or if otherwise permitted.
SECTION 3. TAG-ALONG RIGHT.
With respect to any proposed transfer, sale or other disposition
(collectively, a proposed transfer") of shares of Common Stock ("Shares") by
Dresher or any of his Related Parties (such persons being hereinafter referred
to collectively as the "Dresher Group") to a person (such other person being
hereafter referred to as the "proposed purchaser"), other than pursuant to an
Exempt Transfer (as defined below), each of the Institutional Investors and
their respective Related Parties (collectively, the "Tag-Along Institutional
Investors") shall have the right (the "Tag-Along Right") to require the proposed
purchaser to purchase from such Tag-Along Institutional Investor up to the
number of whole Shares owned by such Tag-Along Institutional Investor, including
the rights to acquire such Shares, equal to the sum of (A) the number derived by
multiplying the total number of Shares the members of the Dresher Group propose
to transfer by a fraction, the numerator of which is the total number of Shares
owned by such Tag-Along Institutional Investor (including Shares to be received
upon exercise of the Warrants), and the denominator of which is the total number
of Shares then outstanding on a fully-diluted basis and (B) any additional
Shares such Tag-Along Institutional Investor shall be entitled to have purchased
pursuant to the next paragraph if any other Tag-Along Institutional Investor
elects not to exercise its rights
<PAGE> 5
hereunder. Any Shares purchased from Tag-Along Institutional Investors pursuant
to this Section 3 shall be for the same consideration and upon the same terms
and conditions as such proposed transfer by Dresher (or his Related Parties, as
the case may be). Dresher shall, not less than fifteen (15) nor more than thirty
(30) calendar days prior to each proposed transfer, notify, or cause to be
notified, each Tag-Along Institutional Investor in writing of each such proposed
transfer, setting forth in such notice: (i) the name of the transferor and the
number of Shares proposed to be transferred, (ii) the name and address of the
proposed purchaser, (iii) the proposed amount and form of consideration and
terms and conditions of payment offered by such proposed purchaser and (iv) that
the proposed purchaser has been informed of the Tag-Along Right provided for in
this Section 3 and has agreed to purchase Shares in accordance with the terms
hereof.
The Tag-Along Right may be exercised by any Tag-Along Institutional
Investor by delivery of a written notice to Dresher or his Related Party
proposing to sell Shares (the "Tag-Along Notice") within ten (10) calendar days
following its receipt of the notice specified in the last sentence of the
preceding paragraph. The Tag-Along Notice shall state the amount of Shares that
such Tag-Along Institutional Investor proposes to include in such transfer to
the proposed purchaser determined as aforesaid, plus the amount of additional
Shares, if any, that such Tag-Along Institutional Investor would be willing to
sell to the proposed purchaser in the event that any of the other Tag-Along
Institutional Investors elects not to exercise their Tag-Along Rights in whole
or in part. The maximum amount of additional Shares that each such Tag-Along
Institutional Investor shall be entitled to sell, and the proposed purchaser be
required to purchase, shall be determined by multiplying the total number of
Shares that, under the formula described in the previous paragraph, Tag-Along
Institutional Investors could have elected to sell to the proposed purchaser but
elected not to so sell, by a fraction, the numerator of which is the total
number of Shares owned by such Tag-Along Institutional Investor electing to sell
additional Shares and the denominator of which is the total number of Shares
owned by all Tag-Along Institutional Investors who delivered Tag-Along Notices.
In the event that the proposed purchaser does not purchase Shares from the
Tag-Along Institutional Investors on the same terms and conditions as specified
in the notice referred to in the last sentence of the preceding paragraph, then
Dresher and his Related Parties shall not be permitted to sell any Shares to the
proposed purchaser in the proposed transfer. If no Tag-Along Notice is received
during the 10-day period referred to above (or if such Notices do not cover all
the Shares proposed to be transferred), Dresher and his Related Parties shall
have the right, for a period of ninety (90) days after the expiration of the
10-day period referred to above, to transfer the Shares specified in the notice
referred to in the last sentence of the preceding paragraph (or the remaining
Shares) on terms and conditions no more favorable than those stated in the
Tag-Along Notice and in accordance with the provisions of this Section 3.
As used herein, the term "Exempt Transfer" shall mean (1) transfers by
Dresher to his Related Parties, provided that any such transferee agrees in
writing to be bound by this Agreement as if such transferee were Dresher with
respect to such transferred Shares; (2) transfers by any of Dresher's Related
Parties to Dresher; and (3) transfers by Dresher or any of his Related Parties
which do not result in the Dresher Group owning of record less than 50% of the
Shares owned by the Dresher Group on the date of this Agreement.
<PAGE> 6
As used herein, the term "Related Party" means, with respect to any person,
(A) a spouse or immediate family member or (B) a trust, corporation, partnership
or other entity of which such person is a beneficiary, stockholder, partner,
owner or person holding an 80% or more controlling interest.
The Company agrees not to effect any transfer of Shares by Dresher until it
has received evidence reasonably satisfactory to it that the Tag-Along Right, if
applicable to such transfer, has been complied with. The rights provided in this
Section 3 shall terminate upon the Company's consummation of a Qualified Public
Offering.
SECTION 4. REGISTRATION RIGHTS.
(a) Piggyback Registration Rights.
(1) Right to Piggyback. Subject to the last sentence of this subsection
(1), whenever the Company proposes to register any Common Stock (or securities
convertible into or exchangeable for, or options to acquire, Common Stock) with
the Securities and Exchange Commission (the "Commission") under the Act (other
than a registration on Form S-4 or S-8 or an S-3 registration statement which
relates solely to a dividend reinvestment plan or employee purchase plan) in a
public sale for cash and the registration form to be used may be used for the
registration of the Registrable Securities (as defined in subsection (h) below)
(a "Piggyback Registration "), whether or not for sale for its own account, the
Company will give written notice to each of the Institutional Investors (and any
transferees of such Institutional Investors) and each of the holders of Shares
listed on Exhibit I hereto (collectively, including the Institutional Investors,
the "Significant Holders ") (including Dresher, which, for purposes of this
Section 4, shall include Dresher, his Related Parties and any transferees of
Dresher and his Related Parties), at least fifteen (15) days prior to the
anticipated filing date, of its intention to effect such a registration, which
notice will specify the kind and number of securities proposed to be registered,
the distribution arrangements and such other information that at the time would
be appropriate to include in such notice, and will, subject to subsection (a)(2)
below, include in such Piggyback Registration all Registrable Securities with
respect to which the Company has received written requests for inclusion therein
within ten (10) days after delivery of the Company's notice. Except as may
otherwise be provided in this Agreement, Registrable Securities with respect to
which such request for registration has been received will be registered by the
Company and offered to the public in a Piggyback Registration pursuant to this
Section 4 on the same terms and conditions as those applicable to the
registration of Common Stock (or securities convertible into or exchangeable or
exercisable for Common Stock) to be sold by the Company and by any other person
selling under such registration.
(2) Priority on Piggyback Registrations. If the managing underwriter or
underwriters, if any, advise the holders of Registrable Securities in writing
that in its or their reasonable opinion or, in the case of a Piggyback
Registration not being underwritten, the Company shall reasonably determine (and
notify the holders of Registrable Securities of such determination), after
consultation with an investment banker of nationally recognized standing, that
the number or kind of securities proposed to be sold in such registration
(including Registrable Securities to be included pursuant to subsection (a)(1)
above) will materially adversely affect the success of
<PAGE> 7
such offering, the Company will include in such registration the number of
securities, if any, which, in the opinion of such underwriter or underwriters,
or the Company, as the case may be, can be sold as follows: (i) first, the
shares the Company proposes to sell, and (ii) second, the Registrable Securities
requested to be included in such registration by the Significant Holders. To the
extent that the privilege of including Registrable Securities in any Piggyback
Registration must be allocated among the Significant Holders, the allocation
shall be made pro rata based on the number of Registrable Securities that each
such participant shall have requested to include therein.
(3) Selection of Underwriters. If any Piggyback Registration is an
underwritten offering (other than an offering initiated as a Demand Registration
as provided in subsection (b) below), the Company will select a managing
underwriter or underwriters to administer the offering, which managing
underwriter or underwriters will be of nationally recognized standing and
reasonably acceptable to the holders of a majority of the Registrable Securities
included therein.
(b) Demand Registration Rights.
(1) Right to Demand. At any time after (i) the Company is eligible to
register Shares of Common Stock under the Act on Form S-3 and (ii) none of the
Shares held by Dresher are subject to an underwriter lock-up agreement relating
to such Shares, the Institutional Investors may, make a written request of the
Company for registration with the Commission, under and in accordance with the
provisions of the Act, of all or part of their Registrable Securities (a "Demand
Registration"); provided, that (x) the Company need not effect a Demand
Registration unless such Demand Registration shall include at least 50% of the
Registrable Securities held on the date of such written request by the
Institutional Investors collectively, (y) the Company may defer the filing of
any registration statement relating to a Demand Registration for (i) a
reasonable period of time (not to exceed ninety (90) days following the end of
the most recently completed fiscal year or forty-five (45) days following the
end of the most recently completed fiscal quarter (whichever is later)) to the
extent necessary to prepare the financial statements of the Company for the
fiscal period most recently ended prior to the related request, (ii) up to
ninety (90) days if the Company would be required to disclose in such
registration statement the existence of any fact relating to a material business
situation, transaction or negotiation not otherwise required to be disclosed, or
(iii) up to ninety (90) days if the Company notifies the Institutional Investors
that a registration at the time and on the terms requested would adversely
affect any equity financing by the Company that had been contemplated by the
Company prior to receipt of notice requesting registration pursuant to this
Section 4(b), and (z) if the Company elects to defer any Demand Registration
pursuant to the terms of this sentence, no Demand Registration shall be deemed
to have occurred for purposes of this Agreement. Subject to subsection (3)
below, the Company will include in such registration all Registrable Securities
of such Significant Holders with respect to which the Company has received
written requests for inclusion therein. All requests made pursuant to this
subsection (b)(1) will specify the aggregate number of Registrable Securities
requested to be registered and will also specify the intended methods of
disposition thereof.
(2) Number of Demand Registrations. The Institutional Investors
collectively shall be
<PAGE> 8
entitled to one (1) Demand Registration. The expenses of the Institutional
Investors requesting a Demand Registration shall be borne by the Company as
provided in subsection (d) below. A Demand Registration shall not be counted as
a Demand Registration hereunder until such Demand Registration has been declared
effective by the Commission and remains effective for at least 60 consecutive
days without being interfered with by any (i) stop order, injunction or other
order or requirement of the Commission or other governmental agency or court or
regulatory agency or exchange, including NASDAQ or NASD, or (ii) action by the
Company or any stockholder (other than the Institutional Investor(s) requesting
such Demand Registration) requiring the suspension of such offering.
(3) Priority on Demand Registrations. If in any Demand Registration the
managing underwriter or underwriters thereof (or in the case of a Demand
Registration not being underwritten, in the opinion of the holders of a majority
of the Registrable Securities included therein), advise the Company in writing
that in its or their reasonable opinion the number of securities proposed to be
sold in such Demand Registration exceeds the number that can be sold in such
offering without having a material effect on the success of the offering
(including, without limitation, an impact on the selling price or the number of
Shares that any participant may sell), the Company will include in such
registration only the number of securities that, in the reasonable opinion of
such underwriter or underwriters (or holders of Registrable Securities, as the
case may be) can be sold without having a material adverse effect on the success
of the offering as follows: (i) first, the Registrable Securities held by the
Institutional Investors that initiated such Demand Registration, (ii) second,
the Registrable Securities requested to be included in such Demand Registration
by the Significant Holders (excluding the Institutional Investors but including
all other Significant Holders requesting to have Shares included in such Demand
Registration pro rata among those requesting registration on the basis of the
number of Shares requested to be included, and (iii) third, Shares to be issued
and sold by the Company.
(4) Selection of Underwriters. If a Demand Registration is an underwritten
offering, the holders of a majority of the Registrable Securities to be included
in such Demand Registration held by the Institutional Investors that initiated
such Demand Registration shall have the right to select a managing underwriter
or underwriters of recognized national standing that is or are reasonably
satisfactory to the Company to administer the offering.
(c) Registration Procedures. With respect to any Piggyback Registration or
Demand Registration (generically, a "Registration"), the Company will, subject
to Sections (4)(a)(2) and (4)(b)(3), as expeditiously as practicable:
(1) prepare and file with the Commission, within ninety (90) days
after mailing the applicable Notice, a registration statement or
registration statements ("Registration Statement") relating to the
applicable Registration on Form S-3; provided that the Company will include
in any Registration Statement all information that the holders of the
Registrable Securities so to be registered shall reasonably request and
shall include all financial statements required by the Commission to be
filed therewith, cooperate and assist in any filings required to be made
with the National Association of Securities Dealers, Inc. ("NASD"), and use
its best efforts to cause such Registration Statement to become effective;
provided further, that before filing a Registration Statement or prospectus
<PAGE> 9
related thereto (a "Prospectus") or any amendments or supplements thereto,
the Company will furnish to the holders of the Registrable Securities
covered by such Registration Statement and the underwriters, if any, copies
of all such documents proposed to be filed, which documents will be subject
to the reasonable review of such holders and underwriters and their
respective counsel, and the Company will not file any Registration
Statement or amendment thereto or any Prospectus or any supplement thereto
to which the holders of a majority of the Registrable Securities covered by
such Registration Statement or the underwriters, if any, shall reasonably
object;
(2) use its best efforts to keep such Registration Statement current
for a period of ninety (90) days, or such shorter period which will
terminate when all Registrable Securities covered by such Registration
Statement have been sold, and prepare and file with the Commission such
amendments and post-effective amendments to the Registration Statement as
may be necessary to keep each Registration Statement effective for such
period; cause each Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 under
the Act; and comply with the provisions of the Act with respect to the
disposition of all securities covered by such Registration Statement during
the applicable period in accordance with the intended method or methods of
distribution by the sellers thereof set forth in such Registration
Statement or supplement to the Prospectus; the Company shall not be deemed
to have used its best efforts to keep a Registration Statement effective
during the applicable period if it voluntarily takes any action that would
result in selling holders of the Registrable Securities covered thereby not
being able to sell such Registrable Securities during that period unless
such action is required under applicable law, provided that the foregoing
shall not apply to actions taken by the Company in good faith and for valid
business reasons, including without limitation the acquisition or
divestiture of assets, so long as the Company promptly thereafter complies
with the requirements of subsection (11) of this subsection (c), if
applicable;
(3) notify the selling holders of Registrable Securities and the
managing underwriters, if any, promptly, and (if requested by any such
person or entity) confirm such advice in writing, (A) when the Prospectus
or any Prospectus supplement or post-effective amendment has been filed,
and, with respect to the Registration Statement or any post-effective
amendment, when the same has become effective, (B) of any request by the
Commission for amendments or supplements to the Registration Statement or
the Prospectus or for additional information, (C) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for that
purpose, (D) if at any time the representations and warranties of the
Company contemplated by subsection (14) below cease to be true and correct,
(E) of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for
such purpose and (F) of the happening of any event which makes any
statement made in the Registration Statement, the Prospectus or any
document incorporated therein by reference untrue or which requires the
making of any changes in the Registration Statement, the Prospectus or any
document incorporated therein by reference in order to make the statements
therein not misleading;
<PAGE> 10
(4) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(5) if requested by the managing underwriter or underwriters or a
holder of Registrable Securities being sold in connection with an
underwritten offering, promptly incorporate in a Prospectus supplement or
post-effective amendment such information as the managing underwriters and
the holders of a majority of the Registrable Securities being sold agree
should be included therein relating to the plan of distribution with
respect to such Registrable Securities, including, without limitation,
information with respect to the number of Registrable Securities being sold
to such underwriters, the purchase price being paid therefor by such
underwriters and with respect to any other terms of the underwritten (or
best efforts underwritten) offering of the Registrable Securities to be
sold in such offering; and make all required filings of such Prospectus
supplement or post-effective amendment as soon as notified of the matters
to be incorporated in such Prospectus supplement or post-effective
amendment;
(6) furnish to each selling holder of Registrable Securities and each
managing underwriter, without charge, at least one conformed copy of the
Registration Statement and any amendment thereto, including financial
statements and schedules, all documents incorporated therein by reference
and all exhibits (including those incorporated by reference);
(7) deliver to each selling holder of Registrable Securities and the
underwriters, if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement
thereto as such selling holder of Registrable Securities and underwriters
may reasonably request; the Company consents to the use of each Prospectus
or any amendment or supplement thereto by each of the selling holders of
Registrable Securities and the underwriters, if any, in connection with the
offering and sale of the Registrable Securities covered by such Prospectus
or any amendment or supplement thereto;
(8) prior to any public offering of Registrable Securities, register
or qualify or cooperate with the selling holders of Registrable Securities,
the underwriters, if any, and their respective counsel in connection with
the registration or qualification of such Registrable Securities for offer
and sale under the securities or "blue sky" laws of such jurisdictions as
any seller or underwriter reasonably requests in writing, considering the
amount of Registrable Securities proposed to be sold in each such
jurisdiction, and do any and all other acts or things necessary or
advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by the Registration Statement; provided that
the Company will not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to take any action that
would subject it to general service of process in any such jurisdiction
where it is not then so subject;
(9) cooperate with the selling holders of Registrable Securities and
the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and
not bearing any restrictive
<PAGE> 11
legends and to be in such denominations and registered in such names as the
managing underwriters may request at least two (2) business days prior to
any sale of Registrable Securities to the underwriters;
(10) use its best efforts to cause the Registrable Securities covered
by the applicable Registration Statement to be registered with or approved
by such other governmental agencies or authorities as may be necessary to
enable the seller or sellers thereof or the underwriters, if any, to
consummate the disposition of such Registrable Securities;
(11) upon the occurrence of any event contemplated by subsection
(3)(F) above, prepare a supplement or post-effective amendment to the
Registration Statement or the related Prospectus or any document
incorporated therein by reference or file any other required document so
that, as thereafter delivered to the purchasers of the Registrable
Securities, the Prospectus will not contain an untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein not misleading;
(12) cause all Registrable Securities covered by any Registration
Statement to be listed on each securities exchange on which similar
securities issued by the Company are then listed, or cause such Registrable
Securities to be authorized for trading on the NASDAQ National Market if
any similar securities issued by the Company are then so authorized, if
requested by the holders of a majority of such Registrable Securities or
the managing underwriters, if any;
(13) provide a CUSIP number for all Registrable Securities, not later
than the effective date of the applicable Registration Statement;
(14) enter into such agreements (including an underwriting agreement)
and take all such other actions in connection therewith in order to
expedite or facilitate the disposition of such Registrable Securities and
in such connection, whether or not an underwriting agreement is entered
into and whether or not the Registration is an underwritten Registration
(A) make such representations and warranties to the holders of such
Registrable Securities and the underwriters, if any, in form, substance and
scope as are customarily, made by issuers to underwriters In primary
underwritten offerings; (B) obtain opinions of counsel to the Company and
updates thereof (which counsel and opinions (in form, scope and substance)
shall be reasonably satisfactory to the managing underwriters, if any, and
the holders of a majority of the Registrable Securities being sold)
addressed to each selling holder and the underwriters, if any, covering the
matters customarily covered in opinions requested in underwritten offerings
and such other matters as may be reasonably requested by such holders and
underwriters; (C) obtain "cold comfort" letters and updates thereof from
the Company's independent certified public accountants addressed to the
selling holders of Registrable Securities and the underwriters, if any,
such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters by underwriters in connection
with primary underwritten offerings; (D) if an underwriting agreement is
entered into, the same shall set forth in full the indemnification
provisions and procedures set forth in subsection (f) below with
<PAGE> 12
respect to all parties to be indemnified pursuant to said subsection; and
(E) the Company shall deliver such documents and certificates as may be
reasonably requested by the holders of a majority of the Registrable
Securities being sold and the managing underwriters, if any, to evidence
compliance with subsection 3(F) above and with any customary conditions
contained in the underwriting agreement or other agreement entered into by
the Company. The above shall be done at each closing under such
underwriting or similar agreement or as and to the extent required
thereunder;
(15) make available for inspection by a representative of the holders
of a majority of the Registrable Securities, any underwriter participating
in any disposition pursuant to such Registration, and any attorney or
accountant retained by the sellers or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, and
cause the Company's officers, directors and employees to supply all
information reasonably requested by any such representative, underwriter,
attorney or accountant in connection with such Registration Statement;
provided that any records, information or documents that are designated by
the Company in writing as confidential shall be kept confidential by such
Persons unless disclosure of such records, information or documents is
required by court or administrative order or any regulatory body having
jurisdiction;
(16) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make generally available to
its security holders, earnings statements satisfying the provisions of
Section 11(a) of the Act, no later than forty-five (45) days after the end
of any 12-month period (or ninety (90) days, if such period is a fiscal
year) (A) commencing at the end of any fiscal quarter in which Registrable
Securities are sold to underwriters in a firm or best efforts underwritten
offering, or (B) if not sold to underwriters in such an offering, beginning
with the first month of the Company's first fiscal quarter commencing after
the effective date of the Registration Statement, which statements shall
cover said 12-month periods; and
(17) promptly prior to the filing of any document that is to be
incorporated by reference into any Registration Statement or Prospectus
(after initial filing of the Registration Statement), provide copies of
such document to counsel to the selling holders of Registrable Securities
and to the managing underwriters, if any, make the Company's
representatives available for discussion of such document and make such
changes in such document prior to the filing thereof as counsel for such
selling holders or underwriters may reasonably request.
The Company may require each seller of Registrable Securities as to which
any Registration is being effected to furnish to the Company such information
regarding such seller and the proposed distribution of such securities as
required by applicable laws and regulations.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in subsection (3)(F) of this
subsection (c), such holder will forthwith discontinue disposition of
Registrable Securities pursuant to the Registration Statement until such
holder's
<PAGE> 13
receipt of copies of the supplemented or amended Prospectus as contemplated by
subsection (11) of this subsection (c), or until it is advised in writing (the
"Advice ") by the Company that the use of the Prospectus may be resumed, and has
received copies of any additional or supplemental filings, that are incorporated
by reference in the Prospectus, and, if so directed by the Company, such holder
will deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such holder's possession, of the Prospectus
covering such Registrable Securities current at the time of receipt of such
notice. In the event the Company shall give any such notice, the time periods
referred to in subsection (2) of this subsection (c) shall be extended by the
number of days during the period from and including the date of the giving of
such notice to and including the date when each seller of Registrable Securities
covered by such Registration Statement shall have received the copies of the
supplemented or amended prospectus contemplated by subsection (11) of this
subsection (c) or the Advice.
(d) Registration Expenses. All expenses incident to the Company's
performance of or compliance with this Section 4 will be borne by the Company,
including, without limitation, all registration and filing fees, the fees and
expenses of the counsel and accountants for the Company (including the expenses
of any "cold comfort" letters), all other costs and expenses of the Company
incident to the preparation, printing and filing under the Act of the
Registration Statement (and all amendments and supplements thereto) and
furnishing copies thereof and of the Prospectus included therein, the costs and
expenses incurred by the Company in connection with the qualification of the
Registrable Securities under the state securities or "blue sky" laws of various
jurisdictions, the costs and expenses associated with filings required to be
made with the NASD, the costs and expenses of listing the Registrable Securities
for trading on a national securities exchange or authorizing them for trading on
the NASDAQ National Market and all other costs and expenses incurred by the
Company in connection with any Registration hereunder and, in connection with a
Demand Registration, the reasonable fees and expenses of one (1) firm of counsel
selected by the Institutional Investors holding more than 50% of the Registrable
Securities being sold or registered pursuant to the provisions of this
Agreement; provided, that, except as otherwise provided in Section4(e)(2) below,
the Company shall not bear the costs and expenses of any selling holders of
Registrable Securities for underwriters' commissions or brokerage fees.
(e) Indemnification.
(1) Indemnification by the Company. The Company agrees to indemnify, to the
full extent permitted by law, each Institutional Investor, its officers,
directors and agents and each person who controls such Institutional Investor
(within the meaning of the Act and the Exchange Act), against all losses,
claims, damages, liabilities and expenses caused by any untrue or alleged untrue
statement of a material fact contained in any Registration Statement, Prospectus
or preliminary Prospectus or any omission or alleged omission to state therein a
material fact necessary to make the statements therein (in the case of a
Prospectus or any preliminary Prospectus, in light of the circumstances under
which they were made) not misleading, except insofar as the same are caused by
or contained in any information with respect to such Institutional Investor
furnished in writing to the Company by such Institutional Investor or its
representative expressly for use therein. The Company will also indemnify
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in the
<PAGE> 14
distribution, their officers and directors and each person who controls such
persons (within the meaning of the Act) to the same extent as provided above
with respect to the indemnification of the Institutional Investor; provided,
however, if pursuant to an underwritten public offering of Registrable
Securities, the Company and any underwriters enter into an underwriting or
purchase agreement relating to such offering that contains provisions relating
to indemnification and contribution between the Company and such underwriters,
such provisions shall be deemed to govern indemnification and contribution as
between the Company and such underwriters.
(2) Indemnification by Institutional Investors. In connection with any
registration in which an Institutional Investor is participating, each such
Institutional Investor will furnish to the Company in writing such information
with respect to such Institutional Investor as the Company reasonably requests
for use in connection with any Registration Statement or Prospectus and agrees
to indemnify, to the full extent permitted by law, the Company, the directors
and officers of the Company signing the Registration Statement, each person who
controls the Company (within the meaning of the Act and the Exchange Act) and
all underwriters participating in the distribution against any losses, claims,
damages, liabilities and expenses resulting from any untrue statement of a
material fact or any omission to state a material fact required to be stated
therein or necessary to make the statements in the Registration Statement or
Prospectus or preliminary Prospectus (in the case of the Prospectus or any
preliminary Prospectus, in light of the circumstances under which they were
made) not misleading, to the extent, but only to the extent, that such untrue
statement or omission is contained in any information with respect to such
Institutional Investor so furnished in writing by such Institutional Investor or
its representative specifically for inclusion therein. In no event shall the
liability of any Institutional Investor hereunder be greater in amount than the
dollar amount of the proceeds received by such Institutional Investor upon the
sale of the Registrable Securities giving rise to such indemnification
obligation. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in the distribution, to the same extent as provided
above with respect to information with respect to such persons or entities so
furnished in writing by such persons or entities or their representatives
specifically for inclusion in any Prospectus or Registration Statement.
(3) Conduct of Indemnification Proceedings. Any person or entity entitled
to indemnification hereunder will (i) give prompt written notice to the
indemnifying party after the receipt by the indemnified party of a written
notice of the commencement of any action, suit, proceeding or investigation or
threat thereof made in writing for which such indemnified party will claim
indemnification or contribution pursuant to this Agreement; provided, however,
that the failure of any indemnified party to give notice as provided herein
shall not relieve the indemnifying party of its obligations under the preceding
clauses (1) and (2), except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest may exist between
such indemnified and indemnifying parties with respect to such claim, permit
such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. Whether or not such defense is
assumed by the indemnifying party, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent will
not be unreasonably withheld). No indemnifying party will be required to consent
to the entry of any judgment or to enter into any settlement that does not
include as an unconditional term
<PAGE> 15
thereof the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect of such claim or litigation. An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel in any one jurisdiction for all parties indemnified by such indemnifying
party with respect to such claim, unless in the reasonable judgment of any
indemnified party a conflict of interest may exist between such indemnified
party and any other of such indemnified parties with respect to such claim, in
which event the indemnifying party shall be obligated to pay the fees and
expenses of such additional counsel or counsels.
(4) Contribution. If for any reason the indemnification provided for in the
preceding clauses (1) and (2) is unavailable to an indemnified party as
contemplated by the preceding clauses (1) and (2), then the indemnifying party
in lieu of indemnification shall contribute to the amount paid or payable by the
indemnified party as a result of such loss, claim, damage, liability or expense
in such proportion as is appropriate to reflect not only the relative benefits
received by the indemnified party and the indemnifying party, but also the
relative fault of the indemnified party and the indemnifying party, as well as
any other relevant equitable considerations, provided that no Institutional
Investor shall be required to contribute in an amount greater than the
difference between the net proceeds received by such Institutional Investor with
respect to the sale of any Shares and all amounts already contributed by such
Institutional Investor with respect to such claims, including amounts paid for
any legal or other fees or expenses incurred by such Institutional Investor.
(f) Rule 144. The Company agrees that at all times after it has filed a
registration statement pursuant to the requirements of the Act relating to any
class of equity securities of the Company, it will file in a timely manner all
reports required to be filed by it pursuant to the Act and the Exchange Act.
Notwithstanding the foregoing, the Company may deregister any class of its
equity securities under Section 12 of the Exchange Act or suspend its duty to
file reports with respect to any class of its securities pursuant to Section
15(d) of the Exchange Act if it is then permitted to do so pursuant to the
Exchange Act and the rules and regulations thereunder.
(g) Participation in Underwritten Registrations. No Institutional Investor
may participate in any underwritten registration hereunder unless such
Institutional Investor (i) agrees to sell its Registrable Securities on the
basis provided in any underwriting arrangements approved by the persons entitled
hereunder to select the underwriter pursuant to subsections (3)(a)(3) and
(3)(b)(4) above, and (ii) accurately completes in a timely manner and executes
all questionnaires, powers of attorney, underwriting agreements, custody
agreements and other documents customarily required under the terms of such
underwriting arrangements.
(h) Definition of Registrable Securities. "Registrable Securities" means
the Shares held by the Institutional Investors as of the date this Agreement or
hereafter acquired, but with respect to any such Share, only until such time as
such Share (i) has been effectively registered under the Act and disposed of in
accordance with the Registration Statement covering it or (ii) has been sold to
the public pursuant to Rule 144 (or any similar provision then in force) under
the Act.
(i) Amendments and Waivers. The provisions of this Section 4, including the
<PAGE> 16
provisions of this sentence, may not be amended, modified or supplemented, and
waivers of or consents to departures from the provisions hereof may not be given
unless approved by the Company in writing and the Company has obtained the
written consent of Institutional Investors holding at least a majority of the
then outstanding Registrable Securities. This Agreement may be amended,
modified, waived or supplemented only by a written instrument executed by all
the parties hereto that are required to execute the same. No action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action. The waiver by any party hereto of a breach of any provision
of this Agreement shall not operate or be construed as waiver of any preceding
or succeeding breach and no failure by any party to exercise any right or
privilege hereunder shall be deemed a waiver of such party's rights or
privileges hereunder or shall be deemed a waiver of such party's rights to
exercise the same at any subsequent time or times hereunder.
SECTION 5. MISCELLANEOUS.
(a) Successors, Assigns and Transferees. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective legal
representatives, heirs, legatees, successors and assigns including any party to
which any Institutional Investor has transferred or sold his or its Shares. Each
transferee of Shares from an Institutional Investor shall take such Shares
subject to the same restrictions as existed in the hands of the transferor.
Shares sold to the public pursuant to an effective Registration Statement shall
no longer be subject to any of the provisions of this Agreement.
(b) Specific Performance, Etc. The Company and each of the Institutional
Investors and Dresher, in addition to being entitled to exercise all rights
provided herein, in the Company's Articles of Incorporation or granted by law,
including recovery of damages, will be entitled to specific performance of its
rights under this Agreement. The parties hereto agree that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of the provisions of this Agreement and hereby agree to waive the defense
in any action for specific performance that a remedy at law would be adequate.
(c) Notices. All notices and other communications provided for or permitted
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally, when transmitted by telecopy, electronic or digital
transmission method, or sent by registered or certified mail (return receipt
requested) postage prepaid to the parties at the following addresses (or at such
other address for any party as shall be specified by like notice, provided that
notices of a change of address shall be effective only upon receipt thereof).
Notices sent by mail shall be effective five days after mailing.
<PAGE> 17
(i) If to the Company, at:
Unidata, Inc.
1099 18th Street, Suite 2500
Denver, CO 80202
Attention: Harold Nussenfeld, Esq.
Fax: (303) 293-8880
with copies to:
Latham & Watkins
633 West Fifth Street
Suite 4000
Los Angeles, California 90071
Attention: Gary Olson, Esq.
Fax: (213) 891-8763
(ii) If to the Institutional Investors, at:
c/o Massachusetts Mutual Life Insurance Company
1295 State Street
Springfield, Massachusetts 01111
Attention: Richard Morrison
Fax: (413) 744-6127
with copies to:
MassMutual Corporate Value Partners Limited
P.O. Box 1096
George Town, Grand Cayman
Cayman Islands, B.W.I.
Attention: Michael Carey
Fax:
(iii) If to Dresher, at:
James T. Dresher
1339 E. MacPhail Rd.
Bel Air, MD 21015
Fax:(410) 879-6997
(d) Recapitalizations, Exchange, Etc. Affecting the Company's Stock. The
provisions of this Agreement shall apply, to the full extent set forth herein
with respect to the Common Stock, to any and all shares of capital stock of the
Company or any successor or assign of the Company (whether by merger,
consolidation, sale of assets, or otherwise) that may be issued in respect of,
in exchange for, or in substitution of the Common Stock and shall be
appropriately
<PAGE> 18
adjusted for any stock dividends, splits, reverse splits, combinations,
recapitalizations and the like occurring after the date hereof.
(e) Termination. This Agreement shall terminate and cease to be of any
further force or effect on the tenth anniversary of the date hereof.
(f) Applicable Law. This Agreement shall be construed, interpreted and the
rights of the parties determined in accordance with the laws of the State of
Illinois without reference to any choice of law rules that would require the
application of the laws of any other jurisdiction.
(g) Severability. The provisions of this Agreement are severable, and if
any clause or provision shall be held invalid or unenforceable in whole or in
part in any jurisdiction, then such invalidity or unenforceability shall affect
only such clause or provision, or part thereof, in such jurisdiction and shall
not in any manner affect such clause or provision in any other jurisdiction, or
any other clause or provision of this Agreement in any jurisdiction.
(h) Interpretation. Time is of the essence of each provision of this
Agreement of which time is an element.
(i) Headings Descriptive. The headings in this Agreement are for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or be given any substantive effect.
(j) Entire Agreement. This Agreement is intended by the parties as a final
expression of their agreement with respect to the subject matter hereof and is
intended as a complete and exclusive statement of the terms and conditions
thereof.
(k) Service of Process. Each party hereto irrevocably consents to the
service of any process, pleading, notices or other papers by the mailing of
copies thereof by registered, certified or first class mail, postage prepaid, to
such party at such party's address set forth herein, or by any other method
provided or permitted under Illinois law.
(1) Consent and Jurisdiction. Each party hereto irrevocably and
unconditionally (A) agrees that any suit, action or other legal proceeding
arising out of this Agreement may be brought in the United States District Court
for the Northern District of Illinois or, if such court does not have
jurisdiction or will not accept jurisdiction, in any court of general
jurisdiction in the County of Cook, Chicago, Illinois; (B) consents to the
jurisdiction or any such court in any such suit, action or proceeding; and (C)
waives any objection which such party may have to the laying of venue of any
such suit, action or proceeding in any such court.
(m) Attorneys' Fees. In any action or proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is validly asserted
as a defense, the successful party shall be entitled to recover reasonable
attorneys' fees in addition to any other available remedy.
(n) Counterparts. This Agreement may be executed in two or more
counterparts, each
<PAGE> 19
of which shall be deemed an original but all of which shall together constitute
one and the same agreement.
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
UNIDATA, INC.
By /s/ David Brunel
---------------------------
Its: President
<PAGE> 20
ACCEPTED AND AGREED TO:
MASSACHUSETTS MUTUAL LIFE INSURANCE
COMPANY
By /s/ Richard C. Morrison
---------------------------
Its: Vice President
This Agreement is executed on behalf of MassMutual Corporate Investors,
organized under a Declaration of Trust, dated September 13, 1985, as amended
from time to time. The obligations of such trust are not personally binding
upon, nor shall resort be had to the property of, any of the trustees,
shareholders, officers, employees or agents of such trust, but the trust
property only shall be bound.
MASSMUTUAL CORPORATE INVESTORS
By /s/ Richard C. Morrison
---------------------------
Its: Vice President
This Agreement is executed on behalf of MassMutual Participation Investors,
organized under a Declaration of Trust, dated April 7, 1988, as amended from
time to time. The obligations of such trust are not personally binding upon, nor
shall resort be had to the property of, any of the Trustees, shareholders,
officers, employees or agents of such Trust, but the Trust's assets and property
only shall be bound.
MASSMUTUAL PARTICIPATION INVESTORS
By /s/ Richard C. Morrison
-----------------------------
Its: Vice President
MASSMUTUAL CORPORATE VALUE
PARTNERS LIMITED
By Massachusetts Mutual Life Insurance
Company, as Investment Manager
By /s/ Richard C. Morrison
-----------------------------
Its: Vice President
<PAGE> 21
ACCEPTED AND AGREED TO:
/s/ James T. Dresher
-----------------------------
James T. Dresher
<PAGE> 22
EXHIBIT 1
SIGNIFICANT HOLDERS
(OTHER THAN THE INSTITUTIONAL INVESTORS)
John G. Akers
David W. Brunei
Jeanne D. Butcher
James T. Dresher
James T. Dresher, Jr.
Jeffrey M. Dresher
Bruce D. Fraser
Honor Guiney
Arlene Lacharite
Virginia D. Meoli
Harold Nussenfeld
Allan Snell
John F. Schaefer
Martin T. Hart
Gary Olson
Glenangus Holdings Corp.
Integro Fiduciaire SARL
System Builder Corporation
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EXHIBIT 10.42
DISTRIBUTION AGREEMENT
Dated November 1995
Parties
SYSTEM BUILDER SOFTWARE LIMITED
S B TECH PTY LIMITED
DESMOND MILLER
Deacon Graham & James
Sydney
Our ref: Roderick MacKinnon: Stan Kalinko
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DISTRIBUTION AGREEMENT made November 1995
PARTIES SYSTEM BUILDER SOFTWARE LIMITED a company incorporated in the
Isle of Man of
("System Builder Software")
AND S B TECH PTY LIMITED ACN 002 957 128
of Level 18, Bondi Junction Plaza II, 500 Oxford Street,
Bondi Junction, Sydney in the State of New South Wales
(the "Distributor")
AND DESMOND MILLER of Level 18, Bondi Junction Plaza II,
500 Oxford Street, Bondi Junction, Sydney in the State of
New South Wales
("Desmond Miller")
INTRODUCTION
A. The Distributor has distributed the Licensed Programs in the Territory on
an exclusive basis of over 10 years pursuant to an oral agreement,
initially with Atech System Builder Limited to the UK, the System Building
Corporation Limited, thereafter System Builder Holdings Limited of Ireland
and now with System Builder Software of the Isle of Man.
B. System Builder Software and the Distributor wish to formalize the grant of
license to the Distributor and the distribution arrangements in accordance
with the terms and conditions contained herein.
IT IS AGREED
1. DEFINITIONS
1.1 In this Agreement, the following definitions apply:
(1) "AGREEMENT" means this document including any Schedule or Annexure to
it;
(2) "ALF" means the annual maintenance or annual license charges (net of
Taxes) received by the Distributor from any of its Customers in
addition to the Initial License Fees in respect of the Licensed
Programs which ALFs are intended to cover the cost of maintenance and
Enhancements;
(3) "ASSOCIATED DOCUMENTATION" means operating manuals including users'
manuals, programming manuals, modification manuals, flow charts,
drawings and software listings which are designed to assist or
supplement the understanding or application of the Licensed Programs
and which are supplied from time to time by System Builder Software.
(4) "COMMENCEMENT DATE" means the date hereof;
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(5) "CPI" means the weighted average of the Consumer Price Index (All
Groups) for Sydney published by the Australian Bureau of Statistics
or, in the event that such index is discontinued, such index as may
replace it;
(6) "CUSTOMERS" means all Dealers, End Users or other customers (including
value added resellers) of the Distributor who are or have been
supplied with a copy or copies of the Licensed Programs;
(7) "DEALER" means any person who is validly appointed by the Distributor
as a dealer pursuant to a Dealership Agreement with the right to
receive copies of the Licensed Programs from the Distributor for the
purpose of distribution to End Users;
(8) "DEALERSHIP AGREEMENT" means the agreement containing the terms and
conditions upon which a Dealer may receive copies of the Licensed
Programs from the Distributor substantially in the form as set out in
Schedule 2 to this Agreement;
(9) "END USER" means any person who has acquired an end user license from
the Distributor or a Dealer to use any of the Licensed Programs in
accordance with an End User License Agreement.
(10) "END USER LICENSE AGREEMENT" means the license to be executed by an
End User or deemed to be accepted by an End User in accordance with a
shrinkwrap or on-line license containing the terms and conditions upon
which an End User may use any of the Licensed Programs substantially
in the form as set out in Schedule 3 to this Agreement;
(11) "ENHANCEMENTS" means all:
(a) adaptations, additions, advancements, refinements, modifications,
upgrades, updates, enhancements and corrections relating to or
connected with;
(b) new releases of; and
(c) substitutes of
any of the computer programs referred to in paragraph (a) of the
definition of Licensed Programs;
(12) "EXPLOIT" means to license or sub-license (known colloquially as the
sale of a license or sub-license), promote, advertise or distribute
and "Exploitation" and "Exploiting" shall have a corresponding
meaning;
(13) "FEEDBACK SYSTEM" means a computer program provided by System Builder
Software to the Distributor for the recording of Customer complaints,
suggestions
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and information about the operation of the Licensed Programs and to
provide a mechanism for reporting of problems by End Users and Dealers
to the Distributor and by the Distributor to System Builder Software
by way of electronic means;
(14) "INITIAL LICENSE FEES" means the initial license fees (net of Taxes)
received by the Distributor from its Customers in respect of the
simple use of Licensed Programs by Customers in accordance with
Dealership Agreements or End User License Agreements;
(15) "LICENSED PROGRAMS" means:
(a) the computer programs specified in item 1 of Schedule 1 and any
computer programs subsequently developed and distributed as
released products by or on behalf of System Builder Software and
after the Assignment or novation referred to in clause 21.3.
Unidata, which are similar to or in substitution of any of the
computer programs specified in Item 1 of Schedule 1 or which may
have been developed using or incorporating the source code or any
part of the source code of any of the computer programs specified
in Item 1 of Schedule 1; and
(b) Enhancements.
but excludes any computer program that is discontinued or withdrawn
universally by System Builder Software in accordance with clause 13.12
provided however that if any computer program discontinued or
withdrawn in accordance with clause 13.12 is subsequently reintroduced
universally or in the Territory (whether modified, adapted or
containing any additions, advancements, refinements, corrections or
enhancements) then the reintroduced computer program will be deemed to
be a Licensed Program for the purposes of this Agreement;
(16) "LICENSE FEES" means the list of ALFs and Initial License Fees for the
Licensed Programs set by System Builder Software as an indication of
License Fees to be charged by the Distributor as set out in Schedule 4
and varied from time to time in accordance with clause 4.
(17) "LIST PRICES" means the list of ALFs and Initial License Fees for the
Licensed Programs set by System Builder Software as an indication of
License Fees to be charged by the Distributor as set out in Schedule 4
and varied from time to time in accordance with clause 4.
(18) "MASTERPACK COMPANIES" means McNamee Sutton & Partners Pty Ltd ACN 003
814 999, MP Tech UK, MP Tech USA, MasterPack International (a British
Virgin Island company), MasterPack Systems Pty Limited ACN 003 350
445, McNamee Sutton & Partners (Victoria) Pty Ltd ACN 007 247 369 and
any other related bodies
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corporate (as defined in Section 50 of the Corporations Law) or
associates (as defined in Division 2 of Part 1.2 of the Corporations
Law) of any of those companies.
(19) "MINIMUM PAYMENT" means a sum representing the minimum Initial License
Fees to be paid by the Distributor to System Builder Software for
Licensed Programs ordered during any one year in accordance with
clause 6;
(20) "QUARTER" means the 3 month periods ending 31 March, 30 June, 30
September and 31 December in any year;
(21) "TAXES" means all taxes, duties, fees or other government charges,
levies or imposts which may be imposed on or in respect of the
Licensed Programs which are payable by the Distributor pursuant to
clause 8.3 with the exception of:
(a) withholding tax and sales tax which are payable by System Builder
Software in accordance with Clauses 8.3 and 5.5 respectively; and
(b) any other taxes, duties, fees or other government charges, levies
or imposts which are specifically incorporated into the List
Prices from time to time.
(22) "TERRITORY" means Australia, New Zealand, Asia and the Pacific Islands
provided however that upon the entering into of the agreement
contemplated by clause 21.3(5) the Territory shall be Australia and
New Zealand only;
(23) "TRADE MARK" means the trade marks, trade names and logos listed in
Item 2 of Schedule 1; and
(24) "UNIDATA" means Unidata Inc. of Denver Colorado, USA.
1.2 INTERPRETATION
(1) Reference to:
(a) the singular includes the plural and the plural includes the
singular;
(b) a party includes the party's executors, administrators,
successors and permitted assigns; and
(c) a month, quarter or year shall mean a calendar month, quarter or
year.
(2) All monetary amounts are in Australian dollars, unless otherwise
stated.
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(3) If an act must be done on a specified day which is not a business day,
the act must be done instead on the next business day.
(4) Although the Distributor is liable to pay System Builder Software a
percentage of all License Fees received by it, for the purposes of
calculating the License Fees payable by the Distributor during the
currency of this Agreement, payments will be based on License Fees
charged by the Distributor for each Quarter less credit notes issued
to Customers during the Quarter and bad debts written off during the
Quarter plus License Fees received during the Quarter that were
previously written off as bad debts. Notwithstanding the fact that the
payments are calculated in this manner, these payments are not
intended to be, nor should they be deemed or otherwise construed to
be, royalties and the payment of License Fees does not convey any
property rights in the Licensed Programs but simply the right to
Exploit the Licensed Programs in accordance with this Agreement.
2. SCOPE OF AGREEMENT
2.1 System Builder Software grants the Distributor the sole and exclusive right
and license to:
(1) exploit the Licensed Programs in the Territory in accordance with the
terms and conditions of this Agreement;
(2) appoint Dealers in any part of the Territory to Exploit the Licensed
Programs pursuant to a Dealership Agreement; and
(3) permit the simple use of the Licensed Programs by any End User within
the Territory pursuant to an End User License Agreement.
2.2 System Builder Software grants the Distributor permission to use the Trade
Mark in the Territory in connection with the marketing, sale and
distribution of the Licensed Programs and the Associated Documentation in
accordance with the terms and conditions of this Agreement.
3. DURATION AND TERMINATION
3.1 Subject to clause 2.2, this Agreement shall continue for a period of 25
years from the Commencement Date unless terminated earlier by either party
in accordance with this Agreement.
3.2 Without limiting the generality of any other clause in this Agreement,
System Builder Software may terminate this Agreement immediately by notice
in writing if:
(1) any payment due from the Distributor to System Builder Software
pursuant to this Agreement remains unpaid after 30 days written notice
by System Builder Software
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to make such payment provided that if the Distributor fails to make
more than 3 payments on their due dates in any 2 consecutive calendar
years, System Builder Software shall be entitled to terminate that
Agreement without notice;
(2) the Distributor breaches any material clause of the Agreement and such
breach is not remedied within 30 days of written notice by System
Builder Software to remedy such breach provided that if the
Distributor breaches this Agreement more than 3 times in any calendar
year, System Builder Software shall be entitled to terminate this
Agreement without notice;
(3) the Distributor disposes of the Licensed Programs other than as
authorized under this Agreement;
(4) the Distributor becomes, threatens or resolves to become or is in
jeopardy of becoming subject to any form of insolvency administration;
or
(5) a change occurs in more than fifty percent ownership of the
Distributor from that as at the Commencement Date (other than as a
consequence of a listing on a recognized stock exchange in Australia
or elsewhere or in the context of a reconstruction or amalgamation of
any of the MasterPack Companies), without the written consent of
System Builder Software, such consent not to be withheld unless a new
shareholder of the Distributor is a competitor of System Builder
Software.
4. LIST PRICES
4.1 At the Commencement Date the List Prices shall be as set out in Schedule 4
to this Agreement.
4.2 From time to time, the Distributor may request in writing a variation to
the List Prices providing details of its suggested variation.
4.3 Upon receipt of a request to vary the List Prices, System Builder Software
shall acknowledge the request in writing and System Builder Software and
the Distributor shall use all reasonable endeavors to reach agreement on
the List Prices. However, if after 30 days from receipt by System Builder
Software of such request the parties have not reached an agreement either
party may then submit the dispute to expert determination. The
determination must be conducted by an independent expert appointed by
System Builder Software and the Distributor, or if they fail to make an
appointment, appointed by the Chairman for the time being of the Australian
Computer Society Inc., New South Wales Branch. To assist the expert to
reach a decision, he must have regard to the following matters:
(1) the determination must be conducted in an informal and speedy manner;
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(2) the license fees charged by System Builder Software to its customers
outside of the Territory for the Licensed Programs or programs similar
to the Licensed Programs; and
(3) the license fees charged by other companies for similar products both
within the Territory and outside the Territory.
5. ORDERS, DELIVERY AND RISK
5.1 The parties record that System Builder Software has provided on consignment
to the Distributor a stock of the Licensed Programs.
5.2 From time to time and at least once a month within 7 days of the expiration
of each calendar month, the Distributor shall place an order with System
Builder Software:
(a) in writing on the Distributor's usual form; and
(b) specifying details of Licensed Programs sold since the last order and
the names and where available the addresses of the Customers.
5.3 Subject to clause 5.4 System Builder Software shall within 14 days of
receipt of an order arrange for delivery thereof.
5.4 If System Builder Software notifies the Distributor within 14 days of
receiving an order that it is unable to fulfil the order the Distributor
shall be entitled on System Builder Software's behalf and at System Builder
Software's cost to have the Licensed Programs copied by a third party. The
copying of a Licensed Program pursuant to this sub-clause does not:
(1) relieve the Distributor from any of its obligations under this
Agreement, including the obligation to pay System Builder Software a
proportion of the License Fees in accordance with clause 7;
(2) confer on the Distributor the right to manufacture Licensed Programs;
(3) detract from any other clause in this Agreement including clause 14.1;
and
(4) transfer ownership in the Licensed Programs to the Distributor or to
anyone else.
5.5 Subject to clause 5.7, System Builder Software shall deliver the Licensed
Programs to the offices of the Distributor and risk in the Licensed
Programs shall pass upon delivery and insurance, loss or damage to the
Licensed Programs following delivery shall be the responsibility of the
Distributor. System Builder Software shall be responsible for costs of
insurance, freight and any sales tax (which shall be prepaid by System
Builder Software) in respect of Licensed Programs delivered.
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5.6 System Builder Software accepts no responsibility for late delivery of any
order and, in particular, accepts no responsibility for any transaction
jeopardized as a result of late delivery.
5.7 Notwithstanding that risk in the Licensed Programs shall pass to the
Distributor in accordance with clause 5.5, title in the Licensed Programs
shall always remain with System Builder Software and the Distributor shall,
at the direction of System Builder Software, store the Licensed Programs so
as to indicate that they are the Licensed Programs of System Builder
Software and the Distributor shall hold the Licensed Programs as bailee
thereof only subject nevertheless to its right to Exploit the Licensed
Programs in the ordinary course of business in accordance with this
Agreement on the basis that a proportion of any monies received as a result
of such Exploitation that is due by the Distributor to System Builder
Software for the Licensed Programs ordered pursuant to this clause shall be
held by the Distributor for the benefit of System Builder Software.
6. MINIMUM PAYMENT REQUIREMENT
6.1 During the first year of this Agreement, the Minimum Payment shall be
$200,000.00.
6.2 At the expiration of each year of this Agreement, the Minimum Payment for
the next following year of this Agreement shall be determined in accordance
with the following formula:
N = A x B
-----
C
where N is the Minimum Payment for the next following year of this
Agreement.
A is the Minimum Payment for the first year of this Agreement.
B is the CPI index figure last published prior to the
commencement of the next following year of this Agreement.
C CPI index figure last published prior to the commencement of
this Agreement.
6.3 If at the end of any year the Distributor has failed to achieve the Minimum
Payment, the Distributor shall pay System Builder Software the Minimum
Payment less the total amount of Initial License Fees paid by the
Distributor to System Builder Software during the year pursuant to clause
7.
6.4 Within 30 days after the expiration of such calendar year System Builder
Software shall by notice in writing to the Distributor confirm details of
any amount payable by the Distributor
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under clause 6.3 and the Distributor shall pay such amount to System
Builder Software within 14 days of receipt of the notice.
6.5 From time to time, System Builder Software and the Distributor shall review
the method of determining the Minimum Payment requirement and may vary same
by mutual agreement.
7. LICENSE FEES
7.1 The Distributor shall use its best endeavors to charge:
(1) Initial License Fees to all Customers having regard to the List
Prices;
(2) ALFs to all Customers having regard to the List Prices; and
(3) fees for Enhancements.
subject to commercial prudence and reality.
7.2 The Distributor shall be obliged, subject to commercial prudence and
reality, to charge the highest amount possible for License Fees.
7.3 The Distributor shall within 21 days of the end of each Quarter provide a
Quarterly report to System Builder Software containing the following
information relating to Customers:
(1) name and address of all Customers that have placed orders for the
Licensed Programs during the Quarter;
(2) description of the Licensed Programs ordered by each Customer during
the Quarter;
(3) number of users permitted in respect of the Licensed Programs ordered
by each Customer during the Quarter; and
(4) details of all License Fees charged to Customers during the Quarter,
credit notes issued to Customers during the Quarter, bad debts written
off during the Quarter and License fees received during the Quarter
that were previously written off as bad debts.
7.4 Within 7 days of the end of each Quarter, the Distributor shall pay to
System Builder Software a sum equivalent to:
(1) forty percent (40%) of all Initial License Fees and of any other fees
received as Initial License Fees under clause 7.5 for that Quarter;
plus
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(2) thirty percent (30%) of all ALFs and of any other fees received as
ALFs under clause 7.5 for that Quarter; plus
(3) forty percent (40%) of all fees for Enhancements received as fees for
Enhancements under clause 7.5 for that Quarter, which are not ALFs.
7.5 If during the currency of this Agreement any computer programs referred to
in clause 1.1(15)(a) and any Enhancements of the Licensed Programs are
distributed as released products whether as alpha, beta or general
releases, System Builder Software shall make such computer programs and
Enhancements available to the distributor. The Distributor shall be
entitled but not obliged to provide such computer programs and Enhancements
as become generally available free of charge to those Customers from whom
the Distributor has received ALFs and the Distributor shall charge all
other Customers a fee for all such computer programs and the Enhancements,
subject to commercial prudence and reality.
8. PAYMENT
8.1 If the Distributor fails to make any payment due under this Agreement on
the due date for payment, without prejudice to any right of System Builder
Software to terminate the Agreement, the Distributor may pay to System
Builder Software interest at the Default rate on that amount, calculated
and payable daily, computed from the due date until the amount is paid in
full.
8.2 The Default rate is (x + 2) per cent per annum where x is the interest rate
quoted by Westpac Banking Corporation ("Bank") as its Westpac Indicator
Lending Rate ("Published Rate") or, should there cease to be a Published
Rate, the rate which the Bank designates as being an appropriate substitute
for the Published Rate ("Substitute Rate"). A certificate signed by a
manager or other officer of the Bank stating the Published Rate or the
Substitute Rate at a particular date is conclusive evidence of the rate at
the particular date.
8.3 The Distributor shall be responsible for the payment of all Taxes
(excluding withholding tax). To the extent permissible by law the Taxes
shall be paid by the Distributor immediately they become due and in any
event, not later than 30 days after notice in writing by System Builder
Software requiring such payment.
8.4 System Builder Software indemnifies and continues to indemnify the
Distributor against any withholding tax which may be imposed on or in
respect of payments to be made pursuant to clause 7.4 and the Distributor
indemnifies and continues to indemnify System Builder Software against any
liability for Taxes.
9. TRAINING AND TECHNICAL INFORMATION
9.1 System Builder Software shall provide the Distributor or its employees with
such training in the use of the Licensed Programs as System Builder
Software considers necessary to
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enable the Distributor to market the Licensed Programs and if requested by
the Distributor, shall provide additional training for which the
Distributor shall pay an additional charge.
9.2 System Builder Software does not warrant that training or information
provided pursuant to this clause is sufficient to enable the Distributor or
its personnel to adequately respond to all queries or concerns raised by a
Customer. The Distributor acknowledges its responsibility to specify to
System Builder Software from time to time precise queries and concerns for
consideration and response by System Builder Software.
9.3 System Builder Software shall provide the Distributor from time to time
with current information regarding the use, operation, modification,
enhancement, or other technical information affecting the Licensed Programs
and also provide all modifications, changes or amendments to the Associated
Documentation as they become available from time to time.
10. STATUS OF DISTRIBUTOR
10.1 The Distributor is not a partner or agent of System Builder Software and
does not have the power or authority, directly or indirectly or through its
servants and agents, to bind System Builder Software to any agreement with
a Customer or other third party or otherwise to contract, negotiate or
enter into a binding relationship for or on behalf of System Builder
Software, except as provided by this Agreement.
10.2 The Distributor shall observe fiduciary obligations to System Builder
Software in relation to:
(1) all property of System Builder Software in the Distributor's
possession;
(2) all moneys owing by the Distributor to System Builder Software; and
(3) all confidential matters referred to in clause 16.
11. DISTRIBUTION
11.1 The Distributor shall not use or enjoy the Licensed Programs other than for
the purpose of:
(1) Exploiting the Licensed Programs in the Territory in accordance with
the terms and conditions of this Agreement;
(2) appointing Dealers in any part of the Territory in accordance with the
terms and conditions of this Agreement;
(3) permitting use of the Licensed Programs by any Customer within the
Territory pursuant to an End User License Agreement;
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(4) demonstration and training by the Distributor; and
(5) its own internal operations.
11.2 This Distributor shall not distribute the Licensed Programs to any person
or install the Licensed Programs on any person's premises unless the person
is bound by the terms and conditions of an End User License Agreement. For
the purposes of any shrinkwrap or on-line license of the Licensed Programs,
the Distributor will have discharged its duty under this clause if the
Distributor makes available the shrinkwrap or on-line license (as the case
may be) to the End User in the form that the Licensed Program is supplied
to the Distributor by System Builder Software.
11.3 Where the Licensed Programs supplied by System Builder Software are subject
to a shrinkwrap or on-line license agreement containing the terms and
conditions of the End User License Agreement, the Distributor shall not
tamper with or authorize or permit the tampering with such shrinkwrap or
on-line license or do anything which may detract from the legal
enforceability of the shrinkwrap or on-line license.
11.4 Where the Distributor makes copies of the Licensed Programs pursuant to
clause 5.4, the Distributor must ensure that any copies distributed by the
Distributor incorporate a shrinkwrap or on-line license containing the
terms and conditions of the End User License Agreement.
12. DISTRIBUTOR'S OBLIGATIONS
12.1 The Distributor shall:
(1) use its best endeavors to actively promote and market the Licensed
Programs in the Territory so as to:
(a) maximize orders of the Licensed Programs pursuant to clause 5;
(b) maximize License Fees pursuant to clause 7;
(c) create demand for the Licensed Programs; and
(d) obtain as many Customers as possible.
Such promotion shall be at the Distributor's own expense;
(2) report back to System Builder Software on a regular basis (at least
once every 6 months) on its promotional activities referred to in
clause 12.1(1);
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(3) ensure all copies of the Licensed Programs in its possession or
control retain such copyright notice as is furnished by System Builder
Software from time to time;
(4) not engage, directly or indirectly, without the written consent of
System Builder Software, in any Exploitation of any other computer
programs which:
(a) have a functionality the same as or similar to the Licensed
Programs; or
(b) which are the same or similar to the Licensed Programs; and
(c) which compete with the Licensed Programs.
PROVIDED HOWEVER that this clause 12.1(4) does not preclude the
Distributor from Exploiting computer programs together or in conjunction with
any other computer programs as part of a bona fide application package designed
to perform a specific task or type of work even if the Exploitation of any of
these computer programs on their own would be prohibited under this clause
12.1(4);
(5) refer to System Builder Software any information which may affect or
assist in the licensing or marketing of the Licensed Programs;
(6) generally act diligently as a distributor of the Licensed Programs;
(7) act in good faith towards System Builder Software and use its best
endeavors to give System Builder Software such assistance and
co-operation as System Builder Software reasonably requires;
(8) promptly forward to System Builder Software copies of all:
(a) End User License Agreements entered into by the Distributor
during the currency of this Agreement;
(b) Dealership Agreements entered into by the Distributor during the
currency of this Agreement; and
(c) agreements relating to License Fees entered into by the
Distributor during the currency of this Agreement;
(9) maintain detailed records of the matters referred to in clause 7.3,
transactions, inquires, complaints and suggested improvements related
to the Licensed Programs. Such records shall be available for
inspection by System Builder Software or its duly authorized
representatives at all times on 24 hours' notice by System Builder
Software and copies of such records shall be forwarded to System
Builder Software each Quarter;
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(10) refer to System Builder Software all enquiries relating to the
Exploitation of the Licensed Programs outside the Territory;
(11) not materially vary the terms and conditions of an existing or new
Dealership Agreement or End User License Agreement from those terms
and conditions contained in Schedules 2 and 3 or Associated
Documentation without the written consent of System Builder Software,
which consent shall not be unreasonably withheld;
(12) maintain records in accordance with the Feedback System and give
System Builder Software access to such records; and
(13) not decompile or reverse compile or otherwise reduce the software to a
humanly perceivable form or in any other way derive, from System
Builder Software's software, any source code (that is, the Distributor
does not have the right to use the copyright in the Licensed
Programs).
12.2 The Distributor shall provide the first line of support necessary to solve
any problems in the Licensed Programs, including but not limited to, having
properly trained personnel available to handle Customer queries and to
provide telephone support. If a problem in the Licensed Programs arises
that is either too technical or too difficult for properly trained
personnel of the Distributor to handle, or if the problem requires access
to the source code of System Builder Software in order to solve the
problem, or if the problem is of such a nature that only the developer of
the Licensed Program would be able to solve the problem, then the
Distributor may refer this problem to System Builder Software in accordance
with clause 13.8.
13. SYSTEM BUILDER SOFTWARE'S OBLIGATIONS
13.1 System Builder Software shall act in good faith towards the Distributor and
use its best endeavors to give the Distributor such assistance and
co-operation as the Distributor reasonably requires.
13.2 System Builder Software warrants to the Distributor that the Licensed
Programs will conform to the Associated Documentation delivered to the
Distributor with the Licensed Programs in accordance with the warranty
contained in the Associated Documentation.
13.3 System Builder Software makes no warranty expressed or implied that the
Licensed Programs are suitable for a particular purpose whether such
purpose was made known to System Builder Software or the Distributor or
nor, or that the operation of the Licensed Programs will not be interrupted
or will be error free or that all errors of the Licensed Programs will be
corrected.
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13.4 System Builder Software warrants that to the best of its knowledge and
belief the rights granted in this Agreement to or in relation to System
Builder Software's intellectual property do not infringe the intellectual
property rights of any third party.
13.5 Other than as disclosed in clause 13.14, System Builder Software warrants
that:
(1) no proceedings have been instituted by any third party against System
Builder Software for the infringement of that party's intellectual
property rights by System Builder Software's intellectual property;
and
(2) no proceedings have been instituted by any third party against System
Builder Software seeking to challenge the validity of System Builder
Software's intellectual property.
13.6 System Builder Software has no obligation to lend or give access to its
source code to the Distributor.
13.7 System Builder Software shall provide the Feedback System free of charge
to the Distributor. If the Distributor requires special assistance or
specific programming work then such special assistance or specific
programming work will not be covered by this Agreement and the Distributor
and System Builder Software will be required to enter into a separate
agreement.
13.8 System Builder Software shall provide a last line of support for the
Licensed Programs, including but not limited to, the support necessary to
fix, or provide work arounds for, bugs in the Licensed Programs, provided
that if, for any reason, System Builder Software is unable to fix, or
provide such work arounds for, bugs, System Builder Software's sole
liability shall be to accept the return of the Licensed Program concerned
in return for a refund of the License Fees.
13.9 System Builder Software shall provide the Distributor with original
artwork for any marketing and promotional material produced from time to
time by System Builder Software in respect to the Licensed Programs. The
Distributor shall be entitled to make copies of such marketing and
promotional material from the original artwork provided always that the
Distributor shall not make any variations or amendments to the material
without the prior consent in writing of System Builder Software, such
consent not to be unreasonably withheld.
13.10 From the Commencement Date, System Builder Software shall ensure that all
marketing and promotional material produced by System Builder Software in
respect of the Licensed Programs that refers to the international
distributors of the Licensed Programs shall refer to the Distributor and
shall provide the address and contact details of the Distributor.
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<PAGE> 17
13.11 Subject to obtaining the prior consent in writing of System Builder
Software (such consent not to be unreasonably withheld), the Distributor
can produce its own artwork for marketing and promotional material in
respect of the Licensed Programs and in doing so the Distributor must
ensure that all such artwork incorporates the copyright notice furnished
by System Builder Software from time to time.
13.12 System Builder Software shall give at least 12 months prior written
notice to the Distributor of its intention to discontinue or withdraw any
of the Licensed Programs.
13.13 System Builder Software must not itself nor, subject to relevant local
laws in countries outside the Territory, knowingly permit or allow
distributors of the Licensed Programs outside the Territory to license or
distribute the Licensed Programs inside the Territory.
13.14 The Distributor acknowledges that Pixel Ltd of the UK has alleged that
the System Builder group of companies has copied a source code of Pixel
Ltd and/or infringed copyright of Pixel Ltd in SB+ and Termulator and
that as at the Commencement Date no proceedings have been instituted by
Pixel Ltd against any of the System Builder group of companies. System
Builder Software will oppose or defend any claim made or brought by
Pixel Ltd as aforesaid or will procure that the relevant company in the
System Builder group of companies will oppose or defend such claim at
the expense of System Builder Software or the relevant company in the
System Builder group and the provisions of clause 15.1(1)(d) will apply.
13.15 System Builder Software may not materially vary the terms and
conditions of the End User License Agreement without the written
consent of the Distributor, which consent shall not be unreasonably
withheld.
14. INTELLECTUAL PROPERTY, COPYING, ALTERATION AND MODIFICATION
14.1 All industrial and intellectual property rights (including copyright)
in the Licensed Programs and the Associated Documentation remain with
System Builder Software.
14.2 Subject to clause 5.4 the Distributor and its Customers shall not copy
or alter or modify or adapt or in any other way interfere with the
Licensed Programs or Associated Documentation.
14.3 Any such copying, alteration, modification or other interference to
which System Builder Software consents in writing shall be subject to
such terms and conditions as System Builder Software may impose.
14.4 Without limiting the foregoing, title in any Enhancements to the
Licensed Programs and the Associated Documentation shall immediately
vest in System Builder Software.
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<PAGE> 18
15. INDEMNITIES
15.1 System Builder Software Indemnities
(1) Infringement of Third Party Intellectual Property
(a) Subject to clause 15.1(3), System Builder Software indemnifies
and continues to indemnify the Distributor against any loss,
damage, costs (on a solicitor and own client basis), expenses,
demands and liability, whether direct or indirect arising out of
a claim by a third party against the Distributor alleging the
Distributor's, a Dealer's or an End User's use of any of the
Licensed Programs infringes any intellectual or industrial
property rights of that third party.
(b) The Distributor must notify System Builder Software as soon as
practicable in writing of any demand, action, arbitration or
other proceeding (including any mediation or appeal) brought or
threatened to be brought against the Distributor covered by the
indemnity in clause 15.1(1)(a).
(c) System Builder Software shall upon receipt of a notice pursuant
to clause 15.1(1)(b) at its expense conduct the defense of a
claim alleging such infringement.
(d) System Builder Software is to have the sole control of any
defense of the claim or any such action and all negotiations for
its settlement or compromise.
(2) Breach of Warranty or Representation of System Builder Software
(a) Subject to clause 15.1(3), System Builder Software indemnifies
and continues to indemnify the Distributor against any loss,
damage, costs (on a solicitor and own client basis), expenses,
demands and liability, whether direct or indirect arising out of
a claim by any End User against the Distributor for a breach by
the Distributor of any warranty or representation contained in
the End User License Agreement, or any Associated Documentation,
marketing, promotional or other written material produced by
System Builder Software and provided to the Distributor or
produced by the Distributor with the written consent of System
Builder Software.
(b) The Distributor must notify System Builder Software as soon as
practicable in writing of any demand, action, arbitration or
other proceeding (including any mediation or appeal) brought or
threatened to be brought against the Distributor covered by the
indemnity in clause 15.1(2)(2) and upon receipt
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<PAGE> 19
of such notice System Builder Software must, within 7 days,
advise the Distributor in writing of its intention to defend such
claim.
(c) If System Builder Software advises the Distributor of its
intention to defend a claim in accordance with clause 15.1(2)(b),
the cost and expense of such defense must be paid for entirely by
System Builder Software and System Builder Software will have the
sole control of any such defense and all negotiations for its
settlement or compromise.
(d) If System Builder Software fails to notify the Distributor in
writing of its intention to defend such claim or advises that it
does not intend to defend such claim in accordance with clause
15.1(2)(b), System Builder Software must pay to the Distributor
all liabilities and costs covered by the indemnity in clause
15.1(2)(a), whether or not the Distributor has paid or satisfied
them.
(3) Exclusions from System Builder Software Indemnities
The indemnities in clauses 15.1(1)(a) and 15.1(2)(a) do not extend to
any claims arising from:
(a) use of the Licensed Program by the Distributor or any of its
Customers in a manner or for a purpose not reasonably
contemplated by this Agreement;
(b) modification of the Licensed Program by the Distributor or any of
its Customers without the prior consent of System Builder
Software;
(c) any warranties or representations of the Distributor made without
the prior written consent of System Builder Software;
(d) any act or omission by the Distributor in breach of this
Agreement; or
(e) any act or omission by the Distributor in breach of any
Dealership Agreement or End User License Agreement.
15.2 Distributors Indemnities
(1) The Distributor indemnifies and continues to indemnify System Builder
Software against any loss, damage, costs (on a solicitor and owns
client basis), expenses, demands and liability, arising directly or
indirectly as a result of or in connection with an event specified in
clauses 15.1(3)(1) to 15.1(30(e) or any other breach or
non-performance of any of the obligations of the Distributor under
this Agreement whether express or implied.
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<PAGE> 20
(2) System Builder Software must notify the Distributor as soon as
practicable in writing of any demand, action, arbitration or other
proceeding (including any mediation or appeal) brought or threatened
to be brought against System Builder Software covered by the indemnity
in clause 15.2(1) and upon receipt of such notice the Distributor
must, within 7 days, advise System Builder Software in writing of its
intention to defend such claim.
(3) If the Distributor advises System Builder Software of its intention to
defend a claim in accordance with clause 15.2(2), the cost and expense
of such defense must be paid for entirely by the Distributor and the
Distributor will have the sole control of any such defense and all
negotiations for its settlement or compromise.
(4) If the Distributor fails to notify System Builder Software in writing
of its intention to defend such claim or advises that it does not
intend to defend such claim in accordance with clause 15.2(2), the
Distributor must pay to System Builder Software all liabilities and
costs covered by the indemnity in clause 15.2(1), whether or not
System Builder Software has paid or satisfied them.
16. CONFIDENTIALITY
16.1 The Distributor acknowledges the confidential nature of, and System Builder
Software's intellectual and industrial property rights in, the Licensed
Programs and Associated Documentation.
16.2 The Distributor may only make use of such confidential information to the
extent necessary to enable the Licenses Programs and Associated
Documentation to be distributed or otherwise used in a manner contemplated
by this Agreement.
16.3 The Distributor may only disclose such information to those of its
employees by whom it is required to enable the Licensed Programs and
Associated Documentation to be distributed or otherwise used in a manner
contemplated by this Agreement.
16.4 The Distributor acknowledges that any discoveries, inventions, patents,
designs or other rights arising directly or indirectly out of or in the
performance of this Agreement are the property of System Builder Software.
16.5 The Distributor's obligations under this clause shall survive the
termination of this Agreement.
17. RESTRICTIVE COVENANT BY DESMOND MILLER
17.1 Subject to clause 17.2, Desmond Miller must not and must procure that any
Controlled Entity does not without the written consent of System Builder
Software (such consent not to be unreasonably withheld) either directly or
indirectly at any time within the Territory
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<PAGE> 21
during the term of this Agreement engage in any Exploitation of any other
computer programs which:
(1) have a functionality the same as or similar to the Licensed Programs;
or
(2) which are the same as or similar to the Licensed Programs;
and
(3) which compete with the Licensed Programs.
17.2 Clause 17.1 does not preclude Desmond Miller from Exploiting computer
programs together or in conjunction with any other computer program as part
of a bona fide application package designed to perform a specific task or
type of work even if the Exploitation of these computer programs on their
own would be prohibited under clause 17.1.
17.3 In this clause 17 "Controlled Entity" means any company, trust, partnership
or other body corporate or association ("Entity") in respect of which
Desmond Miller or any of his associates (as that term is defined in
Division 2 of Part 1.2 of the Corporations Law):
(1) is the beneficial owner of more than 50% of the voting issued shares,
units or other voting or participation interests in that Entity;
(2) is entitled in the case of a company, to appoint or remove a majority
of the directors to or from the board of directors of the company; or
(3) is entitled to or does exercise management control of the Entity.
17.4 Desmond Miller warrants that as at the Commencement Date he or Barbara
Miller are the beneficial owner(s) of not less than 95% of the issued
capital of the Distributor.
18. INFRINGEMENT OF INTELLECTUAL PROPERTY OF SYSTEM BUILDER SOFTWARE
18.1 The Distributor must notify System Builder Software as soon as practicable
in writing of any actual, suspected or anticipated infringement of System
Builder Software's intellectual property that comes to the attention of the
Distributor.
18.2 Upon receipt of any infringement notice pursuant to clause 18.1 System
Builder Software shall take all steps necessary or expedient to stop such
infringement and, if requested by System Builder Software, the Distributor
must co-operate fully with System Builder Software in stopping any
infringement, including (without limitation) becoming a party to any
proceedings for infringement of the intellectual property of System Builder
Software if requested by System Builder Software. The cost and expense of
any such proceedings that
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<PAGE> 22
may be instituted by System Builder Software must be paid for entirely by
System Builder Software and System Builder Software is to have the sole
control of any such proceedings and all negotiations for its settlement or
compromise. System Builder Software indemnifies and continues to indemnify
the Distributor against any costs (on a solicitor and own client basis) and
expenses incurred by the Distributor in cooperating with System Builder
Software or becoming a party to any proceedings. Any recovery from such
infringement proceedings is the property of System Builder Software.
18.3 The Distributor may not at any time bring legal proceedings for and on
behalf of System Builder Software with respect to any infringement of
System Builder Software's intellectual property without the prior consent
in writing of System Builder Software.
18.4 Subject to clause 13.13, if System Builder Software discovers that a
distributor of the Licensed Programs outside the Territory ("Foreign
Distributor"), whether itself or through a dealer appointed by such Foreign
Distributor, has Exploited the Licensed Programs in the Territory, System
Builder Software will within 30 days of receipt of a notice from the
Distributor advising of such Exploitation, procure that the Foreign
Distributor pays to the Distributor all license or other fees received by
the Foreign Distributor in respect of such Licensed Programs Exploited in
the Territory.
18.5 Subject to the Distributor being able to exploit the Licensed Programs as
contemplated in clause 1.4 of Schedule 6, if the Distributor (or a Dealer
appointed by the Distributor) Exploits the Licensed Programs outside the
Territory, the Distributor will pay to the distributor of the Licensed
Programs in the relevant country outside the Territory in which the
Licensed Programs were Exploited all license or other fees received by the
Distributor in respect of such Licensed Programs exploited outside the
Territory within 30 days of receipt of a notice from System Builder
Software or the said distributor.
19. LIABILITY OF SYSTEM BUILDER SOFTWARE GENERALLY
19.1 All statutory or implied conditions and warranties are excluded to the
extent permitted by law.
19.2 To the extent permitted by law, liability under any condition or warranty
which cannot legally by excluded is limited at the option of System Builder
Software to:
(1) in the case of goods:
(a) the replacement of the goods or the supply of equivalent goods;
(b) the repair of the goods;
(c) the payment of the cost of replacing the goods; or
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<PAGE> 23
(d) the payment of the cost of having the goods repaired; or
(e) the refund of the proportion of License Fees received by System
Builder Software from the Distributor pursuant to Clause 7.4; and
(2) in the case of services:
(a) supplying the services again; or
(b) paying the cost of having the services supplied again.
19.3 The Distributor warrants that it has not relied on any representation made
by System Builder Software which has been stated expressly in this
Agreement or in any descriptions or illustrations or specifications
contained in any Associated Documentation.
20. RIGHTS UPON TERMINATION
20.1 Termination of this Agreement pursuant to clause 3 does not affect any
claim either party may have against the other under this Agreement at the
date of termination.
20.2 If notice is given to the Distributor pursuant to clause 3, System Builder
Software may, in addition to termination the Agreement:
(1) repossess any copies of the Licensed Programs in the possession,
custody or control of the Distributor;
(2) repossess any copies of the Associated Documentation in the
possession, custody or control of the Distributor;
(3) be deemed agent of the Distributor for the purposes of recovering
outstanding License Fees and other charges due in relation to the
Licensed Programs.
(4) retain any moneys paid;
(5) be regarded as discharged from any further obligations under this
Agreement; and
(6) pursue any additional or alternative remedies provided by law.
20.3 Upon expiry of this Agreement or in the event of termination of this
Agreement, the Distributor shall:
(1) forthwith cease to use the Licensed Programs other than for the
Distributor's own internal operations, provided that such own use be
subject to an End User license Agreement and payment of License Fees;
22
<PAGE> 24
(2) forthwith return to System Builder Software all stationery and signs
bearing the Trade Mark then in its possession;
(3) cease to use or supply the Licensed Programs, Associated Documentation
and all material of whatever nature, the copyright of which is vested
in System Builder Software or where the continued use thereof would in
any way infringe the copyright of System Builder Software;
(4) immediately discontinue the use of the Trade Mark or any other matter
or materials indicative of being a distributor of System Builder
Software;
(5) not any time thereafter:
(a) make any use of the Licensed Programs other than for the
Distributor's own internal operations, provided that such own use
be subject to an End User License Agreement and payment of
License Fees;
(b) make any use of the Trade Mark; or
(c) purport to be a distributor or otherwise of System Builder
Software;
(6) forthwith pay to System Builder Software all monies owing to System
Builder Software as at the date of termination or expiration, as the
case may be, including, without limiting the generality of the
foregoing, all amounts owing on orders placed on account of License
Fees and any interest thereon;
(7) if so required in writing by System Builder Software, assign its
rights under any Dealership Agreements and Ed User Agreements; and
(8) forthwith return to System Builder Software all consignment stock of
Licensed Program, all Associated Documentation and all other property
belonging to System Builder Software, all material referred to in
clause 20.3(3) and anything else that is in the possession of the
Distributor pursuant to this Agreement.
21. ASSIGNMENT
21.1 Except as provided in clause 11, the benefit of this Agreement shall not e
dealt with in any way by the Distributor (whether by assignment or
otherwise) without System Builder Software's prior written consent. This
will not prevent the Distributor from assigning or transferring this
Agreement (without the consent of System Builder Software) in the context
of carrying out a bona fide corporate reconstruction or listing on a
recognized stock exchange in Australia or elsewhere.
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<PAGE> 25
21.2 The Distributor acknowledges that System Builder Software may assign the
right to receive License Fees to an Australian subsidiary. Upon notice of
such assignment to the Distributor, it shall pay all amounts payable under
this Agreement to the assignee.
21.3 The Distributor acknowledges that System Building Software intends either
to assign the benefits of this Agreement to Unidata and for Unidata to
assume the obligations of System Builder Software under this Agreement
("Assignment") or to novate this Agreement to Unidata on the following
basis:
(1) System Builder Software will procure that Unidata will agree to be
bound in writing to the Distributor by the terms and conditions of
this Agreement as if it were a party to this Agreement;
(2) the Distributor hereby agrees to an Assignment or a novation of the
Agreement in accordance with the provisions of this clause;
(3) the Distributor will be deemed to have released System Builder
Software from all of its obligations and liabilities under this
Agreement as at the date of the Assignment or novation;
(4) the Distributor will cooperate with System Builder Software and
Unidata and provide all information, execute all documents and perform
all other acts which System Builder Software reasonably requires to
assist with such Assignment or novation;
(5) System Builder Software shall procure that Unidata executes all
documents and perform all other acts necessary or desirable to give
effect to such an Assignment or novation, including (without
limitation) incorporation the terms and conditions of the covenant set
out in Schedule 6 into the Assignment or novation and System Builder
Software undertakes to ensure that Unidata is bound to and obliged to
comply with the terms and conditions set out in Schedule 6;
(6) System Builder Software will procure that Unidata will agree to pay
directly to the Distributor amounts equivalent to the sixty percent
(60%) of the license or other fees which System Builder Software would
have continued to pay to the Distributor pursuant to clause 22.1 but
for such Assignment or novation; and
(7) all stamp duty and the reasonable legal fees and expenses incurred by
the Distributor in documenting and signing the Assignment or novation
will be paid for by System Builder Software.
22. UNIDESKTOP
22.1 Subject to clause 21,3(6), System Builder Software agrees to pay the
Distributor sixty percent (60%) of all license or other fees received by
System Builder Software from Unidata
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<PAGE> 26
in respect of the Exploitation of the computer software product known as
Unidesktop as defined in the agreement entered into between System Builder
Holdings Limited, thereafter System Builder Software and Unidata in the
Territory within 14 days of receipt.
22.2 System Builder Software will procure that Unidata agree in writing to
provide a Quarterly report within 21 days of the end of each Quarter to the
Distributor containing the following information:
(1) name and address of all customers of Unidata that have placed orders
for Unidesktop in the Territory during the Quarter;
(2) number of user permitted in respect of Unidesktop ordered by each
customer of Unidata in the Territory during the Quarter; and
(3) details of all license and other fees received by Unidata for the
Exploitation of Unidesktop in the Territory during the Quarter.
23. NOTICES
23.1 Notices under this Agreement may be delivered by hand, by mail or by
facsimile to the addresses specified in Schedule 5.
23.2 Notice will be deemed given:
(1) in the case of hand delivery, upon delivery;
(2) in the case of posting, 3 days after despatch if in Australia and 5
days if overseas;
(3) in the case of facsimile, upon completion of transmission.
24. VARIATION
24.1 An amendment or variation of this Agreement is not effective unless it is
in writing an designed by the parties.
25. ENTIRE UNDERSTANDING
25.1 This Agreement:
(1) contains the entire agreement and understanding between the parties on
everything connected with the subject matter of this Agreement; and
(2) supersedes any prior agreement or understanding on anything connected
with that subject matter.
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<PAGE> 27
25.2 Each party has entered into this Agreement without relying on any
representation by any other party or any person purporting to represent
that party.
26. GOVERNING LAW AND JURISDICTION
26.1 This Agreement will be governed by and construed according to the law of
the State of New South Wales.
26.2 The parties submit to the non-exclusive jurisdiction of the courts of the
State of New South Wales and the Federal Court of Australia.
27. COSTS AND DISBURSEMENTS
27.1 Each party must pay its own costs and disbursements connected with the
negotiation, preparation and execution of this Agreement.
27.2 The Distributor must pay all stamp duty and other government imposes
payable in connection with this Agreement and, subject to clause 21.3(8),
all other documents and matters referred to in this Agreement when due or
earlier if requested in writing by System Builder Software.
EXECUTED as an Agreement.
Signed for and on behalf of )
SYSTEM BUILDER SOFTWARE LIMITED )
by NEILL MILLER )
in the presence of: )
/s/ Katherine Miller /s/ Neill Miller
- ------------------------------------- ---------------------------------
Signature of Witness Signature of Neill Miller
Katherine Miller
- -------------------------------------
Name of Witness (BLOCK LETTERS)
10A Dalley Ave., Vancluse 2030
- -------------------------------------
Address of Witness
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<PAGE> 28
Signed for and on behalf of )
S B TECH PTY LIMITED )
by DESMOND MILLER )
in the presence of: )
/s/ Katherine Miller /s/ Desmond Miller
- ------------------------------------- ---------------------------------
Signature of Witness Signature of Desmond Miller
Katherine Miller
- -------------------------------------
Name of Witness (BLOCK LETTERS)
10A Dalley Ave., Vancluse 2030
- -------------------------------------
Address of Witness
SIGNED by DESMOND MILLER )
in respect of clause 17 only )
in the presence of: )
/s/ Katherine Miller /s/ Desmond Miller
- ------------------------------------- ---------------------------------
Signature of Witness Signature of Desmond Miller
Katherine Miller
- -------------------------------------
Name of Witness (BLOCK LETTERS)
10A Dalley Avenue, Vancluse 2030
- -------------------------------------
Address of Witness
27
<PAGE> 1
EXHIBIT 10.43
SHAREHOLDER AGREEMENT
This Shareholder Agreement (the "Agreement") is entered into as of November
14, 1995 by and among (i) Unidata, Inc., a Colorado corporation (the "Company"),
(ii) System Builder Corporation, a company organized under the laws of Ireland
("SBC"), Integro Fiduciaire SARL, a company organized under the laws of Jersey
("Integro"), as trustee (and in no other capacity), Jurgen Joarder, Mike
Kontorvich and Carol McIntosh (collectively, the "Shareholders"), and (iii)
James T. Dresher ("Dresher").
WHEREAS, pursuant to that certain Asset Purchase Agreement (the "Purchase
Agreement"), dated as of November 1, 1995, by and among the Company, System
Builder Holdings Limited, a company organized under the laws of the Isle of Man
("SB Holdings"), SB Operations Limited, a company organized under the laws of
the Isle of Man ("SB Operations"), and the Shareholders, the Company is
acquiring substantially all the assets and assuming certain liabilities of SB
Holdings, SB Software and SB Operations.
WHEREAS, as partial consideration for the Company's acquisition of the
assets of SB Holdings, SB Software and SB Operations, the Company has agreed to
issue to SB Holdings, and then to permit SB Holdings to transfer to the
Shareholders, 1,277,730 shares (the "Shareholder Stock") of common stock
("Common Stock") no par value of the Company;
WHEREAS, Dresher and his Related Parties (as defined below) own 9,200,000
shares of Common Stock, which will constitute approximately 79% of the Common
Stock outstanding immediately after closing of the Purchase Agreement; and
WHEREAS, it is a condition precedent to the obligations of SB Holdings, SB
Software, SB Operations and the Shareholders under the Purchase Agreement that
the Shareholders, Dresher and the Company shall have entered into this
Agreement.
NOW THEREFORE, in condition of the mutual covenants herein contained and
for other good and valuable consideration, the parties agree as follows:
Section 1. ACQUISITION OF SHAREHOLDER STOCK.
(a) ACQUIRED FOR OWN ACCOUNT. Each of the Shareholders represents
and warrants that the Shareholder stock to be acquired by it pursuant to the
Purchase Agreement will be acquired for investment purposes only and not with a
view toward resale or distribution thereof in violation of the Securities Act of
1933, as amended (the "Act"), and will not be disposed of in contravention of
the Act.
<PAGE> 2
(b) SHAREHOLDER STOCK NOT REGISTERED. Each of the Shareholders
acknowledges that none of the Shareholder Stock has been registered pursuant to
the Act.
(c) KNOWLEDGE OF TRANSACTION. Each of the Shareholders represents
and warrants that it has had an opportunity to ask questions and receive answers
concerning the terms and conditions of the Purchase Agreement, has had legal
counsel review such terms and conditions and has had sufficient opportunity for
such Shareholder and its legal counsel to conduct diligence concerning the
Company.
(d) PRIORITY OF INDEMNIFICATION AND STOCK PLEDGE AGREEMENT. Nothing
contained in this Agreement shall in any way supersede, modify, amend or
diminish the rights of the "Buyers," as defined and specified in the
Indemnification and Stock Pledge Agreement entered into concurrently herewith
(the "Pledge Agreement"). In the event of any conflict between the provisions of
this Agreement and the Pledge Agreement, the provisions of the Pledge Agreement
shall control.
Section 2. RESTRICTIONS ON TRANSFER.
(a) TRANSFER OF SHAREHOLDER STOCK. None of the Shareholders will
sell, pledge or otherwise transfer any interest in any shares of Shareholder
Stock except pursuant to the provisions of subsections (b) or (c) of this
Section 2 or unless such sale occurs in connection with or after a Qualified
Public Offering consummated by the Company. Any attempted transfer of
Shareholder Stock in violation of this Agreement shall be void and of no effect.
As used herein, "Qualified Public Offering" shall mean a public offering of
Common Stock registered under the Act which results in net proceeds to the
Company and any of its shareholders participating in such public offering in an
aggregate amount of at least $15,000,000.
(b) FIRST REFUSAL RIGHTS. Any Shareholder desiring to transfer any
shares of Shareholder Stock (other than pursuant to Section 2(c) below), shall,
at least 120 days prior to making such transfer, deliver written notice (a "Sale
Notice") to the Company and Dresher disclosing in detail the identity of the
prospective transferee(s) and the terms and conditions of the proposed transfer.
Such Shareholder agrees not to consummate any such transfer until the earlier to
occur of (i) 120 days after the Sale Notice has been delivered to the Company
and Dresher, and (ii) the date on which the parties to the transfer have been
determined pursuant to this Section 2(b). The date of the first to occur of such
events is referred to as the "Authorization Date". Within ninety (90) days of
receiving such Sale Notice, the Company may elect to purchase all or any portion
of the Shareholder Stock proposed to be transferred upon the same terms and
conditions as set forth in the Sale Notice. If the Company does not elect to
purchase all of the shares of Shareholder Stock specified in the Sale Notice,
Dresher may elect to purchase any portion of such Shareholder that the Company
elects not to purchase upon the same terms and conditions as set forth in the
Sale Notice, provided that Dresher notifies such Shareholder of Dresher's
election to purchase within the same 90-day period following receipt of the Sale
Notice. If the Company and Dresher together do not elect to purchase all of the
shares of Shareholder Stock specified in the Sale Notice, such Shareholder may,
during the 90 day Period
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<PAGE> 3
immediately following the Authorization Date, transfer such shares of
Shareholder Stock that the Company and Dresher have not elected to purchase at a
price and on terms no more favorable to the proposed transferee(s) than
specified in the Sale Notice; PROVIDED that prior to any such transfer, such
transferee has agreed in writing to be bound by the provisions of this
Agreement. Any shares of Stockholders Stock not transferred within such 90 day
period shall be subject to the provisions of this Section 2(b) upon a subsequent
attempt by such Shareholder to transfer such Shareholder Stock. The right of
first refusal provided in this Section 2(b) shall terminate upon the Company's
consummation of a Qualified Public Offering.
(c) SALE OF THE COMPANY. If the Board of Directors of the Company
and the holders of at least 66% of shares of Common Stock (or other voting
capital stock) (the "Required Percentage") then outstanding approve the sale of
all or substantially all of the Company's consolidated assets or a sale or
exchange of all of their shares of Shareholder Stock for the same price and
otherwise on the same terms and conditions as said holders of the Required
Percentage in such Approved Sale for the same price and otherwise on the same
terms and conditions as said holders and (ii) shall consent to and raise no
objections against the Approved Sale of the Company and, if requested to vote on
such Approved Sale, shall vote all shares of Common Stock that said holders
beneficially own in favor of such Approved Sale. It is intended that the
provision of this Section 2(c) consummate a "voting agreement" within the
meaning of Section 7-107-302 of the Colorado Business Corporation Act (the
"CBCA") and not a "voting trust" within the meaning of 7-107-301 of the CBCA. If
the Approved Sale of the Company is structured as a sale or exchange of stock,
the holders of Shareholder Stock shall agree to sell or exchange all of their
shares of Shareholder Stock and rights to acquire shares of Shareholder Stock on
the terms and conditions approved by the Board of Directors and the holders of
at least the Required Percentage. In any Approved Sale, all of the holders of
Common Stock shall be entitled to receive the same forms and amount of
consideration per share of Common Stock, or if any holders of Common Stock are
given an option as to the form and amount of considerations to be received, all
holders of Common Stock shall be given the same option. The holders of
Shareholder Stock shall take all necessary and desirable actions in connection
with the Consummation of the Approved Sale of the Company as requested by
counsel to the Company. The rights provided in this Section 2(c) shall terminate
upon the Company's consummation of a Qualified Public Offering.
(d) The certificates representing the Shareholder Stock to be
issued to the Shareholder shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"), AND MAY NOT
BE SOLD OR TRANSFERRED IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION
THEREUNDER. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO
SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AND CERTAIN OTHER
AGREEMENTS SET FORTH IN A SHAREHOLDER AGREEMENT DATED AS OF NOVEMBER
1, 1995, A COPY OF
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WHICH MAY BE OBTAINED BY THE HOLDER HEREOF WITHOUT CHARGE AT THE
COMPANY'S PRINCIPAL PLACE OF BUSINESS.
(e) No holder of Shareholder Stock may sell, transfer or dispose of
any such securities (except pursuant to an effective registration statement
under the Act) without first delivering to the company a legal opinion
acceptable in form and substance to the Company by counsel acceptable to the
Company that registration under the Act is not required in connection with such
transfer.
(f) Each holder of Shareholder Stock agrees not to effect any
public sale or distribution of any equity securities of the Company, or any
securities convertible into or exchangeable or exercisable for such securities,
including a sale pursuant to Rule 144 (or any similar provision then in force)
under the Act during the seven days prior to, and during the 180 days beginning
on the effective date of the registration statement relating to any underwritten
public offering of the Company's Common Stock or preferred stock, except as part
of such underwritten public offering or if otherwise permitted.
Section 3. TAG-ALONG RIGHT. With respect to any proposed transfer,
sale or other disposition (collectively, a "proposed transfer") of shares of
Common Stock ("Shares") by Dresher or any of his Related Parties (such persons
being hereinafter referred to collectively referred to as the "proposed
purchaser"), other than pursuant to an Exempt Transfer (as defined below), each
of the Shareholders and their respective Related Parties (collectively, the
"Tag-Along Shareholders") shall have the right (the "Tag-Along Right") to
require the proposed purchaser to purchase from such Tag-Along Shareholder up to
the number of whole Shares owned by such Tag-Along Shareholder equal to the sum
of (A) the number derived by multiplying the total number of Shares the members
of the Dresher Group propose to transfer by a fraction, the numerator of which
is the total number of Shares owned by such Tag-Along Shareholder, and the
denominator of which is the total number of Shares then outstanding on a
fully-diluted basis and (B) any additional Shares of any other Tag-Along
Shareholder shall be entitled to have purchased pursuant to the next paragraph
if any other Tag-along Shareholder elects not to exercise its rights hereunder.
Any Shares purchased from Tag-Along Shareholder elects not to exercise its
rights hereunder. Any Shares purchased from Tag-Along Shareholders pursuant to
this Section 3 shall be for the same consideration and upon the same terms and
conditions as such proposed transfer by Dresher (or his Related Parties, as the
case may be). Dresher shall, not less than fifteen (15) not more than thirty
(30) calendar days prior to each proposed transfer, notify, or cause to be
notified, each Tag-Along Shareholder in writing of each proposed transfer,
setting forth in such notice: (i) the name of the transferor and the number of
Shares proposed to be transferred, (ii) the name and address of the proposed
purchaser, (iii) the proposed amount and form of consideration and terms and
conditions of payment offered by such proposed purchaser and (iv) that the
proposed purchaser has been informed of the Tag-Along Right provided for in this
Section 3 and has agreed to purchase Shares in accordance with the terms hereof.
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The Tag-Along Right may be exercised by any Tag-Along Shareholder by
delivery of a written notice to Dresher or his Related Party proposing to sell
Shares (the "Tag-Along Notice") within ten (10) calendar days following its
receipt of the notice specified in the last sentence of the preceding paragraph.
The Tag-Along Notice shall state the amount of Shares that such Tag-Along
Shareholder proposes to include in such transfer to the proposed purchaser
determined as aforesaid, plus the amount of additional Shares, if any, that such
Tag-Along Shareholder would be willing to sell to the proposed purchaser in the
event that any of the other Tag-Along Shareholders elect not to exercise their
Tag-Along Rights in whole or in part. The maximum amount of additional Shares
that each such Tag-Along Shareholder shall be entitled to sell, and the proposed
purchaser be required to purchase, shall be determined by multiplying the total
number of Shares that, under the formula described in the previous paragraph,
Tag-along Shareholders could have elected to sell to the proposed purchaser but
elected not to so sell, by a fraction, the numerator of which is the total
number of Shares owned by such Tag-Along Shareholder electing to sell additional
Shares and the denominator of which is the total number of Shares owned by all
Tag-Along Shareholders who delivered Tag-Along Notices, In the event that the
proposed purchaser does not purchase Shares from the Tag-Along Shareholders on
the same terms and conditions as specified in the notice referred to in the last
sentence of the preceding paragraph, then Dresher and his Related Parties shall
not be permitted to sell any Shares to the proposed purchaser in the proposed
transfer. If no Tag-Along Notice is received during the 10-day period referred
to above (or if such Notices do not cover all the Shares proposed to be
transferred), Dresher and his Related Parties shall have the right, for a period
of ninety (90) days after the expiration of the 10-day period referred to above,
to transfer the Shares specified in the notice referred to in the last sentence
of the preceding paragraph (or the remaining Shares) on terms and conditions no
more favorable than those stated in the Tag-Along Notice and in accordance with
the provisions of this Section 3.
As used herein, the term "Exempt Transfer" shall mean (1) transfers by
Dresher to his Related Parties, provided that any such transferee agrees in
writing to be bound by this Agreement as if such transferee were Dresher with
respect to such transferred Shares; (2) transfers by any of Dresher's Related
Parties to Dresher, and (3) transfers by Dresher or any of his Related Parties
which do not result in the Dresher Group owning of record less than 50% of the
Shares owned by the Dresher Group on the date of this Agreement.
As used herein, the term "Related Party" means, with respect to any
person, (A) a spouse or immediate family member or (B) a trust, corporation,
partnership or other entity of which such person is a beneficiary, stockholder,
partner, owner or person holding an 80% or more controlling interest.
The Company agrees not to effect any transfer of Shares by Dresher until
it has received evidence reasonably satisfactory to it that the Tag-Along Right,
if applicable to such transfer, has been complied with. The right provided in
this Section 3 shall terminate upon the Company's consummation of a Qualified
Public Offering.
Section 4. REGISTRATION RIGHTS.
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<PAGE> 6
(a) PIGGYBACK REGISTRATION RIGHTS.
(1) RIGHT TO PIGGYBACK. Subject to the last sentence of this
subsection (1), whenever the Company proposes to register any Common Stock (or
securities convertible into or exchangeable for, or options to acquire, Common
Stock) with the Securities and Exchange Commission (the "Commission") under the
Act (other than a registration on Form S-4 or S-8, or a Form S-3 registration
statement which relates solely to a dividend reinvestment plan or employee
purchase plan) in a public sale for cash and the registration form to be used
may be used for the registration of the Registrable Securities (as defined in
subsection (h) below) (a "Piggyback Registration"), whether or not for sale for
its own account , the Company will give written notice to each of the holders of
Shares listed on EXHIBIT 1 hereto (the "Significant Holders") (including
Dresher, which, for purposes of this Section 4, shall include Dresher, his
Related Parties and any transferees of Dresher and his Related Parties), at
least fifteen (15) days prior to the anticipated filing date, of its intention
to effect such a registration, which notice will specify the kind and number of
securities proposed to be registered, the distribution arrangements and such
other information that at the time would be appropriate to include in such
notice, and will, subject to subsection (a)(2) below, include in such Piggyback
Registration all Registrable Securities with respect to which the Company has
received written requests for inclusion therein within ten (10) days after
delivery of the Company's notice. Except as may otherwise be provided in this
Agreement, Registrable Securities with respect to which such request for
registration has been received will be registered by the Company and offered to
the public in a Piggyback Registration pursuant to this Section 4 on the same
terms and conditions as those applicable to the registration of Common Stock (or
securities convertible into or exchangeable or exercisable for Common Stock) to
be sold by the Company and by any other person selling under such registration.
(2) PRIORITY ON PIGGYBACK REGISTRATION. If the managing underwriter
or underwriters, if any, advise the holders of Registrable Securities in writing
that in its or their reasonable opinion or, in the case of a Piggyback
Registration not being underwritten, the Company shall reasonably determine (and
notify the holders of Registrable Securities of such determination), after
consultation with an investment banker of nationally recognized standing, that
the number or kind of securities proposed to be sold in such registration
(including Registrable Securities to be included pursuant to subsection (a)(1)
above) will materially adversely affect the success of such offering, the
Company will include in such registration the number of securities, if any,
which, in the opinion of such underwriter or underwriters, or the Company, as
the case may be, can be sold as follows: (i) first, the shares the Company
proposes to sell, and (ii) second, the Registrable Securities requested to be
included in such registration by the Significant Holders. To the extent that the
privilege of including Registrable Securities in any Piggyback Registration must
be allocated among the Significant Holders, the allocation shall be made pro
rata based on the number of Registrable Securities that each such participant
shall have requested to include therein. Notwithstanding the foregoing, the
parties agree that the priority provisions provided for in Section 4(a)(2) of
the Institutional Registration Rights Agreement shall govern with respect to any
Demand Registration effected at the request of an Institutional Inventor. See
Section 5(r) below.
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<PAGE> 7
(3) SELECTION OF UNDERWRITERS. If any Piggyback Registration is an
underwritten offering (other than an offering initiated as a Demand Registration
as provided in subsection (b) below), the Company will select a managing
underwriter or underwriters to administer the offering, which managing
underwriter or underwriters will be of nationally recognized standing and
reasonably acceptable to the holders of a majority of the Registrable Securities
included therein.
(b) DEMAND REGISTRATION RIGHTS.
(1) RIGHT TO DEMAND. At any time after (i) the Company is eligible
to register Shares of Common Stock under the Act on Form S-3 and (ii) none of
the Shares hold by Dresher are subject to an underwriter lock-up agreement
relating to such Shares, any of SBC, Integro and Dresher (each of SBC, Integro
and Dresher, a "Demanding Group") may, make a written request of the Company for
registration with the Commission , under and in accordance with the provisions
of the Act, of all or part of their Registrable Securities (a "Demand
Registration"); PROVIDED, that (x) the Company need not effect a Demand
Registration unless such Demand Registration shall include at least 50% of the
Registrable Securities held on the date of such written request by SBC and
Integro collectively or at least 15% (in the case of the first Demand
Registration) of the Registrable Securities held by Dresher immediately after
the consummation of the transactions contemplated by the Purchase Agreement
(subject to adjustment only for stock splits and recombinations and pro rata
stock dividends and the like), (y) the Company may defer the filing of any
registration statement relating to a Demand Registration for (i) a reasonable
period of time (not to exceed ninety (90) days following the end of the most
recently completed fiscal year or forty-five (45) days following the end of the
most recently completed fiscal quarter (whichever is later)) to the extent
necessary to prepare the financial statements of the Company for the fiscal
period most recently ended prior to the related request, (ii) up to ninety (90)
days if the Company would be required to disclose in such registration statement
the existence of any fact relating to a material business situation, transaction
or negotiation not otherwise required to be disclosed, or (iii) up to ninety
(90) days if the Company notifies the Significant Holders that a registration at
the time and on the terms requested would adversely affect any equity financing
by the Company that had been contemplated by the Company prior to receipt of
notice requesting registration pursuant to this Section 4(b), and (z) if the
Company elects to defer any Demand Registration pursuant to the terms of this
sentence, no Demand Registration shall be deemed to have occurred for purposes
of this Agreement. Within ten (10) days after receipt of the request for a
Demand Registration, the Company will send written notice (the "Notice") of such
registration request and its intention to comply therewith to each of the other
Significant Holders that shall have the option to exercise their piggyback
rights as provided in Section 4(a) above. Subject to subsection (3) below, the
Company will include in such registration all Registrable Securities of such
Significant Holders with respect to which the Company has received written
requests for inclusion therein within ten (10) days after delivery of the
Notice. All requests made pursuant to this subsection (b)(1) will specify the
aggregate number of Registrable Securities requested to be registered and will
also specify the intended methods of disposition thereof.
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<PAGE> 8
(2) NUMBER OF DEMAND REGISTRATIONS. SBC and Integro collectively
shall be entitled to two (2) Demand Registrations and Dresher shall be entitled
to five (5) Demand Registrations. The expenses of each Significant Holder
requesting a Demand Registration shall be borne by the Company as provided in
subsection (d) below. A Demand Registration shall not be counted as a Demand
Registration hereunder until such Demand Registration has been declared
effective by the Commission. Notwithstanding anything in this Section 4(b) to
the contrary, in no event will the Company be required to effect, in the
aggregate, without regard to the holder of Registrable Securities making such
request, more than two (2) effective registrations pursuant to this Section 4(b)
within any 180-day period.
(3) PRIORITY ON DEMAND REGISTRATIONS. If in any Demand Registration
the managing underwriter or underwriters thereof (or in the case of a Demand
Registration not being underwritten, in the opinion of the holders of a majority
of the Registrable Securities included therein), advise the Company in writing
that in its or their reasonable opinion the number of securities proposed to be
sold in such Demand Registration exceeds the number that can be sold in such
offering without having a material effect on the success of the offering
(including, without limitation, an impact on the selling price or the number of
Shares that any participant may sell), the Company will include in such
registration only the number of securities that, in the reasonable opinion of
such underwriter or underwriters (or holders of Registrable Securities, as the
case may be) can be sold without having a material adverse effect on the success
of the offering as follows: (i) first, the Registrable Securities requested to
be included in such Demand Registration by the Significant Holders (including
the Demanding Group and all other Significant Holders requested to have Shares
included in such Demand Registration pursuant to subsection (1) above) pro rata
among those requesting registration on the basis of the number of Shares
requested to be included, and (ii) second, Shares to be issued and sold by the
Company.
(4) SELECTION OF UNDERWRITERS. If a Demand Registration is
underwritten offering, the holders of a majority of the Registrable Securities
to be included in such Demand Registration held by members of the Demanding
Group that initiated such Demand Registration shall have the right to select a
managing underwriter or underwriters of recognized national standing that is or
are reasonably satisfactory to the Company to administer the offering.
(c) REGISTRATION PROCEDURES. With respect to any Piggyback
Registration or Demand Registration (generally, a "Registration"), the Company
will, subject to Sections (4)(a)(2) and (4)(b)(3), as expeditiously as
practicable:
(1) prepare and file with the Commission, within ninety (90) days
after mailing the applicable Notice, a registration statement or registration
statements (the "Registration Statement") relating to the applicable
Registration; PROVIDED that the Company will include in any Registration
Statement all information that the holders of the Registrable Securities so to
be registered shall reasonably request and shall include all financial
statements required by the Commission to be filed therewith, cooperation and
assist in any filings required to be made with the National Association of
Security Dealers, Inc. ("NASD"), and use its best efforts to cause such
Registration Statement to become effective; PROVIDED FURTHER, that before filing
a
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Registration Statement or prospectus related thereto (a "Prospectus") or any
amendments or supplements thereto, the Company will furnish to the holders of
the Registrable Securities covered by such Registration Statement and the
underwriters, if any, copies of all such documents proposed to be filed, which
documents will be subject to the reasonable review of such holders and
underwriters and their respective counsel, and the Company will not file any
Registration Statement or amendment thereto or any Prospectus or any supplement
thereto to which the holders of a majority of the Registrable Securities covered
by such Registration Statement or the underwriters, if any, shall reasonably
object;
(2) use its best efforts to keep such Registration Statement
current for a period of ninety (90) days, or such shorter period which will
terminate when all Registrable Securities covered by such Registration Statement
have been sold, and prepare and file with the Commission such amendments and
post-effective amendments to the Registration Statement as may be necessary to
keep each Registration Statement effect for such period; cause each Prospectus
to be supplemented by any required Prospectus supplement, and as so supplemented
to be filed pursuant to Rule 424 under the Act; and comply with the provisions
of the Act with respect to the disposition of all securities covered by such
Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the sellers thereof set forth in
such Registration Statement or supplement to the Prospectus; the Company shall
not be deemed to have used its best efforts to keep a Registration Statement
effective during the application period if it voluntarily takes any action that
would result in selling holders of the Registrable Securities covered thereby
not being able to sell such Registrable Securities during that period unless
such action is required under applicable law, PROVIDED that the foregoing shall
not apply to actions taken by the Company in good faith and for valid business
reasons, including without limitation the acquisitions or divestiture of assets,
so long as the Company promptly thereafter complies with the requirements of
subsection (11) of this subsection (c), if applicable;
(3) notify the selling holders of Registrable Securities and the
managing underwriters, if any, promptly, and (if requested by any such person or
entity) confirm such advice in writing, (A) when the Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and, with
respect to the Registration Statement or any post-effective amendment, when the
same has become effective, (B) of any request by the Commission for amendments
or supplements to the Registration Statement or the Prospectus or for additional
information, (C) of the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose, (D) if at any time the representations and
warranties of the Company contemplated by subsection (14) below cease to be true
and correct, (E) of the receipt by the Company of any notification with respect
to the suspension of the qualification of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose and (F) of the happening of any event which makes any statement made in
the Registration Statement, the Prospectus or any document incorporated therein
by reference untrue or which requires the making of any changes in the
Registration Statement, the Prospectus or any document incorporated therein by
reference in order to make the statements therein not misleading;
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<PAGE> 10
(4) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(5) if requested by the managing underwriter or underwriters or a
holder of Registrable Securities being sold in connection with an underwritten
offering, promptly incorporated in a Prospectus supplement or post-effective
amendment such information as the managing underwriters and the holders of a
majority of the Registrable Securities being sold agree should be included
therein related to the plan of distribution with respect to the number of
Registrable Securities being sold to such underwriters, the purchase price being
paid therefor by such underwriters and with respect to any other terms of the
underwritten (or best efforts underwritten) offering of the Registrable
Securities to be sold in such offering; and make all required filings of such
Prospectus supplement or post-effective amendment as soon as notified of the
matter to be incorporated in such Prospectus supplement or post-effective
amendment;
(6) furnish to each seller holder of Registrable Securities and
each managing underwriter, without charge, at least one conformed copy of the
Registration Statement and any amendment thereto, including financial statements
and schedules, all documents incorporated therein by reference and all exhibits
(including those incorporated by reference);
(7) deliver to each selling holder of Registrable Securities and
the underwriters, if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement thereto
as such selling holder of Registrable Securities and underwriters may reasonably
request; the Company consents to the use of each Prospectus or any amendment or
supplement thereto by each of the selling holders of Registrable Securities and
the underwriters, if any, in connection with the offering and sale of the
Registrable Securities covered by such Prospectus or any amendment or supplement
thereto;
(8) prior to any public offering of Registrable Securities,
register or qualify or cooperate with the selling holders of Registrable
Securities, the underwriters, if any, and their respective counsel in connection
with the registration or qualification of such Registrable Securities for offer
and sale under the securities or "blue sky" laws of such jurisdictions as any
seller or underwriter reasonably requests in writing, considering the amount of
Registrable Securities proposed to be sold in each such jurisdiction, and do any
and all other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by the Registration
Statement; PROVIDED that the Company will not be required to qualify generally
to do business in any jurisdiction where it is not then so qualified or to take
any action that would subject it to general service of process in any such
jurisdiction where it is not then subject;
(9) cooperated with the selling holders of Registrable Securities
and the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and not
bearing any restrictive legends and to be in such denominations and registered
in such names as the managing underwriters may request at least two (2) business
days prior to any sale of Registrable Securities to the underwriters;
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(10) use its best efforts to cause the Registrable Securities
covered by the applicable Registration Statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
to enable the seller or sellers thereof or the underwriters, if any, to
consummate the disposition of such Registrable Securities;
(11) upon the occurrences of any event contemplated by subsection
(3)(F) above, prepare a supplemental or post-effective amendment to the
Registration Statement or the related Prospectus or any document incorporated
therein by reference or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities, the Prospectus will
not contain an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading;
(12) cause all Registrable Securities covered by any Registration
Statement to be listed on each securities exchange on which similar securities
issued by the Company are then listed, or cause such Registrable Securities to
be authorized for trading on the Nasdaq National Market if any similar
securities issued by the Company are then so authorized, if requested by the
holders of a majority of such Registrable Securities or the managing
underwriters, if any;
(13) provide a CUSIP number for all Registrable Securities, not
later than the effective date of the applicable Registration Statement;
(14) enter into such agreements (including an underwriting
agreement) and take all such other actions in connection therewith in order to
expedite or facilitate the disposition of such Registrable Securities and in
such connection, whether or not an underwriting agreement is entered into and
whether or not the Registration is an underwritten Registration (A) make such
representations and warranties to the holders of such Registrable Securities and
the underwriters, if any, in form, substance and scope as are customarily made
by issuers to underwritten in primary underwritten offerings; (B) obtain
opinions of counsel to the Company and updates thereof (which counsel and
opinions (in form, scope and substance) shall be reasonably satisfactory to the
managing underwriters, if any, and the holders of a majority of the Registrable
Securities being sold) addressed to each selling holder and the underwriters, if
any, covering the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably requested by
such holders and underwriters; (C) obtain "cold comfort") letters and updates
thereof from the Company's independent certified public accountants addressed to
the selling holders of Registrable Securities and the underwriters, if any, such
letters to be in customary form and covering matters of the type customarily
covered in "cold comfort" letters by underwriters in connection with primary
underwritten offerings; (D) if an underwriting agreement is entered into, the
same shall set forth in full the indemnification provisions and procedures set
forth in subsection (f) below with respect to all parties to be indemnified
pursuant to said subsection; and (E) the Company shall deliver such documents
and certificates as may be reasonably requested by the holders of a majority of
the Registrable Securities being sold and the managing underwriters, if any, to
evidence compliance with subsection 3(F) above and with any customary conditions
continued in the underwriting
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agreement or other agreement entered into by the Company. The above shall be
done at each closing under such underwriting or similar agreement or as and to
the extent required thereunder;
(15) make available for inspection by a representative of the
holders of a majority of the Registrable Securities, any underwriter
participating in any disposition pursuant to such Registration, and any attorney
or accountants retained by the sellers or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors and employees to supply all information
reasonably requested by any such representative, underwriter, attorney or
accountant in connection with such Registration Statement; PROVIDED, that any
records, information or documents that are designated by the Company in writing
as confidential shall be kept confidential by such Persons unless disclosure of
such records, information or documents is required by court or administrative
order or any regulatory body having jurisdiction;
(16) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make generally available to its
security holders, earnings statements satisfying the provisions of Section 11(a)
of the Act, no later than forty-five (45) days after the end of any 12-month
period (or ninety (90) days, if such period is a fiscal year) (A) commencing at
the end of any fiscal quarter in which Registrable Securities are sold to
underwriters in a firm or best efforts underwritten offering, or (B) if not sold
to underwriters in such an offering, beginning with the first month of the
Company's first fiscal quarter commencing after the effective date of the
Registration Statement, which statements shall cover said 12-month periods; and
(17) promptly prior to the filing of any document that is to be
incorporated by reference into any Registration Statement or Prospectus (after
initial filing of the Registration Statement), provide copies of such document
to counsel to the selling holders of Registrable Securities and to the managing
underwriters, if any, make the Company's representatives available for
discussion of such document and make such changes in such document prior to the
filing thereof as counsel for such selling holders or underwriters may
reasonably request.
The Company may require each seller of Registrable Securities as to
which any Registration is being effected to furnish to the Company such
information regarding such seller and the proposed distribution of such
securities as the Company may from time to time reasonably request in writing.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in subsection (3)(F) of this
subsection (c), such holder will forthwith discontinue disposition of
Registrable Securities pursuant to the Registration Statement until such
holder's receipt of copies of the supplemented or amended Prospectus as
contemplated by subsection (11) of this subsection (c), or until it is advised
in writing (the "Advice") by the Company that the use of the Prospectus may be
resumed, and has received copies of any additional or supplemental filings that
are incorporated by reference in the Prospectus, and, if so directed by the
Company,
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such holder will deliver to the Company (at the Company's expense) all copies,
other than permanent file copies then in such holder's possession, of the
Prospectus covering such Registrable Securities current at the time of receipt
of such notice. In the event the Company shall give any such notice, the time
periods referred to in subsection (2) of this subsection (c) shall be extended
by the number of days during the period from and including the date of the
giving of such notice to and including the date when each seller of Registrable
Securities covered by such Registration Statement shall have received the copies
of the supplemental or amended prospectus contemplated by subsection (11) of
this subsection (c) or the Advice.
(d) REGISTRATION EXPENSES. All expenses incident to the Company's
performance of or compliance with this Section 4 will be borne by the Company,
including, without limitation, all registration and filing fees, the fees and
expenses of the counsel and accountants for the Company (including the expenses
of any "cold comfort" letters), all other costs and expenses of the Company
incident to the preparation, printing and filing under the Act of the
Registration Statement (and all amendments and supplements thereto) and
furnishing copies thereof and of the Prospectus included therein, the costs and
expenses incurred by the Company in connection with the qualification of the
Registrable Securities under the state securities or "blue sky" laws of various
jurisdictions, the costs and expenses associated with filings required to be
made with the NASD, the costs and expenses of listing the Registrable Securities
for trading on a national securities exchange or authorizing them for trading on
the Nasdaq National Market and all other costs and expenses incurred by the
Company in connection with any Registration hereunder, PROVIDED, that, except as
otherwise provided in Section 4(e)(2) below, the Company shall not bear the
costs and expenses of any selling holders of Registrable Securities for
underwriters' commissions, brokerage fees, transfer taxes or the fees and
expenses of any counsel, accountants or other representative retained by any
selling holder of Registrable Securities.
(e) INDEMNIFICATION.
(1) INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify, to the full extent permitted by law, each Significant Holder, its
officers, directors and agents and each person who controls such Significant
Holder (within the meaning of the Act and the Exchange Act), against all losses,
claims, damages, liabilities and expenses caused by any untrue or alleged untrue
statement of a material fact contained in any Registration Statement, Prospectus
or preliminary Prospectus or any omission or alleged omission to state therein a
material fact necessary to make the statements therein (in the case of a
Prospectus or any preliminary Prospectus, in light of the circumstances under
which they were made) not misleading, except insofar as the same are caused by
or contained in any information with respect to such Significant Holder
furnished in writing to the Company by such Significant Holder or its
representative expressly for use therein. The Company will also indemnify
underwriters participating in the distribution, their officers and directors and
each person who controls such persons (within the meaning of the Act) to the
same extent as provided above with respect to the indemnification of the
Significant Holders; PROVIDED, HOWEVER, if pursuant to an underwritten public
offering of Registrable Securities, the Company and any underwriters enter into
an underwriting or purchase agreement relating to such offering that contains
provisions relating to
13
<PAGE> 14
indemnification and contribution between the Company and such underwriters, such
provisions shall be deemed to govern indemnification and contribution as between
the Company and such underwriters.
(2) INDEMNIFICATION BY HOLDERS OF REGISTRABLE SECURITIES. In
connection with any registration in which a Significant Holder is participating,
each such Significant Holder will furnish to the Company in writing such
information with respect to such Significant Holder as the Company reasonably
requests for use in connection with any Registration Statement or Prospectus and
agrees to indemnify, to the full extent permitted by law, the Company, the
directors and officers of the Company signing the Registration Statement, each
person who controls the Company (within the meaning of the Act and the Exchange
Act), and all underwriters participating in the distribution against any losses,
claims, damages, liabilities and expenses resulting from any untrue statement of
a material fact or any omission to state a material fact required to be stated
therein or necessary to make the statements in the Registration Statement or
Prospectus or preliminary Prospectus (in the case of the Prospectus or any
preliminary Prospectus, in light of the circumstances under which they were
made) not misleading, to the extent, but only to the extent, that such untrue
statement or omission is contained in any information with respect to such
Significant Holder so furnished in writing by such Significant Holder or its
representative specifically for inclusion therein. In no event shall the
liability of any Significant Holder hereunder be greater in amount than the
dollar amount of the proceeds received by such Significant Holder upon the sale
of the Registrable Securities giving rise to such indemnification obligation.
The Company shall be entitled to receive indemnities from underwriters, selling
brokers, dealer managers and similar securities industry professionals
participating in the distribution, to the same extent as provided above with
respect to information with respect to such persons or entities so furnished in
writing by such persons or entities or their representatives specifically for
inclusion in any Prospectus or Registration Statement.
(3) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person or entity
entitled to indemnification hereunder will (i) give prompt written notice to the
indemnifying party after the receipt by the indemnified party of a written
notice of the commencement of any action, suit, proceeding or investigation or
threat thereof made in writing for which such indemnified party will claim
indemnification or contribution pursuant to this Agreement; PROVIDED, HOWEVER,
that the failure of any indemnified party to give notice as provided herein
shall not relieve the indemnifying party of its obligations under the preceding
clauses (1) and (2), except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest may exist between
such indemnified and indemnifying parties with respect to such claim, permit
such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. Whether or not such defense is
assumed by the indemnifying party, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent will
not be unreasonably withheld). No indemnifying party will be required to consent
to the entry of any judgment or to enter into any settlement that does not
include as a unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a
14
<PAGE> 15
release from all liability in respect of such claim or litigation. An
indemnifying party who is not entitled to, or elects not to, assume the defense
of a claim will not be obligated to pay the fees and expenses of more than one
counsel in any one jurisdiction for all parties indemnified by such indemnifying
party with respect to such claim, unless in the reasonable judgment of any
indemnified party a conflict of interest may exist between such indemnified
party and any other of such indemnified parties with respect to such claim, in
which event the indemnified party shall be obligated to pay the fees and
expenses of such additional counsel or counsels.
(4) CONTRIBUTION. If for any reason the indemnification provided
for in the preceding clauses (1) and (2) is unavailable to an indemnified party
as contemplated by the preceding clauses (1) and (2), then the indemnified party
in lieu of indemnification shall contribute to the amount paid or payable by the
indemnified party as a result of such loss, claim, damage, liability or expense
in such proportion as is appropriate to reflect not only the relative benefits
received by the indemnified party and the indemnifying party, but also the
relative fault of the indemnified party and the indemnifying party, as well as
any other relevant equitable considerations, provided that no Significant Holder
shall be required to contribute in an amount greater than the difference between
the net proceeds received by such Significant Holder with respect to the sale of
any Shares and all amounts already contributed by such Significant Holder with
respect to such claims, including amounts paid for any legal or other fees or
expenses incurred by such Significant Holder.
(f) RULE 144. The Company agrees that all times after it has filed
a registration statement pursuant to the requirements of the Act relating to any
class of equity securities of the Company, it will file in a timely manner all
reports required to be filed by it pursuant to the Act and the Exchange Act.
Notwithstanding the foregoing, the Company may deregister any class of its
equity securities under Section 12 of the Exchange Act or suspend its duty to
file reports with respect to any class of its securities pursuant to Section
15(d) of the Exchange Act if it is then permitted to do so pursuant to the
Exchange Act and the rules and regulations thereunder.
(g) PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Significant
Holder may participate in any underwritten registration hereunder unless such
Significant Holder (i) agrees to sell its Registrable Securities on the basis
provided in any underwriting in any underwriting arrangements approved by the
persons entitled hereunder to select the underwriter pursuant to subsections
(3)(a)(3) and (3)(b)(4) above, and (ii) accurately completes in a timely manner
and executes all questionnaires, powers of attorney, underwriting agreements,
custody agreements and other documents customarily required under the terms of
such underwriting arrangements.
(h) DEFINITION OF REGISTRABLE SECURITIES. "Registrable Securities"
means the Shares held by the Significant Holders as of the date this Agreement
or hereafter acquired, but with respect to any such Share, only until such time
as such Share (i) has been effectively registered under the Act and disposed of
in accordance with the Registration Statement covering it or (ii) is permitted
to be sold to the public pursuant to Rule 144(k) (or any similar provision then
in force which does not impose volume limitations on resale of the Registrable
Securities) under the Act.
15
<PAGE> 16
(i) AMENDMENTS AND WAIVERS. The provisions of this Section 4,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers of or consents to departures from the provisions
hereof may not be given unless approved by the Company in writing and the
Company has obtained the written consent of Significant Holders holding at least
a majority of the then outstanding Registrable Securities. Notwithstanding the
foregoing, any amendment, waiver or consent that materially and adversely
affects any of the Shareholders as a group or Dresher is a group differently
from the other groups shall require the prior written approval of the holders of
at least a majority of the Shares then held by all members of the group so
affected. This Agreement may be amended, modified, waived or supplemented only
by a written instrument executed by all the parties hereto that are required to
execute the same. No action taken pursuant to this Agreement, including, without
limitation, any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action. The waiver by any party
hereto of a breach of any provision of this Agreement shall not operate or be
construed as waiver of any preceding or succeeding breach and no failure by any
party to exercise any right or privilege hereunder shall be deemed a waiver of
such party's rights or privileges hereunder or shall be deemed a waiver of such
party=s rights to exercise the same at any subsequent time or times hereunder.
Section 5. MISCELLANEOUS.
(a) SUCCESSORS, ASSIGNS AND TRANSFEREES. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
legal representatives, heirs, legatees, successors and assigns including any
party to which any Significant Holder has transferred or sold his or its Shares.
Each transferee of Shares from a Significant Holder shall take such Shares
subject to the same restrictions as existed in the hands of the transferor.
Shares sold to the public pursuant to an effective Registration Statement shall
no longer be subject to any of the provisions of this Agreement. Notwithstanding
the foregoing, the rights granted to the holders of the Registrable Securities
under Section 4 hereof shall not be transferable by the Significant Holders
(other than the Dresher Group).
(b) SPECIFIC PERFORMANCE, ETC. The Company and the Shareholders and
Dresher, in addition to being entitled to exercise all rights provided herein,
in the Company's Certificate of Incorporation or granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement. The parties hereto agree that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by it of
the provisions of this Agreement and hereby agree to waive the defense in any
action for specific performance that a remedy at law would be adequate.
(c) NOTICES. All notices and other communications provided for or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if delivered personally, when transmitted by telecopy, electronic or
digital transmission method, or sent by registered or certified mail (return
receipt requested) postage prepaid to the parties at the following addresses (or
at such other address for any party as shall be specified by like notice,
16
<PAGE> 17
provided that notices of a change of address shall be effective only upon
receipt thereof). Notices sent by mail shall be effective five days after
mailing.
(i) If to the Company, at:
Unidata, Inc.
1099 18th Street, Suite 2500
Denver, CO 80202
Attention: Harold Nussenfeld, Esq.
Fax: (303) 293-8880
with copies to:
Latham & Watkins
633 West Fifth Street
Suite 4000
Los Angeles, CA 90071
Attention: Gary Olson, Esq.
Fax: (213) 891-8763
(ii) If to the Shareholders, at:
Neill Miller
Level 18 Plaza II
500 Oxford Street
Bondi Junction, NSW 2022
Sydney, Australia
Fax: 011 61-2-387-4784
with copies to:
Morris, Manning & Martin, L.L.P.
1600 Atlanta Financial Center
3343 Peachtree Road, N.E.
Atlanta, GA 30326
Attention: Charles R. Beandrot, Jr., Esq.
Fax: (404) 365-9532
(iii) If to Dresher, at:
James T. Dresher
1339 E. MacPahil Road
Bel Air, MD 21015
Fax: (410) 879-6997
17
<PAGE> 18
(e) RECAPITALIZATIONS, EXCHANGE, ETC. AFFECTING THE COMPANY'S
STOCK. The provisions of this Agreement shall apply, to the full extent set
forth herein with respect to the Common Stock, to any and all shares of capital
stock of the company or any successor or assign of the Company (whether by
merger, consolidation, sale of assets, or otherwise) that may be issued in
respect of, in exchange for, or in substitution of the Common Stock and shall be
appropriately adjusted for any stock dividends, splits, reverse splits,
combinations, recapitalizations and the like occurring after the date hereof.
(f) INSPECTION. Copies of this Agreement will be available for
inspection or copying by any Significant Holder at the offices of the Company.
(g) TERMINATION. This Agreement shall terminate and cease to be of
any further force or effect on the tenth anniversary of the date hereof.
(h) APPLICABLE LAW. This Agreement shall be construed, interpreted
and the rights of the parties determined in accordance with the laws of the
State of Colorado without reference to any choice of law rules that would
require the application of the laws of any other jurisdiction.
(i) ATTORNEY-IN-FACT. With respect to all matters pertaining to
this Agreement, Dresher and the Company shall rely upon the Attorney-in-Fact
designated pursuant to the Attorney-in-Fact Agreement executed pursuant to the
Purchase Agreement and the actions of the Attorney-in-Fact with respect to
provisions hereof shall be binding upon the Shareholders in all respects.
(j) SEVERABILITY. The provisions of this Agreement are severable,
and if any clause or provision shall be held invalid or unenforceable in whole
or in part in any jurisdiction, then such invalidity or unenforceability shall
affect only such clause or provision, or part thereof, in such jurisdiction and
shall not in any manner affect such clause or provision in any other
jurisdiction, or any other clause or provision of this Agreement in any
jurisdiction.
(k) INTERPRETATION. Time is of the essence of each provision of
this Agreement of which time is an element.
(l) HEADINGS DESCRIPTIVE. The headings in this Agreement are for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose or be given any substantive effect.
(m) ENTIRE AGREEMENT. This Agreement is intended by the parties as
a final expression of their agreement with respect to the subject matter hereof
and is intended as a complete and exclusive statement of the terms and
conditions thereof.
18
<PAGE> 19
(n) SERVICE OF PROCESS; CONSENT TO JURISDICTION.
(1) SERVICE OF PROCESS. Each party hereto irrevocably consents
to the service of any process, pleading, notices or other papers by the mailing
of copies thereof by registered, certified or first class mail, postage prepaid,
to such party at such party's address set forth herein, or by any other method
provided or permitted under Colorado law.
(2) CONSENT AND JURISDICTION. Each party hereto irrevocably and
unconditionally (A) agrees that any suit, action or other legal proceeding
arising out of this Agreement may be brought in the United States District Court
for the District of Colorado or, if such court does not have jurisdiction or
will not accept jurisdiction, in any court of general jurisdiction in the County
of Denver, Colorado; (B) consents to the jurisdiction or any such court in any
such suit, action or proceeding; and (C) waives any objection which such party
may have to the laying of venue of any such suit, action or proceeding in any
such court.
(o) ARBITRATION. In the event that there shall be a dispute among
the parties arising out of or relating to this Agreement, or the breach thereof,
the parties agree that such dispute shall be resolved by final and binding
arbitration in Denver, Colorado, administered by the American Arbitration
Association in accordance with its International Arbitration Rules. Any award
issued as a result of such arbitration shall be final and binding between the
parties thereto and shall be enforceable by any court having jurisdiction over
the party against whom enforcement is sought. The fees and expenses of such
arbitration (including reasonable attorney's fees) or any action to enforce an
arbitration award shall be paid by the party that does not prevail in such
arbitration. Notwithstanding anything to the contrary herein, nothing shall
prevent any party from seeking equitable relief, in the event of a breach or a
threatened breach of any provisions of this Agreement, in a court of competent
jurisdiction without the need to first seek arbitration.
(p) ATTORNEY'S FEES. In any action or proceeding brought to enforce
any provision of this Agreement, or where any provision hereof is validly
asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees in addition to any other available remedy.
(q) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
together constitute one and the same agreement.
(r) REGISTRATION RIGHTS GRANTED TO INSTITUTIONAL INVESTORS. The
parties hereto acknowledge receipt of a draft Registration Rights Agreement
dated November 9, 1995 (the executed version of which is referred to herein as
the Institutional Registration Rights so long as it is substantially in the form
of such draft) pursuant to which the Company proposes to grant certain Piggyback
and Demand Registration Rights and Tag-Along Rights to Mass Mutual and certain
of its affiliates (the "Institutional Investors"). The parties hereby agree to
be bound by the terms thereof and further agree that with respect to Demand
Registrations effected pursuant
19
<PAGE> 20
to this Agreement, the Institutional Investors shall be deemed to be significant
Holders and shall be entitled to the piggyback registration rights granted to a
Significant Holder pursuant to Section 4(a)(1).
20
<PAGE> 21
[SIGNATURE PAGE TO SHAREHOLDER AGREEMENT]
IN WITNESS WHEREOF, the parties have executed this Shareholder
Agreement as of the date first above written.
Executed by UNIDATA, INC. :/s/ DAVID BRUNEL
-----------------------
Name: David Brunel
Its: President
in the presence of: :Harold Nassenfeld
(Witness) :/s/ HAROLD NUSSENFELD
-----------------------
Signatory
ACCEPTED AND AGREED TO:
Executed by SYSTEM BUILDER
CORPORATION LIMITED :/s/ NEILL B. MILLER
------------------------
Name: Neill B. Miller
Its: Director
in the presence of: :Colin Rogoff
(Witness) :/s/ COLIN ROGOFF
------------------------
Signatory
21
<PAGE> 22
Executed by INTEGRO FIDUCIAIRE SARL,
as trustee (and in no other capacity) :/s/ [ILLEGIBLE]
-----------------------
Director
in the presence of: :
-----------------------
(Witness) :/s/ M. HARRISON
-----------------------
Signatory
Executed by JURGEN JOARDER :/s/ JURGEN JOARDER
in the presence of: :Colin Rogoff
(Witness) :/s/ COLIN ROGOFF
-----------------------
Signatory
Executed by MIKE KONTOROVICH :/s/ MIKE KONTOROVICH
in the presence of: :Colin Rogoff
(Witness) :/s/ COLIN ROGOFF
-----------------------
Signatory
22
<PAGE> 23
Executed by CAROL MCINTOSH :/s/ CAROL MCINTOSH
-----------------------
in the presence of: :Colin Rogoff
(Witness) :/s/ COLIN ROGOFF
-----------------------
Signatory
Executed by JAMES T. DRESHER :/s/ JAMES T. DRESHER
in the presence of: :
-----------------------
(Witness) :/s/ ROBIN D. TOWNER
-----------------------
Signatory
23
<PAGE> 24
EXHIBIT 1
SIGNIFICANT HOLDERS
John G. Akers
David W. Brunel
Jeanne D. Butcher
James T. Dresher
James T. Dresher, Jr.
Jeffrey M. Dresher
Bruce D. Fraser
Honor Guiney
Arlene Lacharite
Virginia D. Meoli
Harold Nussenfeld
Allan Snell
John F. Schaefer
Martin T. Hart
Gary Olson
Glenangus Holdings Corp.
Integro Fiduciary SARL
System Builder Corporation
Massachusetts Mutual Life Insurance Company
Mass Mutual Corporate Investors
Mass Mutual Participation Investors
Mass Mutual Corporate Value Partners Limited
24
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES
Ardent Software Pty. Ltd.
North Sydney, NSW
AUSTRALIA
Unidata Asia Pacific Pty. Ltd.
North Sydney, NSW
AUSTRALIA
VMARK Software Canada Company
Pickering, Ontario
CANADA
Unidata Canada, Ltd.
Pickering, Ontario
CANADA
Ardent Software Ltd.
High Wycombe, Bucks
UNITED KINGDOM
Ardent Software Europe SA
Boulogne
FRANCE
Unidata France SA
Boulogne
FRANCE
O2 Technology SA
Versailles
FRANCE
VMARK Software GmbH
Stuttgart
GERMANY
Easel Japan K.K.
Meguro-ku, Tokyo
JAPAN
VMARK Software Africa Pty. Ltd.
Parktown
SOUTH AFRICA
VMARK Canada, Inc.
VMARK Holding Corp.
<PAGE> 1
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-49022, No. 33-64566, No. 33-80372, No. 33-85806, and 333-00218 of our report
dated January 23, 1998, appearing in the Annual Report on From 10-K of Ardent
Software, Inc. (formerly VMARK Software, Inc.) for the year ended December 31,
1997.
/s/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
Boston, Massachusetts
March 28, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS APPEARING IN THE FORM 10-K TO WHICH
THIS SCHEDULE IS AN EXHIBIT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 23,224,000
<SECURITIES> 0
<RECEIVABLES> 11,353,000
<ALLOWANCES> 1,530,000
<INVENTORY> 0
<CURRENT-ASSETS> 36,809,000
<PP&E> 21,097,000
<DEPRECIATION> 8,923,000
<TOTAL-ASSETS> 57,646,000
<CURRENT-LIABILITIES> 15,317,000
<BONDS> 0
0
0
<COMMON> 85,000
<OTHER-SE> 33,446,000
<TOTAL-LIABILITY-AND-EQUITY> 57,646,000
<SALES> 31,494,000
<TOTAL-REVENUES> 57,554,000
<CGS> 3,961,000
<TOTAL-COSTS> 16,639,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 238,000
<INTEREST-EXPENSE> 1,025,000
<INCOME-PRETAX> 5,184,000
<INCOME-TAX> 1,800,000
<INCOME-CONTINUING> 3,384,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,384,000
<EPS-PRIMARY> .41
<EPS-DILUTED> .40
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS APPEARING IN THE FORM 10-Q TO WHICH
THIS SCHEDULE IS AN EXHIBIT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-28-1997
<EXCHANGE-RATE> 1
<CASH> 21,038,000
<SECURITIES> 0
<RECEIVABLES> 10,539,000
<ALLOWANCES> 1,829,000
<INVENTORY> 0
<CURRENT-ASSETS> 35,516,000
<PP&E> 20,937,000
<DEPRECIATION> 8,302,000
<TOTAL-ASSETS> 57,400,000
<CURRENT-LIABILITIES> 16,718,000
<BONDS> 0
0
0
<COMMON> 85,000
<OTHER-SE> 31,746,000
<TOTAL-LIABILITY-AND-EQUITY> 57,400,000
<SALES> 23,218,000
<TOTAL-REVENUES> 42,531,000
<CGS> 2,968,000
<TOTAL-COSTS> 12,681,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 17,000
<INTEREST-EXPENSE> 796,000
<INCOME-PRETAX> 2,935,000
<INCOME-TAX> 1,115,000
<INCOME-CONTINUING> 1,820,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,820,000
<EPS-PRIMARY> .22
<EPS-DILUTED> .21
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS APPEARING IN THE FORM 10-Q TO WHICH
THIS SCHEDULE IS AN EXHIBIT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-29-1997
<EXCHANGE-RATE> 1
<CASH> 19,215,000
<SECURITIES> 0
<RECEIVABLES> 11,339,000
<ALLOWANCES> 1,920,000
<INVENTORY> 0
<CURRENT-ASSETS> 35,033,000
<PP&E> 20,888,000
<DEPRECIATION> 7,908,000
<TOTAL-ASSETS> 57,154,000
<CURRENT-LIABILITIES> 18,052,000
<BONDS> 0
0
0
<COMMON> 84,000
<OTHER-SE> 30,113,000
<TOTAL-LIABILITY-AND-EQUITY> 57,154,000
<SALES> 15,900,000
<TOTAL-REVENUES> 28,761,000
<CGS> 11,965,000
<TOTAL-COSTS> 8,749,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 377,000
<INTEREST-EXPENSE> 563,000
<INCOME-PRETAX> 1,543,000
<INCOME-TAX> 587,000
<INCOME-CONTINUING> 956,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 956,000
<EPS-PRIMARY> .12
<EPS-DILUTED> .11
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS APPEARING IN THE FORM 10-Q TO WHICH
THIS SCHEDULE IS AN EXHIBIT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-30-1997
<EXCHANGE-RATE> 1
<CASH> 15,225,000
<SECURITIES> 0
<RECEIVABLES> 13,204,000
<ALLOWANCES> 1,815,000
<INVENTORY> 0
<CURRENT-ASSETS> 33,428,000
<PP&E> 20,597,000
<DEPRECIATION> 7,219,000
<TOTAL-ASSETS> 56,189,000
<CURRENT-LIABILITIES> 17,988,000
<BONDS> 0
0
0
<COMMON> 84,000
<OTHER-SE> 29,159,000
<TOTAL-LIABILITY-AND-EQUITY> 56,189,000
<SALES> 7,242,000
<TOTAL-REVENUES> 13,721,000
<CGS> 1,048,000
<TOTAL-COSTS> 4,448,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 216,000
<INTEREST-EXPENSE> 323,000
<INCOME-PRETAX> 492,000
<INCOME-TAX> 187,000
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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0
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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0
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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